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RenaissanceRe Holdings Ltd (NYSE:RNR)
Q1 2021 Earnings Call
Apr 29, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the RenaissanceRe's First quarter earnings conference call. [Operator Instructions]

I would now like to hand the conference over to Mr. Keith Mccue, Senior Vice President, Finance and Investor Relations. Thank you. Please go ahead, sir.

Keith McCue -- Head of Investor Relations

Good morning. Thank you for joining our first quarter financial results conference call. Yesterday, after the market close, we issued our quarterly release. If you didn't receive a copy, please call me at 441 239 430, and we'll make sure to provide you with one. There will be an audio replay of the call available from about 2:00 p.m. Eastern Time today through midnight on May 29. The replay can be accessed by dialing 855 859-2056, U.S. toll free or +14-0-453-734-006 internationally. The passcode available through the Investor Information section of www. renre.com and will be archived on RenaissanceRe's website through midnight on May 29, 2021. Before we begin, I'm 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 Bob Qutub, Executive Vice President and Chief Financial Officer. I'd now like to turn the call over to Kevin. Kevin?

Kevin O'Donnell -- President and Chief Executive Officer

Thanks, Keith. Good morning, everyone, and thank you for joining today's call. As you saw in our earnings release last night, our financial results were impacted by winter storm ore losses in the United States as well as mark-to-market losses in our investment portfolio. As a result, we reported annualized return on average common equity of negative 17% and annualized operating return on average common equity of positive 3% -- 0.3%. Despite the challenges of the quarter, I am pleased with our performance and excited regarding our future business prospects. I believe that we continue to execute our long-term strategy and the measures we took this quarter will provide a strong foundation for growth and profitability of our business over the next several years. Specifically, I'd like to highlight three of these measures. First, we grew premiums materially in both property and casualty, specialty in an improving market. Our growth was greatest in the lines where we saw the highest rate increases and expect the most sustainable long-term profitability. And third, we thoughtfully managed our excess capital by repurchasing shares at attractive prices.

To begin with opportunities to grow do not come frequently, and you need the skill to recognize these opportunities as well as the determination to act decisively when they do. January one was one such opportunity. By employing our flexible platform, we grew our gross written premiums in the quarter by 26% or $537 million and net premiums by 37% or $475 million fold after adjusting for reinstatement premiums. As we discussed last quarter, we expect to grow net written premiums by at least $1 billion in 2021 and with a little over half of this growth in our casualty and specialty book and the balance mostly coming from other properties. This quarter, we also increased the contribution from property catastrophe to our business through a combination of increased ownership in DaVinci and proportionately less ceded spend. This combination of growing top line while retaining more of the bottom line, resulted in us fully deploying the $1.1 billion we raised last June. We did so while keeping tail risk consistent with prior years on a percentage of equity basis.

This strong top line growth we delivered is the direct result of the diligent execution of our long-term strategy, which is to match desirable risk with efficient capital through the application of our three superiors. Superior customer relationships, superior risk selection and superior capital management. While we are a leader in property cat, we find casualty and specialty and other property particularly attractive at this point in the cycle and continue extending our leadership into these businesses. There are three main reasons why the other best risks in these businesses and monitoring their performance. And third, we have preferential access due to the trusted relationships and strong value proposition that we've developed with our customers over many years. Starting with rate trends. On previous calls, I've said that we believe we are in a hard market, and this hard market differs from many in the past, however, as it is not driven by a lack of reinsurance capital, rather, it is an insurance underwriting heart market. Climate change, modeling malpractice and social inflation have increased loss costs, while historically low interest rates have decreased investment income.

As a consequence, strong underwriting results are necessary to generate sufficient returns on equity. Due to this necessity, we have seen rate increases exceeding trend across the insurance industry for several years now. These rate increases are approaching adequacy. And because they are necessary for profitability, they should persist. Both our property and cat and specialty bring us closer to this insurance risk where we can benefit directly from improvements in underlying insurance rates as well as more stringent underwriting from improved terms and conditions on risks such as communicable disease and silent cyber. So while reinsurance markets have been stable with sufficient capital to fill programs it is still possible to realize substantial rate increases by getting closer to the business. Second, we believe we have a competitive advantage in selecting the best risks and monitoring their performance. An important aspect of our strategy is maintaining the capability to selectively choose among risks.

We have sufficient scale to access business while still retaining the flexibility to increase on the best deals and decrease on the worst. Ultimately, we believe this affords us better margins. Over the last several years, we have methodically built the necessary infrastructure to access both other property and casualty business. Leveraging our industry-leading risk and capital management technology and underwriting expertise. There are some different strategic considerations, however, between other property and casualty. For example, we are increasingly positioning the other property book to serve as an alternative means to assume catastrophe risk. Currently, our increase in exposure to catastrophe perils is largely emerging from the other property business. Where we have tripled premiums over the last two years. Other property differs from property cat excess of loss business in that it employs quota shares per risk treaties delegated authorities and other pro rata approaches. By taking property risk in the form our customers increasingly choose to set it, we move closer to the risk while helping students better manage their net risk. In addition to catastrophe risk, however, these pro rata approaches are also exposed to attritional loss.

This involves a different underwriting skill set requiring substantial monitoring of our partners' performance over the life of the relationship. Building the system and infrastructure necessary to evaluate catastrophe risk as well as monitor attritional risk has taken many years and much effort. Since we are capable of underwriting both, this enhances our value proposition and puts us in a preferential position to work with customers and access the best risk. It is similar with our casualty business, we have invested in our casualty tools and methodically grown both organically and through strategic acquisition. As rate and profit margins have improved, we have expanded our positions and our customers have rewarded us with larger portions of existing programs or access to new lines.

Casualty is exposed to different risks than property and typically has a complementary risk curve, lower volatility and an average dispersion between good and bad years, which increases our capital efficiency. Over time, we expect capital usage to increase but as long as our peak exposure remains property catastrophe, casualty should remain extremely efficient. At the January one renewal, for example, only a small amount of capital we deployed was needed to support casualty because of this and provided we write profitable business to return on required capital for casualty should be attractive. In addition to the underwriting income that we earn on casualty, it brings substantial float, which is the premium paid to us that we invest as we monitor loss trends. This asset leverage contributes meaningfully to our earnings through investment income, while also reducing operating earnings volatility. Since 2018, our casualty reserves have more than doubled to $6 billion. And currently, the duration of casualty liabilities is longer than property liabilities, so it allows us to extend the average duration of our invested assets and consequently improve returns.

This combination of underwriting income and investment return not only drives profit but also buffers volatility. While we have grown casualty top line materially, you have yet to see this reflected in increased profitability. The higher rates from the business we wrote over the last several years will be gradually recognized going forward as the business seasons and top and grows that rate exceeds trend. This should result in decreasing loss ratios reflected in our financials over time. The third distinguishing factor in the other property and casualty business is that cedents want to work with well known, reliable reinsurers that demonstrate robust enterprise risk management, high ratings and proven experience. They want long-term partners with strong value proposition who respect relationships and do not behave transactionally.

They also want reinsurers with access to multiple forms of capital that can bring innovative large-scale solutions to solve their biggest problems. We believe this set of traits characterizes the reinsurer of the future, the way reinsurers increasingly need to be structured in order to be optimized for a changed market. We have worked hard to embody this ideal. And as a consequence, are able to trade even more broadly with our best partners, accessing the most desirable risk on the best terms. Our third big success for the quarter was the proactive steps we took to reallocate our excess capital primarily through share repurchases. In my letter to shareholders from 2015, I explained our strong preference for share repurchase to share repurchases to manage excess capital. Even after deploying over $1 billion of capital at the January one renewal, we continue to hold more than ample dry powder to capture additional underwriting opportunities this year.

At the same time, we believe that our share price did not reflect the significant improvement in rates we have been experiencing nor the strength of the earnings engine we have built. Bob will discuss these repurchases in greater detail, but we viewed it as an attractive opportunity to reallocate a portion of our excess capital in a way that we expect to be accretive to shareholders over the long term. Before I hand it over to Bob, I'd like to briefly comment on our plans to return to working from our offices. We have always had a strong collaborative culture, and I believe we work best when we work together. We will be diligent in planning our return to our offices following best practices and always putting the safety of our employees and other stakeholders first. That said, I look forward to when we can return to our pre pandemic operating model. That concludes my opening comments. I'll provide more detail the segment performance at the end of the call. But first, Bob will discuss our financial performance for the quarter.

Robert Bob Qutub -- Executive Vice President and Chief Financial Officer

Thanks, Kevin, and good morning, everyone. As Kevin discussed, we reported a net loss of $291 million and positive operating income of $4 million for the quarter. These results were primarily driven by winter Storm Ura, along with mark-to-market losses in our investment portfolio. Now before I discuss our results in more detail, I want to call your attention to the enhancements that we made to our earnings release. Our goal was to provide investors with additional disclosure on important themes in the quarter, draw attention to key metrics and simplify the overall format. With these enhancements, my comments today will focus on our accomplishments during the quarter and items that drove our consolidated results, including our three drivers of profit, share repurchases and continuing expense leverage. Starting with our consolidated results, where we reported an annualized return on average common equity of negative 17%, primarily related to mark-to-market losses and our strategic investment and fixed income portfolios. Our annualized operating return on average common equity was 0.3%, primarily driven by winter Storm Uri, which I'll refer to as year.

We closed the first quarter with a book value of approximately $7 billion, which decreased by $482 million or 6% from December 2020. This decline was primarily from two factors. First is the $291 million net loss for the quarter that I previously mentioned. And second, we repurchased 1.1 million shares for $172 million at an average price of approximately $160 per share which reflects an average price-to-book of 1.15. We continued to repurchase shares after the quarter end. And as of April 23, and we had repurchased an additional 330,000 shares for $55 million at an average price of $168 per share. In total, this year, we have repurchased 1.4 million shares or $227 million at an average price of $161 per share. We have a long track record of being good stewards of our investors' capital and believe that these repurchases have been an attractive opportunity to reallocate a portion of our excess capital to shareholders. I'll now shift to our three drivers of profit, starting with underwriting income.

We grew our top line significantly in the quarter. With gross premiums written of $627 million or 31% with the property segment growing $396 million in the Casualty segment growing $230 million. We reported underwriting losses of $36 million in the quarter and a combined ratio of 103%, 27 points of which related to euro. You already had $180 million net negative impact on our overall results, with $137 million related to property catastrophe, $40 million related to other property and $3 million related to casualty. For our property segment, specifically, the gross premiums written growth of nearly $400 million was split roughly equally between property catastrophe and other property. Excluding the impact of $90 million in reinstatement premiums, however, growth in property premiums was about 25%, with 2/3 of that growth in other properties. Other property gross premiums written grew by $200 million, a 71% increase from the prior period. This reflects our growing expansion in primary property E&S plus additional underwriting opportunities we are seeing in our other property class of business. Property catastrophe grew by 21% or 11% excluding reinstatement premiums, but that's on a much larger premium base of $1 billion. Reported a combined ratio of 107% in our property segment, driven by a 54-point impact from year in the quarter. Most of these losses were in our property catastrophe business.

As a reminder, however, other property is also exposed to catastrophe risk and URI had a 15-point impact on both the combined and current accident year loss ratio for this class of business. Excluding the impact of Yuri on our other property book, attritional losses are running about 50%, which is within our expectations for this business. Now moving on to our casualty specialty segment results. As we discussed on the last call, we had a very successful January renewal, and I'm pleased to report that this is the first quarter our casualty segment gross premiums written have surpassed $1 billion, growing by 29% and except for financial lines, premium growth was at or above 30% in all disclosed cash flow LTI lines. Other than the small impact of URI, there were no individually significant events in the quarter, there was a small amount of favorable prior year development, and the combined ratio for casualty was 98.9%. Now finishing up the underwriting section, I want to briefly address COVID-19. This time last year, we reported our first COVID-19 losses which were primarily in the casualty book.

This quarter, there was no significant changes to our COVID-19 loss. That said, this is a developing situation, and we will receive more information over time. We'll continue to monitor COVID-19 development across all segments and lines, and our current reserves represent our best estimate of potential losses. Now moving on to our second driver of profit. Fee income, which totaled $24 million down from $45 million in the first quarter last year. This decline is driven by a $23 million reduction in performance fees, primarily in D.A. Vinci and Upsilon related to URI. As a reminder, and a significant event occurs in the quarter, we typically unwind previously booked profit commissions. This can result in negative performance fees like you see this quarter. Management fees continue to grow and we expect that they will increase over time as we continue to grow our joint ventures. Overall, the net noncontrolling interest attributable to these vehicles was $47 million.

This was driven by reported losses in D.A. Vinci and Medici which were partially offset by income in vermeer. As I said last quarter, we raised $730 million in capital through Upsilon, DaVinci and Medici, effective January 1, and which included $131 million of our own capital. As a reminder, as part of this capital raise, we increased our stake in DaVinci to 28.7% effective January 1. Subsequent to January one capital raise, we raised an additional $132 million in Medici, with $28 million in the first quarter and $104 million effective April 1. As a result of this new capital, our ownership percentage in madit declined slightly on April one to 13.7%. Turning now to our third driver of profit, investment income. Our investment results declined in the quarter due to rising interest rates and volatility in our equity portfolio. Net investment income was $80 million, offset by $346 million in mark-to-market losses. This resulted in total investment results of negative $266 million. The $262 million in mark-to-market losses from our fixed maturity portfolio related to the sharp upward movement in treasury rates during the quarter particularly at longer-dated maturities. This increase in interest rates has improved the yield on our retained fixed maturity portfolio to 1.5%.

The duration on our retained portfolio has increased slightly to 3.7 years. The $68 million mark-to-market loss in our equity portfolio was primarily related to our strategic investments portfolio. More specifically, $91 million related to our long-term investment in Trupanion offset by gains in the remainder of our equity portfolio. Japan has been a tremendously successful investment for our shareholders over the last 14 years, generating an annualized internal rate of return of 35% and on a $6 million investment. Given the rapid appreciation of our investment in Trupanion last year, we took steps early in the quarter to rationalize our exposure. Sold down about 1. three million of our 2.8 million shares, generating proceeds of about $130 million. Subsequent to the end of the quarter and as of April 27, we sold an additional 411,000 shares of Japan on generating another additional proceeds of $33 million. Now before I move on to expenses, I want to tell you about an investment we made that ties directly with the first prong of our ESG strategy, promoting climate resilience. We were a seed investor in Blackrock's new U.S. carbon transition Readiness Fund, which is aimed at identifying the winners of the transition to a low-carbon world.

This investment provides another opportunity for us to proactively manage climate risk on the underwriting, capital partners and investing sides of our business. We were excited to participate with a $100 million investment and the ETF launch on April 8, with a total of $1.25 billion in assets, making it the largest exchange-traded fund launch ever. Now I'll provide additional information on our expenses and foreign exchange gains. Starting with the acquisition expense ratio, which remained flat overall at 23%. There was some noise between segments and the casualty acquisition ratio increased by three percentage points to 28%. And this primarily relates to the impact of purchase accounting adjustments on last year's expenses. Meanwhile, the property acquisition expense ratio declined, driven by an increase in reinstatement premiums. As a reminder, the current expected run rate of our casualty expense acquisition ratio is in the upper 20s. So this quarter was within our expectations. Our direct expense ratio, which is the sum of our operational and corporate expenses divided by net premiums earned, declined by three percentage points from the prior period to 6% for the quarter.

This was driven by a decline in expenses as we continue to leverage our platform. Both operational and corporate expenses declined in the quarter on an absolute basis. The decrease in operational expenses is related to reduced travel and entertainment expenses in the first quarter of 2021 due to the COVID-19 pending. The decrease in corporate expenses is related to higher one-off expenses in the first quarter of 2020 related to our acquisition of TMR. Going forward, as we grow our top line, we'll also continue to invest in the business to support our growth. However, we plan to do so at a proportionately slower rate and expect our direct expense ratio run rate to be generally consistent with this we reported a $23 million foreign exchange loss in the quarter, approximately 2/3 of this loss relates to medicine has no impact on our bottom line as it's backed out through noncontrolling interest. The remainder relates to our underwriting activities. So in summary, we were very pleased with our strong underwriting growth this quarter in an improving market. We believe this growth, along with the increased earnings potential of our fee business anticipated rising yields in our investment portfolio and ongoing leverage of our expense base will continue to contribute to shareholder value. And now with that, I'll turn it back to Kevin.

Kevin O'Donnell -- President and Chief Executive Officer

Thanks, Bob. As usual, I'll divide my comments between our property and casualty segments, starting with property. After January 1, the first quarter of the year tends to be quiet for our property portfolio, marked by preparation for 41 and midyear renewals. This quarter, however, winter Storm Uri brought Ice, snow and freezing temperatures to a large portion of the U.S., resulting in physical damage and power outages, most notably in Texas. As Bob explained, we are estimating a net negative impact of $180 million from this event, predominantly in our property catastrophe class of business. In general, Texas insurers tend to have lower attachments on their reinsurance programs which we believe will result in a greater proportion of the industry loss being shared with reinsurers than in a similar-sized loss in a different region. Additionally, we expect a shortages of materials and labor as well as COVID-19 restrictions will amplify loss costs. While not an unusual events statistically, the last time a comparable winter Storm struck Texas was $18.99, and I expect many in the industry were surprised by the size of this loss. Undoubtedly, there will be discussions across our industry if this is yet another example of the growing impact of climate change on our business. We always capture freeze for any U.S. cat risk. We underwrite, including in the Gulf.

That said, systemic losses caused by widespread power interruptions can be challenging to model given the heavy tail distribution. Our other property business was not as impacted by euro. Yes, we do not write much residential quota share in Texas, and we reported a decent profit in the quarter. Our conversations with clients in Japan at April one renewal were productive and the renewal proceeded smoothly. As expected, we grew predominantly with our existing clients, driven by increases in limit and rate. Wind rates in Japan were up about 5% to 10%, while earthquake rates were up low single digits. We are deep in preparations for the Florida renewal. And while we anticipate continued upward rate momentum, it is too early to predict what the outcome will be. We have sufficient excess capital to grow if rates are adequate, with structural issues in Florida continue to be a concern.

Overall, Florida Domestics have not performed well for many years, with several Florida insurers having experienced ratings downgrades due to poor operating results. This trend is likely to continue into the first quarter as many lard insurers have diversified into Texas, making credit risk an increasing important consideration when underwriting these companies. Even more troubling, some cedents continue to report adverse development on Hurricane Irma almost four years after landfall, well past the 3-year period for filing a claim. Permit did not impact our results in the quarter, but nonetheless brings into question, the supposedly short-tail nature of these liabilities as well as the efficacy of prior legislative reforms in Florida. We welcome recent efforts by Florida's Governor and Senate to limit social inflation, but anticipate that few of the proposed reforms will be enacted and any actual benefit to the market will be minimal. So when we anticipate opportunities to grow during the remainder of the year, we are not necessarily referring to the Florida domestic market. I have spoken critically about this market for many years, and it represents an increasingly smaller portion of our property book. Several Florida companies have been good partners of ours for decades, and we will continue to support them on reasonable terms.

As for the remainder of the Florida market, we believe additional material rate increases are necessary to offset credit risk, operational deficiencies and social inflation. Absent these increases, we are unlikely to provide additional support and may even consider reducing for the second year in a row. Moving now to our Casualty and specialty segment, where we continue to enjoy the benefit of accelerating underlying rate increases across multiple lines of business and geographies. We believe that the expected profit on this book coming out of the January one renewal is strong, although it will take time for this to be recognized in our financial results. April through July is active for casualty and specialty renewals and conversations are progressing as expected.

Many of these deals did not benefit from COVID related rate increases last year. So we believe that rates will continue to improve. While we are monitoring supply and demand dynamics, we are entering the renewals in a leadership position and currently anticipate mostly stable terms and conditions with growth driven by underlying rate increases. There were a number of potentially high-profile casualty events during the quarter, including winter Storm Uri, the greenfield insolvency and the ever given blockage of the Suez Canal. Windstorm Yuri had a minimal impact on our casualty business, and we anticipate losses will be relatively muted as Texas energy companies tend to buy less liability limit. Regarding the greenfield and solvency, greenfields model involves complex and opaque financial engineering. And as a result, we have consistently declined to participate on their reinsurance panels. While we may have some indirect exposure, we do not currently anticipate material losses from this event.

With respect to the ever given Suez Canal blockage, this could impact specialty lines, such as hole cargo and marine liability and we expect that there will be multiple complex claims from various parties attempting to recover for matures. While the losses to these primary insurance markets could be significant, we do not anticipate that we will be materially impacted. However, if material liability claims arise, our exposure could increase. Closing now with the Capital partners business. This quarter, we rebranded our ventures business as Renaissance Re Capital partners. This change reflects our partnership approach, strong alignment with third-party investors and growing leadership in the partner capital management space. Chris Barry assumed leadership of the Capital Partners team and will continue reporting in to me. Also as part of the rebranding, the strategic investments pillar of our business has been renamed Renaissance Re strategic investments strategic investments is responsible for seeking and managing our own public and private investments that generate attractive risk-adjusted returns while advancing RenaissanceRe's business objectives.

This team will be led by J.J. Anderson reporting into Bob in the finance team. In conclusion, our fortress balance sheet served us well this quarter despite significant catastrophic losses and political equity and fixed income markets we were able to return capital to shareholders at attractive multiples, while remaining strongly capitalized and highly liquid. I look forward to executing our strategy in a strong market through the remainder of the year with each of our three drivers of profit positioned to benefit from improving conditions, improving margins on a larger book of reinsurance, growth in our capital partners business and increased net investment income from rising interest rates. This combination of strong execution in the business, coupled with the return of capital, should continue contributing to shareholder value throughout the year. Thank you. And with that, I'll open it up for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question is from Jorn Kinar of Goldman Sachs.

Jorn Kinar -- Goldman Sachs -- Analyst

Thank you very much. Good morning everybody, so a couple of questions. First one, when looking at the proxy, I think there's a 7% hurdle for average growth in book value per common share plus change in accumulated dividends in order to achieve 100% compensation. So is the read-through from that that the company believes that a high single-digit ROE is a good target?

Kevin O'Donnell -- President and Chief Executive Officer

Thanks for the question, Mark. Look, that's the proxy, and that's how we look at the growth in book value per share. And that's a function of earnings, the return on earnings is a function of capital management also included in there is an expense measure to make sure we're efficiently managing the platform. What we're really focused on is return on our three drivers of profit that we talked about in our comments. I think when Kevin talked about how excited he was on the underwriting book, we deployed $1 billion that we raised into what we feel is a rate exceeding trend in a very profitable business that will inure to us over time. The second thing that we both talked about was the fee income. That's a huge driver of our profit, and we added yet or close to the renaissance free risk partners under Chris Perry.

And I think we see exciting opportunities in the management fees, and that will continue to grow as we add more assets there. The third driver of profit is huge is the investment portfolio at $13 billion on a retained basis, it's not generating a lot of yield to be perfectly honest. It's 1.5%. But what we're not doing with that is in search of yield. We're being good stewards of the capital and consistently managing it, optimizing it to reflect the shape of our business to be in position for raising rights those are the three factors that we really focused on with the Board and what we're trying to drive out, and that's how our comments wrap around that.

Jorn Kinar -- Goldman Sachs -- Analyst

Got it. That's helpful. So essentially, focus on the ROE RoE sounds like if I take the three building loss can be in the double digits, and that's what we should really be looking at.

Kevin O'Donnell -- President and Chief Executive Officer

Each of those levers go, you got more you a second question?

Jorn Kinar -- Goldman Sachs -- Analyst

Yes, I do. So looking at this last quarter, you had $180 million negative impact from net negative impact from URI. You had some lower fees as well. If I just those out you kind of get to, what, $200 ish million a quarter in a benign cat environment. Is that a fair way of thinking about this? Or are there other onetime items that I should be thinking about that can maybe get the earnings a bit higher?

Kevin O'Donnell -- President and Chief Executive Officer

Yes. Let me start. When I think about our portfolio, I'm less concerned as to looking at on a quarterly basis, and I'm thinking about what is the long-term value that we can bring to our shareholders by the book -- the underwriting book that we have. So I often refer into an underwriter's view of our risk, which is really our in-force portfolio. And that has the underwriter's view of profitability on a fully developed basis. When I look at the portfolio that we've created and that is in force, it is enormously efficient from a capital perspective and producing very, very healthy returns, largely because of the rate increase that we've been able to achieve over the last several years. So when I think about just taking what is observable in the first quarter, I don't think we're capturing the embedded profitability in the underwriting portfolio, which will take a while to earn through and be developed over time from an actuarial perspective. But everything that I'm seeing from the portfolio is producing extraordinary returns and very, very efficient from a capital perspective. So we have a lot of flexibility going forward.

Jorn Kinar -- Goldman Sachs -- Analyst

Okay thanks for the answer.

Kevin O'Donnell -- President and Chief Executive Officer

Sure.

Operator

Your next question is from Elyse Greenspan of Wells Fargo.

Elyse Greenspan -- Wells Fargo -- Analyst

Hi thanks.Good morning my first question, throughout the call, you guys have mentioned that you will kind of see the incremental margin earn in over time. I think you said, Kevin, as the book seasons and confidence grows, that rate is in fact completing trend. So we're looking at your specialty casualty book, right? That's just around 68% underlying loss ratio backing out the favorable development in the quarter. So can you give us a sense of time frame on when we might see improvement within that ratio? Is that lunar 2021 event in the out years, just a sense of when we'll see that incremental margin that you've referenced into your numbers?

Kevin O'Donnell -- President and Chief Executive Officer

Yes. Everything you're saying is true. We are seeing rate above trend. It's difficult to put a specific point in time as to when the reserving ratios will begin to change if we are, in fact, continue to observe better performance. What I mentioned on the last call is if you -- looking at the numbers as an underwriter would see them, we have an increasing gap between what our pricing actuaries are seeing to where our reserving actuaries, which is typical at this point in a market. And reserving actuaries tend to recognize good news, a lot slower than bad news. So if our underwriters are right, I would expect that we should see a migration of our reserving ratios toward our pricing ratios. So when I reflect back where we're seeing significant profit through the portfolio. So I won't put a specific time on it, but I would say that each quarter, we are increasing our confidence that our pricing representation of the risk is right. And over time, that will be reflected by the reserving actuals

Elyse Greenspan -- Wells Fargo -- Analyst

That's helpful. And then my second question, going back to the capital discussion. You guys bought back a good amount if you sort of stock so far this year. So just more color, if possible, to kind of reconcile the fact that you're buying back a good amount of your stock following the raising of that capital last year? Is it just that there's more excess today than there was in June? And then a second part of that, can you just give us a sense of how we should think about buybacks trending from here?

Kevin O'Donnell -- President and Chief Executive Officer

Thanks, Elyse. Good question. Thanks. I appreciate the offer to come back and talk more about that. We did raise the $1 billion back in June. We fully deployed that, that we've talked about. You asked if we had excess capital, Kevin did talk about we do have dry powder. We've been returning some of that. You saw 200 -- nearly $250 million, I think, through April 23. But we also -- we didn't expect what we got was capital through earnings. The mark-to-market in the portfolio post the capital raise generated about $750 million of mark-to-market. Now having said that, we gave some of it back this quarter, but that provides pure capital from which we can underwrite on. But going forward, we're going to be good stewards of the capital, and we have been. And I think this quarter here, we pulled all levers, demonstrating that we can return capital, we can identify excess capital that we'd like to continue to deploy into the business, and we did, and we have and we will continue to manage the capital. So nothing is going to really change. You just all come together this past quarter.

Elyse Greenspan -- Wells Fargo -- Analyst

Okay thanks for the color.

Operator

Your next question is from Josh Shanker of Bank of America.

Joshua Shanker -- Bank of America -- Analyst

I just want to clarify first on Elyse's question about the the seating in the book. The profitability benefit in cash is going to come through a combination of reserve releases on current -- on the current accident if it proved, if your assumptions prove conservative as well as taking that knowledge and applying it to the C or loss picks in future years? Is that how we're supposed to understand it?

Kevin O'Donnell -- President and Chief Executive Officer

Yes. I would say, yes. It will be a combination of those things. I think from a probably more prior year, just ultimately, I have this learn through I think the other thing we can see is we could -- depending on how long the rate change persists, we could see that our initial loss ratio picks would drop, and that would come into the current year as well.

Joshua Shanker -- Bank of America -- Analyst

Okay. And then on a different track, you said in the prepared remarks that you believe one of your advantages is being better at risk selection compared to your peers. If I go back to RenaissanceRe's history when you were more of a cat business, I would argue that people came to you first. You always had a price for them under any circumstances. Whether it was the price they want or not. And you got a lot of first looks. To what extent -- I'd say the first look maybe, when you say that we are -- have a better ability to select risks in non-cat property and Specialty & Casualty. I mean, I think you were an exceptional provider in cat. How many competitors do you think have the capabilities you have in the non-cat markets?

Kevin O'Donnell -- President and Chief Executive Officer

When I think about the -- our presence in the market, I think about it as everything that we do. And we demonstrate leadership in property cat, for sure. Our other property portfolio is kind of unique in that. The E&S business that we're targeting in there has a very high cat component to it. So a lot of people will look to -- for other property type business and try to limit the cat. We're coming and seeking cat risk in that. So we're bringing our expertise to that business in kind of a unique way. And it puts us in an advantage because we're targeting both the attritional loss and the cat component in a way that a lot of other companies simply want more of the attritional and want to take less cap there. And we think we're getting excess margin in structuring our portfolio that way. On the casualty side, most of our casualty clients are clients across multiple things that we do, including property cat. And we are increasingly an early conversation with them about how they're structuring their programs and with that, we are able to pick into those programs with, I think, greater skill and with greater access than others. And so when I think about it, it's the deployment of the entire company, with large insurers around the world that gives us that advantage. And a lot of that is built on our heritage of this strong understanding of their cat risk.

Joshua Shanker -- Bank of America -- Analyst

And if I can just get another half a question in. Historically, obviously, there's some cat risk that you've written that was exclusive to you because of your relationships and the terms and the size but there was also a lot of cat business that was syndicated, where some of your lesser skilled competitors would say,, if Renre is on that deal, I think probably the pricing of it is fairly good on Albion 2. In the casualty business, to what extent are syndicated deals part of what you're writing that others can get the terms that you get? Or to what extent are they exclusive deals that are only showing up on your book?

Kevin O'Donnell -- President and Chief Executive Officer

Yes. A lot of the casualty and specialty business is proportional. And that's one of the things that right now we like about it is because we're enjoying the underlying rate change there. With that, it is more of a syndicated market. Than an excess of loss structure where you're disassociated from the primary rate, we're proportionately participating in their rate change. So I think the -- for casualty, we think about the world is how much is addressable. So what business do we like? And then how do we leverage into the best insurance underwriters so that we have the largest participations on the most attractive programs, so I think a lot of it is about how we're using our line size and then bringing that onto our platform with enormously efficient capital. So I would say in the property cat, historically, because of the way that market is structured, we did have more private layer business, which was uniquely priced by us and solely with us in the casualty business, it is more of a syndicated market, and we are participating but along with others, but our portfolio looks different because we're using line size pretty aggressively to make sure we're largest on the best deals.

Joshua Shanker -- Bank of America -- Analyst

Well goodluck and thanks for the transparency.

Kevin O'Donnell -- President and Chief Executive Officer

Yes thank you.

Operator

Your next question is from Meyer Shields of KBW.

Meyer Shields -- KBW -- Analyst

Thanks. Kevin, you've been very thorough in explaining, and Bob is also inflating sort of the patient approach you're taking on the casualty and specialty side to recognizing the margins. I guess my one question is that if we take out last year's COVID losses, it still seems like the attritional or accident year loss ratio went up on a year-over-year basis. And I'm wondering, does that imply that you see more risk now to loan? Or is there some other factor driving that year-over-year change?

Kevin O'Donnell -- President and Chief Executive Officer

You're referring to the current accident year for casualty specialty last year versus this year?

Meyer Shields -- KBW -- Analyst

Yes, taking it left is Gobi yes.

Robert Bob Qutub -- Executive Vice President and Chief Financial Officer

If you take out, Covid, we had a couple of things. Noise in the current accident year that I talked about this year, whether it was the casualty impact of the winter storm there's a few minor movements that were unique to the quarter. But on balance, we're hitting around where we thought we would in the mid- to upper 60s in this business. Now the rate increases that we've talked about just started last year, if you think about it 2020 that was 15 months ago. And now we're seeing another round of the rate increase. And so we're still really on, as Kevin described, a look back basis by the actuaries on the reserving. You'll see it bump up and down a little bit here. But as we look forward, we start to see that changing as different classes of business develop differently. They don't want to develop over the same period of time. But looking forward, we do expect to see the margin benefit in or to us in different classes of business, some sooner, some later.

Kevin O'Donnell -- President and Chief Executive Officer

One thing I'd add to Bob's comments as well is the business mix is different between those two years. And we have more casualty in the current book, which is at a slightly higher loss ratio. So that's a component of what you're seeing as well.

Meyer Shields -- KBW -- Analyst

Okay. That's helpful. Second question, I know it's early with regards to Florida discussions, but is there any way of distinguishing between the relative attractiveness of frequency or severity layers in the Florida market?

Kevin O'Donnell -- President and Chief Executive Officer

I think if you go back to the way we would -- historically, I've referred to that as being hackedorn low or not with the Florida market. I think the way the Florida market is structured. It's kind of below the FHCF, which I would say is more of the frequency exposed players and then alongside and above would be more of the true cat layers in that market. I don't have a strong view as to which one is more attractive currently. We're well equipped to look at all of those and any structure with regard to to the placement of those programs. At this point, I don't have enough information to say I prefer the frequency or the severity layers.

Meyer Shields -- KBW -- Analyst

Okay. Fair enough. And one final question, if I can squeeze it in. We're getting, I guess, a sense over this earnings season of maybe decelerating rate increases in a number of excess and surplus lines does the annual renewal schedule for reinsurance imply that the deceleration would be lagged when it comes to the rates that re really writing over, let's say, the second quarter?

Kevin O'Donnell -- President and Chief Executive Officer

Let me -- I think your question is as we incept a new deal, what is the -- how quickly do we recognize an upward tick in underlying rates or a downward tick in underlying rates. And I'd say there's -- it generally is delayed. I think often, these programs are written on a risk attaching basis. So even the rate increases that were coming through last year are lagged throughout the calendar year of our treaty. So it takes basically -- I think of it, there's about 18 months to kind of get a good view of it, similar to -- if we're incepting now, it would be 12 to 18 months out before we see the full impact of the rating on an earned basis.

Operator

Your next question is from Ryan Tunis of Autonomous Research.

Ryan Tunis -- Autonomous Research -- Analyst

Hey guys. So on other property profitability, something I'm trying to describe, I think Bob made the comment, low 50s attritional loss ratio is kind of your target. And Kevin, you mentioned the difference between you and other underwriters or reinsurers of kind of fact properties, you take more cat. So I'm trying to, I guess, kind of understand why that $50 million is your target and why you wouldn't target something better because you had 30% expense ratio and you're at an 80 pre-cat combiners, obviously, cat. So I mean are low 50s really where the attrition and loss ratios need to be in that business.

Kevin O'Donnell -- President and Chief Executive Officer

Yes. I think when I look at that, the attritional isn't always as clean as what it sounds. It could -- it includes some cat loss that will be in there from noncritical cat perils. So when I look at the combined ratio for that portfolio, I do think of it as we can break it into the component pieces. But including the cat piece, are we getting the margin that we're targeting. And the answer to that is yes. And when I compare the fully developed combined ratio for that business against a straight property cat XOL. I prefer the E&S business currently. And I think the rate change that's coming through on the E&S business will also lag into our results over time. So I feel on a combined basis, I feel really good about it. And I think about the attritional is not a pure attritional because it will have some noncritical cat in it.

Ryan Tunis -- Autonomous Research -- Analyst

How much? 20 -- maybe half of that $50 million y ou think of is kind of attritional cats, Kevin or less than that?

Kevin O'Donnell -- President and Chief Executive Officer

I think it's hard to put a number on it like we could have an E&S book focused on on the Panhandle in Florida that's going to look very different than an E&S portfolio that's in San Francisco. So it's hard to kind of pinpoint it on that.

Ryan Tunis -- Autonomous Research -- Analyst

As a definition of cat, you could just use that and show us, but I'll leave that be. And my other question is just on -- for Bob. The the fee income -- underwriting income NII things helpful. But I want to make sure I'm understanding this right. Is the fee income not already in the underwriting income number? Is that actually separate and distinct? And I thought that ran as a negative acquisition cost.

Robert Bob Qutub -- Executive Vice President and Chief Financial Officer

There some element is in the underwriting in the form of profit commissions and overrides, you'll see it there in the property book, but also a large part of it pass, give or take, comes out of the noncontrolling redeemable interest. And it's the way the contracts are structured as the benefit in that inerts, and that's how we recognize that as the income. And that's in NII then. So that would show up or it's unwinding the -- when we take out the noncontrolling interest, part of that is really back to us for the benefit and the management fees that we have out there.

Ryan Tunis -- Autonomous Research -- Analyst

Cool alright. Thanks.

Operator

Your next question is from Phil Stefano of Deutsche Bank.

Phil Stefano -- Deutsche Bank -- Analyst

Yes thanks. I was hoping you could talk about the impact of the tax rate on the potential changes to the GILTI and Beat.

Kevin O'Donnell -- President and Chief Executive Officer

That's a good question, timely, especially if you listened to the President last night, there's a lot going on in various jurisdictions. I mean, you're looking at the U.S. looking at rate increases, OECD is looking at some either through Pillar one or Pillar two, even the U.K. is looking at it. So it's going on a number of places that could or could impact us or not. I mean we've been in Bermuda 25 years, and we feel pretty good about our position. Here. We've got the infrastructure here. We know it and we like it. Relative to everyone or else, it's much better. Now we'll have to wait and see. We don't know what's going to happen. We're not going to plan anticipate. We're not going to do anything in anticipation of it, but we'll keep an eye on it. We've got a global platform, and we've demonstrated in the past that we have the agility to be able to adjust and still retain the relative value that we have and to offer to our shareholders.

Phil Stefano -- Deutsche Bank -- Analyst

Okay thanks that is it.

Operator

Our final question is from Jimmy Buller of JPMorgan.

Jimmy Buller -- JPMorgan -- Analyst

Hi. I had a couple of questions. First, just on specialty lines. Your commentary is obviously pretty positive, but so is -- it seems like everybody else is pretty bulled up about specialty as well. So what do you think about sort of this -- I understand that you'll earn the price increases over time. But what do you think about actual rates in that market? And how they're going to fare over the next year given more interest from companies on that market?

Kevin O'Donnell -- President and Chief Executive Officer

Yes. The -- everything we're seeing, we're still seeing positive rate move in most of the portfolios within the specialty classes. So I feel pretty good about it. I think there's a strong incentive on the prima from the primary companies to recognize that the rate was required in some of those books. So there is still incentive for them to continue to push more rate on the specialty lines. So I feel pretty good about it. I think the rate change will start to diminish, though. So I think it will be positive, but it will be at a decelerating rate.

Jimmy Buller -- JPMorgan -- Analyst

Okay. And then on -- just overall, broadly on reinsurance, there's been optimism about price, and everybody is sort of talking about rate increasing trend and exceeding loss costs. How do you think about sort of the adequacy of prices because like there's been a decent amount of optimism about pricing yet returns for reinsurance companies, including you and your peers haven't really been that good. So -- and it's not just one or two events, they haven't been good for a while. So how do you think about the adequacy of pricing in the market, like -- because, obviously, they are going up, but are they going up from an adequate level? Or do they still need to catch up to where loss trends have gone over the past decade or so?

Kevin O'Donnell -- President and Chief Executive Officer

Yes. So I think what we've talked about on previous calls, as we think of the casualty and specialty kind of rolling 10-year blocks. And do I think the rate that we're getting in most of that book today is adequate. I'd say the answer is, yes, in most classes. The issue is, if you take the 10-year block, you're not at a REITs that allows that block to achieve adequate returns. So I think there is more rate that should come into those portfolios. Because it's been a long -- great has been going for a couple of years, but it was a long period of rate reductions. And that, on a 10-year rolling basis had a pretty heavy impact on insurers and reinsurers. And right now, I see, particularly with the growth that we're able to achieve, we are very quickly approaching rate adequacy for the full 10-year block, and a lot of that is because we've been able to so effectively grow into the improving market.

Jimmy Buller -- JPMorgan -- Analyst

Okay thanks.

Operator

There are no other questions in queue. I'd like to turn it back to Kevin O'Donnell for any closing remarks.

Kevin O'Donnell -- President and Chief Executive Officer

Thank you for joining today's call. We enjoyed speaking to you and look forward to speaking to you next quarter as well. Thank you.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

Keith McCue -- Head of Investor Relations

Kevin O'Donnell -- President and Chief Executive Officer

Robert Bob Qutub -- Executive Vice President and Chief Financial Officer

Jorn Kinar -- Goldman Sachs -- Analyst

Elyse Greenspan -- Wells Fargo -- Analyst

Joshua Shanker -- Bank of America -- Analyst

Meyer Shields -- KBW -- Analyst

Ryan Tunis -- Autonomous Research -- Analyst

Phil Stefano -- Deutsche Bank -- Analyst

Jimmy Buller -- JPMorgan -- Analyst

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