RenaissanceRe Holdings Ltd. (RNR) Earnings Call Transcript

Good morning, ladies and gentlemen. My name is Boe, and I will be your conference operator this morning. At this time, I would like to welcome everyone to the RenaissanceRe Third Quarter 2026 Earnings Conference Call and Webcast. After the prepared remarks, we will open the call for your questions and instructions will be given at that time. [Operator Instructions] I will now turn the call over to Mr. Keith McCue, Senior Vice President of Finance and Investor Relations. Please go ahead, sir.

Thank you, Boe. Good morning, and welcome to RenaissanceRe's Third Quarter Earnings Conference Call. Joining me today to discuss our results are Kevin O'Donnell, President and Chief Executive Officer; Bob Qutub, Executive Vice President and Chief Financial Officer; and David Marra, Executive Vice President and Group Chief Underwriting Officer. In addition, for the Q&A portion of our call, we will be joined by Matt, current Senior Financial Officer and Corporate Treasurer and our incoming Chief Financial Officer. To begin, some housekeeping matters. Our discussion today will include forward-looking statements, including new and updated expectations for our business and results of operations. 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?

Thanks, Keith. Good morning, everyone, and thank you for joining today's call. To begin, I would like to welcome Matt to the earnings call. As previously announced, Bob will retire at the end of the year, and Matt will succeed in as CFO. Bob will handle prepared comments today, and both will be answering questions. This will be Bob's last call, so I would like to take this opportunity to thank him for his service. He has been an outstanding CFO for more than a decade and has played an instrumental role in the company's growth over that time here through 2027. So we will continue to benefit from these expertise. . Shifting to our performance in Q3. We delivered another strong quarter with operating income of $513 million and an operating return on average common equity of 19%. In aggregate, year-to-date, we have earned over $1.6 billion in operating income and produced a 20% operating return on average common equity. Our primary metric growth in tangible book value per share plus accumulated dividends declined 2% in the quarter as higher interest rates drove mark-to-market losses. On a year-to-date basis, however, we have grown tangible book value per share plus accumulated dividends by almost 6%. This includes the impact of approximately $650 million of aggregate, unrealized losses in our retained fixed maturity portfolio, which should reverse as the underlying securities pull the par over time. I will address the significant upside of higher interest rates in a moment. We have delivered significant returns for shareholders over the last 4 years, producing operating ROEs in the near or above 20% in 14 of the last 16 quarters with an average return of 23%. Our financial performance this quarter reflects a historically quiet Atlantic hurricane season. This is mostly due to a strong El Nino, which suppresses Atlantic hurricanes. In absence of hurricanes does not mean an absence of losses, however. This quarter, we had several large losses impact our specialty business. David will provide more details, but these losses were largely attributable to energy assets in the Middle East. The most significant development during the third quarter, however, was the rapid increase in interest rates. The benchmark 10-year rate was up 80 basis points. And as a result, we now find ourselves in the best fixed income investment environment in 2 decades. Bob will speak about our investment portfolio in greater detail, but this is a significant opportunity for us. At the beginning of this year, our retained duration of 3 years was relatively short, positioning us to take advantage of investment opportunities. This is exactly what we did in September. As we acted quickly to capture the benefit of higher rates extending our retained investment portfolio duration to 4.2 years from 3.5 years in the previous quarter and 3 years at the beginning of the year. This locks in higher yields for longer, which you will see reflected in growing quarterly net investment income moving forward. I want to now shift to a higher level discussion of how we think about our business and financial results. My goal is to provide you with an enhanced understanding of how we manage our business as well as an appropriate lens for how to evaluate our results. When we report our earnings, we do so in the structure of 2 reporting segments, property and casualty and specialty. These 2 reporting segments are focused on underwriting, which serves as a good starting point for our comprehensive understanding of our business. In isolation, however, these segments are insufficient to achieve an in-depth understanding of our overall value proposition to investors. To begin, they are underwriting focused. Consequently, they did not fully reflect the significant contribution of fees and investment income to our bottom line. In addition, these reporting segments do not fully reflect how we interact with clients across the full spectrum of their risks, which we consider to be a key competitive advantage. Rather than evaluate individual lines in isolation, we take a holistic approach and deliver comprehensive solutions to their most significant risk challenges across each of our balance sheets and vehicles. When we evaluate the performance of individual clients, it is through their contribution to each of the 3 drivers of profit, underwriting fees and investments. Every client contributes differently to each. For example, some contribute more to underwriting profit through strong margins, while others contribute more to investment income through the generation of float. Our vision is to be the best underwriter. Consequently, our initial focus is, of course, on underwriting performance. When doing so, our 2 reportable segment service building block to a single integrated view of our underwriting portfolio. In summary, when evaluating our performance, the 3 drivers of profit provide the most complete very mark. Underwriting remains central to that framework, and we write a unified portfolio consisting of 2 reportable segments, each of which contributes to overall profitability and diversification. Turning to our outlook for 2027. It is still early, but we expect property catastrophe rates to decline next year. In our Casualty business, rate had been exceeding trend for several years. Recently, that has shifted. How we proceed in 2027 will depend on our view of the profitability of this business. While we consider all 3 drivers of profit, maintaining underwriting margin will continue to be a binding constraint. As I discussed in my letter to shareholders earlier this year, the balance of profits in Casualty has been skewed towards investments. This is due to Casualty's ability to generate significant asset leverage. As a result, there's an inherent trade-off between underwriting and investment income, and underwriting technical ratios tend to rise and fall with the yield curve. In the higher for longer interest rate environment, we now find ourselves, this will likely cause the skew towards investment income to become more pronounced. Should that occur, we will act to preserve margin in Casualty by continuing to pull back on top line and purchasing additional retro protection. Ending now with some comments on capital management. Our financial performance continues to be strong bolstering capital and liquidity and generating substantial free cash flows. The mark-to-market losses recorded this quarter do not fundamentally change that underlying strength. Bob will provide more detail on our capital management outlook. With this underlying financial strength, coupled with low allowed us to maintain a strong pace of share repurchases in Q3. We increased the base of share repurchases in October. And absent a major event, we expect to maintain an elevated pace through the remainder of the quarter. So while there are some challenges ahead in the underwriting environment, the investment environment we find ourselves as 1 of the most favorable in decades, and our capital management remains robust. We think this to mix the prospects for growing tangible book value per share in 2027 equally attractive as 2026. This concludes -- Bob will cover our financial performance for the quarter, followed by David, who will provide an update on underwriting.

Thanks, Kevin, and good morning, everyone. We had another strong third quarter with operating earnings per share of $12.71 and an annualized operating return on equity of 19%. Our reported results were impacted by increasing interest rates, which led to $763 million of retained mark-to-market losses. This drove a GAAP loss and a 2% decline in tangible book value per share versus Q2 of this year. We expect the majority of these losses to pull the par over time. At our retained investment leverage of 2.5 higher yields will be a significant tailwind to investment income, as we continue to actively manage this portfolio. This improved investment outlook reinforces the strength and value of our diversified earnings through the 3 drivers of profit, underwriting, fee and investment income. There are 4 numbers from the third quarter that helped demonstrate our earnings strength. First, 15 points, which is the annualized contribution from fee and investment income to our return on equity. This forms a significant and stable base of earnings every quarter. Second, $426 million, which is our underwriting income. Underwriting builds upon a stable base of income from fees and investments. Third, 120 basis points, which is the amount that our weighted average yield to maturity has gone up this year. Now at 6%, we expect an increasing level of net investment income going forward as we proactively manage the portfolio. And finally, $310 million, which is the amount of capital we returned through share repurchases in the third quarter. We increased the pace of repurchasing in October and have bought back $144 million as of October 23, reflecting our ongoing commitment to strong capital management. Moving now to a discussion on our 3 drivers of profit in the quarter starting with underwriting, where our underwriting portfolio performed well on both current and prior year results. Our adjusted combined ratio was 79%, which reflected a 9 percentage point impact from a few large losses in the quarter. These losses impacted both our specialty and property books and included the war in the Middle East, an explosion in Ras Laffan liquified natural gas facility in Qatar and the earthquake in Colombia. In property catastrophe, the current accident year loss ratio was 22%, and the adjusted combined ratio was 9%. These results included 37 percentage points of favorable development, primarily from large loss events. Other Property also performed well with a current accident year loss ratio of 56% and an adjusted combined ratio of 64%. We had 26 percentage points of favorable development, primarily related to attritional losses. In Casualty and Specialty, the current accident year loss ratio was 78%, and the adjusted combined ratio was 109.5%. The large losses I described had a 10.5 percentage point impact on the Casualty and Specialty combined ratio. And as a reminder, we expect the Specialty book will experience cat-like volatility and the book has performed well year-to-date. Across the portfolio, gross premiums written were $2.1 billion, down $220 million or 9%. More than half of the decline came from planned reductions in our Casualty business as we continue to shape the portfolio. Property also decreased due to a combination of lower rates, timing of property catastrophe deals and some planned reductions in other property. At the same time, we saw opportunities to grow credit and kept Specialty flat. Overall, net premiums written were down 19%. As we have discussed previously, this reflects the increase in ceded purchases we made across our Casualty book. Looking ahead to the fourth quarter, we expect other property net premiums earned of approximately $330 million and attritional loss ratio in the mid-50s. In Casualty and Specialty, net premiums earned of around $1.2 billion and adjusted combined ratio in the high 90s. Turning next to fee income, where we generated just under $82 million of fees with $48 million from management fees and $33 million from performance fees. Both management and performance fees were in line with our expectations with overall fees though down from Q3 of 2025. Performance fees, which benefited last year from a lower level of current accident year losses and higher favorable development. Looking ahead to the fourth quarter, we expect fees to stay roughly at $80 million with stable management fees and variable performance fees depending on large loss events and prior year developments. Turning now to investments where retained net investment income was $315 million, up slightly from the second quarter and 4% from a year ago. As a result of the significant rise in treasury rates in the third quarter, we recorded $763 million of retained mark-to-market losses, primarily in our fixed maturity portfolio. Total unrealized losses in our fixed maturity portfolio stand at $654 million or $16 per share. These are highly rated securities, and we expect these losses to pull the par over time. We are in 1 of the most favorable yield environments over the last 2 decades and took several actions to optimize the long-term earnings power of our investment portfolio specifically, as yields approach multiyear highs, we extended duration by 0.7 in the third quarter to lock in the benefit of these higher rates. Our retained portfolio duration is now 4.2 years, up from 3 years at the end of 2025. Second, we continue to shape the investment portfolio in the quarter, increasing our allocation to high-quality securities, primarily agency mortgage-backed securities. At the same time, we modestly reduced equities and corporate, but given the relatively tight credit spreads, we are not stretching for yield. As a result, we increased our yield to maturity by 70 basis points to 6% this quarter. These actions should result in higher net investment income over time. Looking ahead to the fourth quarter, we expect retained net investment income to be around $325 million, bringing retained net investment income to over $1.25 billion for 2026. This will be around 6% higher than 2025, and we expect continued growth into 2027. Moving now to expenses and taxes, where our operating expenses were down about $20 million year-over-year, driven by the Bermuda substance-based tax credits, partially offset by an increase in the accrual for performance-based compensation. The operating expense ratio for the quarter was 5%, and we expect it to be around 5% for the full year of 2026. Finally, moving to tax where we recorded a $30 million tax benefit. Our overall effective rate on the net loss attributable to RenRe shareholders was just over 16%. This is slightly higher than the 15% corporate income tax and driven by higher rates in other capital management. We continue to have strong conviction in the value of our shares and remain in an excellent capital and liquidity position. In the third quarter, we repurchased 959,000 shares for $310 million at an average price of $323 per share. We increased the pace of repurchases in the fourth quarter to $4 million of our shares through October 23. We are committed to being disciplined and strong managers of our shareholders' capital. We expect to continue repurchasing through the fourth quarter at a similar pace we have in October, absent any large losses and with continued price discipline. Now before I hand over to David, as many as you know, this will be my last earnings call as the Chief Financial Officer of RenaissanceRe REIT. Since I joined in 2016, I've been proud to be a part of what we have built. It has been a privilege to work alongside such a talented team, and I can't thank this team enough for the years of support. I'd also like to thank the analysts and investors on this call for the thoughtful dialogue we've shared over the years. I have full confidence in that, as he steps into this role. We've worked side by side for many years, and he has been instrumental in building the strength and resilience of our balance sheet, the diversification of our earnings across 3 drivers and our disciplined approach to capital management. I look forward to RenaissanceRe's continued success, and I'll be chairing the team on as a proud shareholder. And with that, David, I'll turn the call over to you. Thank you.

Thanks, Bob. It's been great to work together over the last decade. You've been a trusted partner to me and the underwriting team and wish you all the best in retirement. And Matt, welcome to the call. I'm looking forward to continuing to work together with you in your new role as CFO. As Kevin and Bob discussed, we delivered strong underwriting results this quarter with current and prior years performing well, generating $426 million in underwriting income and an adjusted combined ratio of 79%. We experienced a few specific losses in our Property and Specialty books with a combined net negative impact to shareholders of $111 million. As I discussed on prior calls, we have 2 objectives in each renewal, deliver our market-leading value proposition to clients and brokers and construct the optimal portfolio across lines of business to support each of our 3 drivers to profit. Executing on these objectives consistently drives our strong persistent results. Over the last several years, we have built out differentiated client underwriting capabilities that support both objectives. More than 2/3 of our business comes from clients who buy from us across both Casualty and Specialty and Property. Within each client portfolio, there are lines that are highly profitable for us and others that are less attractive. As Kevin discussed, while we report results in 2 segments, we underwrite the risk and deploy capacity in a coordinated way in order to achieve the best results. We do this in 3 ways. First, through superior modeling. We have built proprietary models for every line we write, which gives us an independent view of risk and an understanding of the client portfolio as a whole. We can identify positive or negative trends early, discuss them with clients and reflect them in our pricing. Second is proprietary data sets. We have seen most of the market for decades, which gives us more and better sources of data. We use this to benchmark our client's performance across the market and through different parts of the cycle. This lets us make trade-offs across lines and build a diversified portfolio with each client that earns attractive returns over time. As we look forward, we will extract even more value from this large proprietary data set through the AI capabilities that we are building. And third is the underwriting culture. Just as every deal as an owner, every large customer relationship as a senior underwriter responsible for managing the totality of a client's portfolio. We understand the clients' needs, set clear plans by line and communicate these plans early to reduce surprises. This approach has allowed us to increase our share of wallet with key clients on attractive volumes, optimize the overall profitability of the client portfolio and provide stable capacity over the cycle. It has been successful. In the last 2 years in a competitive market, we have been able to grow property cat limit our most profitable line while reducing in Casualty and holding profitable Specialty business. By shaping the portfolio in this way, we are able to optimize returns across our 3 drivers and deliver strong ROEs through the cycle. As we look forward to 2027 and the January 1 renewal, I feel confident in our ability to construct an underwriting portfolio that builds on this strong track record. We have a clear view of what we want to write, what we want to introduce and how we will manage each client relationship throughout that process. We will also shape our net portfolio by sharing risk through ceded reinsurance and capital partners. We are one of the largest buyers of retrocessional protection and design ceded programs that add value through both long-term strategic relationships and opportunistic purchases. Casualty is a good example of this. In 2026, we scaled up our ceded purchases in Casualty and year-to-date have retained about 2/3 of Casualty and Specialty net premiums, net of ceded reinsurance and Fontana compared to approximately 75% of premiums a year ago. This more closely mirrors our Property approach where we retain about half of the business. Ceded becomes even more important as rates softened because it provides volatility protection, preserves underwriting margin and generates fee income through overrides that is less sensitive to rate. Additional ceded purchases will reduce net written premium in 2027, but this is core to how we match desirable risk with efficient capital. Turning now to a few comments on specific classes of business, starting with Property. The Atlantic has been quiet so far with the first Atlantic hurricane of this season, ESIS, forming and making landfall in October. While the storm is a category 2 hurricane landfall, we do not expect significant reinsurance losses from this event. As Bob explained, we reported a loss from the magnitude of 7.4 earthquake that struck Western Columbia in August. This loss impacted property catastrophe and other properties, but both classes performed well in the quarter. Looking ahead to January 1, we expect the Property market to remain competitive but attractive. Demand will grow, although more slowly than in previous years, supply will likely exceed it, which will put pressure on pricing, but we expect rates will be down less than in 2026. Much of that supply comes from traditional reinsurers, and we expect the market to remain disciplined, including with respect to terms and conditions, coverages and deal structures. We also expect the market will remain healthy with retentions that appropriately share risk between insurers and reinsurers and legal reforms, notably in Florida, continuing to reduce litigation and support favorable claims trends. Risk selection is more important in a transitioning market, but this is where our focus on being the best underwriter sets us apart. We have been here before. We know how to manage the cycle, and we have the right tools to shape both our gross and net portfolios. We anticipate our property business will remain rate adequate, with returns exceeding our cost of capital and opportunities to grow selectively -- this quarter. The first is related to the war in the Middle East. As we said last quarter, the war continues to be with attacks on oil and gas facilities and public infrastructure. We have reflected recent activity for the third quarter and our loss estimate and we'll continue to monitor the situation. The second is related to an explosion from an operational accident at the Ras Laffan Gas Complex in Qatar. This is a major loss for the energy market. We have reserved to our share of a full limit loss of $1.7 billion. We manage 1 of the largest and highest performing Lloyd syndicates as well as 1 of the largest global specialty reinsurance books, and we expect to share in losses like fees. Specialty lines have been profitable, but with several recent losses, we believe rates need to adjust in some areas. We expect to find opportunities and loss-impacted lines, such as marine and energy as well as political violence and aviation. We are a Tier 1 specialty reinsurance market and in a strong position to access this risk because of our underwriting expertise and our ability to manage complex claims. In Casualty, the market has been proactively responding to social inflation trends with increased rate and better claims practices. That said, trend is persistent and rate needs to continue to exceed it. In some places, it is not, and we will be working with our clients in the coming renewals and cutting back where needed. Managing Casualty business is an ongoing process. We recognized trend early engaged with our clients and have reduced net exposure to lines most impacted by social inflation. We've also kept our loss ticks elevated. This is a prudent approach, and we continue to benefit from investment income on the flow from this business at higher investment yields. Finally, our credit book remains attractive with structured credit, political risk and surety, providing diversified opportunities. We are committed to this high-margin business and plan to hold our lines and employ capacity where growth opportunities are available. In closing, we delivered strong underwriting results this quarter, reflecting disciplined underwriting decisions and portfolio management. As we head into 2027, we have the right tools to manage a transitioning market with enhanced client data and analysis, more ceded options and a highly coordinated team. I'm confident in our ability to build an efficient and accretive portfolio for our shareholders. With that, I'll hand it back to Kevin.

Thanks, David. I'd like to welcome Matt to the call and ask him to introduce himself.

Thanks, Kevin, and good morning, everyone. I've been with RenaissanceRe for more than a decade, and I've been fortunate to work closely with Kevin, Bob, David and many talented colleagues across our organization. First, in our capital partners team and more recently as a Senior Financial Officer and Corporate Treasurer. Bob, thank you for your partnership and guidance and for making this handoff so smooth. I've been a part of RenaissanceRe's growth and transformation, both organically and through 3 acquisitions. I am proud of the company we have built and the tools we have to compound tangible book value per share over time. First, our 3 drivers of profit provide earnings resiliency. Second, our strong balance sheet gives us options to react to opportunities in the market. And finally, we have a nimble capital management strategy to return excess capital to shareholders. Over the past few months, I've had the opportunity to meet many of our investors and analysts. I've enjoyed our conversations and look forward to building on these relationships and meeting more of you in the coming months. As I step into the CFO role, you can expect me to build on our strong approach to capital allocation and return and a continued focus on growing tangible book value per share. And with that, I will turn it back to Kevin.

Thanks, Matt. In closing, this was another strong quarter and a good example of our 3 drivers of profit contributed to strong financial performance. As we look ahead, disciplined underwriting, stable fee income and stronger investment earnings will provide competitive advantages to drive value through changing market conditions. And with strong capital, good liquidity and substantial free cash flow, we have the flexibility to invest in the business, return capital to shareholders and continue to build value over time. And with that, I'd like to open up the call for questions. Thank you.

[Operator Instructions] We'll go first today to Elyse Greenspan with Wells Fargo.

Before I get into my question, just Bob, why don't you extend my congratulations to you on your upcoming retirement.

Thanks, Elyse.

And then for my first question, I was just wanting to start on the pricing discussion, right? So you guys did say you expect property cat rates to be down at 1.1%. I was hoping to get a sense of the level of the decline you expect. And then you also said that you expect property will remain rate adequate with returns exceeding your cost of capital. So how much more room do you think there is to go with cat declines before this is no longer the case?

Elyse, this is David. I'll start off on that one. I think I can expand a bit more on the pricing discussion. Like we said, we expect rates to be down pressure on pricing but stable terms and conditions. And we expect that to be less than what we saw in terms of pricing pressure in 2026. Year-to-date, we're down mid-teens in our cat book. So we expect it to be less than that. A couple of extra perspectives on that, that might be helpful. If you think about where the supply of competition is coming from, it's mostly from cap bonds and then also from traditional reinsurers. So cap bonds put pressure on the top end of programs, and we expect pressure there, it could be more than what we saw this year. But the bottom of the middle is mostly completed with the traditional reinsurers, and that's where our sweet spot is in the net retained portfolio. Traditional reinsurers also are the most influential agreeing on what retentions to set and what terms and additions to write the business on the structures that have made the book less volatile. So if we contrast that with previous cycle, there was more competition from less experience manager, and we just think that the supply will be more disciplined. I would also add that from the demand side, we look back at the last few years, 2024 was the first year after the step change, that was a situation where there's a lot of growth in demand, and brokers prioritized execution over any rate savings. Then in 2025, the California wildfires put some ballast into the market and delayed some of the softening. 2026, there was a bit of pent-up pressure for clients to achieve discounts after a few profitable years. So we think 2027 will be a more normalized year with a more normal supply/demand pressure. Hopefully, that helps there. I guess I would also add to that, that the cap rate is just 1 part of the equation when we think about the overall adequacy and cost of capital. At all the tools we have at our disposal, we have risk selection, we have ceded reinsurance to help shape the portfolio and generally ceded gets more attractive when there's pressure on cat. We also have the fee income stream from capital partners and diversified ROEs. So all in, we think there's great opportunities in the cap market ahead and comfortable it will cede our cost of capital.

Yes. A thing I'll add just to David's comments, I've been at RenaissanceRe for 30 years. I've seen lots of different markets, and I've never seen a market that a company like ours with the flexibility we have with different sources of capital, different ways to structure portfolios where the cat market was not attractive to us. So I look at '26 into '27, '28 and beyond, I don't see a scenario where RenRe is not in a position to write a large and profitable cap portfolio.

And then my second question is on the Specialty, Casualty segment, where the overall development was -- prior year reserves developed was modestly positive in the quarter. Was there any like movements? I'm just interested if there were movements sort of lines favorable certain lines adverse. And anything in particular you would call out by accident year as well? .

This is Bob. Not really. I mean, we look at -- I mean, they'll all change every quarter. I mean they'll look at -- as we get new information that comes in across the classes of business. So there's been definitely a movement on like what we did in the second quarter, where we actually took a look at the actuarial assumptions around the curve, so you saw that, that was a change in the second quarter in the queue, but nothing like that in the third quarter.

Next now to Josh Shanker with Bank of America.

And Bobby, you have a great retirement, and I always enjoyed our conversations and the best to you, and Matt welcome. In thinking about capital you have available and the strength of the buyback, would your view of capital change at all if the Bermuda and OECD come to some sort of agreement to know the tax credits at the end of the year? Does that change your buyback appetite at all? And does it change your capital at the company at all?

Josh, it's Matt here. Nice to talk to you. The short answer to your question is no, not at all. We have a strong balance sheet with a healthy liquidity position, as Kevin and Bob mentioned earlier. And we've no change to our capital management framework, our approach to how we are going about buybacks. So as we mentioned, we did some more buyback activity in October relative to the third quarter pace wise. We expect that to continue going forward.

I'd add, Josh, that, that asset is still deferring cash flows back to the Bermuda government offsetting our taxes due. So it's unlike a traditional accounting deferred tax asset as an asset in Chile goes away from a legislation, it's still a valid asset on our Bermuda balance sheet.

And given the high investment losses from the rising rate environment and the strong underwriting profitability, as we head into the year, is there anything you can do to harvest some tax losses to neutralize some underwriting gains? Or is that just mixing and matching things that don't really apply to one another?

Josh, it's Matt again here. We've always demonstrated that agility in the investment portfolio. Absolutely, those are some of the considerations that go into how we position the portfolio. I think the key thing to take away is we continue to see a good trajectory here in the way we're getting value to shareholders through compounding tangible book through both the net investment income, tailwind that Bob mentioned and then also the pull to par in the mark-to-market. So going forward, we feel good about the trajectory, and that's part of the reason we're buying back shares the way we are.

I'll defer to others to ask the market condition questions.

[Operator Instructions] We'll go next now to Meyer Shields with KBW.

I actually did have market condition question. Sort of if you go back to like 2016 and 2017, there were some, I would say, particularly aggressive examples of third-party capital within catastrophe reinsurance. I'm wondering, should we have to worry about that in the short term as casualty ILS becomes a little bit more prevalent? .

Meyer, this is David. I think I understand your point about some aggressive third-party capital back in that era. I think what we have seen capital come into the market, the capital is coming in not specifically for Cat, it is just coming in looking at more whole account type structures and appetite. We view that as another form of general competition, but also view it as an opportunity. We've been very proactive at the forefront of matching risk and capital and intermediating that very successfully. When we started Fontana in 2022, and that's been successful. So we see that as an opportunity in order to support our ceded reinsurance and fee income business. Obviously, more capacity does put some pressure on upfront pricing. But as this capital is mostly coming in behind lead reinsurers and insurers, we think it's less likely to do that than some of the capacity that you referenced in 2016 and '17.

Okay. That's good to hear. The second question, I guess, is seen the interest rate increase. And I'm wondering whether that has implications for Property or Catastrophe loss trends.

You say will the interest rate increase have implications for property loss trends? Could you be more specific there?

I'm wondering -- yes, sorry, I should be more clear. I'm wondering whether there is an underlying reflection of overall inflation and not social inflation, just regular financial CPI inflation that would matter to significant short-tail lines underwriters?

Okay. I understand your question now. Something else is across all lines. We've talked about social inflation in casualty, in particular, driving jury awards. That is still going on, and that really wouldn't be related to cost of goods sold or interest rates. Cost of rebuilding and cost of construction is something that we look at really closely in the Property space and the Specialty space, and we're continuing to update those. I don't see those personally as directly related to the recent increase in interest rates, but it's -- nonetheless, it's an important piece of our analysis.