Q3 2020 AXIS Capital Holdings Ltd Earnings Call
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Good morning, and welcome the Axis capital.
Quarter 2020 earnings call.
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I would like to turn the conference over to Mr., Matt Warman head of Investor Relations. Please go ahead.
Thank you Nick good morning, ladies and gentlemen, I'm happy to welcome you to our conference call to discuss the financial results for Axis capital for the third quarter period ended September Thirtyth 2020, our earnings press release financial supplement and 10-Q were issued yesterday evening after the market closed.
Like copies. Please visit the Investor information section of our website at Axis capital Dot Com.
We set aside an hour for todays call, which is also babbling audio webcast dissolved to be able to their <unk> investor information section of our website with.
With me today are Albert Benchimol, our president CEO and Pete that our CFO.
Before I turn the call over to Albert I would remind everyone that the statements made during this call, including the question and answer shot session, which are not historical facts may be forward looking statements forward looking statements involve risks uncertainties and assumptions actual events or results may differ materially from those projected in the forward looking statements due to a variety of factors, including the risk factors set forth in company.
His most recent report on form 10-K, and other reports the company files with the SEC.
This includes the company's form 10-Q, the quarter ended September 32020, as well as the additional respect additional risks identified in the cautionary note regarding forward looking statements in our earnings press release, we undertake no obligation to update or revise publicly any forward looking statements. In addition, this presentation may contain non-GAAP financial measures.
Things are included in our earnings press release, and financial supplement with that I'll turn the call over to Albert.
Thank you Matt.
Good morning, everyone and thank you for joining our third quarter conference call.
This has been a year of two stories for access one of exceptional catastrophe activity, but also one one where our repositioning over the past few years, which continues into 2020 is delivering demonstrably strong positive impact.
First and foremost.
Our Hearts go out to all who have been impacted by the pandemic storms wildfires in another calamities.
We're committed to delivering on the promise we made to our customers.
Stand by them in times of need with our industry, leading claims service.
On a reported basis. This has been one of our more challenging years with a combined ratio of 150 on the quarter and 110 for the year to date.
The results are evident to all of us.
We're experiencing the impacts from the global COVID-19 pandemic.
And this is compounded by a highly active year in terms of natural catastrophes.
Indeed, well storms data 2020 has matched 2000 fives record and the number of named storms.
Our cat losses in the quarter were $240 million or 22 points.
For the year to date, we have recognized $576 million in combined cash and coal bid losses, contributing 18 points to our year to date combined ratio.
On the other hand.
It's also a year of undeniable progress where access.
Our ex Cat current your combined ratio at 92.4 for both the quarter and the year to date, it's clear evidence that our repositioning is delivering tangible results.
It's a five point improvement over the prior year, continuing the positive trend that we've been saying for several quarters.
On an X cat basis, we're seeing improvement in almost every line.
Even in our property and catastrophe lines, our recent risk and volatility reduction activities have served us well.
Offer sufficient profit potential.
Our industry segment grew gross premiums written by 5%.
And with a strong rate increases as well as significant amounts of new business growth.
This was offset by actions, we took to prune our portfolio Cup.
Coupled with headwinds we faced due to the economic climate.
All in we're confident that we're growing where we should be and taking discipline actions were necessary.
Ah reinsurance segment had a 23% reduction and gross premiums written in a lower volume quarter.
This is the continuation of the repositioning we've been reporting to you since the beginning of this year.
Accentuated by some timing issues and premium adjustments.
On a year to date basis reinsurance GP W is down 12% in line with a 10% reduction that we reported in the six month period.
Peter will speak more but the movements by line in this report.
But before I pass the floor onto Peter I want to highlight that we are effectively executing the COVID-19 technical response plan that we shared with you earlier in the year.
You will recall the planet three operating priorities.
The first was to stand up the organization to sustain operating capabilities and clients interesting.
Our staff and <unk> responded superbly.
And our customers are telling us that we haven't missed a beat.
We're receiving and processing more submissions and binding more policies this year even.
Even though the remote work conditions.
Estimate to the agility of our team.
The second operating priority was to minimize the downside.
This was reflected in lower pms's across the curve at increasing our underwriting guidelines to reduce exposure to industries that were most likely to be affected by the pandemic or it's economic impacts.
A material reduction in our credit lines is a natural consequence of these actions.
And the third operating priority is to prepare access to participate strongly in the recovery.
And we're well on our way to doing just that.
Identifying and adding resources to lines in markets, where we expect attractive conditions.
All the while we remain on the sidelines or continue to improve books that are not yet providing the desired results.
As I'll discuss later when I report on market conditions. This is affirming but not a hard market.
Lower levels of favorable developments social inflation, the pandemic more frequent natural catastrophes and lower interest rates drive the need for substantial price increases and in many lines. It may take increases beyond 2021, before we reach adequate to risk adjusted returns.
This remains of underwriters market.
There are excellent opportunities out there, but there are still many unattractive lines and markets to be avoided.
With the strength of our talents are positioning in the market's showing the most impressive corrections and our relationships with our producers and customers. We're confident that access is well placed to make the most of the attractive opportunities and to continue to improve our book of business and results as we build a global leader and specialty risks.
I will not pass the Florida, Pete who walk us through the financials and I'll come back to talk more about pricing and I'll have our Q&A Pete.
Thank you Albert and good morning, everyone as Albert noted in his comments this was a challenging quarter for the company, but it also included strong core underwriting results.
During the quarter, we incurred a net loss attributable to common shareholders of 73 million, an operating loss of 65 million.
Hi, catastrophe and weather related losses overshadowed the core underwriting results that continued to show improvement.
The company produced a current accident year combined ratio X cat and whether of 92, 4%, which was a more than five point improvement over the prior year quarter.
As previously announced the quarter pretax cat and weather related losses net of reinstatement premiums with $240 million or 22, two points, primarily attributable to Hurricanes Lauren Sally the Midwest Derecho wildfires across the west coast of the United States.
The Bay report explosion and other weather events.
I will provide a bit more color on a couple of these events.
Hurricanes, Lauren Sally where combined 120 million dollar event for us.
Dominantly, an insurance event, where we experienced approximately 100 million of insurance losses versus $20 million a reinsurance losses.
The Midwest Derecho with only an insurance event for us and contributed $45 million to our cat losses in the quarter.
In the quarter, we kept our COVID-19 lost estimate steady at 235 million.
As a reminder, the COVID-19 loss provision is associated with property and then cancellation anh and pandemic coverages.
And as of September 30, the vast majority of the loss provision is still <unk> and the paid amount is de minimis.
During the quarter the FCA test case ruling was decided.
We took this information into account as well as other data as we continue to monitor the level of our covid loss provisions.
While there was some movement between sub classes of business, we remain comfortable with the overall loss provision.
I would remind everyone that covid is an ongoing situation.
And we will continue to rigorously and carefully monitor developments across all lines of business and establish reserves if and when appropriate.
Moving into the details of the group level.
During the third quarter, we continued to see improvement in our underwriting results.
Our current accident year combined ratio X cat and whether decreased by over five points as the repositioning of the portfolios in both segments starts to earn through.
The consolidated accident year loss ratio X cat and whether it 58 and a half a decrease of over three points with improvement attributable to both segments.
We reported essentially no net favorable prior year reserve development in the quarter.
We observed adverse loss experienced in our liability in professional lines and this was offset by favorable releases and some of our short tail lines.
In these times of socialization Covid and economic uncertainties. We believe it is appropriate to maintain a prudent approach to our reserves and do stay consistent with our strategy, which is to take bad news early and good news only after it has been confirmed.
The consolidated acquisition cost ratio was 21.1, a decrease of one four points compared to the third quarter of 2019.
And again this was attributable to both segments.
The consolidated G&A expense ratio was 12 eight a decrease of six tenths of a point compared to the third quarter of 2019.
The total general and administrative expenses decreased by $18 million.
As we have discussed in previous quarters due to the pandemic, we continue to experienced lower run rate expenses and a number of areas that.
Temporarily lower run rate is helping our G&A ratio by about a point this quarter.
Moving on to fee income from strategic capital partners. This was $16 million for the quarter compared to eight mean $19 million and the prior year quarter.
The decrease is due to lower profit commissions.
Will now discuss the segments, let me start with insurance.
During the quarter, our current accident year combined ratio X cat and weather for insurance decreased by over seven points as the repeat positioning of the portfolio continue to earn through.
Insurance segment reported an increase of gross premiums written a $41 million or 5% for the third quarter.
The increased principally came from good growth.
And professional lines accident, and health and aviation largely attributable to new business and favorable rate changes.
This was partially offset by decreases and liability marine credit and political risks.
Due to less opportunities driven by the economic climate.
As well as the run him off of our discontinue line.
The current accident year loss ratio X cat, whether decreased by three and a half points in the quarter compared to the third quarter of 2019.
This was due to the impact of favorable pricing over los trends as well as the improved loss experienced in the short tail lines.
Largely associated with the repositioning portfolio and the exit from certain product lines.
With respect to the longer tail loans, notably professional lines and liability.
Given the uncertainty of the current situation, we've prudently not reflected the majority of excess right over trend pricing and are expected loss ratios.
Let's now move onto the reinsurance segment.
During the quarter on for an accident year combined ratio X cat and whether decreased by two seven points again as we've repositioned this portfolio and it continues to earn through.
Reinsurance segment gross premiums written a $395 million for the third quarter is 116 million lowers from the same period in the prior year.
The third quarter is a lower G PW quarter for some insurance segment typically representing only 15% of the reinsurance gross premiums written in the year.
This year the quarterly gross premiums written was impacted by our decision earlier in the year to exit the middle East accident, and health business and the engineering line of business.
Which we will leave have a positive impact on the bottom line results.
In addition, gross premiums written decreased and motor lines due to premium adjustments and other timing effects.
As we look year to date the reinsurance gross premiums written is down 12% and this is consistent with a trend we've seen earlier this year as we rebalanced, our book with lower catastrophe, agriculture, and credit and charity business.
The current accident year loss ratio, excluding catastrophe in weather related losses decreased by over two points in the third quarter compared to the same period in 2019.
This was principally due to changes in business mix and improved performance in aviation professional lines and liability lines.
Net investment income of $102 million for the quarter was 14 million lower than the third quarter of 2019, primarily due to the decreasing yields.
Sequentially, we had a bit of a rebound in our alternative portfolio in the quarter as it produce $25 million of net investment income.
Our current book yield is two 3% and our new money yield is one 4% the.
The duration of our portfolio continues to be approximately three four years.
Looted book value per share decreased by 34 cents in the quarter to $54.75.
This is primarily driven by the net loss and common dividends declared partially offset by net unrealized gains.
With that I'll turn the call back over to Albert.
Thank you.
Let's do a brief overview of market conditions on outlook and then we'll open the call for questions.
We continue to see acceleration across virtually every line of business that we right.
With an insurance, we saw average rate increases of more than 16% across the book in the third quarter.
This compares to about 15% of the second quarter, 10% in the first quarter of this year at 8% in the third quarter of 2019.
Through the first nine months the average rate increase was a little more than 13%.
That's more than double the average increase in the first nine months of last year.
And are you as division, we saw average rate increases of more than 16%.
Within that excess casualty reported average rate increases in excess of 25%.
Primary casualty averaged over 15%.
Ian is property rates were up almost 20%.
And are you S programs business, which focuses on homogeneous books, a smaller accounts saw increases of about 6%.
Moving on to our North American professional lines Division pricing. There also continue to accelerate and waits were up by close to 17% in the quarter.
Our commercial management solutions unit.
Average rate increases of over 35%.
We saw particularly strong great action across public DNO, where where essentially an excess writer at more than 55%.
In addition, private equity was up more than 40% and privately held companies up more than 30%.
In addition, we're seeing great increase of about 25% and our Canadian specialty business and 20% for Bermuda excess.
Within cyber in Tech, we saw 6% improvement as rates are now rising to reflect increased claims related to ransomware among others.
Accidents in the house was essentially flat on low volume this quarter.
And our London based International Insurance Division rates were up close to 17% on average in the quarter.
Renewable energy, we're we're a global market leader was up more than 35% professional and casualty lines were up over 20% and aviation is finally correcting with pricing well over 55% in the quarter.
Or London, Marine political risks and property books averaged a bit shy of 10% held back a bit by terrorism and offshore energy.
Within that group, though marine cargo continues to outperform and was up almost 25% added global property, which was up close to 20%.
Overall in the quarter.
97% of our total insurance business renewed flat to up.
More than half of the Premium's experienced rate increases in excess of 10% and within that over 30% of the book had rate increases in excess of 20%.
Let's move on to reinsurance.
There were seeing encouraging signs affirming although not quite as high as insurance with.
With the understanding of course that are meaningful variances by market.
Our year to date average rate increase in reinsurance is about 8%.
And here too we saw encouraging acceleration from lower levels of January one to about double digits on average as the years developed.
Castro fee and some specialty lines, including liability are in double digits.
Other than those lines, the us and global specialty markets are saying the strongest rate increases with EMEA in Asia lagging behind.
Nevertheless.
While we see pricing of conditions, starting to respond to los trends in reinsurance, we believe it or not yet making up for much lower interest rates, leading to less attractive total returns and some lines.
We responded appropriately by reducing our participation in certain trees and markets.
Although we are optimistic that conditions going into 2021 will provide opportunities to grow across a number of lines and markets.
Overall across both insurance and reinsurance markets.
We are seeing some impressive numbers in terms of rate change.
That said I caution that with a significant increase in the frequency and severity of weather related events, social inflation, the uncertainties stemming from the Covid pandemic.
Significantly lower interest rates.
Current pricing is approaching adequacy, but does not yet translate interstellar roe's for the industry.
We remain optimistic that we will continue to see progress with the understanding that more right action is needed and very likely it'll take increases beyond 2021, and some lines to get to rate adequacy.
Access.
We're leveraging a hybrid model to access risks across the globe and a different points of the restaurants were chain.
We seek to grow the parts of our business, what we're seeing the best opportunities and create a more balanced and diversified portfolio of risks delivering an appropriate risk adjusted return.
We are well positioned in the lines and markets that are seeing some of the strongest pricing momentum and are confident that this will accelerate our progress.
We feel well prepared and optimistic for the future we've delivered meaningful progress in our portfolio results in recent quarters and we're confident that we can continue this price this positive momentum so the rigorous execution of our strategy.
And with a favorable pricing environment anticipated to extend into 2021 and beyond market conditions are working in our favor as.
As we looked at a year ahead it feels like all the pieces are coming into place.
And with that let's please open the lines for questions.
When I'll be getting the question and answer session.
Question, You May press Star one on your Touchtone phone.
Using the speaker phone please pick up your handset before pressing the keys.
Draw. Your question. Please press Star then too.
At this time on pause momentarily to assemble a roster.
First question comes from <unk>.
Goldman Sachs.
<unk> go ahead.
Spreading thanks for taking my my questions I guess my my My first question goes to the underlying loss ratios in both reinsurance and insurance.
We're seeing significant improvement year over year.
I seem to recall that last year, you had called out somehow mid types losses are there any such losses in this quarter's results.
Payment donahey wrong with that.
Hey, you're on this is Pete first I would like to do one thing before I answer that question.
Matt hit me on the shoulder the derecho event in my comments I just want to clarify for everybody, we had $45 million of losses on the derecho and that was all attributable to reinsurance Matt hit me on the shoulder and he told me I think I said insurance. So just to clarify for everyone. Derecho was just purely a cat on the reinsurance side. So I just want.
Clarify that first and then with regard to your question, Yes last year in the third quarter was a big spiky. We right now we're just looking at all losses. His performance. We did have some in this quarter, but I would say year over year. There was about a two point delta there and so overall the loss ratios down over.
Three points I'd say about two that's due due to that the rest of it is good performance I would also say that as I mentioned in my comments, especially with regard to insurance, what we're getting right over trend on the long tail lines.
Right now we're kind of holding R.
<unk> our book in our loss ratios essentially flat to last year, just due to the uncertainties associated with the current economic climate as well as Covid and social inflation. So so all in all we feel really good about the improvement we're seeing in the book.
What about two to three is associated to large loss, but but again I would look even year to date, if we look at our loss ratio year to date. It's at like 50, it's below 58 for the company and that's got a fair amount of those normal puts and takes we get on the large loss side.
And as we've re underwritten the insurance portfolio. We have brought the limits downs, we are seeing less of those on a ongoing basis.
Got it.
Yeah, the way that.
Fundamentally is that I think that our year to date loss ratio is probably just a good base I mean, there's so many puts and takes at this point given some of the positions that we're taking with regard to the current environment.
We think we're in a good place with a loss ratios we have.
Understood.
And then with regards to holding the philosophy shoes steady competitor last year for long tail lines.
Only prudent in this environment of uncertainty cause he maybe give us some color as to how you were thinking about when when you cross that threshold does not feeling more comfort comfortable with booking the sloss trends.
Sorry, the rates that you're getting over trend.
Is it like waiting for a vaccine to be regularly available is it getting past the credit cycle <unk> at what point you become more comfortable to release some of that pent up Margaret.
So there's two components to it right one is right over try and the second is the fact that we're seeing just less claims activity right now.
The position we're taking is at this lower claims activity is probably temporary.
I mean, we'd love it to be true but.
I don't think that's a good basis for for reserving.
I think that.
When you look at right over trend.
Right over trend that we're earning right now was last year's right over trend, which you'll recall was more like in the in the 8% range and so we think that given what's happening in this industry.
Putting it all in the loss ratio of this year makes perfect sense.
Obviously as we go into 2021, we're experiencing much higher right over trend in there I think we're going to start reflecting some of that we're not going to put it all in the loss ratio and then over time as as we see.
A little bit of maturity and these lines of business will take.
We'll start to reflect the positive, but the way I look at it.
There's no company is ever been punished for reserving prudently and then releasing afterwards.
Okay great.
Thank you next question comes from Bryan Meredith.
Yes. Please go ahead.
Couple of them here for you at first.
Talk a little bit about.
If we do get a double dip pier, if we do get an increase in.
Kind of stayed home orders and stuff.
Kind of the Covid exposure issue going forward you sure maybe some additional event cancellation that kind of can hit.
Where should we how should we kind of thinking about that and put in perspective.
I think we're in a good place there let me just kind of walk you through some of the numbers and Pete feel free to to jump in and compliment.
So obviously, we didn't have a lot of business that was exposed to.
To event cancellation.
Frankly, we only had one event the Olympics, we took a partial reserve against the Olympics if.
We get into wave 345 in the Olympics were ultimately to be cancelled obviously, we'd be closer to a full limit loss.
On the Olympics and that full limit is $50 million and I think we took.
About a third of that give or take.
In the first quarter.
With regard to policies.
For businesses that are that business interruption.
<unk>, we were very quick as where a lot of people to immediately change the wordings.
Of our of our policies and in particular, a good bunch of our policies were already in businesses that.
We're cancelled or in the process of being cancelled we believe that today.
We have reduced the number of policies exposed.
To the Covid lockdowns in the UK by about 70%.
Simply through the attrition of those policies expiring not being renewed at or new language being brought in in the U S. Frankly, we've always had.
Both physical damage and virus exclusion, except for a very small number of policies, which are already reserved for so by and large I think we're in much better shape right now.
If there were to be a covid lockdown.
Any more than you want to add to that Peter.
No I just want to clarify yes. Thank you did at the end there Brian I think where we had most of the exposure. This year was in the UK and that's the area, whereas is that portfolio is turned over as well as as it's just turned over that we've been able to get exclusionary language on renewals as well as other other clients that have been nonrenewed so that.
The exposure down about 70% and we've always felt good about where we are in the U S.
Okay. So that obviously speaks to our insurance book the reinsurance book is a little bit more difficult to evaluate but I would expect.
But many of our customers would have taken similar kinds of corrective action. So.
Less able to give you specific numbers, they're Bryan, but we think we're in a better place now than we were certainly at the beginning of this year.
Got Ya two more here quickly so Peter I'm, just curious given the difference we're seeing a new money yields where should your current book yields is there any way you can kind of give us some kind of outlook or guidance with respect to investment income pressures and fixed income.
Yes, so Brian I mean, we're looking at down to two three you'll see sequentially.
The rate came down about two tenths of a point again that with some of the floaters, which are pegged the LIBOR resetting even lower.
LIBOR, so low right now I don't I don't think that's really going to go much lower so if you look at new money yields earn about one four with a three year duration I just think the headwinds there are going to be on the yields probably at about a 10th of a point a quarter. So Brian unless we can get an uptick back up into the mid twos on those yields.
Gotcha.
And then last question Albert for you. So maybe you could talk a little bit about where you are with respect to lowering volatility and the reason I ask is that will.
Look at you guys, you lost money's quarter and granted it was a big cat last quarter, but if you look a lot of other companies P. T companies that are reporting.
They are also having large cat losses, but there's actually still making money. This quarter is there an issue with kind of scale at access that you may be need some bigger scale or are you still need to reduce volatility.
Maybe give us some perspective on that.
Yeah, I don't think everybody has reported number one number two as you know there are different kinds of accounting some people put all of their changes in comprehensive income through the income statement. We don't so there's a bunch of things.
Some people have taken reserve releases, we've just told you that we think of it in this market, it's probably not a good idea to take reserve releases, so I'm not sure that.
Things are comparable to the decimal point, but let me address your question more broadly.
Our goal has been and continues to be to do two things one is to increase the profitability of our non-cash business and beecher reduced the volatile or exposure to a a cat business and that's exactly what we're doing I gave you some statistics in the early part.
The presentation about how we're much less exposed to this year than we were last year than the year before that and we will continue to do that we were explicit and telling everybody, we're not going to be increasing our <unk> into 2021 as even with.
With a market growing.
There so that would be the first thing the second thing is making sure that our nonsked business contributes a bigger piece.
Of profitability and there I'm feeling really good about our trends.
And obviously this is not a number that we're going to be reporting on a regular basis, but when I look at the at the row of this company.
X cat, which is just for the just for our own analysis of the of the drag of Cat R X Cat Roy in the third quarter was up over 230 basis points.
So the two parts of our strategy increase the profitability of your overall not cat business, we're making great progress you'll see that in the improvement in the X cat combined ratio or seeing that the improvement in the X cat row.
And then secondly, continuing to reduce the volatility through more intelligence.
Portfolio construction and net net simply reducing the amount of cat expose business that we have the net of which is going to be a better result.
Absolutely I'm convinced that scale is not the issue. It's just it's just continuing to work on the two levers I've just discussed.
Great. Thank you.
Thank you and the next question comes from monitors Shields K B W. Please go ahead.
Great. Thanks, Good morning, all.
I guess the biggest big picture question is when should we expect the.
Heightened level of portfolio reshaping to be done and maybe a simpler way stating.
Stating that is given the pricing environment should we expect.
Overall top line growth in 2021.
Well the answer is absolutely we should expect overhaul top line growth in 2021.
I think that.
Fundamentally we feel that all of the big blocks of.
Of our repositioning are done I mean, we're earning through it if you would this year as we're writing yet.
Cancel the number of.
Producer relationships and so on in January one, which are running through the year and so on and so forth I think from now on it's really about optimizing the portfolio.
And as I have discussed with you earlier, we think that there are a number of areas that are not yet reflecting all of the headwinds that we've talked about in in particular interest rates.
If we have lines of business in 2021 that are not appropriate responding and not giving us adequate returns. Obviously, we will not look to grow those but if those lines of business are giving us. The returns that we want then we are open to growth and just about every line subject of course to managing the overall volatility of our.
Book of business.
Anything you want to add Peter.
No. The only thing I'd say is maher you're spot on there I think as I look, especially at insurance, where we did a fair amount through the course of 2019 of.
Setting some business they.
They had a headwind about two five points just due to discontinued businesses that would really be gone. This year, so there'll be a little bit more of an impact a headwind in the fourth quarter, but as we get into 21.
That should actually be away go away from the insurance side in that in that segment is actually already starting to show good growth as we go forward and reinsurance we took a lot of the actions in the first half of this year. So again as we get next year I expect to see growth again.
Okay perfect that's the insurance.
Sorry, you're just just I just wanted to get comp complete as like as I can be.
Obviously, we talked earlier about.
A reduction in our credit exposed lines being a consequence.
There I think our growth is going to be very much subject to.
Our expectation of where the economy is going if we there's going to be a lot of economic uncertainty. The odds are that we're not going to be looking for huge growth on the credit expose lines.
But I think what matters at this point in time is the book is where we want it to be at from now on it's really about are we getting the risk adjusted returns are we getting the risks that we want.
And we are open for business and every line.
Okay.
That is very helpful.
Pete you've talked in the past about how some business that I guess is essentially an run off it adds something like a two point loss ratio headwind.
In the first half of the year was that Packer also relevant into court.
Yeah again, it's really running off Meyer it probably hit it did hit the third quarter negatively but by by less than half a point. So it's at this point, it's become an inconsequential, but I mean, the exact math would have it at all about four tenths of a point impact due to the due to the runoff business in the quarter, but it.
This point that business is pretty much guidance.
Okay. That's that's very good and final question if I can.
They're the market I think is suggesting.
A lot of skepticism in catastrophe modeling or maybe just assuming that normalised losses. After what we've seen for the past four years.
Are much higher than the historical record I was hoping you could share your perspective on that specific issue in other words, how do you feel about the.
The state of the industry's cat modeling relative to expectations in the near term.
I think it's a fair observation right.
If you look at the last four years I think three out of the last four years have been.
Ah disappointment.
To the industry.
And frankly, that's why we've been pushing for pricing on the one hand, but that's why you're also seeing a a reduction in our cat premiums overall, just look at a reported numbers you see we're writing less cat even on a gross basis, because we're just not feeling that the market is properly reflecting.
What we believe is an ongoing trend I think at some point, that's going to have to change.
But I will tell you that our cat writings. This year certainly would indicate our agreement with you that we.
We don't think it's very yet overall, we're taking the position that we're going to see more frequency and severity of cat losses, which is why it continues to be our strategy to make our exposure to cat events, a smaller part of our book.
Great. Thank you very much that's very helpful.
Thank you next question comes from Michael Phillips Morgan Stanley. Please go ahead.
Yeah. Thanks, good morning, everybody.
I guess kind of continue on the reinsurance thing, but I think we hear you pretty clearly al your stance on on property cat and pulling away there, but I guess can you say, where and reinsurance do you see any opportunity that <unk> that you're looking at for reinsurance and then secondly should we consider what we see the drop into in premium growth. This quarter is not a trunk or we can.
Can you see more as we go forward the next couple of quarters.
So I think just looking at projection Peter obviously, some of our businesses that we've already cancelled is going to affect fourthquarter. So just a lot of that is on the quota shares we reported on a quarterly basis.
So my expecting expectations, you'll see that certainly for the rest of the year Peter would you agree with that.
Yes, I would but I'd say, Mike that really when you're looking at reinsurance the third and fourth quarter, such small volume quarters. It really looking at year to date, a better better indicator of where we've actually change the book of business, where it's down 12% I think this quarter in particular they were timings there was premium adjustments that's typically.
It happens in the third quarter and just year over year. There were positive of last year negatives. This year. So I wouldn't read into the 23% down you saw in the quarter look more year to date.
And I think that gets to how we've been repositioning the portfolio, which I think is the second half of your question and Albert If you would like to address that.
So look when you look at the big the Big dollar numbers of reductions year to date, So we talked about cat and that's already been addressed.
Agriculture same thing with a lot of climate change there's been a couple of really difficult AG.
AG gears, we ask for better terms, we didn't get them there was a big reduction in agro this year.
As we're continuing to optimize our portfolio.
We felt that we were taking over lines between insurance and reinsurance on engineering and we determined to get out of engineering on the reinsurance side. So we could offer our customers on the insurance side bigger lines and not have to worry about over lines were continuing to optimize the portfolio and so my perspective on this.
Is is that the reductions that we've done in reinsurance are actually.
All moves that optimize the overall consolidated.
A portfolio.
Going forward as I said, it's really going to be a question of well certain markets adjust pricing enough to give us the returns we want.
Let's be less but you know when you think about our reinsurance business over 70% of our business is quota share and we've just indicated to you that a lot of the lines of business and insurance are becoming quite attractive. So I would expect that a lot of the quota share business.
We as reinsurers will be able to see that improvement and we will want to participate in that.
So I do think that kind of gives a year over year Delta that you're saying in reinsurance certainly is a trough due to the repositioning that we've made.
Okay. Great. Thanks, Thanks, guys and then one more on on the reserve side, you mentioned adverse and liability all set by some of the short short online.
Oh no liability can you say how much of that was was on the insurance versus reinsurance and then tell us about I guess, how we can get comfortable with the.
Professional lines on the reinsurance diagnose sending some pressure on reserves and was there any animals, there and just kind of comfort level with your current reserves in the professional lines and reinsurance.
Yeah, Mike. This this is Pete I'll take that.
Changes were really centered or the reserves that we put up on a liability purloined side, we're very much centered in the court 16, 17, 18 kind of accident years.
Looking at the pieces, we did have.
We saw some adverse development on the pro lines about $20 million in total.
I'd say 60, 70% of that was reinsurance 30% of that was pro lines and.
And that was really centered in those years 16, 17 18. So so we feel I'm pretty good about where we are from that point forward. Overall, we do believe the reserves are adequate.
Where we put them at the end of the at the end of the third quarter. So we do believe that those increases were should get us to where we need to be in those both those lines of business.
And liability.
Liability only about $5 million adverse.
The other thing that I would say is also really important is again looking at the books of business.
We really like what we've done.
In R U S based insurer professionalized and casualty.
And I think we've been changing the book I think we're in the right place.
Obviously, we through our London based business.
I have had some challenges and some of the European.
Professional lines and as you know we exited a lot of them. So we feel good that.
We've either rehabilitated or or exited the challenging professional lines in Europe, and we feel very comfortable with our book of business in the states.
If I could follow up on peace comment there on the professional liability reinsurance and you said no at the end of the third quarter, you feel comfortable with where he works can you maybe call to let me say <unk>.
Compare your level of comfort today versus maybe where you were in that specific line for about a year ago.
I would say definitely more comfortable today, because again, our underlying seedings have been getting right and then again, that's a big quarter sure book for Us and so I do feel that the underlying business. We have there is more profitable today, then where it was and we haven't moved.
We haven't responded to that and I would say the same on our insurance side, where we've been getting a lot of right, especially this year and we really haven't responded in our <unk>.
But overall I mean this is on pro lines sort of the on the reinsurance side I would say this was the first quarter. We've actually had an increase in the <unk> in adverse on reinsurance pro lines. The first half of the year. It was essentially flat. So it was just this quarter responding to what we saw in a couple of years.
Awesome. Okay. Thank you for you I appreciate the comments on your.
You're welcome.
And your next question comes from Josh Anchor Bank of America. Please go ahead.
Joshua on mute.
Sorry about that thank you for taking my question you laid out a hum.
[noise] scenario, where there'll be some lines.
At the end of 2021 still gonna be right adequate.
So I mean, there's two questions.
One is everything about 2021, how much of your top line is going to be associated with exposures that co.
COVID-19 has sort of shrunk.
Price.
Lines of business that you're just not interested in writing anymore.
And versus willingness to to grow the business I know that it's going to be impossible Frito lay out all four things, but can you go through each of the items I guess price on long this right certain lines.
Exposures and.
Willingness to expand.
Can you talk about those four categories.
Yeah, and if you don't mind I'll wrap them up because I think it would be difficult to actually Parsons and those ways.
So again proper.
Probably the most important thing to say is that at this point in time.
We are open for business and every single line of business that we're in we've finished the macro exits.
And now it is purely a question of right adequacy and optimization of the portfolio.
With regard to the optimization of the portfolio I think we've been very clear.
That we are not looking to increase our <unk>. We think we are certainly going to get much better returns on property and property cat exposed lines of business.
But our objective is to deliver a more balanced in a less volatile book of business. So we're happy to take all the rate we're happy to continue to.
Repositioned the portfolio to optimize the construction through the.
Utilization of analytics, and so on and so forth, but by and large.
We are you should not be looking to us to have any kind of meaningful increase.
<unk>.
With regard to Covid I would say.
We've never been a big.
We've never been a big contingency writers so that's really not.
Frankly after the Olympics, we don't have any pretty.
Pretty straightforward with regard to our property and B I.
Related lines of business as I've mentioned to an earlier question.
Significantly strengthened our Ah.
Our language and exclusions, so we feel good about that.
The real area is.
What industries.
Are going to continue to be.
More susceptible to the downsides of Covid and its economic consequences and there are normal underwriting we will certainly look to be more cautious.
And the professional lines and the DNO area potential liability area.
Potential.
Credit areas, and that's simply making sure that we take risk where we feel that.
The underwriting is right that the risk is right.
There was one more factor.
Which we spoke about earlier today and that is that there is less economic activity.
Which has been a bit of a headwind so there's less new construction projects, starting obviously a number of small businesses a number of restaurants have closed down so that's reduce the renewals of those businesses.
That's less if you would our choice and the fact that economic activity has declined and of course as the economy recovers we would certainly expect.
To participate in that recovery with those opportunities, but bottom line I feel really good about where our teams have brought our book of business I feel really strong about our relationships where in all the right markets.
The question will be how are we going to get the right pricing that meets our views of Los trends and in particular, the impact of lower interest rates and the uncertainties, where where pricing is going to give us that where we can structure policies to protect us against that we will be looking to grow and where we want we want than I expected.
That you will be happy that we won't want to grow there.
Okay, but that's fairly thorough and then when we just one of them. When we look at lines of business that are absolutely not right adequate today. Some of them you were writing last year.
To what extent.
We can't look at individual lines visit we have some segmentation in the triangles.
But what I can do you think that you put a layer of conservatism on those particular lines that you're certain aren't right adequate given the current and straightened environment.
That investors should be confident about the portfolio.
I think we've taken the corrective action to make sure that we're doing the races. Here I mean, I think that we've made excellent progress in our reported numbers and we've just told you. We've taken no credits for right over trend in our long tail lines, where interest rates have the biggest impact and we're covid may have an impact.
It is also areas what we're seeing some of the strongest rate increase. So we told you were saying, 15% plus on primary casualty, we're seeing 30% plus an excess casualty were saying, 35% and <unk>.
Obviously, we are not going to take all of those increases into the loss ratio on year. One so I think we're already prudently.
Looking back business being cautious not to reflect all the rates in 2020, we're certainly not going to reflect all the right in 2021.
But we think that those lines of business.
Taking the appropriate action and reserving them prudently and we feel good about where they are and we think many of them are going to get better.
In in cyber we've talked about the fact that ransomware claims are increasing that this has been a line of business that is not seeing a lot of price action. We think in 2021 that line of business, we'll see more price action.
And because.
Because we think we need to get paid for all of the increased ransomware claims and so on if we don't get the pricing we won't grow as much.
But we'd like to the business we're in.
Well. Thank you for all the answers and best of luck in the new year in queue.
Thanks, Josh.
Thank you final question today comes from LC Greenstein, a wells Fargo. Please go ahead.
Good morning Hailes.
Hi.
Thanks for letting me and my first question.
You guys.
Obviously you mentioned.
Done a lot of business initiatives right I'll be happy to tell a little slow down and the insurance and a quarter any 0.8 Q growth in 2021, we're hearing on.
Going to be a good amount, they're rational increases at January wine as you think about growing your top line in.
In 2021, how are you thinking about the growth net and how that might play out.
2021.
2020.
All right. So when you think about our our insurance book of business I know you asked about retro, but let me give you. The comprehensive answer I think when you look at our reinsurance book of business most of what we write or what we buy his quota share.
And so obviously are are reinsurers are getting the benefit of all of the improvements that we're delivering.
So I think that that will continue whether we increase or decrease our retention is frankly is a decision that will make at the time.
When we see most of what we read most of our book Reinsure sometime in the spring. So we'll be reactive to that with regard to the reinsurance book, we're actually not a big buyer of retro.
As you know, we use third party capital, but that's mostly quota share.
So because we're not a large writer of retro we don't view changes in the retro market not a large buyer I apologize of retro changes in the retro market really don't affect us in a meaningful way.
Okay. That's helpful. And then your P&L on every returned carry it I think keane down in the quarter. You. Obviously I think they came down my last quarter as well.
Is that something that you think about 2021 I'm thinking of your account.
You mentioned earlier in the call.
Thank you desire to keep down mechanic with you a little bit.
Should we expect the PMO to continue to come down from here.
Well Ah the PM Nelson this quarter have a little bit of a benefit because.
Frankly with the activity that we've had this year. We've we've you wrote it a lot of the.
Aggregates covers so I think that has an impact on the on the net p&l's, but I think if you look at where we were in July one I think that's probably more of a of an independent view.
And so to my point I think around the levels of July one maybe a little bit lower is where I would expect.
Where I would expect it to be.
Okay. That's helpful and my last question.
One quarter seems to also be pretty active.
At.
The online, California fire.
You guys have on a little bit of a sense of how we can think about.
Well here is some of these events in the fourth quarter, maybe I know some of them are ongoing.
That number but more qualitative in terms of your exposure and how you should think about that one player.
Well you are right I mean, they're literally just happened I think zeta. They just just went through Louisiana yesterday. So.
But I think both of them tend to be reasonably low level cats.
The other thing that I would say is zeta in particular looks like it's going to be following the same path as Laura which means that I'll probably be some complications in terms of attributing losses to Laura or Zeta. So my guess is that going to be an issue for the entire industry certainly not just ourselves.
But.
That's kind of where we are on it and.
We'll see how it develops of the fourth quarter goes it's interesting I mean, if you look at the last.
Five years give or take.
I think mean.
Median cat losses were probably around $50 billion for the industry.
We think we'd probably mid sixties.
Already through the end of the third quarter.
So I think that gives you an indication of what kind of year, we're having.
At least the only other thing I would point out and this is Pete when you look historically, especially the 17 and 18 with the wildfires we had been on a number of large aggregate treaties on the reinsurance side and we're no longer on those treaty. So we don't we don't have those aggregate in our portfolio anymore. So just as you're looking hyster.
<unk> I thought I would point that out.
Okay. That's helpful. Thanks, I appreciate it.
You're welcome thanks.
Please.
That concludes our question and answer session.
Okay home back over to Mister Albert venture mall for closing remarks.
Q, operator, and thank you to everybody for.
For participating in for your interest in your questions. Clearly this was a quarter with a lot of noise up and down and sideways, but at the end of the day.
I think that access responded very well to.
To the challenges of this year in terms of having a lower exposure that historically to cats I think that we've made significant progress and R. X cat book of business and I think that we are advancing our strategy and building a global leader and specialty risk again I want to leave you with our commitment that we're focused on our plan.
We're disciplined and our underwriting approach.
And we're managing our portfolio and positioning our business to thrive and the eventual recovery. We did have a fair number of books of business that we were repositioning.
2020.
But we like where we are today and we are open for business when the pricing of the returns are attractive.
To the up to my call these who are listening today.
I want to say, thank you I want to express my appreciation.
To all of you.
You are working hard your commitment your dedication our clients see at our brokers see it.
We see it every day I just want to thank you all for that.
So if everybody who joined our call. Thank you and we look forward to.
Reporting to you on our progress in future calls and thank you everybody operator that sends our call.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.