RenaissanceRe Holdings Ltd. (NYSE:RNR) Q4 2022 Earnings Conference Call February 1, 2023 11:00 AM ET

Company Participants

Keith McCue - Senior Vice President, Finance & Investor Relations
Kevin O'Donnell - President and Chief Executive Officer
Bob Qutub - Executive Vice President and Chief Financial Officer

Conference Call Participants

Elyse Greenspan - Wells Fargo
Josh Shanker – Bank of America
Ryan Tunis – Autonomous
Meyer Shields – KBW
Yaron Kinar - Jefferies
Brian Meredith – UBS
Mike Zaremski - BMO

Keith McCue

Good morning, and welcome to RenaissanceRe's Fourth Quarter and Year-End 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'd like to turn the call over to Kevin.

Kevin O'Donnell

Thanks, Keith. Thanks, everybody, for joining the call. We apologize about the technical difficulties. I'm going to read my comments again to make sure that everybody has the same information. I guess, I should feel blessed that I'm pleased to report the results. So it's my pleasure to read them a second time. I apologize for those who are out to hear them again.

Good morning, everybody, and thank you for joining today's call. We closed 2022 on a strong note with excellent Q4 financial results, reflecting solid performance across segments, favorable development and a rapidly growing contribution from investments. However, I'd like to begin today with a follow-up to my remarks last quarter. I discussed a series of changes we were seeking to ensure an increased margin of safety for investors in the face of mounting catastrophe losses, which exceeded $130 billion in 2022, as well as the continued effects of climate change, inflation and the increasing occurrence of secondary perils.

Importantly, I can now report that we accomplished all of the ambitious goals we set for ourselves in one of the most pivotal January 1 renewals in our history. Most notably, this includes a step change in property reinsurance pricing. These changes have resulted in a fundamental and necessary reset in the relationship between insurers and reinsurers -- promising more appropriate risk-adjusted returns to investors, while ensuring customers sustainable access to reliable, high-quality capacity.

The structural shift that the market has undergone constitutes a stabler long-term equilibrium that will protect the interest of both investors and customers. The renewal in our casualty business was successful. We saw rate increases in many specialty classes and made good progress on reducing ceding commissions in traditional casualty lines, which on average reduced by about 1 percentage point. I will discuss the casualty segment in greater detail in part two of my comments.

Turning to our ‘22 results. At the end of each year, I'd like to review our performance by responding to two questions. The first is we do financially and is, have we executed our strategy effectively. Starting with the first question. We had an excellent fourth quarter from both a GAAP and operating perspective with an operating ROE of 30%. For the year, we reported a little more than $300 million of operating income which represents a 6% return on common equity.

To be clear, I do not think a 6% return on equity is acceptable -- quite the opposite, I've said multiple times that our business needs superior long-term returns to justify the volatility that we take. That said, this 6% return is materially better than our results in 2021 and when we roughly broke even despite a similar level of industry catastrophe losses. This improving performance reflects the many accelerating tailwinds our business is benefiting from, including the higher reinsurance rates, increased investment income and growing capital partners business. We are also seeing the benefit of higher operating [Technical Difficulty] the investments we made in growing the scale of our business. Bob will address these tailwinds more fulsomely in his comments.

This quarter, we also demonstrated the benefit of our increased diversification. As we achieved excellent results despite material net negative impact from large catastrophic events, given the reset in underwriting at January 1, we would expect a significantly smaller loss, if similar events occur this year.

In 2023, we believe that this upward trajectory on financial performance will continue as we will be paid more for the risk that we take, earn substantially more on the investments that we make and continue to grow our fee-generating capital partner business, which leads to my second question. Have we executed our strategy effectively. If there's one word to define our strategy in 2022, it was consistent. We remain committed to being a global P&C reinsurance [Technical Difficulty] at scale and a leading underwriter of property catastrophe risk. We have chosen to occupy this position, because it is a critical link in the insurance value chain where we have a competitive advantage.

Surveying the insurance landscape. We have chosen this position, because it is the most effective means for us to deliver superior profitability to shareholders over the long-term. Over the past decade, we have emphasized building sustainable platforms that would support long-term profitable [Technical Difficulty]. We have added scale to our business by growing our top line, bottom line and capital and have diversified our business by adding new products, platforms, customers and capabilities. These actions have diversified our earnings increased our leverage and secured us a leading competitive position. It has also provided us the confidence to maintain our strategy and continue being a leading writer of property cat insurance.

That said, in 2022, we challenged our underwriters to optimize our property portfolio. And throughout the year, we target improved profitability. This culminated in the most recent January 1 renewal when our strategic consistency and focus on improving the bottom line enabled us to deploy significant and sustainable capacity to our customers.

As a result, we entered 2023 with each of our three drivers of profit, poised to outperform. I couldn't be more excited about the current environment and our positioning in it and the potential to create material value for our shareholders.

That concludes my initial comments. I'll provide more detailed update on the renewal in our segments at the end of the call. But first, I'll turn it over to Bob to discuss the financial performance for the quarter.

Bob Qutub

Thanks, Kevin, and good morning again, everyone. We finished ‘22 with a very strong quarter, reporting operating income of $322 million, annualized operating return on average common equity of 30%.

For the year, we generated operating income of $316 million and an operating return on average common equity of just over 6%. Our performance this year demonstrates that our three drivers of profit, underwriting, fees and investments are increasingly benefiting our financial results and making them more resilient to volatility.

I will discuss our fourth quarter results in more detail in a moment, but here are a few points from 2022 that I'd like to highlight. First, casualty and specialty performance remained strong and the segment has been consistently profitable every quarter for the last two years. In 2022, the segment delivered a consistent mid-90s combined ratio and grew net written premiums by 42%. We have been successfully growing the Casualty and Specialty segment into a profitable market. Kevin will talk more about the renewal. But as we look forward to 2023, we feel great about the positioning of this business and continue expect a mid-90s combined ratio in 2023.

Second, our Property segment broke even in 2022 despite a very active year, including a major Florida Hurricane, is a 7-percentage point improvement from 2021, which had a similar magnitude of industry losses. The improved performance is a result of the increased rate and tightening terms and conditions we achieved in our property book throughout 2022. But importantly, the additional underwriting [Technical Difficulty] we took in January 1 should continue to benefit the property books results.

Third, our Capital Partners business continues to lead the industry in the third-party capital management. In 2022, we raised a total of $1.4 billion in third-party capital with an additional $400 million effective January 1, 2023. In 2022, management fees contributed consistent $25 million to $30 million per quarter, and we expect this to run around $35 million per quarter in 2023, reflecting an increase in capital managed primarily in DaVinci. We also expect to see performance fees start to recover midyear absent any significant catastrophe events.

And finally, retained net investment income grew considerably in the second half of the year to $144 million in the fourth quarter. Over the past few quarters, we have rotated the book into more current yields. Subject to market changes, we expect retained net investment income to continue to increase at a milder pace.

Importantly, as part of our strategic positioning as a global P&C insurer, we have scaled these diversifying income streams very efficiently. Over the last five years, common equity is up 15% and while casualty gross premiums written have quadrupled, management fees have doubled and net investment income was up 2.5 times. As we look towards 2023, we feel we are in an excellent position with all three drivers of profit poised for continued improvement and outperformance.

In addition, we organically grew shareholder equity this quarter by $440 million and have over $600 million of unrealized losses on our fixed maturity investments that will accrete to par over time. All of this puts us in an excellent capital position. We are in a very attractive market and are excited about the many capital deployment opportunities in 2023 and beyond that should result in strong financial performance.

Moving now to our fourth quarter results and our first driver of profit underwriting. Beginning with Casualty and Specialty portfolio. The segment results were strong again this quarter, and we reported a combined ratio of 94% for the quarter and 95% for the year. Gross and net premiums written were up 31%, continuing to reflect the growth in underlying rate improvements from prior year renewal periods during the year. Net premiums earned for the Casualty and Specialty segment were [Technical Difficulty] million, up 31%. In the first quarter of 2023, we're expecting net earned premiums to be about $975 million.

Turning now to our Property segment, where we had a solid quarter. This segment reported a combined ratio of 63%. The current accident year loss ratio of 54% contained 19 percentage points from large cat events, which had a net negative impact on our financial results of $84 million, about one-half of which [Technical Difficulty] Winter storm Elliott and Hurricane Nicole and the remainder coming from aggregates. These events impacted both property cat and for property cat, the current accident year loss ratio was 42% and included 34 percentage points from large cat events.

For other property, the current accident year loss ratio was 63% and included 8 percentage points from large cat events and an additional 5 percentage points from the [Indiscernible] gas explosion. In the quarter, there was also 19 percentage points of favorable development for the property segment, primarily driven by releases on 2017 through 2021 large cat events in the property catastrophe class of business.

Net premiums earned for other property were $393 million for the quarter. Going forward, we expect premiums in our other property business to decrease as we shift our focus to property catastrophe business where we sell the most attractive opportunities.

Moving now to fee income and our capital partners business, where overall fees were $30 million. Management fees were $26 million, continuing to provide a steady source of income in the quarter. Starting in the first quarter of 2023, we expect management fees to increase to around $35 million per quarter, reflecting increased capital managed on our joint venture balance sheet.

Performance fees continue to be depressed due to the cumulative impact of [Technical Difficulty] '21 and '22, we expect these fees to start recovering by the second quarter of ‘23. Overall, we shared $236 million of our net income with partners in our joint ventures as reflected in our redeemable noncontrolling interest. $207 million of this amount was operating income and the remainder being mark-to-market gains. Finally, on Capital Partners, as of January 1, we reduced our ownership stake in DaVinci from 31% to [Technical Difficulty] in order to make room for several long-term oriented investors.

Moving now to investments, where net investment income continues to have a growing impact on our financial statements. In the fourth quarter, retained net investment income was $144 million, the higher net investment income was driven by higher coupon yields as we rotate our investment portfolio, higher yields on our floating rate exposure, as well as an increase in invested assets.

Over the course of 2022, retained annualized net investment income return has increased from 1.5% to 4.1%, and our new money yield, which is reflected as retained yield to maturity has increased from 1.8% of 5.6%. As a result, in the first quarter of 2023, we expect quarterly net investment income to be about $150 million. Overall, duration has declined on a managed basis to 2.5 years, largely driven by capital increases for our joint ventures. On a retained basis, duration remains relatively flat at 3.3 years.

In the fourth quarter, rebounding equity markets, tighter credit spreads and bond accretion led to retained mark-to-market losses of -- retained mark-to-market gains of $129 million. For the year, we reported total retained mark-to-market losses of $1.5 billion, principally in our fixed maturity portfolio.

As I discussed last quarter, these are high-quality assets and we expect to earn these losses back over time in two ways. First, the securities that we hold, they will read the par over time. And second, through increased net investment income, where we proactively sold the securities and reinvested at higher coupons. Retained unrealized losses in our fixed maturity portfolio are about $13.93 per share.

Finally, turning briefly to expenses. Our operating expense ratio was up by about 1.4 percentage points in the quarter. And for the year, the operating expense ratio was relatively flat. The increase in absolute operating expenses reflects investments in people and the increased costs as we return to a more normal operating environment. Going forward, we expect to hold the operating expense ratio relatively flat.

In conclusion, we finished the year with a very strong fourth quarter. This demonstrated the growing strength of each of our three drivers of profit, even with significant catastrophe activity in the year, we generated a 6% operating return on equity. As we look forward to 2023, we expect continued stable underwriting income from our Casualty and Specialty business. Our Property segment to benefit from increased rate and tightening terms and conditions, stable and increasing management income with upside from performance fees and significant retained net investment income.

And with that, I'll now turn the call back to Kevin.

Kevin O'Donnell

Thanks, Bob. As usual, I will divide my comments between our Property and Casualty segments. And while I touched on the success of our January 1 renewal in my opening remarks, I will primarily focus on adding more detail given our belief this renewal marks an important inflection point for our business.

Starting with Property. The Property renewal was very late with many deals not found until late December or even early January. Going into the renewal, we expected significant supply and demand imbalance for property cat reinsurance that would drive material rate increases in the range of 50% to 100%. As the renewal progressed, cedents understood that the market would remain disciplined on rate. They responded by increasing retentions, restricting coverage and restructuring programs in order to control budgets. These changes benefited us in particular, as our underwriting expertise and flexible capital allowed us to execute in a structurally shifted market to increase profit, reduce risk and better diversify our portfolio.

Cedants reactions also meant that limits, particularly in the U.S., were relatively flat, albeit more remote. The increased demand we anticipated was retained by [Technical Difficulty] as at the time they were unwilling to pay additional rate, this marginal demand would require. Over time, we expect this risk to return to the reinsurance market as macroeconomic forces, such as inflation and climate change continue to drive overall risk in the system. We will always have the most efficient capital to assume property cat risk, so it should ultimately sit with us.

I am very pleased with the property [Technical Difficulty] that we wrote at January1. As expected, we renewed business at significantly increased rates and tightened terms and conditions. Additionally, we increased allocation to property cat as it became increasingly profitable relative to other properties.

Regarding top line growth. We are seeing good opportunities and expect to reset on rates to persist through 2023. The January renewals is more focused on retro and international business, while the most dislocated part of the property market, U.S. risk, mostly renewals in midyear. Consequently, we expect many opportunities to deploy additional capacity in property over the next six months.

As Bob explained, in addition to the growth we've already achieved, we have ample capital to deploy into a profitable market. As we expected, the retro market was highly dislocated [Technical Difficulty] into the January 1 renewal with rates up materially, terms and conditions very tight and an ongoing shift to occurrence from aggregate structures. This allowed us to build a strong inwards book of business.

Against this backdrop, we had several successes on our seeded placements as well. First, we purchased more, retro protection than originally anticipated, a testament to our strong relationships and consistent track record. Second, we were able to grow with our longstanding partners on our structured reinsurance products. Finally, in early January, we issued our Mona Lisa cat bond albeit for a reduced limit. Given current market conditions, we believe we successfully executed our gross-to-net strategy and that it materially improved the efficiency of our portfolio.

Moving now to our Casualty and Specialty business. Similar to property, January 1 [Technical Difficulty] important renewal for our casualty book. At the renewal, casualty and specialty reinsurance terms and conditions moved in a positive direction across many classes of business. Dislocated markets provided opportunity for us to quote and lead profitable business. We continue to see opportunities across casualty and specialty classes. Rate increases are starting to slow in general liability lines and reducing in D&O. This follows several [Technical Difficulty] significant rate increases in these lines.

In most cases, ceding commissions reduced and we maintained attractive margins. In cases where expected margins did not meet our hurdles, we scaled back our exposure. The market was very dislocated in some specialty classes. And we were able to quote significant lead lines unprofitable business. Lines, such as marine and energy, terror, cyber and aviation were particularly attractive. We demonstrated leadership and achieved increased rates and retentions as well as tightened terms and conditions in these diversifying classes of business.

Our mortgage and credit and political risk business remains profitable, critically due to the structure of our portfolio and our focus on risk selection, it is also resilient to any downturn in economic conditions that may occur this year. Overall, we are confident this casualty renewal will drive sustained profitable growth. We continue to grow this book, and we have written what is likely to be our largest and most attractive portfolio to date. More importantly, as our casualty business matures, it is becoming increasingly consistent at delivering mid-90s combined ratio performance.

Shifting now to the Capital Partners business. We have always taken a differentiated approach to our capital partners business. First and foremost, this is because we are recognized leaders in underwriting property and casualty risk and always approach this business as underwriters would. This means, we start with sourcing desirable risk and only then seek to match it with the most efficient capital.

Second, we have a long and successful track record of managing third-party capital and are always strongly aligned with our investors. Our partners know that we always stand alongside them sharing any loss that they [Technical Difficulty]. This provides them with the confidence to reinvest with us after large events. Finally, we offer the broadest suite of investment vehicles with both owned and managed balance sheets for every risk that we take. This includes Fontana, the only rated third-party balance sheet dedicated to casualty and specialty risk.

In addition to being innovative, our vehicles are highly flexible from a capital perspective and have features allowing us [Technical Difficulty] capital when it is needed and return it when it is on. This allows us to navigate difficult markets as we did in 2022 and also to facilitate the liquidity needs our institutional investors demand. This differentiated approach is highly appreciated by our partners. It also explains our success in raising capital in 2022 as both new and existing investors chose to trust us with their capital.

Now we continue to scale our capital partners business even under the most difficult circumstances demonstrates that it is a permanent part of our franchise. We have every intention of continuing to grow it in the future in order to bring reliable, sustainable capital to our customers. We fully expect our capital partners business to increasingly generate low volatility fee income for the benefit of our shareholders.

In closing, this quarter brought a strong end [Technical Difficulty] year, which was marked by elevated cat losses coupled with Fed-driven mark-to-market investment losses. Consequently, the January 1 renewal was one of the strongest in our history, and investment returns should be materially higher in 2023. The ongoing growth in our capital partners business should serve as the third financial tailwind. As a result, we expect to deliver material shareholder value over the course of 2023.

As usual, we will now turn the call over to questions. Apologize for those that had difficulty coming on the call at the beginning. Both Bob and myself will stay available after the close of the hour to make sure we answer all your questions. Thank you.

Question-and-Answer Session

Operator

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

Elyse Greenspan

Hi, thanks. Good morning. My first question, assuming 2023 is a normal cat year -- based on the book of business that you guys were able to put together at January 1 and [Technical Difficulty] include some expectation for the rest of the year? What ROE do you think your book of business could generate this year?

Kevin O'Donnell

Thanks, Elyse. This was one of the most profound renewals, I think RenRe has ever had. We went in with very aggressive targets for ourselves, including growing the property cat portfolio, reducing risk at the low-end of the risk distribution, holding PMLs relatively flat, increasing our footprint, particularly with the addition of third-party capital. So all of those things will inure to the benefit of shareholders should there be a normal cat year.

One way that might be helpful to think about it is, if we just take a couple of losses last year and think of how they could affect us. If we looked at Hurricane Ian occurring in the third quarter of this year, I would expect our loss would be significantly lower for a couple of reasons. One, primary companies will need to retain more risk at the low end of their risk distribution. Secondly, we will have more rates, so more reinstatement premium coming in, should there be a loss. So I think from that perspective, we would have a smaller loss.

If we were to look at Winter storm Elliott between the increased retentions, tighter terms and conditions and higher rates, I would expect that loss to be almost fully retained within the primary market and not be transferred to the reinsurance market, which is different than what happened last year. So it's difficult to put an exact number on it. But between substantial rate increase, the growth we've achieved, the additional profitability in specialty, higher investment returns, I would expect returns to be substantially high or should we have a repeat of ’22 year and ‘23.

Elyse Greenspan

And then my second question. So you just said your PMLs are flat, I believe, right? So your exposure is probably consistent. We've heard right about retentions going higher for primary companies, right? But there's a lot of rate increases in the system. As you put it all together, how do you see the premium growth coming together just within the property cat business in ‘23?

Kevin O'Donnell

Yes. So about half of our U.S. exposed property cat limit is yet to be renewed. So just to kind of put it in context, and I anticipate that what we achieved at one-one will persist through the rest of 2023. So in thinking about the portfolio, it was our objective to hold the tail of the distribution relatively flat and increase the probability of high returns by reducing the level of [Technical Difficulty] end of the distribution. So I feel optimistic from a property cat perspective.

The other thing I would say is we allocated increasing capacity to our property cat portfolio within our overall property book by adding capacity from the other property portfolio to the property cat book. So we will achieve substantial growth in the property cat portfolio. A little bit of that growth will come from us creating capacity by reducing a bit on other property.

Elyse Greenspan

Thank you.

Kevin O'Donnell

Suer. Thanks, Elyse.

Operator

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

Josh Shanker

Yes, thank you. Can we talk a little bit about the casualty and specialty seating commissions. How quickly will they roll through the book? And what -- how many hundreds of basis points might we see just on the acquisition cost ratio alone.

Kevin O'Donnell

So on average, as I mentioned, it's about 1 percentage point for the casualty portfolio. Let me talk a little bit about casualty specialty first, though. We had substantial growth in several specialty lines, which are within that segment. And that growth is based on the fact that it became dislocated because of the Ukraine War -- elevated losses and there's also a degree of property cat risk, particularly in the marine and energy portfolio. We tend to [Technical Difficulty] increased ceding commissions through directly. So just as we earn the premium. So over the next 12 to 18 months, different than what we do from a pricing equation. So it will earn through more quickly. I don't have the number to drop to a GAAP number though.

Josh Shanker

And say 100 basis points, I mean, look, everybody is just a spectator. It does seem like commentary is greater than 100 basis points for the industry and more broadly, maybe not where you play. Do you think 100 basis points is typical? Or is that specific to run rate?

Kevin O'Donnell

I think it's pretty typical. And I could be optimistic and point to deals where we had much bigger changes, but there are deals that have been performing better and ceding commissions were a little stickier. So I use 1% as a good macro benchmark for how the portfolio is, and it is consistent with the way I would discuss the industry.

Josh Shanker

And where are we in terms of the commentary in that portfolio of understanding your own loss and your own risks and whatnot and using your own data to: a, set new loss picks and b, evaluate the loss picks you said in the past.

Kevin O'Donnell

So if you go back to 2006, that was an important part of the discussion for rate changes, understanding how the models have changed, [Indiscernible] it also drove the expected loss through the property market. I'll speak about our view of risk is relatively consistent this year to last year. I would say it's the normal tweaks in our model. We did not run through substantial risk changes from inflation and from climate change or other natural phenomenon. We had that reasonably well reflected. So we went through our normal process. So the rate change that we achieved this year is much more similar to the risk-adjusted rate change than we would have experienced in 2006.

Josh Shanker

Well, I guess, maybe I'm sort of talking about the loss picks in the cash and specialty book where you said you're holding back sort of being more aggressive and being conservative because you just don't have the data yet to be super confident about using your own ability to pick the losses? And you're -- are we at the point in time where now you are -- have the full data set and the loss picks we're going to see are based on your experience?

Kevin O'Donnell

The vast majority of it is based on our experience at this point. We are always looking at industry metrics to test our development of our own portfolio. We -- your point about being cautious with reserves. I think we've mentioned on previous calls, we generally take bad news before good news. So we wait for substantial, I'll call that one-third of the curve to develop before we think about it, recognizing good news. I'd say that's not a typical for the industry, but that's based on our own curves and our own assessment of when it's appropriate to think about making adjustments.

Josh Shanker

Okay. Given the shorter time, please. Take some other questions. Thank you for your answers.

Kevin O'Donnell

Sure.

Operator

Our next question comes from Ryan Tunis from Autonomous.

Ryan Tunis

Hey, thanks, good morning. I guess just a relative question, thinking back to 2006. In the years following that, I think Ren net ROEs, 30% to 45%. I realize there were no cat years, but even if those were normal cat years, it would have been a 20%-plus ROE business. I guess just in comparison, Kevin, like if you think about like the health in the property cat business today relative to where it was in 2006. I mean, maybe linking us back to what happened at the renewal concessions that you thought might have fallen a little short of your expectations. I guess, like what are the primary differences that would make it a different ROE business today versus post Katrina?

Kevin O'Donnell

So I think of this one-one as being less similar to ‘06 and more similar to what happened in 2001, 2002, guess. The -- because it's broader geographically, there are far more attractive lines and far more hardening lines in the market. And so I don't had to answer your question with regard to comparing it to ‘06. But when I think about what we've built in our ability to [Technical Difficulty], it's stronger now than it was ‘02.

The fundamentals of the market are a little different, but the ability for us to harvest profit from the casualty portfolio, I think is increasing. We've got a much bigger Capital Partners business, which continues to contribute, investment returns look stronger. And then the property portfolio at the reset level is at extremely attractive levels.

Ryan Tunis

Got it. And again, just on the renewal, it did seem to kind of come together at the end. Any idea of just, I guess, whether it's terms and conditions or rate, some aspects of that renewal that you wish would have potentially been a little bit more favorable than they were for the industry or for Ren?

Kevin O'Donnell

Late renewals work to our advantage and renewals often, because it's a renewal where there's been a dislocation that hasn't been fully absorbed by the market, which means creating options and providing alternatives is a skill that can reap outsized rewards. We placed -- we achieved a significant number of private placements by helping companies think about how to structure their programs.

The one area where we've think it's a delay, not a miss, is the capacity that we think -- we thought would come to the market at one-one. We saw more capacity come to the market in Europe and some other places. The U.S. capacity, I think buyers ultimately made a wallet decision as to how much they wanted to spend. And I don't think their appetite for how much they want to buy has diminished. And I believe that what we're experiencing is a bit of a delay in that limit coming to the market, which will add to the sustainability of the price hardness that we're seeing.

So when I look at it, I'd say that that's an area that I'd say was a bit of a surprise to us on one-one. But again, I'm not concerned about it, because I do think the capacity needs to come to the market. And I think if it does come to the market, we've got the capital and the structuring capability to be able to service them.

Ryan Tunis

Got it. And then just lastly, with capital going more toward the property cat business away from other property. Other property obviously has quite a bit more premium. Any indication of I guess what top line could look like next year from another property perspective?

Kevin O'Donnell

Yes. It's quite a deliberate change. And let me just -- we're getting very good rate increase in the other property portfolio, but it comes in more slowly than the losses occurring nature of the property cat portfolio. So leveraging into that, I think we're making a smart trade as to how to put [Technical Difficulty] market. So I don't particularly worry about one being up or the other. Our footprint in that market is exceptionally strong. And when the opportunity there begins to emerge as accretive again, we will leverage back into it. So -- but right now, property cat is preferred, and we're going to continue to emphasize the growth there.

In the long and short of it, we're going to grow property cap quite a bit, and we're going to shrink a bit in other property, which I think is a good trade.

Operator

Our next question comes from Meyer Shields from KBW.

Meyer Shields

Thanks, I guess to begin with, it sounds like the casualty and specialty combined ratio expectation is flat on a year-over-year basis. In other words, picking in the mid-90s, Am I thinking about that correctly?

Rob Qutub

Yes. In my prepared comments -- thanks for the question [Technical Difficulty] prepared comments, we did say that we expect that with the growth, we should still continue to maintain mid-90s as the range. This year, mid-90s was 95.3, and you saw us kind of move up and down in that range with events like earlier in the year, Ukraine losses. And I'll point out this year, we had the loss on one-one. So it should move up and down, but we feel very comfortable about mid-90s.

Meyer Shields

Okay. No, that's fair enough. I guess I was expecting a little bit more improvement, but I understand what you're saying about the range. If you look back at the extended one-one renewal season, how do you I guess, compare the actual capacity deployed to your expectations going in.

Kevin O'Donnell

We did extremely well. I would say -- again, the area where -- I think that's the most relevant question is for the U.S. property cat limit. And as I mentioned, we have about 50% of that yet to be renewed. So I would say that, yes, there was less demand that came to the market. That did not change anything with our strategy as to how much to deploy, it just meant we needed to be a little bit more nimble on how to get the limited with the customers' hands, and we did that.

So from my perspective, I feel really good about where we traded into the market, albeit the dynamics are a little bit different than we expected going back to December 1.

Meyer Shields

Okay. That's helpful. And I guess last question, if I can, just to continue with that. You talked about expecting that demand to come back. Is that the higher or lower layers of coverage that you expect to come back?

Kevin O'Donnell

Yes, it's a good question. It will be higher layers. I think at this point, companies are going to continue to -- let me company -- larger companies will continue to make the trade that they'd rather build balance sheet protections rather than have low-end income statement protections. And I think that's -- the income statement is going to need to be bolstered by them getting more primary rate.

The one exception to that is in Florida. I think there's sometimes some -- there's the way people think about the Florida market is to weather limits above or below the FHCF. I think there will be still a need for some purchasing of limits below the FHCF, which I [Technical Difficulty] be very low. But more broadly, the new limit purchased will be at the top end of programs.

Meyer Shields

Okay, fantastic. Thank you so much.

Kevin O'Donnell

Yes.

Operator

Our next question comes from Yaron Kinar from Jefferies.

Yaron Kinar

Hi, good morning.

Kevin O'Donnell

Good morning.

Yaron Kinar

First question, maybe going back to Elyse's question on kind of how the ROE look in a normal cat year and realizing you can't really prognosticate the precise ROE what exactly would look like in ’23, but maybe you can also help us with delineating how much of the improvement you see coming from NII versus the underwriting? Would, it be more weighted to underwriting, more weighted NII?

Rob Qutub

I've tried to point that. It's a good question. I'll help me try and break that. We're seeing much more improvement, let's start with net investment income. You started to see that over the course of the year, ending with $144 million and giving you guidance that we'll probably look at $150 million in the first quarter here, give or take, subject to market moves. And we're starting to see relative performance just on the management fees on -- coming through from our capital partners going up by basically 40% from $25 million a quarter to $35 million, which is reflective of the capital that we've raised. The Casualty -- Specialty business will improve based on the net earned premium that we bring through. So those are things that we look at as very stable. And we look at that as something we continue to talk about in the content drivers of profit property should do better.

As Kevin has pointed out, property should do better, but you can't control mother nature. You can only structure the book to be able to adapt to it as well as you can. So that's the picture that we're trying to portray out there that there is a core stable, solid earnings stream that does support a level of return that we feel is above our cost of capital just to be in with.

Yaron Kinar

Got it. That's helpful. And then in the underwriting book, maybe you can help clarify a little bit or sort some of the noise. And I don't want to put words in your mouth, but it sounds to me like you're saying that maybe more of the underwriting margin improvement would come from property cat, but maybe more of the growth -- top line growth would be in the casualty and specialty in ‘23? Is that a fair summary?

Kevin O'Donnell

I didn't mean to leave that impression. We are growing property cat substantially. We will -- so other property as a whole will grow. Property cat will grow substantially, we're going to reduce a bit on other properties. Again, talk a little bit about that as being kind of the trade and how to set up the portfolio. We will grow the casualty specialty portfolio. A good piece of that growth within the casualty portfolio will come from some dislocated specialty lines.

The final thing I would say is just having an underwriting background, I'm focused on net-written premium just because we have a lot of changes at the third-party capital level and the managed premium level that are important. So being more specific there, it's Upsilon. We reduced the footprint of Upsilon into the market, because the product that Upsilon sold was better sold into RenRe and DaVinci, and that will change the gross written premium, but the net economics coming to us are better reflected in net written premium because of that shift.

Yaron Kinar

And does this shift or the -- I guess, the parallel growth in casualty, specialty and property cat at the same time, how does that impact excess capital?

Kevin O'Donnell

So from a capital position, we are extraordinarily well situated going into the opportunity set that we're seeing. Within casualty, within specialty and outside the U.S., capital is never an issue. We -- the peak exposure within the portfolio going into this renewal was Southeast Hurricane. It will remain Southeast Hurricane, and we still have significant opportunity to grow the portfolio and deploy more capital should we choose to.

Yaron Kinar

Thank you.

Operator

Our next question comes from Brian Meredith from UBS.

Brian Meredith

Great. Thank you. Hey, just a couple of ones here for you, Kevin. I think, I just want to clarify what you just said there. So you should see some pretty substantial growth in cat premium retained net written premium growth.

Kevin O'Donnell

Yes.

Brian Meredith

Okay. I just want to clarify that. So it's on your balance sheet, great. And then the second question, I'm just curious, on Florida, as we look at the six-one renewals -- does any of the legislative changes make your appetite there any better? Or is it purely just what's going to happen with rate and pricing in that market?

Kevin O'Donnell

I'm pleased that they're taking steps to improve the health of the Florida market. At the margin, it's beneficial. It -- thinking strategically as to how we're going to position the book will not change our appetite in Florida, specifically because of that rate, attachment and other opportunity will be the drivers in how we structure the portfolio.

Brian Meredith

Got you. Great. And then I guess just last quick question. I think you kind of referred to it earlier. It sounds like Europe turned out being better-than-expected with rate increases. Have you increased your allocation of business to Europe?

Kevin O'Donnell

Yes. Capital is still driven by U.S. and capital still driven by Southeast, but we saw more opportunities in Europe than we expected, and we're able to kind of leverage into it. The Zurich office performed well, seeing the opportunity early in executing.

Brian Meredith

Great. Thank you.

Kevin O'Donnell

Yes. Thanks, Brian.

Operator

Our last question comes from Mike Zaremski from BMO.

Mike Zaremski

Hey, great. Follow-up on the Florida question from Brian. So I'm just curious now that you've had some time -- more time to go through the legislation. It sounded like, Kevin, in your answer that maybe these legislative changes aren't might not be that meaningful. Or do we just need more time to see them play out? And I guess also reflecting on the past question about this current cycle versus the 2000s, the counterparties have -- are much different than back then. Maybe I'm wrong, you can correct me. But is there -- do you expect your counterparties over time to maybe improve from a capital or a kind of social inflationary aspect over the coming years, maybe given some of the legislative changes.

Kevin O'Donnell

Yes, thanks for the question. I think the profile of the Southeast risk that we take is materially different than the early 2000. The early 2000s, we had a much bigger footprint with the -- with local Florida companies participating in that market. A big -- a much bigger piece of our Southeast wind exposure in particular, comes from large nationwide companies tend to have much higher retention. They have their own claims staff. They have a lot of infrastructure that they can bring to bear or should there be a loss and having some of the changes that were made legislatively, it can make a bit of a difference in the uncertainty post loss.

But again, I'm just trying to be transparent that the drivers of our capacity deployment for the Southeast and in particular, Florida will be driven much more around attachment point, price and macro terms of the deal rather than the legislative environment and the changes that were made.

Mike Zaremski

Okay. And my follow-up would just be kind of on new capital. We're clear on hearing your expectations for midyear to continue to be favorable. But curious, we're seeing some headlines about new capital coming to the marketplace. Do you -- are you seeing or hearing about additional capital providers coming in to kind of swoop in and feel some of the supply-demand dislocation?

Kevin O'Donnell

I mean, obviously, you hear all the rumors. And I know people looking for capital. we've been successful bringing capital. It's because of the uniqueness of the offering and the expertise of the underwriting. I think that will continue. So should new capital come in. I think the natural place for them to want to have a conversation is here. I think it's getting a little -- the class of ’23, which we've seen in other big dislocated years seems as if that's a little bit more unlikely than third-party capital coming in.

Regardless, I look at third-party capital at this point is if it's going to be something that disrupts the market, it's unlikely to disrupt us, because of the flexibility of our platform and our ability to execute into the market. So not that concerned about it at this point, but something we're watching closely.

Mike Zaremski

Thank you.

Operator

We have reached our allotted time for Q&A. I will now turn the call back to Kevin O'Donnell.

Kevin O'Donnell

So thanks, everybody. I appreciate you staying on for a few extra minutes. I appreciate the questions as well. For those that have trouble getting on to the call, I apologize for the difficulties. But happy to take any follow-ups. As far as the renewal, I've been doing this for a long time, I've seen a lot of different types of markets, and this was one of the most impressive renewal performances I've ever seen from the Renaissance team to be able to execute into this market, and I couldn't be prouder of the portfolio that they build.

So thanks again, and look forward to speaking with you next quarter.

Operator

This concludes the RenaissanceRe fourth quarter and full-year 2022 earnings call and webcast. Please disconnect your line at this time, and have a wonderful day.