Earnings Call Transcript
RENAISSANCERE HOLDINGS LTD (RNR)
Earnings Call Transcript - RNR Q1 2022
Operator, Operator
Good day and thank you for standing by. Welcome to the RenaissanceRe's Q1 Earnings Results Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to hand the conference over to Keith McCue, SVP Finance Investor Relations. Thank you. Please go ahead.
Keith McCue, SVP Finance Investor Relations
Good morning. Thank you for joining our first-quarter financial results conference call. Yesterday after the market closed, we issued our quarterly release. If you didn't receive a copy, please call me at 4441-239-4830 and we will make sure to provide you with one. There will be an audio replay of the call available from about 2:00 PM Eastern time today through midnight on June 4th. The replay can be accessed by dialing 855-859-2056 U.S. toll free or 1-404-537-3406 internationally. The passcode you will need for both numbers is 7549718. Today's call is also available through the Investor Information section of www.renre.com and will be archived on RenaissanceRe's website through midnight on June 4th, 2022. Before we begin, I am obliged to caution that today's discussion may contain forward-looking statements and actual results may differ materially from those discussed. Additional information regarding the factors shaping these outcomes can be found in RenaissanceRe's SEC filings to which we direct you. With us to discuss today's results are Kevin O'Donnell, President and Chief Executive Officer, and Robert Qutub, Executive Vice President and Chief Financial Officer. I'd now like to turn the call over to Kevin.
Kevin O’Donnell, CEO
Thanks, Keith. Good morning, everyone. And thank you for joining today's call. Last night, we reported solid top-line growth at an annualized operating return on average common equity of 11%. This is a good start to the year and the second quarter in a row of reporting double-digit operating ROE during active CAT quarters. As I've discussed with you, over the last ten years, we have made key strategic decisions to build the capabilities and scale that we think are needed to generate superior returns in an evolving marketplace. This has included carefully growing our casualty and specialty business, developing leadership and other property underwriting, maintaining our leadership in property CAT, and continuing to be trusted partners for capital while growing our fee-generating businesses. As a result, we have built one of the world's largest reinsurance businesses to where we now manage about $8 billion in gross written premium, with about 650 employees. This has allowed us to build considerable assets, premium and operational leverage. And we continue to invest in internal initiatives to make us more effective and efficient as we scale. We're announcing the benefit of these strategic decisions across each of our three drivers of profit and believe our financial results should continue to improve over the course of the year. I would like to begin my comments by explaining why our prospects are increasingly bright. Across the P&C industry, we're seeing reinsurers increasingly step back from risk. We, on the other hand, have never been more confident in positioning as a lead reinsurer, both in casualty and specialty as well as in property. We believe that the pullback by competitors in the reinsurance market, particularly in property CAT risk, will inure to our benefit. Starting with our casualty and specialty business, which constitutes about 60% of our net premiums written for the quarter, we intentionally, but carefully began building this segment during a more challenging phase of the market, constructing a portfolio with embedded options for growth. For the last three years, we have accelerated this growth into an improving market. In the first quarter of 2022, net premiums were up nearly 3.5 times from the same quarter in 2019. As a consequence, we believe our Casualty business will be a significant tailwind to our earnings. Profitability on this book continues to improve. And the leverage it provides our investment portfolio will be increasingly valuable in a rising interest rate environment. This quarter, we also introduced a new strategic dimension to the Casualty business. Our most recent joint venture, Fontana. Fontana is the first fund that is 100% dedicated to writing casualty and specialty risks, including long-tail lines. It continues our track record of innovation and reflects robust external validation of both the market leadership we have built in Casualty Specialty, as well as our recognition as a leading manager of partner capital across multiple risk classes. We are unique among our peers as we're the only reinsurer that is both owned and managed, rated, and fronted at scale vehicles for every class of risks that we write. In our Casualty business, we're now employing the same strategy that for 20 years we successfully deployed in our property business. Fontana delivers significant benefits to our stakeholders. For customers, it helps us to be broader and a deeper partner by providing long-term capital that allows us further flexibility to grow our casualty and specialty business and bring additional capacity to dislocated markets. For our capital partners, it gives investors direct access to market-leading underwriting and claims management through a whole account quota share of our casualty and specialty businesses. And for our shareholders, it reduces volatility and furthers our strategic aim of monetizing our competitive advantage in underwriting by trading underwriting risk for fee income. I believe the strategic choices we have made in the last decade make us uniquely capable of bringing a solution such as Fontana to the market. For example, we built the underwriting infrastructure necessary to source attractive casualty and specialty risk and underwrite profitably. We have 40 underwriters in this segment, many with decades of experience, as well as strong relationships with the largest and most prominent insurance companies. Equally important, we have built a robust casualty specialty claims infrastructure, which is vital to managing the life cycle of the Casualty business. Our underwriting focus also distinguishes Fontana from other investment-centered vehicles as its return primarily derives from underwriting profit, not investment return. None of the competitive advantages we bring to Fontana can be quickly or cheaply replicated by third-party capital, providing investors the confidence they need to invest in long-tail lines and the liquidity they will ultimately desire to efficiently exit, which creates a deep and sustainable moat around this business. Moving now to property. While we have evolved as a broadly diversified writer of property and casualty business, we have remained steadfast in our commitment to underwriting catastrophe risk. Our deep institutional knowledge in this area is a critical component of who we are as RenaissanceRe and the value that we bring our shareholders, both directly through underwriting income and through the fees that we earn managing risks in our capital partners' business. In contrast, the overall trend in the P&C reinsurance market has been an increasing reticence to accept catastrophe volatility at any price. For example, third-party capital in this space continues to contract. Previously independent reinsurers have been absorbed into larger, more risk-averse organizations. Large carriers are cutting back on their reinsurance business and few recent startups are focusing on writing reinsurance. Our willingness to accept volatility is increasingly valuable. As the level of catastrophe risk in the world continues to grow, climate change and its amplification of the frequency and severity of natural disasters is a well-known phenomenon. European windstorms, Australian floods, and Midwest tornadoes once again reminded our customers of the threat of climate change and the value of the protection we offer to them and to society more broadly. So, while volatility is increasing, there are smaller numbers of reinsurers willing to help clients manage it. We distinguish ourselves by continuing to support our customers, maintaining a strong appetite for property CAT risk, and the ability to profitably underwrite business that clears our pricing rates. Our decades of experience and industry-leading understanding of volatility place us in a preferred position through pricing to manage the risk of loss from climate change, and we remain comfortable accepting CAT risk. This is due to our strength in modeling, which has been a core component of our strategy since we formed almost 30 years ago. We frequently update our models as part of a regular incremental process, to which we have committed considerable resources. This provides several competitive advantages. First, we're not dependent on vendor models, where changes tend to be less frequent and more acute. Second, we're better able to anticipate and understand trends, giving us greater comfort in a rapidly changing environment and making us less inclined to pull back from this risk class. Climate change has long been part of our view of risk. This quarter, with the expertise of RenRe and Risk Sciences, we further updated our North Atlantic hurricane model to reflect our view of increased risk from the impacts of climate change, as well as rising social and economic inflation. Closely related to our long-term strategic decision to be a leader in catastrophe reinsurance, is our commitment to addressing climate change as part of this strategy. As I wrote in my most recent letter to shareholders, anthropogenic climate change is both an existential threat to the planet and a significant risk to our industry. And we believe that RenRe bears the responsibility of being part of this solution. As part of this, we need to recognize the potential threats of climate change through our underwriting results and our investment performance, as well as the opportunities we have to provide protection in an increasingly risky world. And further into these objectives, this quarter we took several steps to advance our response to climate change. First, I was delighted to accept a role of Chair of ClimateWise. This is an organization that brings together insurers, reinsurers, brokers, and industry service providers to promote a systematic response to climate change across the financial sector in cooperation with the University of Cambridge Institute for Sustainability Leadership. In this role, I will be working closely with leaders across our industry to further our response to climate change. In addition, we appointed one of our most experienced property underwriters as Global Head of Climate and Sustainability Strategy. We believe that while climate change is a risk that needs to be managed, it also brings opportunities across our business. This role will be focused on designing, executing, and coordinating our climate and sustainability underwriting strategy across both property and casualty, which includes new product development to respond to emerging underwriting opportunities. I would now like to take a minute to address inflation specifically which has become more significant as of late. For us, inflation is both a headwind and a tailwind and cannot be viewed exclusively as good or bad. Rather, it needs to be anticipated and adjusted for. The obvious downside to inflation is the impact it has on our loss costs, more acutely in property where the confluence of social inflation, commodity inflation, and economic inflation can intersect to materially amplify industry losses. Frankly, this is not new as there is always inflation after a large event, which means we have deep experience modeling inflation of all types and are regularly updating our models to reflect anticipated conditions. Inflation can also impact casualty and specialty, which has been experiencing loss cost inflation for several years due to elevated court verdicts. As a result, we're familiar with inflation's impacts and have the ability to capture and price for it. On the opportunity side, inflation is often correlated with both higher interest rates and insurance rates. We are enjoying significant amounts of both, which will benefit our results this year despite experiencing some mark-to-market losses this quarter. So inflationary environments are both an opportunity and a threat, but we have deep expertise in managing the threat and anticipate material benefits from the opportunity. In summary, due to growing volatility, I believe that the reinsurance market has greater relevance now than at any time in recent history. Climate change and other large recent losses have increased awareness of systemic risk. At the same time, many reinsurers have reduced their appetite for volatility. Consequently, we are in an excellent position to execute our strategy in a strong market. I anticipate that we will continue to grow our top-line, albeit at a slower pace than the last several years, and more importantly, improving underwriting profitability. That concludes my opening comments. I'll provide a more detailed update on our segment performance at the end of the call. But first, Bob will discuss our financial performance for the quarter.
Robert Qutub, CFO
Thanks, Kevin, and good morning, everyone. This quarter we continued to demonstrate the power of our platform reporting operating income of $152 million and an annualized operating return on average common equity of 10.8%. We had underwriting income of $200 million generating profits across both segments and a very attractive quarter. Looking forward to the end of 2022, we expect improvements in each of our three drivers of profit, which should increasingly benefit our financial results as the year progresses, making them more resilient to natural catastrophe volatility. First, we expect our net investment income to benefit from rising interest rates and increased investment leverage. Our retained investment leverage, defined as the ratio of our retained fixed maturity and short-term investments portfolio to common equity is about 2.3 times. This means that a 100 basis point increase in our retained yield will generate about 230 basis points of incremental operating return on equity over time. As long as rates continue to rise, we anticipate that investment earnings will be a greater contributor to operating ROE. Second, the Casualty and Specialty business continues to improve and we believe that it can produce a mid-90s combined ratio on a growing premium base. Finally, we expect income to improve over the course of the year and anticipate we should be earning in the range of $45 million per quarter by year-end, absent any large losses. This improvement reflects normalization of performance fees in DaVinci and the launch of our new vehicle, Fontana. With these tailwinds, you can understand why I'm so confident about the strategic decisions that we have made and the earnings power of our business. Today, I'll cover these points in more detail in addition to our capital management activities and expenses. I will also provide an update on our engagement with S&P and their proposed model changes. Starting with capital management, we remain in a strong capital position with excess capital in the upper end of our targeted range. As I've discussed in the past, we target an excess capital buffer that supports our ability to execute our strategy, allowing us to take advantage of underwriting and investment opportunities. In support of this, during the quarter, we repurchased 577,000 shares for $93 million at an average share price of $162. With a long history of being good stewards of capital, we will remain consistent in our approach to capital management. Our first priority is to deploy capital into the business and second, to return the excess to shareholders. We anticipate having the ability to do both in the second quarter. I'll now shift to our three drivers of profit starting with underwriting income where this quarter we grew gross premiums written by 11% and net written premiums by 19%. This growth was driven by the Casualty segment as property reduced on both a gross and a net basis. Our combined ratio of 87% included 7 percentage points from the weather-related large losses and 2 percentage points from the Russia - Ukraine war. For our property segment specifically, we reported a combined ratio of 70%, which included 17 percentage points from weather-related large losses. Gross premiums written declined by $273 million or 17%, while net premiums written declined by $118 million or 12%. As Kevin mentioned last quarter, we reduced Upsilon, our aggregate retro vehicle significantly at January 1st. The decrease in the size of Upsilon drove almost 2/3 of the decline in overall property gross premiums written, with the remainder related to lower reinstatement premiums and a reduction in other property. This reduction to Upsilon and lower reinstatement premiums mostly impacted property CAT with a cumulative decrease of $255 million in gross premiums rate. As a reminder, we only retain about 15% of Upsilon's premiums, so the reduction in Upsilon does not have a significant impact on net premiums. Property catastrophe net premiums written were down $58 million, but this included a $69 million decline in net reinstatement premiums and a decrease of $21 million for our portion of Upsilon. Adjusting for these items, net premiums written were up. Both gross and net premiums written for other property were down this quarter. As Kevin discussed two years ago, we have been re-underwriting the attritional part of the other property book. The decline in the quarter came from the non-renewal of quota share deals that were below our return hurdles. Last quarter, most of our growth in other property came from CAT exposed property. We find this business attractive and are continuing to see double-digit rate increases on our existing book. The other property current asset year loss ratio of 51% included losses of $15 million or four percentage points from the weather-related margin. The attritional portion of this book continues to improve due to our underwriting actions. Attritional losses have been running below 50% for the last five quarters, which is consistent with our expectations for this business. While the property did have three points of adverse development, it was primarily driven by late reported losses on the severe convective storms that occurred in December 2021. Finally, the overall property acquisition expense ratio increased by two percentage points to 20.5%, primarily related to a decrease in reinstatement premiums. Excluding the impact of reinstatement premiums, the property acquisition expense ratio was flat to the comparable quarter. And moving on to our casualty results, where we had another great quarter. Both gross and net premiums written were up over 50% of the $564 million in growth in gross premiums written. About 40% came from new deals and 34% came from growth in existing deals from expanded share or better-than-expected premiums. As I discussed last quarter, going forward, we believe the casualty book should produce a mid-90s combined ratio absent significant loss events. While the combined ratio for casualty was 98% this quarter, this included 3.1 percentage points or $27 million related to the war. We undertook a robust process to assess the potential direct and indirect impact of the war in our business. Kevin will discuss more about this from an underwriting perspective in his comments. On the investment side, we have no direct exposure to Russia or Ukraine with only minimal exposure to Eastern Europe. And moving on to our second driver of profit, fee income. As Kevin mentioned, we launched the new casualty and specialty joint venture, Fontana, in April. Fontana assumes a whole account quota share of our global casualty and specialty business and is a long-term strategic vehicle for us, providing another flexible form of capital to enhance our gross to net strategy while extending the suite of offerings available to our third-party capital partners. We launched Fontana with $475 million of capital committed, including $150 million from RenaissanceRe with the opportunity to raise additional capital and increase in scale over time. Fontana will be reported in our Q2 results and will be fully consolidated. It has both a management fee based on net premiums earned and a performance fee based on the underwriting performance of our casualty and specialty business, both of which will be recognized through non-controlling interests. Now moving onto our fee income for the quarter, which was $28 million, and performance fees continue to be negatively impacted by CAT events in 2021. Absent large loss events, we expect that it will take another quarter or two to recover the losses in DaVinci. And if that occurs, anticipate performance fees will normalize by the fourth quarter. Our most stable management fees were slightly lower than the comparative quarter, driven by a reduction in Upsilon construction reinsurance products, partially offset by an increase in the size of DaVinci. Overall this quarter, we shared $12 million of losses with partners in our joint ventures as reflected in our redeemable non-controlling interest. This result was primarily driven by $92 million of market-to-market and foreign exchange losses, which was mostly offset by strong operating income in our joint venture. Turning now to our third driver of profit, investment income. This quarter, financial markets experienced historic increases in U.S. interest rates, which resulted in $673 million in mark-to-market losses in our investment portfolio, $585 million of which were retained and impacted our net income. These losses stem from our fixed maturity portfolio and drove the difference between our net and operating income, as well as the decline in our tangible book value per common share. While these increasing interest rates had a short-term negative impact on our results, as I mentioned in the beginning of my comments, we believe that we will benefit meaningfully from increased yields and net investment income due to our relatively low duration portfolio. In March, we added some investment-grade corporate credit and public equity exposure to our portfolio and reduced duration slightly. We remain very comfortable with the composition of our investment portfolio and believe that it provides the liquidity we need to support our underwriting business. Turning briefly now to our expenses where our direct expense ratio, which is the sum of our operational and corporate expenses divided by net premiums earned, was 5.4%, which is slightly better than the comparable quarter. On an absolute basis, operational expenses were up in the quarter, but the operational expense ratio stayed largely flat at 4.6%. Then turning to an update on the S&P proposed model changes, our teams have been working closely evaluating the proposed criteria since it was first announced back in December. We have been engaging with our peers, industry trade groups, and S&P directly to understand the new model changes and also to provide constructive feedback as part of the comment process. Without a detailed model, it's difficult to quantify the impact of the proposed changes as certain aspects of the current proposal could benefit us and others could have a negative effect. Regardless of the final model, I'm comfortable with our position because we have a very strong balance sheet with low leverage. We also do not consider debt as underwriting capital and have many flexible forms of capital to manage our own balance sheet. Additionally, model changes in the past have actually created opportunities to sell more reinsurance CAT cover in particular. We continue to monitor this as well. So, in conclusion, I want to close with we are in a strong capital position with excess capital at the upper end of our targeted range, we generated profits in both our underwriting segments and a CAT exposed quarter. And looking forward, all three drivers of profit are poised to benefit from improving conditions. We expect net investment income to increase due to rising interest rates, our casualty business should generally produce a combined ratio of mid 90s on average, and our fee business continues to expand with Fontana and growth in DaVinci. In short, we believe our financial results should be increasingly attractive and resilient to natural catastrophe volatility. With that, I'll turn the call back over to Kevin.
Kevin O’Donnell, CEO
Thanks, Bob. As usual, I'll divide my comments between our Property and Casualty segments. Starting with Property, after January first, the first quarter of the year tends to be quiet for our property portfolio, marked by the for one renewal, which were orderly, as well as preparation for mid-year renewals. In the U.S., our other property business continues to do well, underlining rate momentum persists as insurers continue to withdraw capacity from the property E&S market. We have multiple competitive advantages in this space, including long-term relationships and advanced pricing systems and rated paper. At the January renewal, we continued to focus on the insurance component of the other property portfolio. If you recall, two years ago, I spoke about our strategic shift to increasingly focus this book on Property CAT risk from insurance E&S markets. This quarter, that ongoing shift resulted in a reduction of gross premiums written as we non-renewed less profitable attritional business. In property CAT, we continue to see double-digit rate increases in advance of the mid-year renewals. With respect to Florida, even with these rate increases, we are unlikely to increase offered limits at the June first renewal. Florida has a social inflation problem that can't be solved by rate because it is ultimately impossible to know how much to charge to cover fraud. It now also has a capacity problem due to reduced third-party capital appetite, limited retro availability, and severe financial distress at many domestic Florida insurers. We know this market well, and could be substantially more interested in taking additional risks if Florida's long-term structural problems were addressed. That said, over the last several years, we have steadily reduced our exposure to the Florida domestic homeowners' market and it now represents about 2.5% of our gross written premium. Consequently, the ultimate outcome of the Florida renewal is of diminishing consequence to us relative to several years ago. Moving now to a quick summary of the quarter's events. In Europe, Windstorm Eunice brought major hurricane-force wind gusts. Initial industry loss estimates are in the $2.2 billion to $3.3 billion range, likely making it one of the Top 5 costliest European windstorms. In Australia, a series of slow-moving low-pressure systems produced long intense rainfall and significant flooding in both Brisbane and Sydney. Initial industry loss estimates are around $2.5 billion to $3.3 billion, which is the largest flood loss on record in Australia. The quarter also saw events in Japan and the U.S. While neither of these events materially impacted our financial results, they contributed to the overall growing perception of natural catastrophe risk that continues to drive reinsurance pricing. Moving now to Casualty and Specialty, overall, this segment continues to demonstrate healthy underlying profitability. We expect this profitability to continue to grow in part due to ongoing rate increases driven by concerns over inflation. Our Casualty and Specialty strategy and where we take risk is constantly adapting to anticipated future conditions. Our underwriting tools give us the ability to determine where the best opportunities lie and grow individual lines or whole segments accordingly. Over the past few years, aided by the TMR acquisition, we grew general casualty and professional lines significantly as rate outpaced trend. As 2021 progressed, our focus increasingly shifted towards other specialty as market conditions began to improve considerably in these lines. This year, we expect specialty to continue to experience increased rate in part due to the Russia - Ukraine war. We also believe that we will find many opportunities to grow in financial lines. With respect to the Russia - Ukraine war, as Bob discussed, we booked about $27 million in IBNR for the quarter as a result of a robust process to assess the potential impact on our underwriting results. Our initial conclusion is that we have relatively minimal exposure to the war. To begin with, we do not expect material exposure in our property segment in part due to the widespread applicability of war exclusions. Additionally, exposure in traditional Casualty business also is likely not material. The most likely sources of exposure would be in our specialty and credit portfolios. Of course, this is an ongoing event and our reserves are subject to change. We will continue to work with our customers and brokers to monitor the impact. Thanks, and with that, I'll open it up for questions.
Operator, Operator
Please standby while we compile the Q&A roster. Your first question comes from Elyse Greenspan with Wells Fargo.
Elyse Greenspan, Analyst
Hi. Thanks. Good morning. My first question was just on the level of buyback. Last quarter you guys had said that buyback will be driven by net income. So, did the negative mark-to-market from the higher interest rates impact the slowdown in the quarter? Tying is it that I guess I was also a little surprised with the slowdown given that you said excess capital, right, remains at the top end of your range. So, I would think that would have supported perhaps more buyback activity in the quarter.
Robert Qutub, CFO
Thanks, Elyse. Good question. First, I'll start with we still are at the high end of our excess capital. We did reflect the mark-to-market that came through on the portfolio. We look at that as more timing as opposed to absolute. In the future what I was talking about, the rising interest rates are models on a pro forma basis. And so that's going to have the ability to look forward and actually look at the increasing rates that we'll get on the portfolio and bring that back into our capital. So, that's the support of our capital. Look, there was a lot of activity this quarter between inflation, between a war, and rising interest rates. We did start off the quarter and bought about $93 million back, and we just took a pause. We look at this on a quarterly basis. So, as we look forward into the second quarter, we're looking at a number of things where we can deploy capital. And actually, we already have in Fontana. We've got the ability to put $150 million to work there. We also have the ability to do both and we have the intent to look at both options that we have to deploy, both into the business and also return.
Elyse Greenspan, Analyst
Thank you. For my follow-up on last quarter, you mentioned that gross premiums in property would decline, while net premiums were expected to remain about the same, excluding reinstatement. It appears that there has been stronger growth in Casualty, but perhaps not as much in Property as previously indicated. How should we anticipate growth in both gross and net premiums within your property segment this year? Has anything changed regarding that guidance?
Robert Qutub, CFO
There has been really no change. What I was trying to point out is that we often focus on the gross figures, which is what I aimed to clarify in my comments about Upsilon and RenaissanceRe, and shift the focus to the net. When I examine the net premiums written off property, I see that catastrophe, which showed modest growth, reflects the rate and positioning of the portfolio. Over the past couple of years, we've experienced significant growth in other property. The decline in other property on a net basis, which was down about 17 points, was mainly about refining the profitability that Kevin has mentioned. Thus, we have not renewed some proportional lines on the quota share.
Kevin O’Donnell, CEO
That's accurate. Bob, and one thing you mentioned is anything changed in our view of property. If anything, we are increasingly seeing green shoots in further dislocation in pricing. So, if I think about how to underwrite our property portfolio, firstly, from growth perspective, Bob explained where we are. Over a couple of years, the growth has been strong and we've had the pendulum kind of swing over to the risk accumulation. As an underwriter, you need to think about when you want to focus on margin expansion and risk accumulation. We are swinging the pendulum towards margin expansion. So, on a like-for-like basis, all of our property is now producing more expected profit for the premium that we're bringing in. We think that's the right focus coming into what is coming up for renewal is largely going to be wind exposed business. We liked the construct of the portfolio, but we're going to press rate. So, I still have optimism that we're going to see opportunities for growth from rate and largely within expectations of where pricing is likely to be will hold the risk curves relatively flat to where we were last year.
Elyse Greenspan, Analyst
Okay. Thanks for the color.
Yaron Kinar, Analyst
Thank you. Good morning, everybody. Maybe to follow up on Elyse's question because I'm not sure I fully understand the response regarding the buyback capacity for this year. So, if buybacks were going to be tied to net income and net income was actually a loss this quarter given the marks, do you still expect them to do buybacks over the course of the year? Do you expect this will lower buybacks as a result of that? Or is it that you are looking at the pro forma operating income benefits from higher interest rates that would still drive buyback?
Kevin O’Donnell, CEO
It's one of the points I was trying to make. And thanks for the follow-up on that for clarification. The point I was trying to make on the mark-to-market. Yes, indeed, we had absolute net income loss, but the point I was trying to make on the mark-to-market as we view a lot of that as more timing as opposed to absolute we will realize very small amounts of it. So, we're still looking at a positive base. We have the ability to buy back shares, and we have the ability to deploy capital, and we look at each quarter on a discrete basis.
Yaron Kinar, Analyst
So, conceptually, wouldn't it make sense to tie the buybacks to operating income then?
Robert Qutub, CFO
I don't want to get to disconnected because it's a net income that increases the capital and we have to look at what available capital is. And that was the point I was making when I said we did take a hit on the capital to the mark-to-market, but we have to look forward to the investment earnings going forward. It's a balance in a situation like this. This was a lot of activities this quarter and we took a break; that doesn't mean we didn't stop.
Kevin O’Donnell, CEO
We're not formulaic on our buybacks; we are looking at lots of different things. And one thing Bob had mentioned is buying back is a way for us to manage excess capital. Our first priority is to deploy capital into the business and we invested significantly in Fontana. We think Fontana provides long-term strategic advantages to us in managing our casualty business. Again, beyond this share buyback, we did invest more in building out the platform.
Yaron Kinar, Analyst
Okay. Got it. And then my second question is of higher level. Kevin, in your comments sounds like you’re so confident in being in the property CAT business, more so than many of your peers. That's because you are also scaling back a little bit in property, just not to the extent we're seeing in others. And I guess my question would be, does that essentially mean that you're comfortable with having higher volatility over the long run, even with higher ROE and even with recognition that maybe the investment community seems to be a bit more negative on such volatility in underwriting results? Even with a higher ROE?
Kevin O’Donnell, CEO
Yeah. I think you're thinking about it in the right lens. There's two degrees. I believe there's more rate coming in property. I also believe we have more skills, more access, and more vehicles to think about how to construct property portfolios and specifically property CAT portfolios to extract more value from the market. I think it's rational for others to take a different view on how to think about property CAT. But I look at what we're building with the portfolios that we're able to create in each of our vehicles. And we're getting paid more for the risks that we're taking. And I think the volatility is a trade-off that investors make for the amount of return we're producing. But I see more return on the horizon for every dollar of premium we are taking in property CAT, other property, and E&S-exposed property CAT.
Meyer Shields, Analyst
Thanks. I guess Kevin, I'm trying to reconcile your, I think optimistic tone about market opportunities now, with comments you've made on previous calls about rethinking your overall risk expectations. But I'm sure I'm getting the phrasing wrong. Are you seeing current opportunities now or is it that you think that the pullback of competitors means that at some point in time, even with the higher level of anticipated risks, that you can nod ahead?
Kevin O’Donnell, CEO
I'm not exactly sure what commentary you're adjusting to. So let me just talk about what we're actually doing in property and see if that answers your question. So, from the property perspective, other property we're seeing excess return in property. That has been the focus. What you've seen this quarter is a shift toward our normal process of updating our view of risk required some changes to the portfolio, but also the opportunity for us to press for margin. So, you're seeing some change just to the construct of the other property portfolio, but no shift in strategy. From a property CAT perspective, a lot of focus right now is on Florida. We're not that interested in the Florida market, but we do have a lot of Southeast Atlantic hurricane risks coming in through different ways. We think we're going to hold that relatively flat, but harvest more margin for the risks that we're taking there. When I think about the overall construct of the portfolio, I'm delighted with the size, I'm delighted with the pricing prospects that we see on the construct of the portfolio and the efficiency that we're continuing to enhance in the overall returns in each of our vehicles. So, I am very optimistic about where we are and the opportunities. I think they'll be in addition to that from a demand side; we said that after the January first renewal, we had an expectation that companies would sit back and realize that they were retaining perhaps more risk than they might be comfortable with. We're seeing that effect the supply to reinsurers, reassessing their desire to write property CAT and we're seeing substantial new demand come to the market for increased purchasing. So, all of those dynamics set up for what I think is a really accretive market for us to be bullish on. And we're working into that market right now by enhancing margin.
Joshua Shanker, Analyst
Yes. Thank you for taking my question. You're pulling back and remixing for the best opportunities available. Does that mean last year that the property CAT business you wrote was probably underpriced given what your models are saying right now? Are you not the only ones who are pulling back, or maybe there's better opportunities everywhere? But if you could do over 2021 again, is the model different enough that it's giving a different output for the risks that you took a year ago?
Kevin O’Donnell, CEO
That's a great question. And one we obviously spent a lot of time on. So first, we're not pulling back. What we're doing is looking at ways to expand the profit in the portfolio. I think our risk levels will be ballpark same as last year. With regard to underpricing last year and adequately pricing this year, let me break it down to some of the things that we looked at in the change. Firstly, our models are always updated. And what we try to do is get ahead of the moment and build into where the markets are headed. From an inflation perspective, inflation is higher this year than last year. We want more money for the same risk just because its loss costs are going to be higher. Social inflation trends are continuing. We'll learn more about that. So, there's more precision in our social inflation application in the model. I wouldn't say that's making a judgment as to price is higher or lower. And then climate to mix. Climate is going to change and the benefit we have with building our own model is we've long reflected climate change. A component of reflecting climate change is incrementally changing your model as the environment changes. That's very consistent with the best science out there. So, I would say that that is a very big part of our change. And you'll hear for the next 20 years us talking in context of changes to reflect where the pace of change for climate change is going and then when there's an event, we learn more. I don't know if we're getting access margin compared to what we should have gotten last year or if we are just catching up to where we are. What I can tell you is we do measure on a like-for-like basis; we're being paid more for the risks. Our objective now is under an elevated view of risk to get no less margin than we had last year, and we're achieving that as well. It's an imprecise answer to something that is unknowable. But I think if you take the rationale as to how we are addressing it, we're trying to get ahead of the curve and incrementally always stay there. I think our pricing and the opportunities we have to expand margin are allowing us to do that in a way that under any measures is we're building a better, more profitable portfolio now than last year.
Brian Meredith, Analyst
Thanks. A couple of them for you. First, Kevin, I'm just curious. The growth that you're seeing in your casting Casualty segment. How do you think about social inflation there? Are you thinking about when your pricing reserving that business kind of the current social inflation environment or are you building in something significantly higher because it's the core to reopen and there's a lot of uncertainty there?
Kevin O’Donnell, CEO
I completely agree with your last observation. There is a significant amount of uncertainty. We have some insights regarding the strong performance, especially in 2020 when everything was shut down. We are being very cautious in our recognition because the historical perspective on this may not apply due to slower court processes. In general, throughout this earnings season and based on our portfolio analysis, evaluating trends and rates is a nuanced aspect of casualty and specialty reserving and pricing. We are still witnessing rates above trend, but that is somewhat tempered by our uncertainty and confidence in those trends due to the slowdown, and social inflation plays a role in this. Under normal circumstances, I would feel even more optimistic than I currently do. However, we are moderating that optimism due to the uncertainty regarding how COVID has impacted the emergence of claims.
Brian Meredith, Analyst
Great, that's helpful.
Ryan Tunis, Analyst
Hey, thanks. Good afternoon. First question, apologize if this has been covered, if it has just ignored but on the other Property segment with the non-renewals of any indication of how much more that's on the common subsequent quarters this year?
Kevin O’Donnell, CEO
A lot of that appears to be renewed already. What we are doing involves a fair amount of quota share, so it will depend on the performance of the underlying companies. I still believe that the portfolio will be relatively flat, or rather, slightly up on a net earned basis. However, there are many variables at play. If I had to estimate, flat would be a conservative assumption.
Ryan Tunis, Analyst
Got you. And Kevin, you seem obviously more confident in the profitability that portfolio and some of the actions you've taken. Just wondering if maybe you could kind of share observations about, I don't know the math behind that. Like last year, it looks like you did like a 44% Attritional and other property excluding large losses. Have you thought about or looked at the math on if we didn't write this, it would've been X points lower? Just anything you could share on those lines about the type of tailwind that these non-renewals could offer you. Thanks.
Robert Qutub, CFO
I'll kick it off a little bit, Ryan. We've seen the profitability in that book really come on pretty strong. I'm not sure about the 44%, maybe wouldn't go offline and talk about that. But we've been around upper 40s, focusing on keeping that below 50 and 60 on this quarter, but it was four points coming in from the weather-related margin. The attritional portion of this book continues to improve due to our underwriting actions. Attritional losses have been running below 50% for the last five quarters, which is consistent with our expectations for this business.
Kevin O’Donnell, CEO
I believe there are two aspects to consider regarding non-CAT. Firstly, it's about accurately understanding the attritional LMA and then addressing the CAT. We see potential in focusing more on CAT exposure, as many insurance companies possess significant expertise in attritional matters but may lack the same level of expertise or motivation when it comes to CAT. We're obtaining considerable excess margins in this area, building on the strengths we've historically shown. Additionally, the problems we faced were largely due to the lower-performing segment of the portfolio and being overly patient in terms of earning. We're determined not to repeat that error. The changes we're making in other property reflect our efforts to strategically focus on our objectives while being less tolerant of performance issues compared to our past.
Brian Meredith, Analyst
Thanks. And if I could sneak one more in just quickly, with respect to your Russia, Ukraine exposures, have you had any claims notifications yet? And as we look forward, where are the other areas that potentially you think you might see some development if at all?
Kevin O’Donnell, CEO
We don't have any claims notifications. Everything we've done involves a shift in our strategy; we believe risk is elevated, which is why we've increased our IBNR. The aviation market and specifically aviation leasing have been highlighted in the short term. We are underweight in that market. There's some coverage related to land warfare, so much of the focus is on the marine and aviation markets. I believe there are heightened risks of global impacts from the war affecting credit businesses, which could have broad implications. We are closely monitoring the situation. Internally, we employ a sophisticated reserving strategy where every deal and every class of business we write is evaluated based on its exposure to potential war-related risks. Upon reviewing that, I see that we are significantly underweight compared to our peers in the market. At this stage, this does not present a risk that alters our strategic direction or the fundamentals of what we are doing.
Yaron Kinar, Analyst
Thanks for taking the follow-up. Just one quick one. I know you said that you still have very limited appetite for growth in Florida. But with the special legislative session scheduled for May, how do you see that impacting the renewals for the industry more broadly?
Kevin O’Donnell, CEO
I've never successfully predicted what will happen with the Florida legislature. I know there are discussions, especially regarding changes to the FHCF due to the modifications in attachment. However, from our perspective at RenRe, this doesn't alter our approach or market viewpoint. There are many issues in Florida, and addressing them with a drop in the FHCF might just alleviate some immediate concerns for domestic areas. My main worry lies with the structural problems. It's challenging to thrive in that environment when the situation is severely problematic. Thanks everybody for joining the call. All things equal, we believe our results should improve steadily over the course of the year and will be paid more for the risks that we take. We'll benefit from an expanded capital partner's business and anticipate that rising interest rates will translate into materially higher investment income. Frankly, today's volatility should translate into tomorrow's improved financial performance and reward our shareholders with superior returns. I am optimistic about where we are, I like our portfolio and look forward to speaking to you on our next call. Thanks.
Operator, Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.