RenaissanceRe Holdings Ltd. (NYSE:RNR) Q1 2023 Earnings Conference Call May 3, 2023 11:00 AM ET

Company Participants

Keith McCue - SVP, Finance and IR
Kevin O'Donnell - President and CEO
Bob Qutub - EVP and CFO

Conference Call Participants

Elyse Greenspan - Wells Fargo
Ryan Tunis - Autonomous
Josh Shanker - Bank of America
Yaron Kinar - Jefferies
Pablo Singzon - JPMorgan
Derek Han - KBW

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. [Operator Instructions]

I will now turn the call over to Keith McCue, Senior Vice President of Finance and Investor Relations. Please go ahead.

Keith McCue

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

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 on other property and D&O lines. So there was a lot of movement under the surface in the end the net premiums written were up.

Bob will walk you through the numbers in greater detail for taking each of those segments at a high level. Property cat is in a very attractive phase. And given the positive outcome at the April one renewal and from what we have seen so far, June 1, 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 getting paid more per 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 our decreasing 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 into a very attractive casualty market.

Finally, there is the Specialty class of business, which includes credit and other specialty. 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 line 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 leading into hard markets and reducing emphasis when markets soften. It's important to view growth through an appropriate lens.

Growth for growth 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

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 backstop 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 cats, 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 in 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, on page 11 of the financial supplement, 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%. Cats for the quarter included 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 increased rate, increased retentions and tightened 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 2017 through 2021 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 as 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 rate and tightened 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

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 even this allocate more spend to reinsurance 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. And 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 in terms and conditions consistent with what we experienced at the January one renewal. Many of these deals were done on nonconcurrent basis where we enjoyed favorable economics. In addition, we have not seen significant new supply and consequently expect favorable marketing 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 back 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 and energy and tariff. Most of the business has already renewed, and we are 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 and mortgage continue 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. And 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 partner, 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 RenRe. All three drivers of profit delivered strong performances. Underwriting conditions continue to be favorable, and we anticipate further opportunities in our Property cat 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 as an excellent position to capture attractive opportunities throughout the remainder of the year.

And with that, we'll open it up for questions. Thanks.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Elyse Greenspan, Wells Fargo.

Elyse Greenspan

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 we could -- if 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

So yes, thanks, Elyse. Your assessment of the books are 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 6171 renewals is that we will have increased the absolute dollar exposure we have going into 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 6171 portfolio.

I would expect overall that our exposure to large events will still remain somewhat 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 significantly more reinstatement premium. 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

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 there 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

Yes. Thanks. I'll take that one. It's -- at what we have now is the mix shift. And as we've reallocated the capital that we've deployed, the cat-exposed other property that Kevin was just talking about, that's been shifted over.

So you're going to see naturally a bit higher current accident year loss rate coming from a stronger percentage of the proportional book, which previously we had kind of looked at that just under 50%. Now we're looking at it just over 50%, could probably walk it down to 51% just for the quarter. But just to give you a rough orders of kind of where it's going to be in that ZIP code of around 51%, plus or minus.

Elyse Greenspan

Thank you.

Operator

Our next question comes from Ryan Tunis from Autonomous.

Ryan Tunis

Hi guys. So Kevin, you mentioned obviously, an active cat quarter, you gave a $20 billion figure against that. Your $54 million loss was only about 30 basis points of market share. Yes, I guess I'm just curious if maybe you could put that in context of how you think you might have done in the past with a very similar type of cat quarter or -- and how we should maybe think about that 30 bps of market share as the year goes on and we look at other types of perils?

Kevin O'Donnell

Yes. I think -- let me talk a little bit about the other property. The other property portfolio is largely proportional, therefore, exposed ground-up to losses and reasonably small losses like we saw for most of the cats in the quarter. That -- so I think having a reduction in that portfolio will naturally reduce our participation on small losses. The cat portfolio is shifted as to a higher retention and does have more restrictions with regard to severe convective storm and other exclusions.

So I would say that smaller events, a smaller market share is likely going forward. Large events, our market share will increase just because we'll have more of our different vehicles and capital exposed to larger events where primary companies see the efficiency of transferring the risk to the reinsurance market.

Ryan Tunis

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

Yes. Obviously, our book looks a lot different than it did in the great financial crisis with a much more significant casualty portfolio, much more diverse exposures written by the group. We do look at correlation in the tail across lines of business, and we do financially stress, not only the insurance -- the reinsurance portfolio, but the investment portfolio to make sure that we understand the impacts of soft landing to a hard landing for the economy. Social inflation is something that's very real with or without recession that is carefully managed within the portfolio.

So I think we're not the same company as we were in 2008, but we are very thoughtful about how recession can affect the different lines of business that we're writing. We feel good about the portfolio that we've built. We're cutting back on mortgage.

We feel like the investment portfolios high quality and in good position should recession occur. And then obviously, with the banking issues, we're monitoring the professional lines, specifically the D&O. But at this point, we don't see any reason for concern.

Ryan Tunis

Thanks.

Operator

Thank you. Our next question comes from Josh Shanker from Bank of America.

Josh Shanker

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

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? And I think the way I'd look at it, and it's probably a more technical question than...

Josh Shanker

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

Bob Qutub

Yes, we have a set allocation that we really don't talk about externally and how we share that with DV versus us, but we know it's the same risk that comes through. And 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

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

Bob Qutub

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

Okay. And...

Bob Qutub

But rule of thumb, I would say it's about half, plus or minus.

Josh Shanker

And you mentioned mortgage and cyber. Can you flesh out a little bit 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

Yes. So it's -- we grew quite substantially with marine and energy. We saw a lot of opportunities there. And then we continue -- even with cyber rates not going up quite as much as they have been going up, we see the rate adequacy in cyber is still very, very attractive. So we're growing in cyber. And that's really been going on for about the last 12 months or so.

So when we think about the portfolio, I would say the shifts in the portfolio are much more marine, energy, an uptick in cyber and then some other specialty lines, but nothing that's particularly -- it's a broad portfolio and nothing else that is dominant as those two.

Josh Shanker

Okay, thank you very much for the answers.

Kevin O'Donnell

Yes, thanks.

Operator

[Operator Instructions] We'll take our next question from Yaron Kinar from Jefferies.

Yaron Kinar

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. And 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

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 also from the enhanced return within the investment portfolio.

Yaron Kinar

Got it. And then my second question would be, clearly, market conditions and 4/1 and heading into midyear seems 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

Yes. So, the midyear renewals are at 40,000 feet, looking a lot like the January one renewals. So we're not surprised with what we're seeing there. We're pleased, but we're not surprised. We are executing into the market, I think, successfully and we're actually doing quite a few private deals where people appreciate the relationship we've had and also the ability for us to put out large lines. So they want to find with us early at preferred terms. So I'd say there's nothing surprising about it. It's what we expect and we continue to expect that the market -- as we said in the previous call, we said the market is going to give a step change.

So that means we're getting up to a degree of rate adequacy all at once that we feel very comfortable with. Florida, in particular, was coming off a reasonably good rate adequacy level. And we're getting significantly more rates.

So I feel that, that's going to be an attractive market for us. And I don't see any pressure that's going to have a step change bringing us back down to where we traded before. So I think the discussion for a company like us and thinking about it is we're going to shift our discussion from kind of rate change to rate adequacy.

And with the step change that we've enjoyed at midyear and certainly, we achieved at 1/1, we're building a portfolio that has very strong margins, and we believe one that will endure through '24 and '25.

Yaron Kinar

Thank you.

Operator

And our next question comes from Pablo Singzon from JPMorgan.

Pablo Singzon

Hi, thanks, I'm calling for Jimmy. So just a broad question to start off. A lot of the brand began emphasizing higher combined ratio 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

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 got -- we're further from the loss, higher retentions, better terms and conditions. And I think 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

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 just 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

Yes, I think -- firstly, let me -- you asked a couple of questions there. From a ceding commission perspective, we are pressing ceding commissions, and we're having more success pushing ceding commissions at the midyear renewals than we even did at the January one renewal. In most professional lines, we're still seeing rate above trend.

So I think we've taken some action on D&O, where we're seeing increasing pressure on that. We still believe that the portfolio that we've written with is producing the required margin that we've targeted.

And we have not increased the initial loss picks on it. But part of that is that we're also benefiting from the reduced cede. We do look at macro -- the macro environment in thinking about the underwriting process for the portfolio. And we do recognize that it's a more stressed period of time. But I think with rates still above trend, even against the more stressed scenarios, we're largely comfortable with the portfolio that we've built.

Pablo Singzon

All right, thank you for the answers.

Operator

[Operator Instructions] We'll take our next question from Derek Han from KBW.

Derek Han

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

Kevin O'Donnell

Yes. I think after the extreme opportunity we're seeing in Property cat, I think we actually liked our other property portfolio the way it was constructed. What we're doing is not -- we're optimizing the way in which the company is using its capital and we're capturing excess margin by going into Property cat compared to having any cat exposure coming in through other property.

So I don't think of it as a fix to the other property as much as it is to an optimization to the overall platform. So there's really two things that we're doing in other property, which I think Bob touched on first is we're reducing the size of the other property portfolio.

Obviously, that creates room for us to write out on Property cat. And then we're shifting for what we do right, to be less cat exposed because for that cat dollar capital, we can harvest excess margin from the Property cat XOL book. So those two pieces are providing us with portfolio optimization flexibility. I don't think of it as a remediation against the book that actually I was pretty pleased with.

Derek Han

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

I wouldn't point to anything -- this is Bob, I'll take the question. I wouldn't point to anything macro. There's a lot of puts and takes. It's the mix of the book that we take a look at. And basically, the loss pick that we have for reserving is based on the best estimates and the historical performance that the actuaries have. It didn't change much on a -- it's been pretty steady on a linked-quarter basis, which you pointed out by 0.8, but we're still in a point to the mid-90s from a combined ratio standpoint, plus or minus.

Derek Han

Got it, okay. Thank you very much.

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

Thank you for participating on 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 and what is proving to be a very favorable market across all lines of business. Thanks very much.

Operator

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