Craig Kliethermes: So, Casey, this is Craig. I’m going to jump in here, although I think Jen is fully capable to answer the question. But the — I mean, certainly, there’ll be a little more volatility. I mean, although I would argue there’s a lot more premium, that’s going to be — that’s going to offset some of that volatility. So, we’re gaining a lot more premium in the pool. So from a ratio standpoint, I’m not sure that you’re going to create a lot more volatility from a seasonal standpoint. But certainly, there will be more by raising your retention. To answer your second question, absolutely, are we — will we be open to adapting our strategy, as Jen says, it changes every day, the depth to the constraints that we have.
If there’s opportunity for capital to re-enter the market or come back to the market and realize that the rates were a little bit above what we believe were fair, certainly, we would take advantage of the opportunity. We think there’s going to be plenty of opportunity out there. So, as Jen mentioned, we optimize their portfolio and we’re going to have — I mean, we’re going to have a lot of options in regards to what we want to write, what we don’t want to write. We’ve already seen that, by the way, in the last couple of months of 2022. We expect to continue to see that. And if you recall, last year, just to your point, I mean, we added capacity during the year as we saw there was opportunity. If we continue to see the opportunity and acquire that capital at a reasonable price, we would certainly take advantage of it.
Aaron Diefenthaler: Yes. I’ll just add, if I can. As you think about volatility, we did retain a little bit more on the Casualty side too, and we’ll continue to evaluate that through the year as we renew other reinsurance coverage. The point being, we have a very diversed product portfolio. And while a lot of our products behave very well on a consistent basis, there is some that have a miss one quarter or another. And the diversity of our portfolio steps in, and has produced very good results overall. So if you look at our results over the 27 years, there are segments that have had an underwriting loss in one of those years, but the other segment stepped up and provided us a nice underwriting profit on a growth basis even for those years. So, I think you know, that diverse portfolio is really a big plus for us, and I would point to that a little bit to answer your forwarded question.
Casey Alexander: Right. Thank you. Secondly, with a fairly large increase in your NII, and I heard your comment that some of that may have come from investing short-term proceeds from Maui Jim. Do you have a number that is more of a — reflective of a recurring NII rate? I mean, how much should we strip out of that $28 million that was sort of bonus money that came before you paid out the dividend and then the taxes?
Aaron Diefenthaler: Yes. Hey Casey, it’s Aaron. I’ll take that one. Yes, fortunately, short-term rates were higher than they’ve been in a long period — over a long period of time. And cash actually has a return on it these days, which did help us in the quarter. It probably represents about $4 million of kind of bonus investment income in the quarter from those short-term proceeds that were invested very quickly after we received them on 9/30.
Casey Alexander: Okay, great, thank you very much. I appreciate your help.
Craig Kliethermes: Thanks.
Operator: Our next question today comes from Meyer Shields from KBW. Your line is now open.
Meyer Shields: Great, thanks, good morning. One quick question and one maybe bigger-picture. On the quick side. Todd, if I didn’t miss here, you talked about adjusting the accident year picks for Casualty and Property but not surety, which had a phenomenal underlying loss ratio. Did I just miss here or is there something else going on in surety?
Todd Bryant: Nothing else going on, Meyer. I mean, I think we’re being cautious there. Certainly, given the economy of that type of thing. I mentioned specifically property because it was larger on the current accident year, if you will the four points. And casualty, just because it’s a much bigger book and certainly weighs in on things there have been, nothing unique on the surety side now.
Meyer Shields: Okay, fair enough. And then, I’m thinking about, Jen’s comments about maybe sort of the overall exposure base in property? And I’m wondering, whether when you look-back the portion of excess capital that you retained from the Maui Jim proceeds? Looking back to that seemed like it was the right about now that you have better clarity on reinsurance.
Jen Klobnak: Yes, with — sorry, this is Jen again. With our diverse portfolio, we kind of look at the entire portfolio as we evaluate our capital adequacy. And I would say, given the growth of our portfolio over the last few years, in particular, you think about what drives the need for capital, that additional capital really does support the current and some near-term growth that we think could happen in the future.
Todd Bryant: And Meyer, I’ll just to add. And Todd may just help you here too. I mean, I do think that retaining that amount of capital gave us the flexibility to — and the options that we talked about is increasing co-participations and retentions that gave us some flexibility in regards to what we want to do. I think we didn’t want to be totally at the mercy of the reinsurance market, given the abrupt change in appetite results. So, I don’t know if we actually use all that, but it gave us the flexibility. So…
Meyer Shields: No, that’s perfect. Thank you so much. Really appreciate it.
Operator: Our next question comes from Mark Dwelle from RBC Capital Markets. Your line is open.
Mark Dwelle: Yes. Good morning. I guess continuing on the reinsurance theme, as you correctly prognosticated. When you think about trying to pass along your 40% rate increase to customers on renewal business, on property and cat-exposed business, I mean, what does that amount to sort of a 20% or 25% rate increase that your customers would need to take in order to match the increase that you’ve paid?
Jen Klobnak: Well, so this is Jen. I would say we’ve already built in some rate increase throughout 2022, anticipating this cost. And I’d like to take a moment to talk about our customers. So as we look at our renewal process, we call it 30 days to 60 days out, so that we can help our insurers manage their business. So they’ve got a lot of increased costs already. They’ve got increased employee costs, they have, in some cases, increased gaps in transportation costs, all kinds of costs that are going up were one component of their business. And we try to help manage their ability to save business by not taking too drastic of actions. In contrast, I would say, the reinsurance market acted a little more quickly on their change in both attempted change in coverage as well as cost.
And so, it’s difficult to turn on a dime and pass that along, nor is it really something you want to do when you’re trying to be very consistent in the primary market. So, we’ll continue to push on each renewal what make sense. I mean, we are individually underwriting this business, but particularly in the state of Florida, for example. So as the business comes in, we’re looking at all the details of that exposure and that location and the various dynamics in that area to understand what has changed from the prior year. And yes, our costs have gone up. So yes, we will increase costs to some extent. But we’re going to try to manage it over time so that our insurers can continue to be insured. The danger of this abrupt change is that the insurance marketplace actually decreases, because people will attempt to buy less coverage or less limit.
And once they start doing that, that’s never going to come back. And that’s a shame for the industry because then the opportunity decreases. So, in partnership with our brokers who are accepting a little bit less commission, we’re able to provide that change in coverage and terms a little more gracefully to our insurers.
