RLI Corp. (NYSE:RLI) Q4 2022 Earnings Conference Call January 26, 2023 11:00 AM ET
Company Participants
Aaron Diefenthaler – Chief Investment Officer and Treasurer
Todd Bryant – CFO
Craig Kliethermes – President and CEO
Jen Klobnak – COO
Conference Call Participants
Greg Peters – Raymond James
Casey Alexander – Compass Point
Meyer Shields – KBW
Mark Dwelle – RBC Capital Markets
Matt Carletti – JMP
Operator
Good morning and welcome to the RLI Corp Fourth Quarter Earnings Teleconference. After management’s prepared remarks, we’ll be opening the conference up for question-and-answer session.
Before we get started, let me remind everyone that through the course of the teleconference, RLI management may make comments that reflect their intentions, beliefs and expectations for the future. As always, these forward-looking statements are subject to certain factors and uncertainties which could cause actual results to differ materially. Please refer to the risk factors described in the company’s various SEC filings, including in the Annual Report on Form 10-K as supplemented in Forms 10-Q, all of which should be reviewed carefully. The company has filed a Form 8-K with the Securities and Exchange Commission that contains the press release announcing third quarter results.
During the call RLI management may refer to operating earnings and operating — and earnings per share from operations, which are non-GAAP measures of financial results. RLI’s operating earnings and earnings per share from operations consist of net earnings after the elimination of after tax realized gains or losses and after tax, unrealized gains or losses on equity securities.
Additionally, operating earnings and operating EPS exclude equity and earnings of Maui Jim and related taxes due to the sales of RLI’s investment. RLI’s management believes these measures are useful in gauging core operating performance across reporting periods that may not be comparable to other companies’ definitions of operating earnings. The Form 8-K contains a reconciliation between operating earnings and net earnings. The Form 8-K and press release are available on the company’s website at www.rlicorp.com.
I’ll now turn the conference over to RLI’s Chief Investment Officer and Treasurer, Mr. Aaron Diefenthaler. Please go-ahead.
Aaron Diefenthaler
Thank you, Drew. Good morning, everyone. Thanks for joining us to close-out 2022 with RLI’s fourth quarter earnings call.
Participating with me are Craig Kliethermes, President and CEO; Jen Klobnak, Chief Operating Officer; Todd Bryant, Chief Financial Officer. Todd, will kick things off with the financial results for the quarter. Craig and Jen will offer some commentary on current market conditions, our product portfolio and possibly reinsurance just to get there. After our prepared remarks, we’ll take your questions. Then Craig, will close with some final thoughts.
Todd?
Todd Bryant
Thanks, Aaron. Good morning, everyone.
Yesterday we reported fourth quarter operating earnings of $1.53 per share. With both underwriting and investments contributing. Overall, we posted a combined ratio of 82.1 for the quarter and experienced continued topline growth, which was up 14% in the quarter. On a full-year basis, gross premiums written increased 16% and we posted an 84.4 combined ratio, marking our 27th consecutive year of underwriting profitability.
Investment income advanced nearly 60% in the quarter and closed the year at 25%. Reinvestment rates moved higher, as did our invested asset-base driven largely by funds received from the sale of Maui Jim.
Operating cash-flow was negative for the quarter. As we paid $116 million in taxes on the gain from the sale of Maui Jim. This amount is included as a reduction to operating cash-flow, while the cash proceeds received from the sale are reflected as cash-flow from investing in the third-quarter.
Apart from this nuance, Operating cash-flow was very similar to last year on both a quarter and year-to-date basis. Realized losses of $3 million in the quarter were the result of adjustments to Maui Jim’s pre-close financials, which increased our equity in Maui earnings and correspondingly decreased on realized gain recorded on the sale. This adjustment had no impact on net earnings.
For equity securities, change in unrealized gains and losses reflects a $34 million gain in the quarter as the market rallied in closing the year. As mentioned on prior calls, large movements in equity prices between periods can have a significant impact on-net earnings. But you can see on the comparative quarterly and year-to-date results.
Craig and Jim will talk more about the market and premium in a minute, but at a high-level, all three segments experienced growth as we continue to benefit from favorable market conditions and most areas of our business.
From an underwriting income perspective, the quarter’s combined ratio was 82.1 compared to 80.7 a year-ago. Our loss ratio increased 2.6 points, due to higher weather-related losses. In the quarter, we incurred $8 million in storm losses. $7 million in property and $1 million in casualty from a number of named storms. At the same time, we reduced our estimate of net losses from Hurricane Ian by $2 million, which is now at the bottom of our initial range estimate. Claim volume in severity has come in below initial expectations for the storm, which occurred very late in the third-quarter.
From a prior year’s perspective, we continue to benefit from favorable reserve development. Casualty posted $40 million of favorable loss emergence with contributions from a number of product lines. Property posted $4 million in favorable emergence, these largely to reductions in reserves for prior year’s storms.
In addition, we experienced improvements in the current year’s underlying loss ratios for both property and casualty. Year-to-date, property’s underlying loss ratio declined 4 points compared to last year, due lower attritional losses in both inland marine and commercial fired, while casualties declined one point aided by the shift in mix of — in business mix and overall rate increases.
Moving to expenses, compared to last year, our quarterly expense ratio decreased 1.2 points to 40.3. On a full-year basis, our expense ratio declined 0.8 points to 39.5. Both results are reflective of improved leverage on our expense base, as net premiums earned continued to grow.
Turning to investments. Total return performance improved and came in at 2.3% during the fourth-quarter and minus 11.5% for the year. Without question, it was a difficult year for the markets. So as a long-term investor, we were encouraged by stabilizing equities and higher bond yields, which are accruing to investment income.
In the quarter, we continue to invest in high-quality bonds with incremental cash-flow and net and have yet to pivot towards riskier assets. Apart from a short-lived short-term portfolio associated with the Maui Jim proceeds, new money yields continue to exceed 4%.
Moving to other investments. We recorded $7 million in investee earnings in the quarter, with Maui Jim contributing $3 million and Prime posting $4 million. The result for Maui was due to the true-up of pre-close financials, as I mentioned previously. This adjustment had no impact on-net earnings for the quarter as realized gains were reduced by equal amount. As noted in the press release, we have excluded earnings from Maui Jim from operating earnings. As such, this adjustment does not affect those earnings either.
On a year-to-date basis, investee earnings are down significantly, due largely the transaction related expenses incurred by Maui Jim from a company sale. As a reminder, we received $687 million in exchange for our shares in Maui Jim in the third quarter. Final proceeds remain subject to customary post-closing working capital and other adjustments. We expect most of that adjustment process to conclude during the first half of 2023 and could modestly increase this amount.
For 2022, our net earnings with realized gains, investee earnings, taxes and other sales related amounts reflect $434 million or $9.49 per share from the sale of our minority investment. The combination of solid underwriting investment results took book value per share to $25.89, up 25% from year end 2021, inclusive of dividends. This growth benefited from a gain associated with the sale of Maui Jim, a portion of which was returned to shareholders nearly at $7 per share special dividend in December. All-in all, a very good quarter and strong finish to the year.
And with that, I’ll turn the call over to Craig. Craig?
Craig Kliethermes
Well, thank you, Aaron and Todd. Good morning, everyone.
As Todd mentioned, we finished the year with continued momentum, reporting excellent underwriting results and double-digit growth for the quarter. 2022 marks our 27th consecutive year of underwriting profit on both a net and gross basis. Now benefited from back-to-back years of top-line growth in excess of 15% and another year of rate increases in excess of underlying loss trends across the property and casualty segments.
This has result to the very good returns that we are pleased to report to our shareholders. Our underwriters have been able to grow almost all the products within our portfolio, but there are few pockets where we still face stiff competition. And hard reboot in the reinsurance market continued multifaceted inflation and weakened balance sheets should provide a stronger backbone to the industry’s underwriting discipline and be supportive of more firming. Assuming the competitive environment response rationally, we anticipate rate increases and disruption that should create new opportunities for profitable growth.
We’ve already seen additional improvement and price terms and conditions in the property market at the end of 2022. Over the last decade, we’ve been able to access low attaching earnings protection from high quality reinsurers at favorable prices. At each reinsurance renewal, we evaluate the risk reward equation carefully, using our actuarial team and reinsurance brokers to inform decision making.
Given our conservative balance sheet, diversified portfolio of specialty products and underlying profitability, we have always retained the optionality to take more net, where the expected reinsurance ceded margins exceed fair return.
We believe the cost of property reinsurance increased beyond that point at one-one. As a result, we adjusted our retention and co-participations accordingly and are comfortable with our new reinsurance structured. We remain optimistic about the expected underlying profitability of our portfolio. We believe, we are in a strong position to capitalize on disruption that we expect too soon.
I will turn it over to Jen, who will provide more detail on the quarterly results and the reinsurance placements made on Monday morning.
Jen Klobnak
Thank you, Craig.
From a product portfolio standpoint, the property segment led our top and bottom-line for the quarter. Premium grew by 40%, while underwriting profit increased 61% with all major sub-products contributing. Premium in our E&S property book grew by 54% including material rate increases for all coverages.
The hurricane rate increased from 29% for the quarter and has been accelerating throughout 2022. We believe this trend will continue given the disorderly market conditions, that are further supported by increased reinsurance costs. I’ll provide more detail on our reinsurance renewal towards the end of my comments. It’s worth noting that our E&S property division achieved both a gross and net underwriting profit for the year, notwithstanding our second-largest natural catastrophe loss in RLI’s history.
Our Marine product groups also exhibited strong growth with premium of 17%, including a 6% rate change for the quarter. Marine is now a consistent contributor to our bottom-line and this quarter was no exception. They experienced very little loss activity in the quarter and their growth over-time that help to right size their expense ratio.
Finally, our Hawaii Homeowners product grew premium by 17% due to our local underwriters efforts. The Hawaii team is committed to providing response of seven, which has helped us win new accounts. Overall, we are very pleased with the property segments 62 combined ratio for the quarter.
Turning to the Surety segment, premium was up 5% in the quarter, which was split between contract and commercial surety. Contract surety premium continues to experience a lift from inflation and the cost of construction project and increased public spending on infrastructure projects.
We also won some new accounts through our active marketing efforts. Commercial Surety experienced growth by expanding both existing and new account relationships. Surety produced an underwriting profit with very little loss activity in the quarter. We continue to carefully pursue growth opportunities, while monitoring the financial results of our principles closely, given the evolving economic environment.
The Casualty segment’s premium grew by 4% in the quarter, despite some headwinds. The public D&O market is under pressure, we exited accounts with unreasonable changes in terms and conditions and provided a 9% rate decrease on our renewal. The exit from Cyber Liability and reps and warranties business also affected the quarter-over-quarter premium comparison. Excluding that premium reduction, and casting our executive products group, the casualty segment would have grown 10%.
Energy Casualty is another area in which we are retrenching, specifically in excess layers. We wrote almost $14 million of excess energy liability business in the 2022 calendar year that will be run-off throughout 2023. Our Transportation business unit grew 13% in the fourth quarter, although we are seeing a lot of competition in the truck market. Rate increased 8% in the quarter driven by public and specialty commercial autos, which are experiencing more stable market conditions.
Personal umbrella was up 16%, as we continue to collaborate with our production partners to improve our processes and better meet customer needs. The personal umbrella market continues to be disruptive, as many of our competitors for standalone umbrella have significantly reduced their appetite or left the space altogether.
D&S casualty grew premium by 7% with more opportunities available outside of the competitive New York City construction markets. Rate increases in excess liability business were 8% for the quarter. When looking at our bottom-line results, I also have to mention our professional services and small commercial group. This product group is in a fairly stable environment and has been quietly growing.
Premium increased 9% for the quarter and they achieved a very good combined ratio. This group supports the construction industry on an admitted basis and covers classes of business ranging from architect to small to mid-sized contractors. The expertise we have developed in underwriting and claim handling over-time, continues to meet the needs of our customers.
Now I’ll turn your attention to our reinsurance purchased on January 1. We renewed about 2/3s of our reinsurance coverage this month. The reinsurance market changed their portfolio in the fourth quarter. Casualty treaty coverage renewed as expiring with rate change estimated at flat to up 15% on a risk-adjusted basis depending on the line of business. We increased co-participations marginally to balance the increased retention that I’ll talk about in our property business.
I wouldn’t describe the casualty reinsurance market as orderly compared to the property and catastrophe revenue. As our property per risk treaty has done loss impacted over the last few years, we renewed it with an estimated 40% risk-adjusted rate increase, an increase to first dollar retention to $2 million. We renewed our catastrophe treaty with a roughly 45% of risk-adjusted rate increase and an increase in first dollar retention from $25 million to $50 million.
Coverage is similar to expiry, including renewing our expiring reinsurance treaty limits from coverage and adjusting our limits for earthquakes to match our exposure. We have the advantage of writing almost all clinical CAT risk on E&S papers, which means we can adjust rates and terms and conditions very quickly. Throughout the latter half of 2022, we had already been tightening terms and conditions, reducing commission and increasing our benchmark pricing of property CAT business, anticipating the increase in reinsurance costs.
We have been writing catastrophe insurance for about 40 units. The last-time we materially increased our catastrophe retention was in 2007. Since that time, our property segment’s premium has grown over 140%. Our consolidated premium has more than doubled and shareholders’ equity has grown over 50%. We maintained our retention, because the economics made sense.
Our reinsurance strategy going-forward were primarily focus on buying traditional reinsurance from financially secure partner in supporting correct term and have a high regard for our business model and disciplined underwriting.
We will supplement the support with additional capital sources to replace the reinsurers, but become less relevant and commoditize their role. We will continue to assess our reinsurance purchases to maintain a balance in the risk-reward economics. Given the increase in cost at January 1, we anticipate further rate increases on our primary business and believe the E&S property market remains attractive.
With that, I will turn the call-back over to Craig.
Craig Kliethermes
Well, thank you, Jen.
A great quarter and another year of differentiating underwriting results. We believe, we are in-depth risk managers, the proof is ultimately determined by results. Each day, we seek better ways to be the most profitable, diversified portfolio of specialized products in our industry, while meeting the risk transfer needs of our customers. We do this by adapting and reoptimizing our portfolio and weighing opportunities subject to the constraints we control and those we operate within.
We will continue to serve our customers’ needs with a focus on stability and consistency. We will work to grow our business that are profitable, invest in new and existing businesses that provide opportunity and from time-to-time rehabilitate or exit the key products that may be required. Our ability to be agile and adapt to the market environment is reflected in the 27 consecutive years of underwriting profit we have delivered to shareholders.
The engine of our success is founded in the 1,000 associate owners who show-up every day, focused on the long-term success of their company with a vested interest in delivering the best outcomes for our customers and our shareholders. I want to thank all our RLI’s associate owners for another tremendous effort in 2022 and for taking care of our customers with their specialized knowledge and expertise, outstanding service, stable appetite for risk transfer and deep relationships that are forged and reinforced over a long period of time.
Now. I’ll turn it back to the operator to open it up for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question today comes from Greg Peters from Raymond James. Your line is now open.
Greg Peters
Well, good morning, everyone. Thanks for the comments. Can we go back to the discussion on the reinsurance renewal for 01/01/2023. I believe, I’m — the retention has moved up to $50 million. Can you give us a sense? I know things have changed, but how that would have affected with the higher retention. The reported CAT loss on a net basis for 2022 and 2021, have you had that higher retention?
Jen Klobnak
I’ll have a look back to ’21, this is Jen by the way, but I can tell you for Ian, it was probably $10 million to $25 million of additional net loss depending on which underlying treaties we’re treating, so that’s a rough estimate.
Craig Kliethermes
The other thing Greg, to note there and I think if you think we could just put a square number to it, but as Jen mentioned, we range it. Because, you don’t know, how some of those property per risk treaty will play. And the other thing to really, think about from a rate increase that we have gotten and are continuing to get. There’s a lot more dollars in that property bucket that play well as far as the total underwriting results there from this segment.
Greg Peters
I understand. That makes sense. Can we pivot just given the reserve development. I know you commented about prior year development. And your view on accident year loss ratios. So I’m just curious, some of the numbers you reported sort of counterintuitive, just because of all the inflationary pressures we’ve heard about. What’s your — when you think about specifically the casualty and property segment. What’s your view on sort of a loss pick – accident loss pick assumptions in ’23 versus where they were in ’22, et cetera.
Todd Bryant
This is Todd, Greg. I think really the items you mentioned whether we want to call it inflation or social inflation, what you read about out there. That certainly influences are actuarial view. I think you’ll see it really in 2022 and normally you’re going to see it in the year. I think we’ve talked about that Craig mentioned to from a loss cost trend standpoint.
So we do believe it’s adequate in total and really in most areas. But I know we’ve talked before as well that our actuaries, they’re going to weigh all that in, they’re going to typically take the longer-term trends, but they are influenced in periods — shorter periods of uncertainty or inflation, other factors, over a short-term trends are a bit higher, that’s going to influence the initial booking ratio.
It can also influence how long we hold-on to those initial fix and potentially expand loss reporting period. So all those things factor into the view, whether it be on casualty, all our other segments, so that has an influence there.
Greg Peters
Okay. Thanks for that color. I guess — and just as a follow-up, my — well, another question that would be my last question, which is, now that your property cat program has renewed, what’s — is it changing sort of your strategy as it relates to growing your property business? Or does it reinforce the strategy you have in place? Or how does this — how does the reinsurance — the increased retentions change sort of the matrix of ROI as we think about ’23 and ’24? That’s my last question.
Jen Klobnak
Sure. Thanks, Greg. This is Jen. I would say that our catastrophe strategy is constantly evolving. So things that are in that space are happening all the time, whether there are events or no events can impact how you’re approaching that segment and the various costs driving that business and this range over time as well. So this latest chapter, we are revisiting and have revisited throughout 2022, as we anticipated some change in the reinsurance market. And Ian, of course, provided something to talk about. And so that also had us looking at what we need to do.
Throughout 2022, we had been increasing rates throughout the year, and we anticipate that, that trend is likely to continue. We’ve honed in on terms and conditions, watching deductibles, co-insurers, things of that nature to make sure that we are properly covering the exposure, but also sharing the loss with our insurers where that makes sense, depending on all of the factors that drive the outcome. So part of it is premium, but part of it is coverage as well. So you have to see how all that kind of comes together.
So going forward, it’s going to be similar to before. We’re going to be very active if an event happens and helping our insurers during that time, put boots on the ground, which is what we’ve emphasized a lot in 2022. That gives us really the best sense of what’s needed in that market and how we need to continue to evolve. That’s really the best input, it’s from our insurers and also our producers to some extent as well.
So I would say we’re not intending to grow exposure significantly in 2023. We’re looking more to optimize what we have on the books. And so that’s reflected in the fact that we did not buy additional reinsurance limit on January 1st. So we’ll work within the capacity we have at this point in time and continue to have really attractive returns, hopefully, on that portfolio.
Greg Peters
That’s makes sense. Thank you.
Operator
Our next question today comes from Casey Alexander from Compass Point. Your line is now open.
Casey Alexander
Hi. Good morning, and thank you for taking my questions. I have two questions regarding the property. One is with the increased rates, but also the increased retention, is it reasonable to think of more seasonal volatility of your earnings stream with higher margins in non-cat quarters and obviously a little more impact in cat quarters? And then as a follow-up to that question, we’ve heard tell of potentially more capital coming back to the market in the June reinsurance renewal period. If some of that seems reasonable, does that provide you an opportunity at the June renewal period to add on some additional coverage that might cover some of the increased retention that you’ve taken down at this point in time?
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.
Mark Dwelle
Well, I was just going to add, Mark, but just in addition, we did after updating our benchmark pricing for the additional reinsurance costs, I mean, we still believe that our business is priced above our benchmark pricing to hit a targeted return. It doesn’t mean we’re not going to try to get more rate and pass some of this along, but we also want people to be comfortable that we believe current market pricing is still in excess of what we think what our benchmark pricing is. So, a lot more of the market, I mean go out
Mark Dwelle
Okay. I mean, that’s helpful. And Jen’s comment, I mean, was actually going to sort of be my next question was, are you seeing any evidence that customers are basically doing what you did in raising retentions and lowering — changing their limit strategy such that — I mean I know from your perspective, you might be getting whatever a 20% rate increase, but in fact, the actual amount of premium growth would be considerably smaller than that. Are you seeing that behavior yet? Or that’s something that we would anticipate over 2023?
Jen Klobnak
Yes, Mark. We are seeing that particularly in Florida, where insurers are buying full-limit coverage for their fire exposure, but not for the wind exposure. And they have to work with their banks or their mortgage providers to make sure that, that all passes muster. But that is something that we’re witnessing starting to creep into this environment.
Mark Dwelle
That’s definitely consistent with some comments that one of the insurance brokers made earlier this week. Was there something you were adding, Craig, I’m sorry?
Craig Kliethermes
Obviously, deductibles are certainly increasing on a percentage basis. So, I mean the management deductibles are increasing pretty much across the market, not just us.
Mark Dwelle
Okay. Thanks for all of that. And then you had mentioned in the comments that you were pulling back from some of the cyber liability business. Is that something you can quantify in terms of how many dollars of annual premium run rate that had been just really to run rate what the outlook would be for the upcoming year?
Jen Klobnak
Sure, Mark. We actually exited that business in the — during the fourth quarter last year. So, this was the year of runoff, which we’ve just completed for large account cyber facility. Yes, no problem.
Mark Dwelle
I had that confused. My mistake. And then changing gears over on the investment side. I almost feel obliged to ask Craig what he’s going to do with the Maui Jim proceeds even though I already know the answer because I’ve been asking it for a year now. But, I guess that’s what I’m going to ask is, are you still considering or evaluating other equity investee opportunities? Or is that something that you’re content with just the prime business and if an opportunity falls in your lap, you’ll look at it, but you’re not really seeking anything there?
Craig Kliethermes
I’ll say some and maybe Aaron will join in. But I mean, we’re certainly always looking for opportunities. Every day, we look for opportunities. So if we find a good opportunity for an investment in that, we would take advantage of that.
Todd Bryant
I’ll only add, Mark, old habits die hard, I guess, in asking those questions around Maui Jim proceeds. We are investing every day, general account assets of the Company. And the Maui Jim situation going all the way back to the mid-’90s was a very unique situation for us, definitely. Then we tend to look a lot more things as Craig mentioned, a little closer to home I’ll call them in terms of in our space or around our space, but we do look a lot.
Mark Dwelle
Okay, thank you. That’s all my questions.
Operator
Our next question comes from Matt Carletti from JMP. Your line is now open.
Matt Carletti
Hey, thanks. Good morning. Apologies in advance for another reinsurance question, but, can you help us – thanks, how are you? Can you help us just with maybe the question is kind of how did the dollar spend change on the property side? And I know rates went up 40%, 45% across the two treaties. But obviously, you’re retaining a lot more of the most expensive layers. So, as we think about kind of gross net retention, like what sort of order magnitude or dollars, if you can, might the dollar spend change there?
Jen Klobnak
Let’s see. This is Jen. I would say our — it will depend, of course, ultimately on what our rate change is for 2023. So, we’re not anticipating a material change given we expect to see — the rate increases will continue to some extent. But there is some additional cost, obviously. So, might be a point or two of retention, that’s lower, but it’s not going to be significant.
Matt Carletti
Okay, great, very helpful. And Craig, best of luck to your cheese this weekend.
Craig Kliethermes
Well, thank you. Will take all help we can get. You have the cheese, that’s gone right now. Will take all the help we can get.
Operator
There are no further questions at this time, so I would turn the conference back over to Mr. Craig Kliethermes for some closing remarks.
Craig Kliethermes
Sure. Thank you all for joining us. Again, we think it was a good quarter, good year. We’re just going to get back to work. Talk to you next quarter. We’re just going to keep you up on what we do. Thank you.
Operator
Ladies and gentlemen, if you wish to wish to access the replay for this call, you may need to do so by dialing 1 (866) 813-9403 with an ID of 627187. This concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.
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