Q4 2019 Earnings Call
Thank you Shotshell and welcome to the Everest re group limited 2019 fourth quarter at yearend earnings Conference call.
The Everest executives, leading todays call or one underwriting president and Chief Executive Officer, Craig Howie SVP and Chief Financial Officer.
John You said.
TDP, President and CEO reinsurance division and Jonathan Defino, GDP, President and CEO <unk> insurance Division.
Before we begin I need to prefers the comments on todays call.
By noting that average that cheap Ali.
Great extension disclosures with respect to forward looking statements management comments regarding estimates projections and store are subject to the risks uncertainties that assumption as noted in these filings.
Management nails to refer to certain non-GAAP financial measures. These items are reconciled in our earnings release.
Hi, I turn the call however on a drawdown.
Thank you John and good morning, It's my pleasure to join you for the first time as president and CEO about breast.
2019 was a solid year for our company. That's we continued to benefit from improving market conditions across all areas of our business.
We are well positioned for this market with broad capabilities and top talent and we remain focused on solving our clients most critical risk transfer needs in a disciplined and profitable way.
For the full year 2019 adverse recorded net income over a billion dollars a significant increase from the prior year and a 12% net income return on equity.
Net operating income for 2019, what's an excess of 872 million also significant improvement over the 2018 result.
Our combined ratio for the year was 95.5 compared to one of <unk> 0.8 in 2018, despite 550 million of catastrophe losses during the year.
Our book value per share growth was 16% and we grew our revenues by precise.
We remain focused on our industry leading expenses that.
We achieved a 6% expense ratio in 2019, while continuing to make significant investments in people.
Allergy and the infrastructure necessary to grow our company.
He is overall results are a testament to the strike and diversification of our franchise, we had sizable contributions from both our underwriting and investment operations throughout 2019.
Specific to the underwriting operations 29 team demonstrated the success of our strategies in both reinsurance and insurance.
For the full year 2019.
First generated 336 million in underwriting income.
And our reinsurance division, we generated 255 million in underwriting income with a 95.4 combined ratio.
Even with an active catastrophe year with industry insured losses in excess of 50 billion.
This result reflects the steps we have taken to diversify our portfolio and reduce volatility.
In our insurance Division 2019 marked another strong year profitable growth.
We finished the year with gross written premium nearly 2.8 billion, a 23% growth rate over 81 million, an underwriting income and the 95.8 combined ratio.
Our U.S. franchise, which makes up the majority of our global insurance business Red combined ratio in the low ninetys for the full year.
The insurance Division had pre tax operating income of 270 million for the year, including the allocated 189 million of investment income and excellent result.
Overall investment income for the group was 647 million up 11% over the prior year.
Given the prudent investment mix of assets. We maintain this was also an excellent outcome.
Overall, our invested assets grew by 2.3 billion at 29 team to nearly 21 billion driven by record underwriting cash flows and the solid return on invested assets.
Turning to the fourth quarter of 2019 overall group results were impacted by 215 million in catastrophe losses and higher than expected losses in our crop reinsurance book, That's a result of inclement weather.
This resulted in a group combined ratio of one to 1.5.
For the quarter. That's a result of these losses, our reinsurance division posted a combined ratio of one to 3.9 and an underwriting loss of 55 million.
Our insurance division generated over 26 million in underwriting income and the 95.1 combined ratio.
Heading into 2020, we remain very well positioned.
Our reinsurance division, we were pleased with our January one renewals, which represents about 50% of our annual reinsurance premium.
Underwriting discipline remains Paramount and we were able to underwrite a stronger portfolio with greater balance diversification more expected margin and reduce volatility.
In our insurance division the rate momentum continues to build up meaningfully in virtually every class of business.
Our insurance division is hitting full stride in an ideal time, given the market Tailwinds, we have to write culture platform and relevant to their clients and trading partners. We also have the underwriters and systems necessary to capitalize on the current market with the infrastructure in place to ensure underwriting discipline and appropriate risk selection.
Strategically our focus just on increasing average earnings power in terms of both our underwriting and investment income with the goal of driving superior book value growth overtime.
Underwriting profitability will remain at the core of everything we do as we execute on our well defined premium growth strategies in an improving underwriting environment.
We will continue to search for profitable growth opportunities and increase relevance.
Do you use a sports metaphor, we're on the front, but.
We will also continue to create optionality and diversification in our business with a broad mix was brought us distribution and geography.
This allows us to focus our underwriting capital on the most profitable classes, regardless of the environment.
With regard to investment income strong operating cash flows and returns on invested assets will continue to grow our portfolio going forward.
Our focus will be on optimizing the performance of our investment portfolio, while maintaining a well balanced and prudent investment posture.
The efficient use of our capital facilitates returns on equity significantly in excess of our cost of capital.
Our goal was a double digit return on equity our first priority is to deploying capital into the business to position for us for long term success and profitable growth.
Growth in our earnings power combined with our strong balance sheet low leverage strong financial ratings and the effective management of capital will position us to succeed in every stage of the market cycle.
Now, let me turn it over to Craig to provide additional details on the financials.
Thank you want and good morning, everyone.
For the fourth quarter of 29 chain Everest reported net income of $218 million. This compares to a net loss of $385 million for the fourth quarter of 2080.
Net income for the full year was over $1 billion compared to net income over $89 million in 2080.
These results were driven by a strong underwriting performance across the group higher net investment income and lower catastrophe losses compared to 28 team.
In the fourth quarter of 29 team ever saw $215 million of net pretax catastrophe losses compared to $875 million in the fourth quarter of 2018.
The 29 team pre tax loss estimates came from typhoon Hagibis in Japan for $190 million and Dallas, Texas tornado was $25 million.
On a full year basis, the results reflected net pretax catastrophe losses of $550 million and 29 team compared to $1.7 billion recorded in calendar year 2018.
These losses are pre tax figures net of reinsurance and reinstatement premium.
As a reminder, the company uses net after tax loss estimates when setting its catastrophe loss budget for you here.
Excluding the atrophy events reinstatement premiums and favorable prior period Reserve development underlying book continues to perform well with an overall current your attritional combined ratio of 88.4% for year compared to 87% last year.
This increase was primarily due to the business mix in the reinsurance segment, which has been writing more proportional casualty business over the past several quarters.
Carries a higher loss ratio, but benefits from the current underwriting market conditions.
Also due to the impact of the current your crop reinsurance losses in 2019 $50 million.
On reserves, we completed the remainder of our annual loss Reserve studies during the fourth quarter.
We booked $19 million a favorable prior year reserve is all.
This is in addition to the $75 million a favorable prior year development reported in the first three quarters of 29 team.
Full year total $94 million.
The insurance segment reported $16 million a favorable prior year reserve development during the quarter, which was largely related to its workers compensation business.
The reinsurance results segments.
Reported $3 million a favorable prior year development during the quarter and $77 million for the year.
The reinsurance segments saw favorable development in some short tail and credit related loan items, such as property Shorty Marine and mortgage.
This favorable development was offset by actions, we took to strengthen reserves in the Bermuda segment for losses on some specific accounts for both property and casualty.
Before moving to taxes I'd like to remind you that we've included a split or net investment income between the insurance segment in total reinsurance. This is shown on page 15, and the financial supplement.
It indicates the contribution provided by each segment, a pre tax operating income and reflects $458 million allocated to reinsurance and $189 million net investment income allocated to the insurance.
We are including this information to better demonstrate the total contribution by business segment and highlights the standalone value of the growing insurance franchise.
On income taxes, the tax benefit was the result of losses associated with the catastrophes this year.
Since the majority of the catastrophe events came from business written in the U.S. book.
Losses, and tax benefit primarily reflect the U.S. tax rate.
The effective tax rate, it's an annualized calculation that includes plan catastrophe losses for the year.
For 2020, we expect our tax rate to be about 12%.
Which reflects an annual cat load of about six points of loss ratio.
Shareholders' equity for the group ended the year at a record $9.1 billion up $1.3 billion were 16% compared to year end 2018.
The increase in shareholders equity is primarily attributable to the over $1 billion with net income and recovery in the fair value will be investment portfolio.
During the quarter, the company announced a 11% increase in its regular quarterly dividend paid $1.55 cents per share in the fourth quarter of 29.
Our balance sheet and overall financial position remains strong.
We maintain industry well debt leverage manager high credit quality investment portfolio and generate robust cash flow.
Thank you and now John Doucette quite review of the reinsurance operations.
Thank you Craig good morning.
Following three years of significant catastrophes and more recent loss development. The 2020 reinsurance market is dynamic.
Just as our property book in 2019 was or better portfolio compared to it.
Thousand 80.
After this January 2020 renewal, we have a stronger even healthier book across our overall global property portfolio, including property cat proportional facultative per risk retro and purple treaties with better balanced diversification implement appointment.
And we have improved expected margins, while managing the size of our catastrophe PML.
We are optimistic about the opportunity set in front of us while remaining realistic that there were a choppy waters to navigate in both property and casualty lines.
It is an improving market marked by increasing demand for reinsurance with roughly flat reinsurance supply and for specific deals pricing was determined by class of business territory and loss experience.
Everest is well positioned in this market given our unique strange and attributes. These include our longstanding client relationships and robust ability to source business globally strong balance sheet and strategically located and seasoned underwriting teams empowered to make decisions and execute.
At January one average deployed more capacity and retro.
Our purple product.
Loss affected territories with rate improvements or continue post loss higher reinsurance rates casualty.
Specialty and facultative lines around the globe.
Conversely, we continued to re underwrite poorer performing accounts or accounts, which did not have strong pricing on these programs, we cut back our share or came off.
Approaching January one we utilized alternative capital to capture value in the improving market. We went back to the cat bond gets renewed the expiring kilimanjaro bonds and utilize the approximately $800 million or that you EM in Mt. Logan.
Along with enforce cat bonds and other hedges, we holistically built capacity to deploy on deals we liked particularly in retro and purple.
At one one we were able to improve profitability of our global Cat book optimizing the risk reward of the portfolio, while managing the volatility.
There's been a lot of discussion of the U shape market pricing dynamics.
I think the correct analogy is eight w. shape.
Why NW shape and not a U shape.
Both exhibit increasing primary and retro rates.
But in the U. shaped model reinsurance rates would not move up much at all.
However, in the W. shape model, the reinsurance rates terms and conditions were mixed some disappointingly flat and some with nice improvements and continued attractively priced opportunities that is why we believe it w. shape is it better visualization market.
First the left side of the W. shape model primary insurance.
Everis writes a large amount of proportional treaties weird directly benefiting from improving primary markets in casualty property and specialty lines, particularly in N.S. and in certain capacity restricted territories, such as Canada.
Relevance to our clients and brokers for providing much needed restaurants for capital support and volatility management helps them capture value in these improved primary markets.
Now the middle part of the W. shape model reinsurance as I said results were mixed some good some disappointing.
Positives for global reinsurance programs pockets of casualty mortgage structured business, many facultative lines in several watts affected areas.
Disappointments included several smaller capacity programs and several cap free territories.
Specifically at January one several large global property programs the tap out global capacity had improved pricing. Therefore, we wrote more with several large multinational global clients, particularly with our strategic partners.
Loss affected territories impacted by catastrophes over the last three years.
Have substantially better rates and in some cases those rates continued to improve.
But smaller limit programs, including regional U.S. and smaller clients around the globe did not see much rate movement.
Most of Europe, and much of Latin America in Asia, we're closer to flat, China was down and we deployed less capacity there.
Casualty reinsurance Soc directional improvement of reinsurance rates as well as benefited from primary rate increases improved terms and limit contraction, resulting in a better priced and better balanced book.
There's been a lot of talk about social inflation and increased loss trends in casualty.
We believe this is a reversion to the long term me.
As opposed to something new.
And this reversion to the mean in trend and loss development is something that we have been underwriting for.
Jason for and embedding in our trend factors for several years prior to this being in the headlines now.
Seasons continued to decrease their volatility through a combination of gross line reductions buying down treaty retentions buying more casualty reinsurance and buying more facultative reinsurance in both property and casualty.
Fac helps eaton's manage lime size and protect certain Rex they get limited or excluded under treaties. During this part of the cycle.
And at the right price terms and conditions for assuming that risk. Our season fact teams can specifically underwrite those risks.
In the last many months, a fact renewals, including this one one we have seen a significant increase in the number of opportunities in fact, both in casualty and property in the U.S. as well as internationally.
Much coming with significant rate lift.
And mortgage which has treaties incepting through throughout the year remains a positive driver in reinsurance.
Finally, the right side of the W. shape model retro at January one retro rates were up meaningfully and we wrote more premium accordingly.
We dusted off our pillared product purple and marketed that beyond the few core clients, who have been consistent buyers. The end result was roughly a 25% increase in our combined retro and purple premium.
Therefore, improving insurance mixed reinsurance with some bright spots and improve retro results in the W shaped market.
As we look forward to 2020, we see January one momentum continuing throughout the year on reinsurance and retro including upward pricing pressure both in Japan at April 1st and also in Florida at June 1st.
Trapped capital and Investor fatigue continue as important drivers in the properties base.
We see a mixed casualty reinsurance market continuing in 2020 with some ranchers writing more in summer treating or writing less.
This is a function of perception of loss trends market share and underwriting actions taken over the last several years.
As discussed on many prior earnings calls given casualty underwriting actions, we took the last six to eight years.
We are optimistic about the current market.
Mortgage continues to be a core line for us we've increased our blog and expect to see increased reinsurance demand from the buyers in 2020 and beyond.
With proactive optimization continued re underwriting and diversifying our global portfolio. We're pleased with the outcome a January one and are well position for the future.
Thank you and now I will turn it over to John to review our insurance operation. Thank you John and good morning.
Yeah first insurance completed 2019, delivering another year of solid profitable growth with the strongest underwriting income in many years and as you heard from one achieving a milestone of 270 million a pretax operating income.
Stated simply in the insurance organization is well positioned for continued success and Miss firming market.
Our strategy thoughtfully executed upon over the past several years, it's producing solid results. We continue to increase our relevance within the specialty insurance segment and most importantly, among our valued clients. We remain optimistic about the future and continue to see meaningful opportunities ahead.
This isn't underwriters market and we have the platform the products and outstanding talent to continue to thrive.
For the full year 2019, we achieved gross written premium growth of 23% or $2.8 billion. Our net written premium likewise grew 22%.
The 2.1 billion.
Over the last two quarters of 2019, we experienced a gross written premium growth rate of 30%, which speaks to the accelerated pace affirming in the market and the increased opportunity set across our global specialty wholesale and retail product offerings.
Various underwriting divisions, representing our short medium and long tail books, all experienced opportunistic wrote in the quarter.
Our mix remained generally similar to the prior year with one notable decline in U.S. workers compensation.
Down, 4% now equaling about 20% of our total writings.
While we continue to see opportunity in workers' compensation, we remain cautious in that line of business.
Our short tail and accident and health portfolios remain roughly 30% of our total mix and our specialty casualty portfolio is also roughly 30%.
The balance is made up of our various professional and financial lines offerings.
Business originated within the U.S. excess and surplus lines market and London wholesale accounted for nearly 40% of our total premium in 2019. This may scale, even further as we continue to see meaningful opportunity through this important channel.
Our new business in the quarter was solid once again in our retention ratio grew in each major distribution segment.
That's the this growth emanating from rate change.
All these factors further contributed to topline performance.
As you heard profitability was solid in both the quarter and year to date period.
Our year to date 2019 result is the strongest underwriting profit in many years in a 6% greater than last year's results on a same basis.
Reported loss ratio was essentially flat year over year, registering a 65.2 versus 65 in the prior year.
However, the attritional loss ratio improved 20 basis points over the prior year coming in 66 versus 66.2.
The expense ratio for the year remained stable around 30%, while we continue to invest and people technology and infrastructure, including our growing international platforms.
An example, we continued to invest heavily in our claims organization to promote better outcomes for Everest and our clients.
This concludes the recruitment of outstanding talent across every level of our claims group as well as investments across our operational infrastructure enabled by technology.
Further we have migrated claims handling away from TPH in several key product lines in geographies.
Sure in house claims teams and I'm very pleased with the results. Thus far we will look to further enhance this important aspect of our organization in 2020.
As we look to the rate environment, we see accelerating rate improvement across most of the market.
In the quarter, we experienced pure rate increases, which excludes the impact of exposure.
12%, excluding workers' compensation and 7.9% year to date on the same basis.
This is the largest increasing in many years and continues to be led by double digit rate increases within our property portfolio.
Financial lines in umbrella excess are also showing significant improvement.
Industrial double digit rate increases as well and then a case of excess casualty rate increases or in the high teens.
Encouragingly, we also see primary general liability rates moving up in the fourth quarter as well the mid single digit range.
Every major line of business, we underwrite showed improvement in rate change momentum in the fourth quarter.
As we've previously noted we remain very well positioned to take advantage of this improved pricing environment in terms of our people product set and our ability to offer solutions to clients and its evolving market.
Most importantly, all of these actions continue to drive meaningful income and the insurance organization.
In conclusion, we entered 2020 with excellent momentum our global platform extensive global distribution and most importantly talented team.
Continue to differentiate Everest insurance in the market.
Having recently hosted our 2020 underwriting summit.
Gathering of our top underwriting leadership across the world I can assure you that team is focused in prepared to continue executing on our key underwriting directors.
Look forward to reporting back to you on our progress next quarter.
That also on the call back over to Sean Telford do you want I.
Thank you very much ladies and gentlemen at this time it opened up for questions. If you would like to ask a question you May press star one on your telephone keypad now.
Again that is still on one to ask a question.
Well pause for just a moment told me wait for question is to Q.
[noise] I first question what comes from at least Greenspan Wells Fargo.
Thanks, Good morning.
My first question on kind of I guess trying to tie together she things I said in his prepared remarks, it sounds like you're.
Well, we're I'm in 2020, I think you guys said around 6.5 relative to where it's been trending but then it sounds like you guys saw some good opportunity on both on the reinsurance I know retro side. It one line so that more assumption of I'm. You know some also good growth you're seeing on the casualty side of things I'm just trying to you.
That all together.
And why your cat.
If you're seeing good growth.
Right.
Yeah at least this was one so so let me start in Alaska, John Doucette to add to this as well. So as you pointed out we did see a very good opportunity in the retro market one one.
We continue to see a good economic best from the perspective, well great momentum. We were also successful in moving further up in attachment points et cetera. So for us that was really a very good opportunity.
As a result of that you will also continue to see our volatility continues to improve as John Doucette, and I've mentioned in our prepared remarks, I think you'll see that in our numbers throughout the year now with regards to casualty. We also continued to see pretty good opportunity on the reinsurance side essentially for all the reasons that weve.
Mentioned with the improvement into primary side of things, particularly in general liability in some of the improvements that we've seen an excess casualty as well and given the fact that we're writing proportional treaties with some key clients that was also pretty good opportunity for us up into one one period [noise].
Good morning at least this is John Doucette and that just wanted to follow up a couple of things. So I guess, we did see opportunities in certain pockets of the reinsurance and we saw our opportunities and retro unbearable. We also saw places within the a in the property area in the reinsurance that we didn't like and we scaled back accordingly, and that freed up some of the thing that cap.
Load.
For us to deploy elsewhere, we also.
Talked about and deployed.
Additional hedges voted the cat bonds and they came in lower.
Which also freed up some of the yellow and then as ones that really trying to continue to diversify the book, which is growth in casualty growth at mortgage growth in facultative and especially non cat exposed lines of business as well.
That's helpful and then.
Craig You mentioned, you what kind of going down into some of that pushes and pulls in terms of Jefferies. Your development on in terms of Bermuda segment, I guess that number you know is a small number for the quarter, we just get a little bit more color on you know and what constraints and in terms of popping casualty accounts and size.
And that segment.
Shortly is first of all as you said, we did take some specific action for both property and casualty in the Bermuda segment.
Property, we primarily strengthened reserves for one account, which we no longer right.
And also specific loss related to some very over years.
In the casualty side, we strengthened reserves for first some specific accounts, including nonstandard auto account that we wrote in 2015 in 2016, we no longer while this account.
The other thing as you mentioned there are some puts and takes on them and they're always our we have over 200, I've been or scenarios and so you're always going to see some ups and downs, but the other thing that's going on in the Bermuda segment. This quarter is we had a onetime commutation other contracts so that actually served to reduce prior period reserves by about 20.
$2 million and it was offset by about a 20 million dollar Commission paid so essentially no material impact to the underwriting results underscore.
Okay. That's helpful. And then one last question on.
I see any movement in any catastrophe losses Pires your cats in the quarter that offset each other I was just kind of not much movement there on the Claire.
There's always some movement up and down a lease you know with respect to catastrophe losses, but overall, our <unk> our prior year catastrophe losses continue to hold and so was there was no overall movement.
Okay. Thank you very much sure. Thank thank.
Thank you very much.
Ladies and gentlemen, again as a quick reminder, if he would like to ask a question you May press star one on your telephone keypad and then the interested time, we do ask that you ask one question one follow up I next question will come some mikes urban ski credit Suisse.
Hey, good morning.
Maybe I didn't think commentary and the prepared remarks, especially on pricing.
Is there a way to.
Try to frame out as lot of moving parts, maybe kind of loss cost inflation on the primary insurance casualty side are you or is it still kind of stable quarter over quarter or some companies are saying, it's kinda inching, a little higher I'm curious if any color there.
Good morning, Mike. This is John we definitely <unk>, let me go back to sort of what we mentioned in the prepared remarks that we definitely saw a meaningful uptick in there right.
Permits in the second half a year.
As you mentioned every line of business has a bit of a different dynamic.
We obviously have a process for tracking or viewing.
Great and trend assumptions across all our lines of business, but I would tell you that we feel quite confident that are written rate is exceeding trend.
In virtually every area it'll take a little bit time for that to earn through.
And this is this is a comment a bit export call of course.
And even in that case, we're still seeing negative frequency trend. So we're watching all of this the uptick as I mentioned, a 12% and the quarter ex comp that's up from seven and a half in the third quarter six and a half in the second quarter. So you get the you get to feel so we feel really good about the rate.
We like where we're heading and we do believe in a written basis. You know we are exceeding trend at almost every area.
Okay, Great. That's that's helpful.
And lastly, if I if I looked at the.
The paid to incurred loss ratio, excluding catastrophes seems like it ticked up a little better that's above 100% I'm missing you'd call out there or is it just normal normal variability.
I think that's just normal variability Mike.
Okay. Thank you Craig.
Thank you My next question will come from Amit Kumar Buckingham Research.
Thanks, and good morning.
Yeah.
Questions. The first question goes back I think to the first.
Question regarding.
Shifting business mix and the reinsurance segment.
Casualty market conditions, that's what is the cat market conditions.
When do we think about 2020.
That imply based on the shifts that are aimed right ex cat loss ratio should take up or not.
[laughter]. So Ah so Amit. This is one so look I think let me address it in a couple of different ways. So I think number one.
We are seeing a very programatic shifting business mix and the company. It's something that we started really in 2019 and it will continue into 2020 as we look to managed volatility on the property cat side of things and that's essentially the commentary that a you've heard from both John and I as far as space.
We've been able to shape a book, particularly as the one one renewals.
With lower volatility or better margin et cetera et cetera at the same time. It's also the commentary regarding our mortgage book of business, which we continue to see a it's a terrific opportunity for the company.
Well as pockets in casualty and again, that's not across the board you know we are very discerning underwriters in that sense, but we do see pockets of opportunity as we see the primary rates go up as we see opportunities for tighter terms and conditions and for us to be able to to play in that environment.
So from from that perspective, I think that makes us wheel and let me turn it over to wants to jump [laughter]. Yeah. Good morning, I met or so there are a couple of <unk>, you know countervailing currents and a one touched on a couple of stat. So like what Jon Zaffino said on the primary side, we're seeing a when it comes to the portion of treaties, we write in short and certainly in.
Long tail lines were seeing in specialty lines, where do we are seeing right left so we have changing mix of business, which is changing our attritional. We also see the rate changes, but similarly as a as the John's Pheno said you know we would expect that to a to take awhile to earn into the number. So you know net net net probably.
You know look to the full years attritional loss ratio as a good guy.
That's helpful and the second and final question going back to the discussion on.
Hearts movement.
Well just step back that reserve release number is lower than.
Prior quarters trend line and again, I know that Oh, I should not look at and he said.
He just past patterns, but that said at the number is lower than what it has made in the past with that maybe this question. My before you want a is that because if you allow enrollment maybe something you saw maybe just talk a lot that a bit more thanks sure sure I mean, let's keep in mind also that we did release a total of.
94 million in 2019, so while we had 19 million in this quarter. There was also 75 million in releases in prior quarters throughout 2019 up you know that being said, we do have an ongoing in dynamic process to review our reserves you know we do recognize bad news quickly and we required good news to be proven over a longer period.
It's time you know as we do these reserve studies and if we identify an area, where we do need to strengthen we will take range of actions, we will increase our loss reserves already on the books.
We'll increase our current accident year loss picks and we will adjust for pricing targets for new and renewal business and I think that some of what you heard Craig described particularly for the Bermuda segment into quarter.
But also keep in mind that I think is Johnson Pheno said, while in most classes in this current market. The rate that's been achieved this outpacing the loss trend in our business, we do need to see results season over time. So that leads me to take the position that is cautious upfront, but frankly willing to have an upside surprise in the future. So in the meantime.
No. We review, we analyze we ask that our portfolio throughout the year and that's basically the approach that we will follow that you saw in this quarter.
Got it thanks for the answers and that goes into the future.
Sure. Thank you mean.
Thank you very much I next question will come from yarn cannot Goldman Sachs.
Good morning, everybody I guess my my first questions around a third party capital. So I think both Mt. Logan Kilimanjaro capital is down year over year, Oh much of that as a function of the markets are external pressure timing or how much of that is just a function as a address shrinking the gross property cat exposure.
Growing its equity base.
Good morning yarn, it's John so.
So as we talked about you know we have this we talked about before we try to have a holistic hedging program across the cat bonds across slogan across traditional and other non traditional hedges that we have in place to really allow us to shape the portfolio matched the best capital to risk managed the PML to reduce.
And we'll dynamically allocate between those.
Based on market conditions capital availability really to try to set up where we're serving our clients and our shareholders. The best in terms of specifically Logan and thing in Kilimanjaro.
So can you know cat bonds in general for the entire industry or more out of the money or you know lower return periods and they haven't had as many losses over the last couple of years, although there have been some.
So there was a capital was tighter there, but didnt see the same withdrawal onto the same extent that that more of the alternative capital playing a you know in the Sidecars and and other kind of Ah you know.
Just straight up taking reinsurance or retro risks. So I think there was more availability there and we had specifically decided that we wanted to move a this the new cat bonds lower more into the money up and less just to be in the tail.
So from an email, but weve actually despite it being less dollars a limit purchased it was more yell at me a than the expire in bonds that we had in place and in terms of Logan.
It really you know there's a lot of moving dynamics, there's investors that have come in.
Investors that have scaled up there's investors that have come out.
There's investors that have scaled back you know there is clearly a this is an industry comment not have never rest are Logan comment, but you know there is investor 50 with the losses on some of the spies losses. So I would say overall third party capital is tight right. Now are you still have trapped capital or even going back to 17.
I mean, certainly from 18, and then you know a JV are happening.
I mean.
Oh.
Happy and the development there as well as to be sent a Japanese losses or close to the renewal season also resulted in more trapped capital. So I think net net the a third party capital is tighter and we'll continue to see that throughout 2022, you're the only thing I would add is that.
The way we asked this alternative capital.
We ended the year into one one really allowed us to gold the capacity to deployed in two of the improved one one market as we discussed earlier, particularly to our retrolental products, while helping us to manage our volatility enough PML and so for us that was very strategic.
Understood I appreciate the thoughtful answer.
And then my next question probably for a John's Pheno on the insurance side. So you know margins underlying margin seemed very stable year over year at a pretty good ratio there, but nonetheless, I think we did see an uptick at the end of the year, both at the expense ratio and the loss rate.
Underlying loss ratio to maybe talk about that.
Is that just.
Just normal volatility or is that something that you really maybe <unk>.
It was a step change or a small such change I guess and to the entity or.
Yeah. Thanks for the question, let me try to provide some additional color on the so so let me let me I'll start with taking a couple parts first off as you mentioned, we do think.
The year to date numbers, a better gauge and more reflective of our performance.
As respects the Attritional loss ratio and that's 140 basis point increase you saw in the quarter there isn't always in the quarter emanating predominantly from a unallocated loss adjustment expense a you expense catch up.
Affected the Attritional loss ratio.
Excluding that that catch up or the pure attritional loss ratio actually declined by about 100 basis points.
And again on a year to date basis. The Attritional is flat basically for the full year.
I also want to add some if you recall in prior calls we did take a more conservative view of our work comp book earlier in the year.
So on a year to date basis, that's also creating about.
70 basis point, a headwind if you will to the year over year comparative.
As respects the expense ratio.
As Craig mentioned, you know we experienced favorable prior period development in our work comp book as we have for the past couple of years and associated with that was a onetime profit Commission, which caused the commission ratio to go up a bit in the quarter absent that we had about a 200 basis point improvement.
And the commission ratio.
Currently there were some timing issues associated with expense accruals and for Q.
And we also have from.
Prior year lower incentive comp.
Rules based on company performance et cetera. So that's just hope that gives you a little bit of color as a sort of what was going on in the quarter, but again, we think the full year numbers are more indicative of our run rate in our Trent.
Got it I appreciate it thank you very much.
<unk>.
Thank you.
Next question will come from Meyer Shields KBW.
Thanks, I want to look at the reserve some maybe different perspective, well middle cancel your basis, we're seeing a little bit of the decrease.
In in dollars of reserve releases, its fair to say that the gap between the conservative numbers that you're booking and actual numbers out there that that gap is shrinking.
[laughter].
Overall, I would say you know the conservative numbers that were booking you know come from how we select our loss picks over a long period of time in other words, that's part of our annual planning process and we take into account factors like rate change and loss trend and you know historical loss ratios and as we set those reserves.
No. We go through this process with our reserving actuaries are pricing actuaries are underwriting or claims area as well as management.
You know, we select from various metrics you know whether that be prior year loss elections the plan.
The bridge, which takes into account or both rate and trend and then we also have you know the reserve studies that come from.
From the reserve and.
Oh.
Actuaries and then we also look at Pell pellet business is price and then how the underwriters. So those lost docs. We go through that we also compare that to our actual reported loss experience and then we modified each quarter as we go through the reserve committee meetings and the underlying assumptions.
As I said before we have well over 200 I'd be in our categories that we look at and some somewhat some or.
Some go up each quarter and some come down each quarter as we look at this and as we go through the reserve studies. So what I would say few as the process has not changed we continue to go through that process. We continue to quickly recognize on favorable development that we're seeing in that process, but we tend to hold or you know.
No it's favorable development over a much longer period of time on the so you know as I would say to you and I've said to before we continue to hold the more recent years and then again this quarter. We took action on some specific accounts, but overall the process has not changed overtime.
Okay.
A second question I guess international reinsurance had a phenomenal attritional loss ratio was there anything unusual or was that just a true up for the full year.
Centrally.
For international it's not it's not necessarily a true up what I would say to you.
In that in those areas of the world and what I'm talking about here, our Latin America, Brazil Middle Eastern Africa. What we saw was you were non catastrophe type storms in those regions, which allowed us to take down what we would call you know proper property related loss picks that would fall below.
Our cat threshold or for that period I'm. So that's what you're seeing come down in the fourth quarter will not reach.
Okay. Thanks, so much.
Sure.
[noise]. Thank you My next question will come from Brian Meredith, Yes.
Yes. Thanks, just a couple of quick ones here first what was the impact of crop loss in the quarter on the underlying combined ratio reinsurance and and was it all U.S. reinsurance or was it elsewhere as well.
So it happened in two separate regions or Brian, but essentially its $50 million <unk> <unk> and the two separate regions, our U.S. reinsurance as well as it happened in Canada as well so from a total reinsurance perspective overall, oh, the $50 million is about three and a half.
Points for the quarter and about a point overall for the year.
Gotcha. That's helpful. And then I guess, one bigger picture question curious for want of John given the magnitude of growth that you're seeing right now in your insurance operations can you talk about I mean, and I see the jobs. Your expenses are up so you're kind of adding people and stuff talk about how you get comfortable with the magnitude of growth is going on right now I mean, I know what to expect.
You know rate environment, but but substantial substantial growth is and how you're controlling that.
Yeah sure. So let me start that and then I'll hand, it over to up to John's Casino. So I think it's important to recognize was the growth is coming from right and I think it's John illustrated in his prepared remarks, it's really from a couple of buckets right. So increased rate is certainly part of that.
Keeping in mind that no we didn't have a 12% increasing raped into quarter.
Excluding workers compensation, so that certainly part of the lift.
The other part of the lift up we're seeing is about 40% of our business and growing is exposed to the E.N.S. space, which is really where we've seen the majority of the opportunity come up at this point in time.
We also had very good renewal retention, we look at a or retail book of business, it's really into the mid to high Eightys and our units retention has done a good place. So you look at those three things an increase in rate opportunity, particularly in the N.S. space solid renewal retention and on top of that you had the fact that we've added.
60 additional underwriters throughout 2019.
Starting to get you essentially the picture where that growth is coming from not specific to a question on on how we manage this et cetera that is some of the investments that you're seeing us continue to make well sit technology as well its infrastructure for the company you know one of the things too that I think is unique to us is that we have a very focus distribution.
Footprint and so we know who has the business stuff. We want we're trying to increase the shelf space with them and we're not out there trying to basically grow with everybody. So that also allows us to have a much more focused presence from a distribution standpoint, that's out there but investments in technology investments in our target operating model et cetera, all basis.
Please give us comfort that the growth that we're seeing.
It's something that is sustainable horse, which at the end of the days really the most important thing just really sustainable profitable growth John.
No I think that takes one though that's that's really well said I I'm just sort of maybe echo a couple ones points here number one you can see it in the supplement our or rote is balanced and diversified across our chosen product areas, maybe to amplify a couple ones points our growth in the enough market is growing faster than our topline overall.
So we are taking advantage of that.
So the comment on our rate.
Exposure lift that accounted for about 20% of our growth in the fourth quarter. So just to give you an order of magnitude there.
And then yes, you know, we're well positioned with our trading partners the value they see and and whatever is going to bring to the table is creating a basically record submission flows.
We're willing to the you know hundred 50000, plus submission activity. So all that together and congestion once that is what sort of creating this bar.
Helpful. Thank you.
Thank you very much at this time, we have no further questions in the Q.
I'd like to turn to calm conference back over to management for any closing comments.
Well, thank you for your questions and allowing us to us to talk about the year in the quarter. You know so I've mentioned before we are very well positioned for 2020, we were very pleased with our one one renewals and we're excited with the momentum that we continue to see in our insurance business going forward. So with that we look forward to updating you with the.
He ended the first quarter. Thank you.
Thank you very much maybe even gentlemen at this time. This now concludes today's conference you may disconnect your sometimes and have a great rest the week. Thank you.
[noise].
[noise] [noise].
[noise].