Q1 2020 Earnings Call
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Ted first quarter 2020 earnings Conference call. Today's conference is being recorded at this time, but now I'd like to turn the conference over to Mr. Jon Levenson. Please go ahead Sir.
Thank you know idea.
Okay do you ever Citigroup limited 2021st quarter earnings Conference call.
Yeah, first executives, leading todays call or one underwriting president and Chief Executive Officer, Craig Howie, He VP and Chief Financial Officer, and John Doucette.
VP and president and CEO of the reinsurance division.
We're also joined today by other members of the adverse management.
Before we begin I will preface the comments on todays call by noting that ever stuff you see filings include extensive disclosures with respect to forward looking statements.
Management comments regarding estimates projections in similar are subject to the risks uncertainties assumptions as noted in these filings.
Management, they also refer to certain non-GAAP financial measures.
Reconciled earnings release.
Yes.
With that I'd turn the call ever want underwater.
Thank you John.
Good morning, everyone and thank you for joining the call.
First and foremost I hope you and your families are French in your neighbors for all staying healthy and safe.
On behalf of our company I want to offer a heartfelt condolences to all of those.
Many indiana's family with lots loved ones trend just difficult time.
Question, Peter Thanks go to those medical professionals and first responders, we're putting themselves at risk to keep everyone safe.
Sure. So all of those were working hard to keep the supply change going the truck drivers delivery drivers grocery store employees and everyone else. Thank you.
I also want to thank all of adverse employees for their spirit and their unflagging commitment to serve our customers.
We took early proactive and decisive actions to protect the health and safety of our employees their families and our stakeholders.
As a result adverse continues to successfully operate remotely.
We are doing our part in support of the global economy by serving all of our customers and stakeholders without interruption.
Our booth to remote work was planful with a wash acute organ see organizational resiliency plan at an underlying technology infrastructure that form seamlessly.
And that information technology organization that has performed admirably.
Our employees have been flexible.
Resilient and productive.
We have received accolades regarding our responsiveness and our stability.
We also continue to support our local communities around the world Indoor pandemic relief efforts.
Do you start leadership moments for people and companies.
Our culture of collaboration.
Full assumption of risk humility, and relentless execution or at the bedrock of our performance I'm incredibly proud of our people in our company.
Our diversified global platform with its broad mix of products distribution and geography remains an important source of stable capacity to our broker partners and customers.
Our capital position remains a source of strength.
With high quality invested assets.
Significant liquidity and low financial leverage.
Despite depend dynamic and economic downturn adverse remains profitable as reflected in our reported 98.6 combined ratio or 89.9, excluding catastrophe losses independent mci be at our loss provision.
Additionally, Everest remains resilient as reflected by both our 21% growth rate in gross written premium a buyer of capital position.
We have built a strong capital foundation over the years holding 8.6 billion of shareholders' equity at March 31 2020.
Well this is a decrease from your end 2019.
This decrease primarily results from one the sharp decline into far into fair value of the investment portfolio, which has now substantially recovered since the end of the quarter.
To share repurchases and dividends paid and three the pandemic loss I'd be in our provision.
Most importantly, our capital position continues to exceed what we need to run the business with excess capital relative to rating agency regulatory requirements.
We have substantial liquidity through the cash we hold and to cash flow from operations, which was over half a billion dollars for the quarter were up 10% from 2019.
We have significant access to capital markets, including plenty of that capacity as we carry very little debt compared to all of our peers at less than 7% of our capital what most of our peers typically carry upwards of 20% to 30%.
Lastly, our industry, leading expense ratio also gives us operating flexibility, which is particularly critical in times of uncertainty.
Turning to the first quarter of 2020.
First remains strong and is well positioned 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.
We demonstrated excellent momentum across both of our reinsurance and insurance businesses with gross written premium growth of 16% at 33% respectively.
We also continued to benefit from improved market conditions during the quarter, which I will discuss in a moment.
Excluding catastrophes and depend demick I'd be in our loss estimate.
Our underlying combined ratio for the group at 89.9 and each of our divisions reinsurance at 87.7 and insurance at 95.6 are reflective of the strong underwriting performance across the group and the earnings generating power of the franchise.
Underwriting profitability remains at the core of everything we do.
Our reinsurance division had a strong January one renewal season.
We continue to judiciously deployed capital.
We underwrote a high performing book that is focused on strong economic returns, while improving the diversification imbalance of our overall portfolio.
We also saw strong for opportunities in several areas such as retro and facultative risk.
As the quarter progress, we saw continued momentum across the portfolio.
John Doucette will provide additional details on market conditions and the underlying growth.
Our insurance divisions growth remained strong and consistent with recent quarters. The drivers for this growth. We're number one strong and widespread rate momentum excluding workers compensation the rate increase was plus 24% or plus 17% net of a handful of large deals booked into Q.
Order.
And over 12%, including workers compensation.
This is an improvement from the fourth quarter of 2019, where the rate increase was almost plus 12, excluding workers compensation plus for all Lynn.
We also saw continued strength, India that space with strong submission flow and market conditions, continuing to tighten in property and casualty in both primary and excess lines.
We also had strong renewal retention in both our retail and wholesale businesses.
We had increased productivity, resulting from additional underwriters hiring 2019 that are now fully onboarded and providing capacity to address the increase submission flow.
The insurance growth was also balanced and diversified across our many lines of business.
Strong rate and putting in tightening terms drove the growth in the long tail line.
Despite the impact of the pandemic into quarter.
Our underlying insurance portfolio continues to perform well.
We are seeing the benefits of our various investments and portfolio optimization efforts, all of which position us well for this environment.
Turning to investments that investment income of 148 million was up 5% from the first quarter 2019.
Our investment portfolio had been at his defensively positioned with over 75% an investment grade fixed income bonds and less than 4% allocated to public equities.
Most of our risk is bond risk and we also have the ability to whole bonds until they mature.
In addition, we have continued to further reposition our portfolio moving up in fixed income credit quality and reducing equity exposure.
As per our April 23 announcement, we have taken a $150 million I'd be in our loss provision in the first quarter related to the covert 19 pandemic.
These losses relate to event cancellation.
Business interruption, and other coverages, such as accident and health and workers compensation.
Our estimate was based on that analysis completed during the first quarter.
This analysis was a thorough cross functional review of the enforced portfolio by line of business industry and geography.
The review was completed by team of professionals, representing every area of the company.
Given the fluid and continuing nature of this pandemic. This is an ongoing event and so it was our analysis.
While our analysis looked at all aspects of our global portfolio. Our estimate does not take into account legal regulatory or legislative intervention that could retroactively mandate or expand coverage provisions.
As stated in our release, our philosophy is to recognize and react to expected future losses on a timely basis.
We will be tracking pandemic losses separately from our Attritional losses, and that's it I'm going event.
With regard to our specialty insurance business, we have limited exposure to event cancellation accidents, and health workers compensation and business interruption.
Our property policies have on ambiguous policy language that requires direct physical lost for business interruption coverage to be triggered a.
Additionally, the majority of the property policies in force contained a virus exclusion.
Only a very small number of policies have endorsed sub limits typically less than $25000 and would short duration caps that would offer b. I for a notable notified of human disease. These exposures have already been recognized as part of the overall I'd be in our loss estimate for the quarter.
The majority of the I'd be at our loss provision was for the reinsurance business given the relative size of this portfolio compared to our insurance businesses.
It is important to note that that's a reinsurer, we have contractual terms and conditions such as Retentions limits event definitions hours closers and other coverts provisions that will apply to this ongoing event.
Yes, we do not simply follow the fortunes it will be very fact specific.
We've also done a thorough review of our mortgage reinsurance contracts.
Based on our view of economic situation that is aided by both external information at our own proprietary internal modeling. We currently believe that or loss picks in reserves remain adequate.
We will continue evaluating this business as the economic situation unfolds.
In summary.
However showed forward momentum resiliency and profitability in the first quarter of 2020.
We effectively transition to running our company remotely and as always we remain consistent and trusted provider of capacity to our customers.
Given the uncertainties into carton public health economic environment, there could be an adverse impact on the results for the property and casualty industry and depressed for the remainder part of the year.
That is clearly dependent on the shaped and length of the recovery.
While the economic environment, that's changed adverse remains a high quality franchise with broad capabilities, a global platform and top talent.
We remain focused on solving our clients most critical risk transfer needs in a disciplined and profitable way.
We have to write culture, the right platform and relevance with our clients and trading partners and the capital based systems. This time.
Now, let me turn it over to crack to provide additional details on the financials Craig.
Thank you won and good morning, everyone.
Our first reported net income of $17 million. So the first quarter 20 twond.
This compares to net income of $355 million for the first quarter of 2019.
Net income included $172 million of net after tax realized capital losses compared to $74 million on capital gains in the first quarter last year.
The 2020 capital losses were primarily attributable to fair value adjustments on the public equity portfolio.
Operating income for the quarter was $164 million driven by strong underwriting results across the globe.
Stable net investment income and low catastrophe losses, offset by a cold at 19 pandemic I'd be in our loss estimate of $150 million.
The overall underwriting gain for the group was $29 million for the quarter compared to an underwriting gain of $196 million in the same period last year.
In the first quarter 2020 ever saw $30 million up catastrophe losses related to fires and Hailstorms in Australia, and the tornado in Nashville, Tennessee.
This compares to $25 million, a catastrophe losses reported during the first quarter of 2019.
Overall, our prior year catastrophe loss estimates continue to hold.
The combined ratio was 98.6% for the first quarter 2020, compared to 88.7% for the first quarter of 2019.
Excluding the catastrophe events and the impact of the co big pandemic.
Comparable combined ratios were 89.9% for the first quarter of 2020 and 87.4%.
First quarter of 2019.
Excluding the pandemic I'd be in our loss estimate the Attritional loss ratio was 61.5% up from 60.2% for the full year 2019.
Now we do to the continued change in business mix.
For the reinsurance segment, you Attritional loss ratio, excluding the pandemic loss estimate was 59.8% up from 58.2% for the full year 2019.
This increase was related to the continued business mix shift toward more pro rata premium, which carry a higher loss pick what allow us to benefit directly from the farm in primary market.
A lot of premium is less volatile than access premium and we will see the benefit from into our results as we'd like the last tax season overtime.
For the insurance segment be Attritional loss ratio, excluding the pandemic loss estimate remains very steady at 66.1% essentially flat compared to 66.0% for the full year 2019.
As you can see in the financial supplement we also experienced more growth in areas that typically carry a higher loss pick and the well.
The lower overall combined ratio.
Are you West insurance franchise, which makes up the majority of our global insurance business continues to run and Attritional combined ratio in the low ninetys, excluding the pandemic loss estimate.
The gross commission ratio of 22% was down slightly compared to prior year.
The group expense ratio remains low at 6.3% and was higher than last year due to an increase in nonrecurring incentive compensation benefits and payroll taxes in the first quarter, which will normalize during the rest of the year.
Before moving to investments I'd like to point out that we are now reporting two segments reinsurance and insurance.
This is consistent with the way the business has managed and the way management views the company's results.
For our investments.
Pretax investment income was $148 million for the quarter from our 20 billion dollar investment portfolio.
That's been income was 5% above the first quarter of last year.
This result was primarily driven by the increase in investment grade fixed income portfolio, which had a higher asset base this year and higher limited partnership income quarter over quarter.
Since we report most partnership income on a quarter lag the global equity market performance in the first quarter will be reflected in the limited partnership investment results in the second quarter.
Pre tax yield on the overall portfolio was 2.9% about flat compared to one year ago.
For our investment grade portfolio, the new money rate was 2.7% for the core.
Other income included $21 million, a foreign exchange gains in the quarter.
On income taxes.
60 million dollar tax benefit for the quarter included about 31 million dollar tax benefit related to the cows Act, which extended the carry back period for tax losses to five years.
Excluding this benefit the effective tax rate on operating income was 12%.
In line with all our expected tax rate for full year.
Positive cash flow continues with operating cash flow of $506 million compared to $460 million for the first quarter 2019.
This increase reflects a lower level paid catastrophe losses in 2020 compared to 2019 and an increase in cashwell from our ongoing growth in insurance and reinsurance premiums.
Shareholders' equity for the group was $8.6 billion at the end of the first quarter.
Down from $9.1 billion at year end 2019.
Movement in shareholders equity since year end 2019 is primarily attributable to the sharp declines in the fair value of the investment portfolio and by capital return for $200 million of share buybacks and $63 million at dividends paid for in the core.
The reduction in investment portfolio valuation came from the realized losses in the equity portfolio and the 248 million dollar mark to market impact on that fixed income assets, resulting from the widening of credit spreads.
It's mark to market adjustments have substantially recovered since the end of the core.
During the first quarter, we made some tactical adjustments to reposition the portfolio by moving up and credit quality and further reducing our equity exposure.
As one said our capital position remains a source of strength.
Hi, quality invested assets significant liquidity and low financial leverage in addition to our robust cash flow.
The strength of our balance sheet is critical to the success of our business.
Thank you.
John Doucette will provide a review of reinsurance operations.
Thank you Craig good morning.
As one did at the start of the call I would like to add my sympathies to our reinsurance trading partners and their families affected by the Corona virus pandemic.
Like the rest of the group the reinsurance division supported by our dedicated I T colleagues and our newly completed next generation global underwriting platform.
I was able to transition to 100% work from home without missing a beat.
We're reviewing submissions quoting and binding facultative in treaty business and settling claims.
Now I will read the quarter.
During Q1, the reinsurance division increased our gross written premium to a record of $1.8 billion up 16% from last year.
Q1 growth was driven by January rate increases in Lhasa exposed areas and retro.
In writing more purple products and casualty business due to improving conditions there.
Growth was widespread spanning territories and lines, including the U.S. International casualty and property and short and long tail facultative reinsurance.
Excluding cobot 19 losses are under our underlying reinsurance loss ratio was up by two points.
Largely due to more pro rata premium written over the last year.
Pro rata business directly benefits from an improvement in original rates, while ceding commissions have generally been stable and in some cases improved.
Those improved original rates will take some time be recognized in our loss picks.
Note that the volatility associated with a dollar pro rata premium is generally lower than a dollar of excess premium and combined ratio alone can obscure risk adjusted returns.
We are pleased both with our progress it building a more diversified profitable sustainable gross portfolio.
And that we're seeing some tailwinds in the reinsurance market in casualty property retro specialty and back to help us achieve a stronger more profitable portfolio.
Address facultative operations continue to see an increase in demand.
In the U.S. and international we're continuing to see significant double digit rate increases in short tail and long tail fact.
With dramatic increase in submission count.
Given that facultative renews on multiple inception date. It is a good forward indicator of reinsurance demand and pricing.
For our casualty business original rates on certain lines have shown some increases which will earn through on our pro rata premiums.
As always we're deploying our shareholders' capital judiciously seeking to build the strongest reinsurance portfolio possible, while maximizing returns.
While limiting our downside risk through increased diversification and balance.
Now to comment on recent and upcoming renewals April renewals showed continued rate momentum in loss affected and capacity constrained segments.
Japanese wind and retro raids showed strong increases consistent with the need to maintain appropriate returns.
Looking near term, particularly the upcoming June Florida renewals, we expect rates will be affected by limited capacity recent losses, and the markets heightened sensitivity to risk due to climate change and social inflation.
Also there is a strain on alternative capital traditionally large players in Florida.
Therefore, we continue to see upward pricing momentum in Florida, along with improved terms and conditions.
Now turning to mortgage.
With the ongoing economic disruption primary mortgage insurers could see increase losses, along with regulatory capital pressure.
However housing fundamentals are stronger today than they were heading into the financial crisis with higher credit scores tighter housing supply and lower risk products.
Our reinsurance mortgage book is seasoned and peg conservatively.
Give you some color on our mortgage book by limit our book is roughly 80% G.S. ease and 20% mortgage insurers.
Virtually all business, we write is on UQM basis.
The underwriting box, we participate in is very controlled and tightly underwritten, meaning our portfolio has no exotic products and as high FICO scores, particularly on the GRC business.
From the beginning of everest's entering the mortgage space, our pricing assumptions were and remain more conservative than the external vendor models that we use to validate our pricing assumptions.
Regarding the M.I. treaties, we reinsure, we effectively play in an excess position.
Thus avoiding the working layer losses, and resulting in a meaningful buffer in gross loss ratio deterioration before we suffer any economic loss to our reinsurance treaties.
Deterioration in this buffer range decreases the size of the profit commissions, we would typically paid to the m. eyes, but no economic cost to us.
Regarding our GRC business, given our more conservative view of underwriting pricing and capital modeling, we preferred higher layers over lower layers in these programs and we have waited our book to higher attachment points accordingly.
Much of our exposure has been season for several years, which benefits from home price appreciation.
Going forward credit standards at all at nearly all stages of mortgage origination are tightening and improving therefore, increasing the credit quality of bars in our book.
Additionally, early government intervention in the economic crisis to support borrowers and lenders, including the broad offering a forbearance will mitigate potential losses and help keep people in their homes and avoid default.
We are continually reevaluating the dynamics of this economically sensitive line to prudently manage our mortgage exposures now and on a go forward basis.
Now I will give some comments on the overall market ahead.
Despite the uncertainty the industry faces, we cautiously anticipate that the reinsurance markets will remain healthy for the highly rated traditional reinsurers, who can deploy capacity in multiple lines of business around the world. While also meeting client increasing counterparty credit requirement.
Yeah.
This view is based on current reinsurance industry dynamics and the supply demand curve.
Starting with the market supply more stable capital remains in place while somebody opportunistic capital is exiting.
Alternative capital investors are reevaluating the thesis that reinsurance is a non correlated asset class.
Potential uncertainty from Kobe at 19, and the possibility of more trapped capital compounds frustrations of these investors from the last three years of cats and subsequent lost creek from several events.
This is in addition to higher relative return hurdle requirements.
Given the increase price of risk across virtually all risk asset classes.
On the demand side clients have increased reinsurance purchases for risk management and capital support, particularly as some of them.
Come under capital or earnings pressure, given the volatile markets.
The flight to quality continues as reinsurance buyers and brokers are increasingly focused on the stability and quality of counterparties to protect program continuity and mitigate counterparty credit exposures in these volatile time.
The length of the economic downturn will ultimately be a key factor impacting reinsurance demand.
These market dynamics benefit I addressed as we deliver stable capacity with strong security as a longstanding client focus partner.
Regardless of where the market turns we will focus our capacity on those clients that align with our philosophy of prudent underwriting and sound claims handling practices.
In summary.
Everest is built to withstand volatility and uncertainty such as we're seeing now.
We continue to prove our resilience our solution driven partnerships with longstanding clients and our ability to execute through these unprecedented times.
Thank you and now I will turn it back over to Jon Levenson.
Great. Thanks, Janet we'd like to open up the call for questions. We would ask today as you can please limit it to one question and then if you do have a follow up were another question. If you could please rejoin the queue, we're hoping to get through all questions today.
No idea could you please open up for keeping it absolutely.
If you'd like to ask your question. Please press star one on your telephone keypad. If you are using a speakerphone. Please make sure your mute function just turned off to allow your signal to reach our equipment.
Yes.
We'll take a first question from Mike Zaremski from Credit Suisse. Please go ahead.
Hey, good morning, and thanks for probably a good commentary in the prepared remarks.
My first question I'll go with a mortgage insurance you know I think many investors feel you know that ultimately the vast majority of mortgage borrowers who prefer missed payments you know will ultimately cure.
But it wouldn't be helpful. Maybe you can help us size up kind of where your access layer or layers connect kick in from a maybe a loss ratio standpoint, like some kind of.
Framework to understand if you guys kind of playing that make you know 100% combined ratio went up on when we're looking at the mortgage insurers are kind of how to frame out what are your your your exposure there.
Yeah. Thanks, Mike and this is one and driving it look I think to echo some of the comments that at the John Doucette made in his opening remarks, you know from our perspective I think there's there's really three things to consider a number one is where we play as reinsurer.
And number two the fact that we see this more as a frequency driven event essentially driven by unemployment and so that that's certainly helps our view of all of this the other part of that its debt fund like the 2008 financial crisis I think as we look at at the mortgage products the better original underwriting.
I think here will pay off there's also much earlier intervention by the government much tighter supply of housing.
Two we also believe we have some very conservative loss picks on this but let me ask John to answer your question more specifically on structure John.
Yes, Thanks, one and good morning, Mike. Thanks for the question. So again I think you need to think of the world in two different buckets. One is on the mortgage insurance side and one is on the ER. The GRC side. So on that you guys see side, that's really more like a credit <unk> mortgage catastrophe and so it's hard to map that to a loss ratio because as one.
Said, there's a there's frequency severity, it's tied to different percentages of default.
So it's not really a loss ratio on the mortgage insurance side. These are typically a quota share deals, but then as I mentioned given the profit commissions that go back it roughly it's it's effectively like an excess deal that that attaches at about and ER and 80 combined ratio.
Okay and on the G.S.C. side is there a way to frame maybe what you know is it a cumulative losses like 2.5% or any numbers you could put her on the on the G.S. He said that could help us.
Yeah, I it'll vary it'll vary by layer I would just go back to the point I did say, which as you know so you know.
Some of the Gses have broad layers that they offer one layer so at some and a much bigger stretch other ones have various layers and and where where we had the opportunity. We would typically play higher up on the for further remote away from risk.
But it but it's hard to map it too, but there's a lot of moving parts to the answer as to what the default rates are and things like that and it's very much a function of because the U.S.U.S. He's also have the the benefit of runner uncover from them eyes. So if this EMI insurance on it so there's a it's not a a it's there's no simple linear answer on.
On that about what the default it depends on the type of this fall the frequency severity, what what drove it.
Understood. My last question switching gears two primary insurance I'm.
One of them. The most frequent questions lever C or just trying to you to understand whether right eating sure has a a material amount of policies or a property related business interruption policies that it may not have a virus exclusions.
Separately I know like part of the IB in our.
Charge you took included that disruption, but is there anyway, you can frame or whether you a portion of your book doesn't have a virus exclusion and whether your reserving for making some reserves for those policies.
Yeah, Thanks, Mike and I would go to a this one and I would go back to out to my prepared remarks, where I basically said that the majority of the property policies into primary insurance book do contain a virus exclusion.
And we only have a very small frankly, it's a very very small segment, where we do offer sub limited coverage and and I mentioned that it's less than $25000 without very short the caps on duration and all of that is included in India estimate that we put up for the quarter.
Okay. That's helpful. Thank you.
Thanks, Mike.
Thank you we'll next go with the yard run Keener from Goldman Sachs. Please go ahead.
Thank you very much puts question polypore, one yeah I think in your opening comments. He said that you see limited exposure is in the insurance segment or two workers comp among others.
The company that maybe you could help us.
I mean, maybe explain how you come to that determination in the context of workers comp premiums I think accounting for that effect from the segments.
CPW.
Yeah ill be happy to talk to you about that you know I would say number one is we really don't have exposure to to frontline first responders and very minimal exposure to the frontline health coworkers healthcare workers in the portfolio. So.
That essentially is how we come to that conclusion. So you know as we went through through this very thorough process that I've mentioned, we looked at industry profile for businesses.
That we deemed essential and that's where the IB and our provision really was put up for it for those kinds of businesses, but again, Bob when you look at at those industries that would be most affected healthcare workers first responders et cetera, we have very minimal exposure into portfolio.
Okay, and if he broaden that the more broad category of essential workers, how would you think about them.
Yes, that's essentially the provision that is included in T.I.B. NR that we put up for the quarter. So you know if you look at at our total workers compensation book again.
The exposure to to healthcare workers first responders is it's not there when it comes back to what we consider to be central workers that is really the provision that was taking for the quarter. So we believe that that we've already accrued for that.
Great. That's very helpful. I appreciate all queue up or more questions. Thank you.
Thank you here.
Thank you we'll next go with Brian did from Yes. Please go ahead.
Yeah.
Let me just follow up on that when.
I would say that California came out and I guess officially expanded presumption of coverage for you know employees. There. So I am assuming that your estimate actually included the expanding presumption that covers for workers compensation.
No. It does not so that's <unk> recent information right. You know look our point of view on on presumption of coverage is that its something that needs to be taken very seriously, obviously any broad sweeping presumption measures.
Frankly can cause long lasting harm to the industry and don't make a lot of sense for a number reasons.
You know retroactively restructuring the underpinnings of the workers compensation system to shift the burden of proof of cost to employer cinder insurers really under some undermines the spirit of the workers compensation system, and that's not something that that companies have underwritten or price for it doesn't materially weakens to.
Mhm.
And so that is you know something that needs to be considered you know it also violates well established principles for workers comp law that the claim and has the burden of proving his or her claim what's the workplace injuries and it's a cover claim and so that's the way we tend to view this but our estimate does not include an expansion of presumption that.
This point in time.
Thank you.
Thanks, Brian. Thank you, we'll next go with Ryan Tunis from Autonomous Research. Please go ahead.
Thanks. Good morning, My first question, we're giving us to steadily another call. This morning about 10% of.
The exposure to a personal lines or homeowners type businesses versus commercial lines within the property Cat book.
By client you have a could you provided some got breakdown.
Thanks, Ryan let me ask John Doucette to want to jump in and help answer that question.
Yeah, Good morning, Ryan and hope you doing well.
Well, that's a you know we write a you know six and a half billion dollars or premium around the world a good chunk of that property you know, it's going to vary all over the place.
By territory within property.
We write quota share per risk and catastrophe and it's there's there's a mix in ovarian within region in the U.S. as well so there's no simple answer to that.
Got it and then.
But my other one I guess trying to think about.
I guess I'm trying to think about as if there is a like a second wave later in the year, whether or not that would constitute a second event.
Maybe trying to get some clarification that you had asked the question, but some clarification on.
What would what would a conservative reading b of the end of.
This is as an event from a reinsurance standpoint like what conservatively.
I would I guess closed the book on.
The losses associated with it for is locked down.
Yeah. Ryan. This is one let me jump in there and I last John to up to supplement my answer I think this is where you come back to my comments that this is not have followed the fortunes event for ever US right. When you start looking at event definition, including ours Clos is limiting the duration of an event outlook.
Turning to radius or or the contiguous environment. That's involved this is where all of that is going to come in to play for US right. In so John maybe you can more specifically answered that also.
Yeah. Thanks, one and I think you know I think it's important to point out you know that I'm not only is the event going on but we have rolling.
Inception dates that are happening all the time and you know we just finished for ones where.
We have some five ones in the U.S. may one.
Florida is coming up June 1st and then July we have a lot of renewals kind of all over the world and facultative ongoing throughout the year you know many times a year, we have inceptions and one of the things to to point out that I think is important is that we are pursuing terms and conditions that help narrow or.
Exclude a pandemic risk and that will ripple into some of the things you're saying about the go forward and that will help mitigate a limit or exclude.
The potential losses going forward and we're certainly not alone doing that other while we are leading the charge.
Many other reinsurers are doing it as well.
And I think that will help a help narrow.
Whatever the scope of this turns out to be but there's a lot of economic facts and things to come in terms of day to answer your question better than that.
Thank you.
Okay.
Your next go way below nice shields.
Can you hear me.
Yes fire, we can hear you.
Okay, great good morning.
And of course on that but that's really been I'm, hoping you can explain the position that maybe the reserving stance on the question of whether a commercial property policies that don't include or exclude and but required direct physical damage. It every division that that.
It's still an absolute defense or are there some reserve interested or the reserves already established for that.
Yeah No Meyer. So so this is one looked I think as I said in my in my opening remarks.
We absolutely believe that physical damage.
Absolutely is on ambiguous in into coverage of this right Bob If you think about it.
They are still triggers right Theres number one there has to be covered physical damage, which again I believe it's pretty on a big Houston into wording and secondly, we also have virus exclusions on on the portfolio. So I think that's the other trigger so so the answer would be yes to your question do we believe it would hold.
Okay. Thank you.
The second question I was just hoping that given the comments that Craig it made about moving up the credit quality curve.
In the end of the quarter do we get it that two new money rate.
Sure Chris can you take that please.
Right right.
Craig maybe a mute.
Thank you sorry.
I saw on your or I'd mentioned in my prepared remarks that are new money rate for the investment grade portfolio was about 2.7% on average for the quarter. What we did say was due due to some of the widening of the credit spreads.
In some of the actions that we took him a quarter or we actually saw better rates in March them. Good for for the overall quarter. So they were they were higher and closer to the 2.9% range.
On average we saw across across investment grade and some below investment grade we saw a purchase yield up about 3.2% for the core.
Okay that cover nickel in essence as well.
I'm, sorry, I Didnt hear a lot.
I I did I was wondering what did that covers the sort of April yield the though.
Well the April Yoda is probably as I said you. The it's closer to the 2.7 on the investment grade a portfolio and then some of the high yield that we are saying so far is still over 5%.
Okay, then have to thank you very much.
Sure.
Thank you.
We'll next go with Elysee Greenspan from Wells Fargo. Please go ahead.
Hi, Thanks, My first question on going back on to the business interruption in Kobe discussion and that you know on a reinsurance side.
I recognize any thought out that's about the color subversive personal breakdown of the bulk maybe you can't get though.
But if there are ways there.
Hi, there will be lumpy, though well quality with in Canada, <unk> that had driving.
That don't get me kind of think about it being an ongoing event and you know what additional losses to come back capacity.
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Sure a lease and this is one month, let me, let me start off with that.
No look I mean, this is still obviously, a a fluid and ongoing event and you know we put up a pretty thorough process in place into first quarter that as I mentioned in my remarks ongoing as far as how we're going to be able to wallet to continue to be fine de estimates as we go forward on the reinsurance side that basis.
Really involved.
Spending time with clients brokers, essentially looking that up at some of the underlying contracts et cetera to be able to to get a handle on that.
In what we know is that the underlying business that we're protecting the vast majority of that requires physical damage before providing any cover on the business interruption side of things.
And also in the U.S. specifically most of the underlying policies in those portfolios that were protecting also will include the virus exclusion, but let me turn it over for John to set to give you maybe a bit more additional color on that.
Yeah I would.
I don't really have that much to add it you know as we've said you know we're also our top down bottom up review, we looked internally externally talk to a whole lot of brokers clients looking at are not just our catastrophe book, but you know our contingency book a you know just across all lines of business. We did we did or you know kind of our first principles review of every.
Thing that helped us get to the number that we got to a and again you know trying to factor in retentions deductibles or hours clauses radiuses.
Contracts you know contracts some are on a name peril basis, and and other provisions a that vary and we you know again, we we look in a across did a very thorough review had a lot of people looking at it and.
Our comfortable based on what we know today, a that that we have put up a reasonable provision for this.
Thanks, and then my second question is on on the retro side, either just give I thought you know more up to date you are the pricing within that business and then this is more.
I think to <unk> outbound purchases I'm with you I spoke to potentially bilateral retro on key more business that and just about current view of the pricing going on in the retro market.
Thank you lost John I'm take that.
Yeah. Thanks, Thanks, one yeah. Thanks Louise good question and so so a retro is predominantly not exclusively a january 1st a lot of the covers a you know a a very solid majority happen at January 1st.
And so we have seen a few a that have come up that summer off cycle and do it you know at.
At March.
March April May June and I think so we have seen increase pricing there.
And I think that you know the alternative capital that I talked about them I prefer them in my.
Prepared remarks, we're seeing and hearing a lot of noise about redemptions.
And again frustrations with the losses and kind of a comparison to other places to deploy the capacity. So I think there's a lot of a lot of noise. There that we think will continue for awhile and that will have a direct impact on the retro market.
In terms of our hedges.
You know, we we look at a whole suite of hedges and really try to build the holistic a program that has different attachment points different product types different geographic coverage is a different durations of how long they are in place.
And as you will recall, we renewed our catastrophe bonds, we have almost $3 billion in catastrophe bonds in place.
We renewed them in November December the ones that had expired, we bought lower down and you know and again in hindsight. We're glad we took the capital that was available to US then.
Even though it had been a slight increase in ER in rates and a those are multiyear deals and they'll be in place for the next several years, a and because the pricing is already locked in the cost of that capital.
But the cost of that are they the the rate change embedded in that on a go forward basis is zero, we also have logan or our strategic.
Partner and a continued Logan is about flat from January two two now a and continue to use that as a very important hedging mechanism and the cost of that goes basically Logan rides up and down with us as they take a quota shares of a different.
Layers of and build we build portfolios for them.
Where they help us hedge Oh, we do by traditional reinsurance and retro a we will remain pricing sensitive to using that as a form of hedge a and we also by aisle w.'s and we've been in the eyes W. market since January looking in buying up by all Wwes as.
Another way for us to hedge.
Okay. Thank you for the color.
Thank you we'll next go with Ron Bobman from capital returns. Please go ahead.
Hi, Thanks, a lot and glad to hear when sounds well.
I had a two questions one trying to get some handle around sort of a reinsurance buying demand from the market and I guess would be sort of directed to John principally John with.
Primary property companies, you know, presumably having some affirmative b. I.
Exposure in losses and presumably.
Amount unknown.
Sort of tail risk, whether it be sort of judicial decision litigation oriented et cetera.
And the unknown and significant amount of that.
What should the primary company be thinking in sort of doing now if at all as far as buying.
Additional reinsurance and when I'm really sort of thinking about is sort of third event cover if someone known amount from cove. It is going to cap there.
They are first tower.
Thanks I appreciate the question so.
We are seeing a lot of Ah interesting things about demand out there, but I, but I would broaden that beyond people are buying specifically for cogan a people are looking because.
No it's been a a bumpy few years for the industry and I think People's view when it whether it's wildfires Japanese when a you know different different exposures that happened in the development that we saw so I think that overall, there's a view of.
De risking and a lower risk appetite and that was around and building before coded and I think that today people will be looking not just to how do I protect against cobot, but how do I use reinsurance to help.
Managed volatility in my earnings.
From from a typical covers a typical apparels as well as a consider more capital protection. So I you know and I think so we are seeing demand from larger buyers were seeing demand from smaller ones that are rating sensitive or have ratings pressure a in a lot of our clients had.
Asset issues due to the impact of the cold and environment, which also drives reinsurance demand.
Okay. Thanks, and then the 3 billion in Cat bonds that you mentioned and then separately the I'll Wwes do those its pandemic unnamed peril are those the cat bonds and separately the I'll W.'s would provide protection for.
They are both the I'll wwes and the cat catastrophe bonds are named peril, and a pandemic is not an in apparel in them.
Thanks.
Thank you.
We have them Yaron, one less that's what I'm sorry, one last comment I would add up to two ron's question too if if you're also thinking about Everest insurance. We also feel that we have.
Very good reinsurance program that's in place with regard to all of this so just wanted to finish that thought.
Thank you.
Thank you.
Next go with Yaron Kinar from Goldman Sachs for a follow up question. Please go ahead.
Hey, Thank you I thought maybe I'd move away from covered questions I noticed there was a little bit of an uptick and the accident year loss ratio in insurance hockey maybe talk about what drove that.
Yes sure thing Aaron. This is this is Juan you know I think as Craig mentioned I'm also in his opening comments when you look at a at the loss ratio for the quarter very close or very stable to to where we were at the end of the year. There's really a main driver on on sort of the uptick and that really has to do with.
Mix you know, we saw a bit more growth in h. in casualty and in risk management and those lines of business basically carry higher loss picks that some of the other lines of business. So I would attribute it basically to to the mix into growth and those specific lines.
Got it as if that makes also impacting part of the decline in the expense ratio Sylvia.
I did the expense ratio exactly that was primarily on the commission side of things, where because we did write some more risk management business et cetera. You also had a mitigating effect on that so that would be correct.
Okay. Thanks, so much.
Sure thing here.
Thank you. It appears that we have no more questions into private into question Q, but once again, if you'd like to ask a question. Please.
Press Star one on your telephone keypad.
Oh, no idea part and I think we're I'm, we're done with questions and we'd like to a hand the call back over to one for some closing comments.
Great. Thank you John and thank you for everyone today, and again as I said I'm glad that everyone seems to be doing okay look as far as a it just some quick summary remarks, you know over the years. Our company has built a reputation for strong operating performance with a strong capital position built to withstand cuts.
Astra fees and while no one could have predicted and event of this magnitude we do stand ready to serve our customers on our brokers. So we will have the strength and stability that they will have come to rely on us over the last five decades. So we will keep us refining our estimate same we will keep working on this but we will also be there for our customers as they need us.
Thank you for your time.
This concludes today's call. Thank you for your participation you may now disconnect.
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