RenaissanceRe Holdings Ltd. 2026 Q3 Earnings Call

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 Neuber, 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 Neuber to the earnings call. As previously announced, Bob will retire at the end of the year, and Matt will succeed him 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. He will be serving as a strategic advisor through 2027, so we will continue to benefit from his 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 to 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 four years, producing operating ROEs 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 Niño, which suppresses Atlantic hurricanes. An absence of hurricanes does not mean an absence of losses, however. This quarter, we had several large losses impact our specialty business. David Marra 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 two decades. Bob Qutub 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 three 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 three 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 two reporting segments, property and casualty and specialty.

These two reporting segments are focused on underwriting, which serves as a good starting point for a 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 do 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 three 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 two reportable segments serve as building blocks to a single integrated view of our underwriting portfolio. In summary, when evaluating our performance, the three drivers of profit provide the most complete framework. Underwriting remains central to that framework, and we write a unified portfolio consisting of two 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 three 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 retrocessional 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. But this underlying financial strength, coupled with low CATs, allowed us to maintain a strong pace of share repurchases in Q3. We increased the pace of share repurchases in October, and absent a major event, we expect to maintain an elevated pace through the remainder of the quarter. While there are some challenges ahead in the underwriting environment, the investment environment we find ourselves is one of the most favorable in decades, and our capital management remains robust. We think this makes the prospects for growing tangible book value per share in 2027 equally attractive as 2026. This concludes my opening comments.

As discussed, 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 to 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 three drivers of profit, underwriting, fee, and investment income. There are four numbers from the third quarter that help demonstrate our earnings strength.