Q3 2020 Everest Re Group Ltd Earnings Call
Ladies and gentlemen, this is the operator your lines will remain on music hold until the conference we get the conference will begin momentarily. We thank you for your patience.
[music].
I would like to turn the call over to Jon Levenson head of Investor Relations.
Good morning, and welcome to the Everest re group limited 2023rd quarter earnings Conference call.
Do you ever see executives, leading today's call are one on draughty, President and Chief Executive Officer Mark.
Mark Christy ANSEC Executive Vice President and Chief Financial Officer.
We're also joined by other members of the Everest management team.
Before we begin I will preface the comments on today's call by noting that ever stuff. You see filings include extensive disclosures with respect to forward looking statements.
Management comments regarding estimates projections and similar are subject to the risks uncertainties and assumptions as noted in the filings.
Management May also refer to certain non-GAAP financial measures. These items are reconciled in our earnings release and financial supplement.
With that I turn the call over to want underwriting.
Good morning, everyone and thank you for joining the call.
For nearly 50 years ever since it's been a source of strength for our customers. This has never been more important than it today's public health economic social and natural catastrophe impact it environment.
Our business is running smoothly, we're performing well and our people continue to demonstrate the passion professionalism and resilience to differentiate shoppers.
I am thankful to our employees for their hard work and perseverance and delivering the solid results we're reporting today.
I am, particularly proud of the adverse recently be named by business insurance. That's one of the best places to work in 2020, a meaningful achievement in the current environment.
Economic recovery is uneven and there was significant natural catastrophe activity in the quarter.
Despite this average has continued to grow and generate operating profit.
Our broadly diversified reinsurance and insurance franchise, our financial strength.
Deep distribution relationships and our focus on providing solutions to our customers represent the foundation that positions us well for the strength, we see in the reinsurance and insurance markets today.
In addition, we've added two exceptionally talented and seasoned global executives to our management team.
Because she answered our new group Chief Financial Officer joins Us from score where he was the group CFO since 2013.
Jim Williamson, our New group, Chief operating officer joins us from Chubb.
Well, it's a beast executive said made an immediate impact on that first.
I want to thank Craig Howie for his commitment and contributions to the company.
Craig has played an important role in the growth and evolution of that first.
Greg will remain with the company until the end of 2022 assists, mark with a smooth and seamless transition.
We have also further fortified our already strong capital base with a 1 billion senior notes offering completed on October seven.
This is very efficient long term 30 year capital at a low 3.5% coupon.
As I said in the second quarter earnings call, we have the capital to play all punch in this improving market and we also have capital flexibility.
We chose to exercise some of this flexibility opportunistically given the state of credit markets and the low borrowing rates available.
We will seek to deploy these proceeds that's favorable market opportunities continued to develop and in support of our overall strategy to grow book value over time.
Our already strong company, it's not even stronger.
However strength.
Evidence by our third quarter results for the group.
Despite the high frequency of natural catastrophe activity, we achieved 16% gross written premium growth.
And improved Attritional combined ratio of 85.8%, excluding cats and pandemic intact.
Net investment income of 234 billion.
Operating income profit of 97 million net.
Net income of 243 million.
Book value per share growth of 7% from year end 2019, or 9% adjusted for dividends at a record shareholders equity up 9.6 billion.
Our growth in the quarter stems from a combination of new business opportunities improve rate levels and high retention rates on our existing book.
The underwriting loss for the quarter was driven by the previously announced 300 million of catastrophe losses.
This is in the context of an estimated 35 billion industry loss in the third quarter.
We also added a 125 million tour COVID-19 loss provision, reflecting the ongoing nature of this event and our prudent reserving philosophy. Despite.
This provision is predominantly I'd be at or.
Excluding catastrophes and the pandemic intact our.
Our attritional combined ratios for the group and each of our segments reinsurance at 83% and insurance at 94% improve year over year and are reflective of the earnings generating power of the Everest franchise.
Underwriting profitability remains at the core of everything we do.
On a nine month year to date basis ever since grown 15% and deliberate in 88% Attritional combined ratio excluding depend demick impacts.
Everest reinsurance at 20% quarterly growth year over year we.
We executed our strategy is to underwrite a high performing book of business with higher economic returns and lower volatility.
We executed on reinsurance opportunities in several classes, including faculty risk property and casualty and in certain territories, including the U.S., Canada and Latin America.
Traditional capital from highly rated carriers like got risk has become more relevant and supplies are tight.
We see the favorable pricing environment, continuing for the foreseeable future.
We also continue to be disciplined and rigorously evaluate each transaction.
John Doucette, it's available to provide additional details on market conditions during the Q and a.
Everest insurance had solid execution in the quarter with continued underlying margin improvement over 2019, and 6% growth year over year, despite exposure reductions in certain lines given the current economic environment do.
The attritional combined ratio, excluding the pandemic impact improved to 94% for the quarter compared to 96% in the third quarter of 2019.
We are strategically managing the insurance portfolio to build a more diversified business and steer our mix towards product lines that aren't higher margins over the long term.
Oh significant position in both the E.N.S. and retail channels give us access to a wide set of opportunities.
For the quarter. The main insurance growth drivers work continued rate momentum of plus 19%, excluding workers' compensation, and plus 13%, including workers compensation, we had strong growth across property excess casualty and do you know where market capacity gets constrained and we are seeing.
The strongest rate increases and better terms.
We had continued strength in the excess and surplus line space. We also had strong renewal retention in both our retail and DNS businesses.
My car Malosovich, it's available to provide additional details on market conditions during the Q Nate.
Regarding the ongoing COVID-19 pandemic, the 125 million loss provision in the third quarter was comprised of 110 million for reinsurance and 15 million for insurance.
Our overall COVID-19 loss provision year to date is 435 million of which 85% is I'd be an hour.
Consistent with our analytical rigor, we continue to take a measured approach to our COVID-19 loss estimation that is based on credible stock based and supportable information.
We instituted a thorough loss estimation process at the start of the pandemic it.
It is conducted team by team and contract by contract I.
As events unfold and more data becomes available we are continuously testing our estimates the claims data we're seeing it's consistent with our expectations.
It is also important to reiterate that as a reinsurer our analysis is specific to each situation.
And similar to reserving we have established an equally prudent and rigorous claims process. We evaluate claims presented based on existing policy and contract terms and conditions.
Lastly, we remain comfortable with the exposure in loss reserves in our mortgage business in the context of the ongoing economic uncertainty from the pandemic.
In summary, Evers continued to perform well in the first quarter. Despite the uncertainty in the world today, we continue to purposely seek the best opportunities to write business at an attractive returns.
We have a talented team.
Diversified global platform and a strong capital position all of which allows us to provide attractive solutions to our clients and capture the improving opportunities in front of us.
Now let me welcome Mark because she answered to the call and turn it over to him for additional details on the financials Mark.
Thank you Juan and good morning, everyone I'm very excited to be joining the great team here at Everest with its excellent talent base and culture I look forward to contributing to the company's continuing growth and success I think my industry experience and skill sets will be assets to further augment the great Foundation that has been built here at Everest.
Everest delivered a strong set of financial results for the third quarter of 2020, we achieved significant net income and positive operating income continued our growth into favorable market conditions and strengthened our already robust capital position.
For the third quarter of 2020 Everest reported strong net income of 243 million. This.
This is more than double the 104 million of net income for the third quarter of 2019 on.
On a year to date basis net income was 451 million compared to 792 million for the first nine months of 2019.
Year to date net income included 67 million of net after tax realized capital gains compared to $90 million in the first nine months of 2019 third.
Third quarter results were driven by strong premium growth across the group strong investment income performance and improved attritional loss and combined ratios well.
Also had Q3 catastrophe activity of 300 million pre tax and net of reinsurance and reinstatement premiums.
And we added 125 million COVID-19 pandemic loss provision.
Year to date, our COVID-19 provisions stands at 435 million.
And just one stated it's predominantly I view NR.
The group experienced an underwriting loss in Q3 of 115 million due to the elevated level of natural catastrophes in the quarter as compared to an underwriting loss of 28 million in 2019.
Turning to ever as its market position and growth on a year to date basis. Gross written premium was 7.7 billion up 1 billion or 15% compared to the first three quarters of 2019.
This reflects balanced and diversified growth in both segments with reinsurance up 15% and insurance up 15% compared to last year.
During the third quarter of 2020, the company reported 300 million of catastrophe losses. These.
These losses are pre tax and net of reinsurance and reinstatement premiums and related to Hurricanes, Laura I possess Sally wildfires in California, and Oregon, and other events, including the Midwest United States Territorial windstorm yeah.
The after tax basis amount was approximately 240 million.
On a year to date basis, the results reflected net pre tax and net of reinstatement catastrophe losses of 345 million compared to $335 million. During the first nine months of 2019.
Excluding the catastrophe losses and the impact from the cold at 19 pandemic. The comparable combined ratios were 85.8% for Q3, 2020, and 87.1% for Q3, 2019 and 88% through the first nine months of 2020 and 87.7% for the first nine months.
29 team, mostly attributable to the reinsurance business mix changes.
Excluding the pandemic loss estimate the group Attritional loss ratio for the third quarter of 2020 was 59.3% down from 59.7% compared to Q3 2019.
Excluding the pandemic loss estimate the group Attritional loss ratio for the first nine months of 2020 was 60.2% up from 59.5% for the first nine months of 2019 primary.
Primarily due to the continued change in reinsurance business mix year over year.
For the reinsurance segment. The Q3 2020 attritional loss ratio, excluding the pandemic loss estimate was 57.5% essentially flat from 57.6% in Q3 2019.
Year to date, it's stood at 58.5%, excluding the pandemic loss up from 57.5% for the first nine months of 2019.
This increase was related to the continued shift toward more pro rata business, which carries a higher loss pick versus excess of loss, but allows us to benefit directly from the firming primary market.
The reinsurance division have 323 million of year to date operating profitability given its 294 million of year to date net investment income.
For the insurance segment, the Q3 2020, attritional loss ratio, excluding the impacts from the pandemic was 64.8% down from 65.9% in Q3 2019 year to date and stood at 65.2% down compared to 65.6% for the first nine months of two.
2019.
Our U.S. franchise, which makes up the majority of our insurance business continues to run an attritional combined ratio in the low ninetys, excluding the pandemic loss estimate the insurance Division has 62 million of year to date operating profitability given its $126 million of year to date net investment income.
The Q3 Group Commission ratio of 20.2% was down compared to the prior year Q3 level of 23.3%. This was driven by business mix and reinsurance, notably more facultative business written and earned and also higher ceding Commission received in the insurance segment.
Commission ratio of 21.7% year to date was down compared to the prior year figure of 23% largely due to the same reasoning.
The group expense ratio remains low at 6.1% for the first nine months of 2020 in line with our expectations.
Q3 investment income increased strongly to $234 million versus $181 million for Q3 2019.
For investments pretax investment income was 420 million year to date as compared to $501 million for the first nine months of 2019 the.
The fixed income portfolio generated $408 million of investment income year to date compared to 383 million for the same period last year.
As expected net investment income increased substantially as we recorded 89 million quarter to date have largely fair market value adjustments of our limited partnership investments in this line.
The limited partnership result was due to the impact of improvement in the economy and financial markets.
As a reminder, we report our limited partnership income one quarter in arrears the.
The pre tax yield to maturity on the investment portfolio was 3.1%.
Diminishing from 3.4% one year ago.
We continue to hold a well diversified high credit quality bond portfolio with conservative duration at approximately three and a half years. The current overall fixed income reinvestment yields are averaging approximately 2%.
Other income and expenses included $38 billion of foreign exchange gains during the first nine months of 2020 compared to a loss of $44 million for 2019.
Regarding income taxes, our effective tax rate on operating income was minus 8.1% through Q3.
There is a year to date tax benefit of 31 million related to the cares Act that we reported in the first quarter.
Excluding this benefit the effective tax rate on year to date operating income would be 8.9%.
Along with growth and profitability positive cash flow was a highlight this quarter as we generated record operating cash flows of approximately $1.1 billion for the third quarter of 2020.
Parents to $633 million in Q3, 2019, reflecting the strength of the growth in premiums in 2020 compared to 2019.
However, as has a strong balance sheet, which was endorsed by the market with our very attractively received debt raise during October.
Everest solidified its very strong capital position in the after mentioned opportunistic 1 billion dollar senior notes offering in early October with the low coupon of 3.5% and 30 year tenor under very favorable market conditions. This represents very efficient long term capital.
Everest, but.
The debt leverage ratio pro forma for Q3 stands at 15.1%.
Shareholders equity for the group was 9.6 billion at the end of the third quarter up from 9.1 billion at year end 2019.
The increase in shareholders equity in the first nine months of 2020 is largely due to the 451 million of net income.
The mark to market impact on the fixed income assets, which increased by 349 million from December 30, Onest 2019 last $387 million of paid dividends and share buybacks.
Book value per share stood at $239.98.
Up 7% from year end, 2019, or plus 9.3% when adjusted for dividends.
Again, I'm very excited about the future of Everest and the opportunity to further help drive its performance off a strong base. Thanks.
Thank you and now I'll turn it back to John.
Great. Thanks, Mark operator, we're ready to open the line for questions.
And we would ask if everyone could please limit their questions to to one question plus one follow up thanks.
At this time, if you'd like to ask a question. Please press star one on your telephone keypad, we'll pause for a moment to compile the culinary roster again that is star one on your telephone keypad.
Police Greenspan with Wells Fargo. Your line is open.
Thanks, Good morning, Mike.
Question on just.
Looking for a little bit more color on the margin profile within I guess insurance and reinsurance.
So you guys are getting good amount of rate in both of those businesses showing some good growth as well.
Just trying to understand just the level of margin improvement.
I know we saw some in the quarter when we back out cash and the impacts of the pandemic I'm just trying to think about the impact of earned rate exceeding trend and how we should think about.
The margin potential for expansion in both reinsurance and insurance.
For the balance of this year and into 2021.
Thanks, Lisa This is 108 yen as you note we saw good margin improvement in the quarter. It just add a little bit of context for that we are seeing debt rate is outpacing our loss trend in most classes of business.
Particularly in India insurance sector also in reinsurance.
But we are not changing our accident year loss picks at this point in time.
We believe again based on our prudent reserving philosophy that we need to let some of this season over time before we actually start taking that to the bottom line.
However, though keep in mind that we also have other levers that we can pull in order to improve margin and improved profitability in our book of business and it's things like portfolio management also.
We're always looking at your portfolio in detail being able to tweak that we can look at deal structures, we could look at limit deployment.
We could look at industry class selection terms and conditions et cetera. So from that perspective, we're doing all of that.
In our goal to continue to improve underwriting profitability for both the insurance and reinsurance segments.
Okay. That's helpful. And then my follow up I guess, that's tied to that.
Was there any benefit from Covidien at Sydney, our loss ratio just thinking if there was any kind of frequency benefit within workers comp or some short tail lines that you took in the quarter.
Do not take any of that within your results.
No we did not take any frequency benefit into accounting.
Our results, we are seeing frequency benefits in certain lines of business commercial auto general liability workers compensation et cetera, but keep in mind Theres also exposure reductions that are taking place at the same time, because economic situation and so similar to two my reply to the earlier question you know.
We're looking at this and we're taking a wait and see approach before we change any of our loss picks were bake in any frequency benefits at this point in time.
Okay. Thanks for the color.
Thanks release.
Your own Kinar with Goldman Sachs. Your line is open.
Hi.
Can you hear me.
We can hear year, okay. Good morning, and good morning.
So first question.
With regards to the covered losses can you maybe talk a little bit about what lines of business those reserves were put up and.
Yes, sure thing Yaron D. The lines of business were contingency.
Business interruption.
And a little bit of workers compensation as well.
And I would point again back to my remarks, and remind you that again the vast majority of that provision was really in reinsurance.
Which is about a 110 million of the 125.
And overall, 85% of our of our provision at this point year to date on I'd be in our base and so I think that gives you a sense for the again the prudent approach that we're taking on this.
Okay.
And have you book.
I guess im contingency and.
And.
So its full limit losses today or is there potential for additional losses to come.
Yes, the way I think about it and I'd point you back to to my remarks here, we have a pretty detailed and rigorous process by which we're estimating our reserves that is based on on credible in fact based information. So so given that what we're doing is essentially looking at the fact that this is an ongoing.
Event.
It's continuing I mean, you're certainly seeing the situation in Europe. These days with some of the additional lockdowns and the spikes, etc. So from that perspective, it's an ongoing event and so what we do is we do a bottom up treaty by Treaty account by account profit Center by profit Center type review and we Trued up for the latest information that we.
Have available at the time.
Got it.
And then my follow up question is with regards to reserves.
Beyond Covance.
Youre still relatively new in the role.
Less than one year end.
There's a new CFO now is while we haven't really seen much movement in reserves this year.
As we head into the end of the year, how confident and some management team and the current reserves.
Yes sure thing. So you are what I would say is we have an ongoing in dynamic process to review our reserves and our philosophy hasn't changed is really what we have talked about in the past in the sense that we recognize bad news quickly.
We required good news to be proven over a longer period of time and and start was a little bit also my answer to a lease earlier about the accident year loss picks we we need to see some of that season over time, but we're always continuing to review and analyze to portfolio.
We have completed some reserve studies and smaller segments earlier in the year and there was no material change in either direction.
We will be completing longer tailed segments in the fourth quarter and if we see any need to take action. We will take action at that point in time, but again thats, that's basically the reserving stance in our philosophy.
Thank you very much sure.
Brian Meredith with you be EPS Securities. Your line is open.
Yes. Thank you a couple of questions here.
The first one just on the reinsurance space, Yeah, I noticed a drop in casualty excess casualty pro rata premiums I thought that was actually a pretty good market now what's going on there just contracts lost certain unusual items going on or what's your conscious recently reset.
Thanks, Brian I'll ask John to set two please comment on that.
Yes, good morning, Brian.
Look part of that's just timing of accounts and a couple of one off accounts, but you know we agree that it's a good market and were seeing both on the treaty and the facultative side.
Proportional casualty and excess of loss casualty opportunities both in the us and international and.
And we had a very good July one.
And continue to see that and frankly, I expect that to be an area.
Of of growth for us in 2021.
Great and then pivoting over to the insurance kind of similar type question mean, only 5% growth in premium. This this this quarter I know somebody thats, probably the pressures from workers comp, but maybe some color color around why are we seeing a better growth there.
Yeah, Mike Karma Love. It if you can answer that question. Please.
Sure Thanks, Brian for the question.
A couple of things one stated before that our focus is really on the business with a better margin long term as you just mentioned with with workers comp and our diversification you are seeing that business next play through the underlying loss ratio and with that we are focused on the front foot capitalizing those markets, where we are prepared to do to drive when you think about like excess casualty.
Think about that Dino and even our core yes, us retail and wholesale property where were up 28%, we're driving as goods really hard now there is a drag a little bit that youre seeing with regards to the pandemic, but we're very well positioned and given the opportunity in the marketplace. That's in front of US. We think we're going to have significant opportunity in the foreseeable future.
Here as the economy comes online.
Yes, I would add to that Brian as well is that we're executing pretty well and we have the platform. Both on the in EPS side and the retail side you saw the plus 19% rate that we had in the quarter, which is continuing to build over prior quarters.
And when you take away some of the drag from the exposure reductions that you're seeing in the economy. This business will will grow double digits and thats, just a matter of economic recovery playing itself through.
Great very helpful. Thank you sure.
Michael Zaremski with credit Suisse. Your line is open.
Okay. Good morning.
Thinking about.
The capital raise.
I guess from.
Hearing the comments on previous earnings calls it didn't seem like cash.
Capital.
Was what Scott was really needed I heard the comments Juan about being opportunistic is so just curious did something kind of change quarter over quarter or is it just simply.
Low debt costs and.
And some growth and do well some of this capital be used.
For buybacks buybacks, you think will come online now that covered losses seem to be.
Improving and we're we're through most of cat season.
Yes, Thanks, Mike So first of all nothing has changed you know we we have been in an excess capital position as a company as we've talked about in the past and.
And for US It was exactly what I said it was really opportunistic timing given where credit markets were I mean look the fact that we printed a 3.5% coupon on 30 year debt is pretty good I think it's probably one of the lowest if not the lowest PNC loan.
Long term debt coupon that's been printed out there. So the timing it was really the key for the markets where yields were at the time that was really the key that drove all of this now as far as what we'll do with that capital.
We are starting an excess capital position were not going any even stronger capital position. We have flexibility you know as I indicated in my remarks, we see some very very good opportunities right now organically in both the insurance and reinsurance space given the market conditions. So thats part of it but we're also thinking as I said in my remarks about up playing this in support of our own.
Overall strategy to grow book value right. So there's different things that we can do over time with this capital.
Okay understood.
And that would include share buybacks potentially reopening month.
It could into future right I mean, if you look at our capital management philosophy. Our first priority has always been to deploy capital for organic business growth in the market.
We see attractive opportunities there beyond that excess capital can also be used for other things.
Share repurchases pay dividends et cetera, et cetera. So there's multiple things that we can do that and that's really my comment about supporting growth growth in book value over time.
Okay, Great and last question is a follow up to your own his question.
About kind of reserve studies do you is there any.
Do you think that the new management team coming on board there.
There might be a change to kind of the reserving philosophy.
As you guys take a kind of a new sets of eyes kind of look at the the book I think you know versus one that historically, you've thrown up just a little bit of reserve releases. Some of your peers tend to kind of just a book a little bit more conservatively. Just curious if you think there could be any changes there. Thanks.
Thanks, Mike and you know keep in mind I think it's as Yaron said I've been the CEO for less than a year at this point in time rights had been about 10 months Mark.
Marketing Ensync is now joining us.
But as I stated earlier in the response to his question the fundamental philosophy of recognizing bad news quickly in requiring good news to be proven over a longer period of time really has not changed from that perspective. So.
I go back to the fact that.
Fact based guy.
We will look at that the information that comes out of our research studies and then we will act accordingly.
Thank you.
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Prior shields with KBW Your line is open.
Thanks.
First question to Mark if I can you mentioned I think that in turn ceding commissions were up and that was helping the expense ratio in that segment I guess, a little surprising my impression is that ceding commissions are generally coming down as one of the aspects of the hard market is hoping you could add some color to what's going on there.
Yes.
Brian.
Or Meyer sorry about that yes. This ceding commissions, what we're seeing in the in the insurance space is.
An elevated level of ceded premium really due to the business mix of what we have and so we're seeing a bit more.
Business out in certain lines, which was leading to higher ceding commissions coming in there, but that's that's more of a business mix.
Situations.
So it's not so much a change in the percentage for the actual ceding commission, but rather the business mix that's flowing through.
Okay, that's very helpful.
Question I guess earlier this week we had.
What are the Bermuda reinsurer as talk about.
Being more conservative in their interpretation of parts.
Potential catastrophes, then vendor model and I'm, hoping you could talk about how have received that.
Yes. Thanks Meyer. This is one look I think.
I'm a change is a real thing right.
It would be it.
Crazy to denied that climate change exist.
I'm also acutely aware that our industry plays a critical role frankly, and economic and social recovery after extreme weather events and you look at what's been happening, particularly in the Gulf Coast and frankly, my heart goes out to these people having spent a lot of time in my career working and living down there.
The frequency of activity that's hit them in the past quarter is just not good from the perspective of how we think about it.
I think modeling is a big part of it and we certainly have a really world class modeling capability that looks at everything from sea temperatures to atmospherics saturation to changes in economic valuations and we look at all of that however, what I would say is though no no single computer model is going to be able to predict.
Consistently the long term impact of climate change.
So this is when you have to really come back to the skill set that your underwriters bring in the underwriting judgment that we have and so from our perspective Thats part of how you have seen some of our PML should reduce overtime right. The fact that we're looking to grow a diversified book of business to.
To be able to manage that type of volatility even better and the other thing that I would say is you look at our hedging right. The fact that.
We do pretty significant risk transfer to our third cap third party capital tools like Kilimanjaro.
Logan et cetera, and that's part of the suite of how we think about all this so hopefully that provides a little bit of context on how we think about it Mike.
It does thanks, so much.
Ryan Tunis with our economist research your line is open.
Ryan Your line is open.
Sorry, I was on mute sorry about that.
Can you hear me.
Yes, Brian I can you are you good morning, sorry about that yeah. Good morning.
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So are you said you've been here 10 months so.
You are pretty familiar with adverse now.
Some management changes I guess, just taking a step back a broad question.
Yes, as you think about 2021.
What are the main parts of ever is that you think you need to get better and.
What are you thinking like some of the main improvements might be.
Yes. It's good question look I start with the fact that I think we have a great company and a great culture and frankly based on the numbers that you see US continue to report we're attacking this environment right.
The pricing is there the execution is there.
So I feel pretty good about all of that.
We certainly have strengthened to management team with two executives, who have global capabilities, who have a lot of strategic strength and I feel very very good about that look I think for us. The opportunity is how do you continue to execute in the middle of all of this right. The context of the pandemic the contents of an economic recession and the.
Thanks have a very strong underwriting market. So for me those are good problems to have which is how do you continue to to take a great franchise and move forward in that environment and.
And do it successfully.
That's helpful. And then my follow up I guess just for John Doucette.
The $300 million $300 million of cats seems like a lot less and then maybe what Everest might have had in past years I don't know if that's how you are thinking about it or not but I'm just curious if what's your observation on cat experience.
This third quarter versus.
Maybe what you would have had in a similar type of cat year in 18 or 19.
How does that reflect some of the changes you made in the book.
Yeah. Thanks, Ryan good morning, and so a couple of things so as we've talked about on prior earnings calls you break it into a couple of parts to break it into wildfire. So we had talked about how we didn't think the industry was charging enough. What we thought was required for the elevated risk for the wildfires and so we pushed rates terms conditions and.
Irrespective of getting a lot of improvements. We also decided made a conscious decision to.
To cut our while our gross wildfire exposure.
And then on the on some of the the property and the wind exposed areas. You know, yes, we've been seeing a lot of rate, but we also talked about a view of an elevated risk.
Combination of the clients the climate change that one talked about before but also seeing social inflation things like assignment of benefits and how that impacts things and so.
That along with exposure growth and just frankly, our increased cost of capital because our ability to deploy cap capital profitably into many other lines of business.
And we expect to be doing that going into one one as we see improving rates terms and conditions are cost to deploy property AG has continued to go up.
Cat capacity so that.
That that certainly.
Was helpful in terms of our market share and absolute dollars of loss, but.
But frankly that wasn't an accident this was all intentional.
Thank you.
Josh Shanker with Bank of America. Your line is open.
Yes, good morning, everybody.
Morning, John.
I wanted to talk a little bit in relation to Marios question about.
Ceding commissions, but on the reinsurance side, obviously is a very good quarter in terms of the commission expense.
<unk> expense ratio are the best since Threeq 217, I've been looking at the mix of business. It seems like quota share casualty went down.
And it doesn't seem like there was a lot of ceding commissions from the events, maybe you can walk through that number a little bit and give us some thoughts on how it might compare with where.
Might be in 2021.
Yeah, So John Doucette, maybe you can provide some color on that.
Yes. Thank you. Good question. So I mean part of it is a mix of business, but part of it also I think there was also.
Mutation, we had mentioned a couple of quarters ago that had to do with prior prior year. The kind of had an offset between what was in the commission.
On the commission side and the and the loss reserve. So it was kind of a push financially, but it did move some of the numbers around I think that's part of what you are seeing so and then in terms of what what.
What we would expect going forward, we would encourage you to look at the year to date.
Year to date numbers for what the commission ratio as as a better indicator than any one quarter.
Okay and then.
If we're thinking about this.
Business mix going forward orientation for 2021 between.
So well versus pro rata between property versus casualty.
Yes.
Well, we'll give a preview on how you think you might oriented the book coming next year.
Yeah. It's a great question, we spend a lot of time thinking about that strategizing about it with our underwriters all over the world. So look I mean, the bottom line is we're pretty bullish on on.
Many opportunities across many lines of business going into one one and there's a variety of reasons for that.
We're seeing a flight to quality.
And a flight back to the traditional model, which we think will will greatly benefit us across many lines. Our global clients are continuing to want to buy more and buy more from people like Everest, So thats a significant opportunity.
And then you know, whether it's property or casualty or specialty marine and aviation political risk trade credit and surety I mean, we have underwriting expertise in all of these lines of business all over the world and so we are ready.
The team we have the capital as one and Mark talked about we have the franchise the distribution and we're really leaning forward and then in terms of where we'll be we see opportunities in all of those we expect.
The casualty market, partially because the reinsurance panels the security requirements on reinsurance panels for.
For long tail business casualty professional.
Thats hard for a lot of people to get access to that business. So we have the distribution and the relationships and again the underwriting expertise. So we expect to see a strong.
2021, when it comes to the long tail, but of course, we're looking at you know the most dislocated property retro market. We've seen in 15 20 years and so again, we'll look to deploy capacity and capital and then we spend a lot of time and we've talked about this before kind of a dynamic capital allocation not just between short.
A long tail, but then within.
Each of the respective areas, what's the best territory, what's the best product.
A structure that we want to deploy and so it's hard to know how that will all settle out.
But rest assured we are bullish about the opportunity presented to us and our ability to execute a going in one month.
Thank you very much for the answers.
You're welcome.
There are no further questions at this time I would now like to turn it back over to the Everest team for final remarks.
Thank you and thank you for your time today, I think as you've heard from US Everest is well positioned for this market. We have the financial strength, we have a preferred market presence we have a diversified global platform. We're very nimble. So we can go either way and take advantage of the opportunities we have a deep distribution.
Set of relationships, we have great people and we have a great culture. So we do feel pretty good about the market environment and the situation that up Everest is positioned on to capture. Thank you for your time today and we look forward to updating you at the next quarter.
This concludes today's earnings call. We thank you for your participation you may now disconnect.
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