Q4 2019 Earnings Call
Dead dead dead dead dead.
Good morning, and welcome to the fourth quarter 2019 Access Capital earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 month on your telephone keypad to withdraw your question, please press * then two. Please note this event is being recorded. I would now like to turn the conference over to Matt Foreman dead of investor relations, please go ahead. Thank you Andrew, good morning. Ladies and gentlemen. I'm happy to welcome you to our conference call to discuss our financial results for Access Capital for the fourth quarter and year ended December 31st, 2019 earnings, press release and financial supplement were issued yesterday evening after the market closed. If you'd like copies, please visit the information section of our website.
We set aside an hour.
For today's call, which is also available as an audio webcast to the investor information section of our website with me today are Albert Benchmark our president and CEO and Peter boat our CFO .
Before I turn the call over to Albert remind everyone does the statements made during this call including the question answer session, which are not historical facts may be forward-looking statements forward-looking statements involve risks and uncertainties of thousands actual events or results May differ materially from those projected in the forward-looking statements due to a variety of factors including risk factors set forth in acts as most recent report on Form 10-K as well as the additional risks identified in the cautionary note regarding forward-looking statements on our earnings press release issued yesterday evening. We undertake no obligation to update or revise publicly any forward-looking statements.
In addition this presentation may contain non-GAAP Financial measures for the purposes of this call. We believe the best way to discuss our operating results is on XP Gap basis, which is a better representation Off The Runway performance of our business reconciliations are included in our earnings, press release and financial supplement with that. I'd like to turn the call over to Albert. Thank you, Matt. Good morning. And thank you for joining our fourth quarter earnings call getting right down to it. We did not deliver the financial results that we planned for this year. But at the same time we remain confident that the extensive range of our portfolios and investments in our talent organization and digital capabilities will shortly deliver the performance and value creation our team and our shareholders expect of us off.
In a few minutes, we'll speak about the quarter.
My opening comments will focus on our full Gear Performance and year-over-year trends.
Our performance this year suffered from a busy Japanese typhoon season and poor crop conditions United States. We also received increased last notices from prior. Catastrophe took out the year from both types of ninja be as well as the Florida hurricanes. Additionally. We saw higher than planned losses and our Aviation and property lines the various loss of Enron were entirely consistent with normal industry volatility for these lines and our market shares, although we recognize that the growth of our of our business in Japan while a good decision for the long-term effects of a bad time just before the beginning of a record, Japanese typhoon season,
Nevertheless even with all of these headwinds our portfolio actions have still delivered meaningful progress with the reduction of 1.1 points to our current year X Catalyst ratio month, including 1 and 1/2 Point reduction in insurance and a bit below a point in reinsurance.
This brings the reduction in our Consolidated X Catalyst ratio to more than three points over to a year.
We've also conceded to grow our highly attractive fee business with our strategic Capital Partners generating more than eighty million dollars in fees this year a 65% increase over the 48 million dollars that we collected in 2018.
Our teams have been diligently managing and repositioning our portfolios to deliver a stronger more stable underwriting results and the X cat accident. Your combined ratio Trends are coming down year-over-year with lower control your volatility.
Across our portfolio we've been reducing limits increasing attachment points where appropriate canceling unprofitable business and changing mix to focus on the more attractive sub-sectors of boxes as well as reducing p.m.
Where we felt that we could not make sufficient Improvement to our performance quickly enough. We exited businesses. We're confident that this will lead to lower loss ratios in 2020 and Beyond. We were able to replace most of the premium volume lost in canceled or exited business with growth and lines with pricing that met or exceeded or retargeting requirements. However, even with a great increase is observed this year many lines still are not priced at adequate levels, and we prefer to wait for sufficient pricing before pursuing growth in those markets.
thus
Earned premiums were down modestly this year and that put some pressure on our G&A ratio.
Although we were able to meet our G&A ratio targets with good expense control and we continue to look for additional opportunities for cost savings.
We will nevertheless sustain our investments in digital analytics capabilities are digital capabilities have been much appreciated by our top distribution Partners leading to new business growth in the desirable small accounts that we're looking to grow.
With all of this work to further immediate our portfolio. We enter 2020 with a stronger book that is less volatile than in Prior years. We are leaner and more digitally enables and we continue to be well positioned in the markets that are seeing the most significant price in Corrections.
While we are disappointed in our 2019 Financial results, we have a clear line of sight to Stronger earnings. Our teams are aligned committed and determined to sustain the improvement in our portfolio.
After the call over to Pete will take us to the financials and I'll return with the review of market conditions before opening the call to Q&A Pete. Thank you Albert and good morning. Everyone during the quarter. We incurred a net loss attributable to Common shareholders of ten million for an annualized Roa of a negative point eight percent on an XP. Gap bases are operating income with $7,000 generating an XP Gap annualized operating Roa of six tenths of a point our results. This quarter were adversely impacted by a number of items including pre-tax cat and whether losses net of reinstatement premiums of a hundred and forty million dollars as we recently announced these losses with driven by Japanese Thai food haggis Australian wildfires original weather events in the United States.
An increase in the current accident year loss ratio and whether in the reinsurance segment due to loss experience and agriculture predominantly related to poor weather conditions that impacted our life book of business.
also negatively impacting us was a decrease in net favorable prior-year Reserve development in the reinsurance segment attributable to elevated lost experience in the 17 and 18 accident years for property and Cat lines including lost creep associated with hurricane Irma consistent with industry trends
and lastly diluted book value per share decreased by a tenth of a point in the quarter to $55.79. This was principally driven by the small operating gain being offset by investment losses and common dividends.
Some positive highlights for the quarter include a significant Improvement in the current accident year loss ratio and whether in the insurance segment largely due to a decrease in Los experience associated with almost every line of business.
Net investment income of $118 for the quarter also helped with respect to the Novi transaction in the quarter the net drag on operating income from P. Gap vaba. Dhaka justments was $3 after tax approximately $0.03 per share as we have previously disclosed. We expect the vodak impact to be minimal from this point move forward.
as Matt mentioned
We believe the best way to discuss our results is on an XP Gap basis, which is a better representation of the run-rate performance of our business. This is relevant for our group results and our insurance segment results this quarter the impact of P gap on the reinsurance segment was not Material accordingly all my remarks regarding the quarterly operating performance for group and insurance will be on a walk-in basis moving into the details at the group level. The current quarter Consolidated XP. Gap combined ratio was 107.4 and decrease 11.2 points from the fourth quarter of 2018.
The cat loss ratio in the quarter was 12.1 largely driven by Japanese Thai food haggis. As I mentioned earlier. This ratio is down from 22.5 in the entire year, which included hurricane Michael and the California wildfires.
Decrease of 3.2 points in the current accident year loss ratio X cat and weather was attributable to the insurance segment while the reinsurance segments stayed relatively flat compared to 2018 given the results coming from the scrap business.
The Consolidated XP Gap acquisition cost ratio is 22. 5 and that is comparable to the prior-year.
The Consolidated Gina expense ratio of 11.8 increased by half a point compared to the fourth quarter of 2018. The increase in the G&A ratio was driven by wage increase in net premiums earned on a normalized basis. The G&A ratio for the quarter was 13.6 the difference between the reported number and the normalized number that is a reduction of variable taken during the quarter the Consolidated G&A expense ratio for the year was 13.9.
This was 14.3 on a normalized basis. The normalized year-to-date ratio was in line with our previously communicated 2019 Target of a mid fourteen sg&a ratio wage.
We remain on track to achieve net savings related to our transformation program of $100 compared to our 2017 run rate.
However
In addition we continue to drive other expense actions to improve our G&A ratio, and we continue to focus on achieving a mid-30s run rate by the end of 2020 and going into 2012.
Fee income from strategic Capital Partners was twenty-three million dollars this quarter compared to six million in the prior year quarter. The fourth quarter of 2018 was impacted by lower profit commission income due to the 2018 catastrophes this important part of our business continues to grow. Well as Albert noted year-to-date fees aggregated to eighty million dollars this year up from 4:30 million dollars last year.
Now we'll move to the segments. Let's begin with insurance the insurance segment reported an increase in Gross premiums written a $41 in the fourth quarter. We saw a good new business opportunities in both liability and professional lines as well as some growth and Marine.
Insurance combined ratio was 95.2 which is 13.8 points lower than the same period last year.
This quarter pre-tax cat and weather-related losses were $20 primarily attributable to worldwide weather events, and that compares to $92 in the same period of 2018.
Segment current accident year loss ratio and whether decreased by almost 7 and 1/2 points, this was driven by approved loss experience in property in aviation lines associated with the positioning of those portfolios as well as improved lost experience in Marine and credit and political risk.
The ratio is also positively impacted by rate and Trend in the quarter. Although we did not fully reflect the better rate over Trend in our loss ratios for our liability and professionalize of business.
Lastly the ratio is negatively impacted by changes in business mix as property business now comprises a smaller percentage of our book regarding this last point the positive offset to that mix impact on the X cap and whether loss ratio has been a decrease in the current accident year cat loss ratio.
The insurance segments acquisition cost ratio is 22.3, which is just over a point increase from the prior. This was predominantly driven by an increase in profit compact expense.
Ratio increased by a point compared to the fourth quarter of 2018 driven by the decrease in net premiums earned due to the repositioning of the portfolio rather than expense growth.
Now let's move on to the reinsurance segment. The reinsurance segment reported an increase in Gross premiums written a $48 in the fourth quarter mainly driven by new business opportunities and liability and A and H together with some prior. Premium Adjustments. The reinsurance combined ratio is 113.5 which was 10 and 1/2 points lower than the same thing last year.
Pre-tax cat and weather-related losses that have reinstatement premiums or a hundred and twenty million primarily attributable to Japanese Thai food haggis Australian wildfires and Regional wage in the United States this compared to $177 million in the same period of 2018.
Reinsurance segment current accident year and whether loss ratio of 68.9 was six tenths of a point higher compared to the fourth quarter of 2018. The increase included over five points related to the loss experience in agriculture predominantly due to poor weather conditions that impacted the book of business partially offset by improved loss experience in a number of lines particularly in property and to benefit from change in business mix
the reinsurance
Acquisition cost ratio of 22.6 was 1 and 1/2 points lower than last year principally due to adjustments related to Lost sensitive features the impact of retro sectional contracts off and changes in business mix.
G&A expense ratio decreased by over a point compared to the fourth quarter of 2018 mainly due to additional fees from strategic Capital Partners net investment income of a hug 18 million was comparable to the fourth quarter of 2018, but had a slight increase in income from fixed-income maturities and an improvement income from alternative Investments attributable to hedge funds off.
Our current book yield is 2.8% And our new money yield is 2.4% And the duration of our portfolio is approximately 3.2 years.
With respect to Capital actions in December , we issued $425 million of Junior subordinated notes at a favorable rate in January $225 million of them feeds were used to redeem all of our series D preferred shares.
we intend to use
The remaining proceeds from the December notes along with the $300 in proceeds from the notes. We issued in June of last year to repay our five hundred million of senior notes maturing in June of 2020 because we pre-funded the cash required to redeem the $225 million of preferred shares as well as repay the $500 million coming due in June total capital in our year-end balance sheet was elevated by $725 million adjusting the year and balance sheet for the Redemption of the preferreds. And the repaint of the senior notes are pro forma year in debt would be 1.3 billion and our preferred shares would be $550 million resulting in a pro forma debt plus preferred to Total Capital ratio of 28%
That summarizes our fourth-quarter results and with that. I'll turn the call back over to Albert.
Thank you, Pete.
Let's do a quick overview of market conditions and will then open the call for questions in short. We're seeing pricing momentum accelerates across substantially. All of our markets should begin with insurance.
Increase on renewed business across our insurance portfolio was 11% in the fourth quarter. This compares to 8 in the 7 in the second and five in the first quarter.
For the full year our Consolidated Insurance business average rate increases of more than 7% on the gross basis.
In the quarter. Our us division was our strongest Market with average rate increases of 14% access casualty achieved a 24% increase and primary casualty was up 11% in both lines. We had strong premium growth on a gross basis, but cautiously maintained are high quota share sessions in the year.
Yeah, that's property rates were up 16% notwithstanding the strong increases. We actually shrank the book over the year as we look to right-size our property exposures manage our volatility our us program business which focuses on homogeneous books a smaller accounts achieved a 6% increase overall rates in a division. We're up more than 10% on average for the year.
Within our North American professional lines division rate increases continue to accelerate to an average of 7% and the quarter.
Race were strongest in our Commercial Management Solutions unit with average with average increases of 17% in addition our Bermuda Xs and the Canadian specialty Insurance businesses. Both achieved double-digit rate increases
Our you know in cyber lines so much more smartest pricing action averaging about 1% over all our North American professional lines division achieved average wage increases in excess of 4% for the year.
And our london-based International Insurance division rates were up more than 12% on average in the quarter and just as in recent past that was a wide range of increases across the book off the average rate increase across our renewable energy book was 29% in the quarter and we achieved 20% increases in both Aviation and Global property. In addition. We saw increases of 15% across our professional casualty lines and 11% across our marine business on the other hand terrorism and political and credit risk were essentially flat the average rate increases in the international division for the full year were 7%
notwithstanding
This strong market conditions. We nevertheless reduced our International book by 14% in the year. We took meaningful corrective action on underperforming portfolios, especially in property as we built a more balanced book the reduction in property lines and exited businesses was partially offset by strong growth in Marine Lines and more modest growth in other lines.
Over all across the entire Insurance book about 93% of the book renewed flat to up this year.
Let's now move to reinsurance.
The fourth quarter is not big for renewals. So we'll focus on January one when we renew approximately half of our annual reinsurance premium.
Overall, we measured average renewal rate increases in the mid single-digits over the whole book with more modest increases on average in prorated business and high single-digit increases in non-professional business. However, there was a very wide range of outcomes based on geography and line-of-business.
Within
Our asia-pacific division excluding the Japanese Market which is renewed primarily at April one recent results were generally good and thus renewals or softwood average rates down a couple of points off inara me alot. I'm division access of lost contracts were up double-digits driven by liability and motor business while proportional business was up closer to the mid single-digit range such as motor property-liability and professional lines catastrophe and eh lines were relatively flat in the middle. M.
Within our North America division our total P&C book, excluding A&H experienced High single-digit increases in excess of lost business and mid-single-digit increasing. I'm pro-rata business with the strongest increases in property professional lines and Casualty separately rn.h, book was up in the low single-digits.
And our Global markets division which includes Global specialty lines and Lloyds rates generally responded to recent loss experience. For example Aviation renewals were up more than 5% and Engineering was up close to 15% while other lines were in the low to mid-single digits.
Overall, we maintain a high level of discipline focusing on profitability and portfolio balance as a result. We reduced premiums in all markets other than the where we felt was more adequate when all is said and done. We expect the January of 1 renewal premiums to come in about 10% below expiring value, but for that improved price technical racial even as we shrink the property cap portfolio to achieve that better balance and lower volatility.
Looking forward we expect the Japanese cat Market which renews April one to respond positively to the high loss activity that we saw in the last two years in our experience. Japan has been responsible Market. We expect substantial rate increases to reflect an expectation of Greater frequency and severity of events going forward and improve Returns on risk. We intend to manage our exposures and take advantage of improved pricing to start generating an adequate return on the 2019 investment. We've made in this scheme.
Submit your Florida renewals. There's still a long way off. But certainly we would expect double-digit increases with higher rates on treaties that have delivered meaningful adverse development on prior-year losses.
In all upcoming renewals. Our goals will be the same to improve the quality and profitability of our book of business support the best accounts and strengthen access reached positioning with clients and Brokers wage over the last couple of years. We've clarified our reinsurance strategy and strengthened service standards and execution. We're very pleased with the recent improvements in our customer engagement surveys found to continue advancing or leadership in global reinsurance. Excuse me. I apologize.
So market conditions are highly encouraging but as I noted earlier despite strong increases to date many lines are still not an attractive levels and it will take 1 month or two or even more cycles of renewal increases before we see a uniformly healthy and sustainable Market. Thus we now believe that rate increases will last through 2023 and very likely longer that would be excellent for Access as we expect will be able to generate strong profitable growth under the anticipated market conditions, given our positioning in our markets more whatever as the bulk of the required exits of unprofitable business is now behind us that new business generation should begin to flow more visibly to our Top Line.
before I conclude
I'd like to return to our underwriting performance of this year. And the past said we must achieve with must take to achieve required profitability.
as we discussed with you, we believe we must deliver combined ratios in the mid-nineties to deliver adequate r o s
notwithstanding car for your combined ratio in 2019. We see a clear path to delivering on this target given all the remediation work that we've carried out in recent years our financial results in 2019 reflect the portfolio. We wrote in 2018, but we're starting 2020 with a very different book of business Better Price smaller limits off a balance with much less runoff business and contacts and catastrophe exposure. We believe that absent unusual loss activity. We can deliver accidents your ex catalogs ratios are two or three points lower and our mean expected cat losses should come in one to two points lower given the reductions in our laws curves.
We've also Limited.
Did a large amount of high commission business which combined with a different mix of business should reduce our average acquisition expense by one to two points.
We know there are no guarantees in the world of insurance, but everything we see in our book and in our markets makes us increasingly confident that we can deliver on our goals, and our team is determined to make it happen. And with that. Let's please open the line for questions. We will now begin the question-and-answer session to ask a question. You may press * then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause materially to assemble our roster.
The first question comes from a meat Kumar of Buckingham research, please go ahead. Thanks. Thanks and good morning morning. How about a few questions? It just starting with the the insurance segment. I know you talked about overall underlying XX Improvement. How should we think about insurance segment underlying xx and maybe also talked about the discussion on under the medium medium sized losses as well as drugs from non-renewed business. That's a few you want to take us through that. Yes. So meet your question was specifically around insurance. If I think about insurance one of the best ways to look at it may be just to look at the full year and the full year 2019 for insurance. The X cat loss ratio was at fifty-seven and that full year has you know what I would consider Thursday?
Pretty good result of midsize losses. I know we've talked about
And the past and and to me those are losses out of there in the book and and they'll be there on a go-forward. So if I start at that 57, one of the things that we know is hitting that is the amount of radiation we did in a sure it's look that that 57 includes about two points of hit from the exited lines of business. So if I look just year old if I look at the year without the without the extra businesses, it actually rented a 55 we do think the exit of businesses will still hurt us by half a point as we go into twenty-twenty. So if I'm starting out of 57 for insurance, I think that can come down bath and a half just from the exited businesses. And then if I look at a positive impact of rate and Trend which we got for the full year there last year and we're continuing to see as we enter 2025. I think that is at least another point to point a half and then we look at underwriting actions that we've taken where we've canceled business, especially in our facilities book, you know, that will help the X Club.
cost ratio as well as the acquisition ratio
And so I can see it's really getting to the insurance group running in that mid 50 that mid fifties Type X cat loss ratio. That's actually very helpful. The the second question. I had was you know, everybody talks about the opportunities and and I guess you're faced with an interesting conundrum we're pricing is going to go materially at 4 1 and 6 1 month, but you're trying to bring down p.m. How should we you know, I know it's early days. How should we think about for one and six 1 p.m. Thursday is one one and even 2019 p.m. Else.
I want to be clear. There's no conundrum here. It's all about managing our our exposures down and the business that we're going to keep being more balanced and more profitable and that's exactly what we're working towards wage. I think with regard to the Japanese Market. I think it's it's it's it's less of reducing their and just making sure that we're in the right layers of the towers and and making sure that we're adequately priced I think in Florida with my expectations are the Florida Market will be highly disruptive in the mid years. As you know, there's a lot of m&a there's a lot of change there's a lot of concern I expect there will be opportunities. And again, it'll be out for us to support the best accounts. I expect that there will be some business that we will get off from but at the end of the day what I can be sure of is that the July one portfolio will be much more balanced and a much better price than it was before. Okay last question and I'll stop Q1 to date any parts on Aviation losses dead.
Coronavirus
Option or any other losses out there which could potentially impact a q1 numbers. Thanks. I mean, I'm going to give you my entire risk section of the 10K. I I think that that we don't have anything unusual in terms of losses. That wouldn't be reasonably expected within our assumed attritional loss ratios. I know that a lot of questions around the coronavirus and let me address that right now we certainly in our day and age book right a range of business and within that range of business. Most of it would not be exposed to the coronavirus are two places where that might be one is we do write a book across the world of excess mortality those jobs generally for Life companies. Those are generally based on the entire population and require a meaningful increase above the annual average expectations wage.
Attachment points are relatively.
The remote so we do not believe that I certainly at this point in time with the data that we're saying that this would be an effective portfolio. We do have one box which we acquired as part of our corporate citizenship. We own a ten million dollar World Health Organization pandemic response bonds. And that's $10,000. We bought it in 2017. It starts to pay out 250 fatalities and runs out a 2500 fatalities. So that's a bond that we've identified are currently about 130 fatalities. So clearly you're getting close to starting to have a a loss on that Bond, but at the end of the day, it's ten million dollars and it's a limited amount in the office tomorrow overall portfolio. As of now, we are not aware of any other exposures or any other losses in our portfolio. That would not be reasonably expected in our traditional loss ratios.
Got it. That's that's right.
Council I'll stop your thanks for that one more one more comment one more comment. I made my lawyer in my room. So I want to be clear we will not update this on you know on a weekly or daily basis. I'm just gave you that information now. Okay. Thanks so much. The next question comes from Brian Meredith of UBS, please go ahead. Yes. Thanks. So a couple of quick ones here for y'all. I'm just curious property lines obviously been drinking a lot. Well that continued to shrink in in 2020 your property exposures. You could try to mitigate volatility or will you see opportunities there some point. So the first thing I want to do is always I want to give a shout out to our teams cuz they did an incredible job over the last two years. I've read the book there is some change but it's changed that we've already identified. So for example at the one one renewals, there were a handful of of of birth.
Facilities which we notified cancellation and we've already pre advised that.
Are some facilities that are renewing through the first half of the Year where we've already told people that we would not be renewing them. So it's already anticipated but it's not fully captured in the 2019 numbers that we've given you. So I would say that there is still some top-line reduction to be seen in the property book, but the good news from our perspective. We've identified all of those we've already taken action. So we've got some clear visibility of how we're moving forward on property great and then with respect to your Lloyd business and just maybe a couple questions on that one. What is your capacity going to look like for 2020 and what do you expect out of that business? And then also just your perspective on the black market? I know there's been some additional their stamp capacity that was given out, you know, do we expect the same type of rate and price discipline their 2020 and maybe the 21
Right. So let me address our numbers. So we expect modest about his growth not much growth because that Lloyds book is where we've had some of the largest corrections officer but no issue there. I I think the interesting thing is with regard to the market the market and the leadership of of the Lord's Market is very clear that it needs to continue to push for more improvements in the market. I don't have to list for you, you know better than I do the number of companies that have shut down Exodus facilities reduced limits. So this is not one or two people in in in in the market saying we want to improve our book. This is a uniform approach to Improvement in the market. I expect that will continue certainly everything that I hear in the law is that it will continue There were a handful of syndicates. Absolutely that were granted increased limits but to be fair those were the the mod
So you would want to see growing.
Mark is that I've historically demonstrated top quartile performance strong discipline. So to your point Brian , I don't believe that the increased capacity granted to those sick kids should be viewed as troubling development in the market.
Great. Thanks. And then just one last one for you, but I'm just curious given, you know, all the changes that we made that are that are what do you think the kind of kind of run rate underlying kind of return on Equity of your life of your company is now given current interest rates.
Well, we have been targeting, you know for a couple of years now minimum double-digit returns and the ten eleven plus range admittedly. We haven't reached it but we think that everything that we've done, you know, life gives us more confidence today more than ever that we can reach those low double-digit returns. Yeah, but I guess I guess given the pricing environment that we've got right now which are two years ago. I don't think it was located off, you know wouldn't have been maybe better than that ten eleven percent. Yes. I was giving you actually more I was giving you more calendar year estimates. I think if you're looking for the pricing is I would say that the pricing right now off and again some lines are good. Some minds are are great. Some lines are not good enough, but I would say on average. It's in the low teens return-on-capital from a pricing perspective, right? Thank you. You're welcome. Thank ye the next question comes from Meijer Shields of KBW, please go ahead. Thanks. I guess it looks like on a Thursday.
The Japanese rose and I guess I was a little surprised to see that because the primary cat renewals are for once it's something you could talk about. What was going on underneath there is very simple.
It's the year-end covers we changed the the reinsurance the Retro covers that we acquired. So this is just a new book based on the new cat reinsurance that retro covers them in place.
Okay, one quick question with regards to first quarter capacities. Is there still exposure to Australia and losses welfare losses or was that all captured in the fourth quarter of a few me know do fliers know, you know our our read of those treaties are that many of them are, you know include hours Clauses? So there are new hours periods. I'm not going to be coming in on the first quarter. So it's very possible that the market will experience some some Bushfire losses in the in the first quarter, but I think it's too early to tell.
Okay, and then I think this is an accounting question but we've seen rate increases accelerate over the course of 2019. When we look at the quarterly progression in 2020. Should we assume that the rate Trend Gap would similarly expand over the course of the year as those accelerating rate increase turned in a mire. This is Peter. Yeah, everytime Albert talks about the the rate environment. He's really talking about gross written premium in that particular quarter. So it takes back the following four quarters to see that earning so we should see acceleration through 2020 when we think about that.
Okay, perfect that all sounds great. Thanks so much. The next question comes from King of Goldman Sachs, please. Go ahead. Good morning. Everybody. Took the question goes back to the cat losses for the year. Do you maybe tell us how much in excess of of normalizer or expectations they were?
First I'd say it's good question. We really don't give guidance. And so and we really never shot out. What our cat load would be. But the one thing that I would say, even though I'm not giving guidance long as we look at the portfolio that we have today, especially with all the changes that we've made even going into this one one and especially when I look at the net PML reduction of especially in the one and five part of the curve. We actually look at army modeled expect a cat loss ratio really improving from what we've seen over the last couple of years and and where it's been off and you can see that in the net PML so I would take what we saw in nineteen and as something that we should see come down as we go forward. Okay. The 1.122 points that Alberta call down in the prepared remarks.
Well as I look.
At the cat loss ratio over the last seven years. It was about nine points if I look over a longer period 7 and 1/2 obviously last year, but I do think that as I look into twenty twenty-five, you know, we should be coming down from that 7 and 1/2 like good one to two points, which would actually be down materially from the nine point that I see over the last seven years has an average. So you'll understand our reference to to project cats. I mean, it's the most unpredictable of all line yet where we can tell you is that when we look at the cat curves and and we we we reported to you talk a lot on the on but we're thinking about our year. We're really thinking more about the the aggregate annual Oscars. And when when when we look at those, we've taken them down several points over the last three years and we've taken it down just this year alone the brown the meat and the one in five wants to points alone. Just this year. Yeah. Yep.
So I think using the five years.
Average in my own mind is overstating it because on the one hand Seventeen and eighteen were horrendous years and they were with very different cats curves. So I I would argue that we're we're we're optimistic that we could see meaningful Improvement in in our results and I would point you to the insurance book this year, you know with a smaller property book and that frankly different manage. We're already starting to see some some evidence of a lower cat loss experience in the insurance book. But again, it's it's impossible to talk about cat on an annual basis. We're really talking about models losses and averages over. Yeah and again looking at our pml's you can look at the 1 and 2:50 p.m. L from the third quarter to the fourth fourth quarters down about 30% and and that wasn't just a one and two fifty move. It was through that through the curve, right? Okay, and then my next question goes to the reinsurance segments underlying or actually your loss ratio dead.
I think it was $69.
Sent you called out about Five Points of crop losses there. So if I compared to four Q eighteen, I think you called out like eight points of extraordinary items back then and that was $69 as well. So I'm just trying to figure out what the other three to four points of maybe headwinds were this quarter or how should I think of the attritional loss in the reassurance segment off? Yeah, that's a good question. And and and and as Albert said, you know, we we're especially given our business. We really don't give guidance and I would note that, you know, Matt mentioned at the outset. We undertake no obligation to update or revise publicly these forward-looking statements any statements involve risks and uncertainties and assumptions that could be affected by a bunch of factors. I'm having said that if I look at the full-year reinsurance, which is probably the best way to look at it that's running at a 64 and when I look at that 64 x cat loss ratio the agriculture contributed wage.
the point a half to that and
I'm not going to do a let's exclude mid-sized losses. So we'll keep all the lawsuit midsize losses in there. But that was really an extraordinary event on our on our us crop business. So if I adjust a little bit above that and then I know we also expect to see the benefit from a number of Underwriters actions taken in 2019 as Steve or came in brought in a new team and and they really reshaped the book during 2018 and that actually followed on 211 as we saw the we're going to see a decrease in that gwp. We do think that that 64 should be able to come down to a low 60s Type X cat loss ratio on a run-rate basis.
Pretty that's that's very helpful. Thank you.
The next question comes from Josh Schenker of Deutsche Bank, please go ahead. Yeah, good morning everybody. So listen to prepared, I think you said that the new age business should help to lower the loss ratio by maybe two to three hundred basis points next year. I don't think that was a forecast you were just sort of getting some sense of proportion. But when I listened to the price increases you spoke about there were plenty of double-digit rate increases and certainly High single-digit rate increases. It leads me to be concerned about the back book to some extent. Can you talk a little bit when we see the 10K what the developments going to look like four years 2015 through 2018, particularly, excluding the cat elements of the losses.
So let me let me refer to the to the increase of I think that in many cases we're making assumptions. So two things one with the pricing is on a grow space. That's not a net basis. And as as I mentioned earlier some of those lines we have high quota shares so our our our average rate increase on a net basis is is a little lower not much but a little lower than the gross basis, but more importantly in those lines of business where we are seeing the biggest the biggest increase in terms of property in terms of liability and some of the lines we're we're pricing in and reserving in a substantial increases in Los trans not because we are concerned about our back book, but because we recognize like a lot of people in the industry that there's more uncertainty around a number of these life.
And we would rather be more prudent in booking.
And a number in in 2020 or 2019 and if it turns out that we that it's better. We will be very happy to release reserves as we have in the past. We just don't believe that we should be overly aggressive or optimistic in setting these these loss estimates as we go forward, but if your answer is wrong given that your loss that your pricing increases appear so strong and that you're
Projected Improvement that loss ratio is more modest. Does that mean that you're taking a cautious approach to reserving going forward the answer is yes. We're absolutely taking a cautious approach going forward just as we have in the past.
And can you give any descriptors around how the 2015 to 2018 liability reserves will look when we see the triangles we give you some information on a quarterly basis. I hope you'll understand that that try the first triangle will be in the 10K. There'll be other triangles more detail than 18. We have a process, whereby you know, the kid gets reviewed and gets approved that has not happened yet and I'm reticent to provide guidance on what the 10K will say prior to them having it reviewed through our normal processes, but that should come out shortly and you'll have the information.
okay, and and
Even where the stock currently trades. Can you talk a little about the balance between Market opportunity and putting Capital to working growth versus purchasing your own stock?
Hey Josh, this is Peter. I'll take that first thing I'd say is is our Capital position at the end of the year is very strong. We feel very confident about our Capital position. I know there's been some question, you know, we come out of Seventeen where they the purchase of Novi and where we sit at year end 2019. We feel really good about where where our Capital position is having said that you know, we're we're both the markets today and we're we're seeing opportunity. We really are looking at putting most of our Capital right now towards organic growth for good opportunity, you know, if that doesn't materialize an agency good Market opportunities, obviously, you know, we look at the other aspects we can do for Capital Management. But right now we feel very solid balance sheet at year-end and we're looking forward to growing in some some good markets as wage. It's a 2020
Thank you for the answers.
Good luck in the new year. Thanks to God. The next question comes from a lease Greenspan of Wells Fargo, please go ahead. Hi. Good morning. My first choice question. Thanks. Hi. Albert is going back to Albert some of your commentary. You know, when you were talking about some of your insurance lines, you said that you did not, you know fully bought a price exceeding transfer some of your liability lines. Can you just give us a sense? You know where your booking Trend to and where you see it and I guess it goes back to Josh's question wage, you know as you're thinking about the you know, two to three points of improvement how you kind of see lost Trend developing for some of those longer tail viability lines, like what you booked it out in the fourth quarter and kind of an outlook for 2012 know when you look at our our Lauderdale lines, I mean the the trains can be anywhere from 4 to 7 % and so that's generally it. But again, I think from a reserving perspective dead.
I don't think that we would be
Reflecting the net price increase versus the the Lost friends. I think that no, I don't think I know that we will be booking, you know more of an uncertainty of factor off the loss ratios as as we go forward and then with a little bit more visibility, obviously, you know, our actuaries will have more Comfort but you are hearing everything that we're hearing and we think it's appropriate, you know to to assume the most optimistic assumptions, but back to your earlier question are long tail lines are at Trends or anywhere from 47%
Okay, and then you know you mention you know, some good pricing momentum in the reinsurance Market at January one and seems like you, you know also think that oh continue as we go to midnight in terms of accesses own boundary Insurance purchasing have you guys, you know changed any how you're purchasing your reinsurance in 2028 response to higher pricing that you would have to pay on that coverage. That's a very question you want you want to talk to you. So I think that you know, we have a number of contracts that that we renew them, you know across the entire year. Obviously you we spoke earlier and call about some of our regional pml's being affected by differences in faith in in in contract structures that we did in our in our retro book. So for example, we found aggregate covers to be much more expensive this year. So we wage
Decided to change the structure to include more.
Regional structure is more top and drops other things so that we could be more efficient than in the purchase of our reinsurance as we go through each of our major renewal Thursday. We have a big property insurance property property Cat by in may we are currently reviewing all of that and you know, what I will say is in the last couple of years. I've been incredibly impressed with our risk funding and and seated people have been the analytics that they've brought to the game the visit the page and see the engagement with the with the actuaries with with the underwriters, you know, we will be watching this literally to the last minute evaluating all options and then making sure that we select cute on the best option for the company. So we'll all I can tell you is we were very open-minded about making changes as we go at every month.
Call to make sure that we optimize the book and every point in.
Time I will say that there are going to have to be some changes because the book is different and I think that as we reflect a different book our needs are going to be different and so we fully expect to keep five people very busy, but we're very optimistic that we will get Grace terms or at least as good a term as we could get in the market in in the upcoming renewals month.
Okay, that's helpful in one just quick number is question relative to the hundred million of saves. Where do you guys stand at the end of 2019 so we can think about what's left of 2020? So at least you know, we're well on tasks to get that so we actually had seventy-three million dollars in run rate by the end of 2019. However, I I would say that my commentary where I talked about where we think we have to guide our G&A ratio over the next couple of years is really important. I think when we set out even our Target of saving a hundred million two years ago, we were not anticipating as much Remediation in our books as we did do so, our premiums are a bit lower than we thought at that time yet. We're still committed to those G and a rep so while I don't anticipate any major programs or anything we continue to look at every way we can to bring down our cost through other efficiencies that we're getting throughout the organization wage.
Okay, that's helpful. Thanks for the color. You're welcome. Thanks, please this concludes our question-and-answer session. I would like to turn the conference back over to my closing remarks. Thank you, and thank you all for your time this morning. And again, if if I could just repeat the key message, you know, we believe we're starting 2020 with a very different book of business than the one we wrote down eighteen more ever on a daily basis. Our team is working hard to continuously improve our book and I do want to thank them for their for their significant efforts. You have our commitment that we will do everything in our power to deliver on our goals in 2020. Thank you.
The conference has now concluded thank you for attending today's presentation. You may now disconnect.
Thursday
dead dead
Yes.