Q4 2020 Everest Re Group Ltd Earnings Call
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Yes, Hi, I'm here for the Everest earnings call.
Mhm. Thank you may have the spelling of your person last name. Please.
Sure first name is Bianca that's B R E N C a loss.
Last name is S for Sierra.
And while in November.
Thank you just to verify the first letter of your first name is it be for boy R. A D for David.
Bravo.
Alright. Thank you may have your company name please.
Yes, Amit era, and that's a R E R. A.
Thank you Leslie and that May have your phone number beginning with the area code. Please.
And your code one two and two nine 608 O eight five.
Thank you.
Your language I mean, Dan Rizzo on for instance, now and progress I'll join you know.
Thank you.
Youre welcome.
First of all reduction of volatility over the last two years and our reinsurance portfolio.
Mark cause Xi'an sick and Jim Williams and are on this call and can provide more detail on these actions during Q&A.
For our reinsurance division the fourth quarter continued our strong growth.
Gross written premiums grew 12% in the quarter and 15% and 2020.
The Attritional combined ratio ex Covid was 83 nine.
And improvement from 87, four and the prior fourth quarter.
January one is our largest renewal date and this one was one of the strongest and many years.
The rate environment improved across most territories and lines of business with loss impacted business seeing material increases.
Capacity is abundant, but reinsurers remain disciplined on pricing and terms and conditions.
There is a flight to quality wherever strong balance sheet and highly rated financial strength and set us apart.
Customer and broker demand for average capacity as strong as highlighted by our increased share some preferential signings on treaties counterparties actively want to do more business with Everest.
Our responsiveness ability to deploy significant capital and reputation as problem solvers and the market were critical to a successful renewal season.
We saw outstanding results, and Latin America, and the U S and Canada, as well as meaningful growth and Continental Europe.
We had notable wins on large deals and increase our share with core customers and and territories and classes. We found the most attractive including facultative business.
We continued to expand and diversify the portfolio as we execute to achieve a stronger more diversified and more profitable book.
Specific to our January one property book total limit outstanding increased with an increase in rate online and significant improvements and the combined ratio Roe re.
Risk adjusted return and increased dollars of expected margin, we have a stronger and more profitable portfolio.
John Doucette is available to provide additional details during the Q&A.
Our insurance Division continued its solid execution as evidenced by our results and both the fourth quarter and full year of 2020.
Gross written premiums grew 15% or 18% excluding terminated programs with.
And with gross written premiums for 872 million and the quarter and over $3 2 billion for 2020.
Both for quarter and full year 2020 revenues, our milestones for the insurance Division.
This growth is driven by disciplined cycle management strong rate and target classes and improving activity in certain lines of business such as transactional liability that was partially offset by reductions and economically impacted areas such as energy sports leisure and entertainment.
Ever since <unk> delivered and improved Attritional combined ratio of 93 eight for the fourth quarter.
A four three point improvement over the fourth quarter of 2019 and.
And 94, two for the full year 2020, a two three point improvement over 2019.
These results were driven by portfolio and expense management and are consistent with expanding insurance margins.
We achieved record renewal rate increases of 21% and the fourth quarter, excluding workers' compensation.
And up 14%, including Workers' compensation, where we are seeing rates flat.
Rate is outpacing our expected loss trend and renewal retention across the entire portfolio was strong.
The rate, we achieved as a function of market conditions and disciplined proactive underwriting actions across our businesses.
After years of soft pricing and rising loss costs pricing adjustments are necessary and we expect they will continue throughout 2021.
Consistent with prior quarters. These increases led by property up 21% excess casualty up 50% D&O up 35% and commercial auto up 17%.
We are also seeing widespread increases and other lines of business, which had been slower to turn most notably general liability now up 9%.
We are managing the insurance portfolio to build a diversified business and Steve are mixed or product lines that are and higher long term margins.
Our position and both the E&S and retail channels gives us access to a wide set of opportunities.
<unk> is available to provide additional details during the Q&A.
We have a vibrant and well diversified reinsurance and insurance business with experienced teams providing industry, leading solutions to our customers.
Building on the achievements of 2020, we will continue diversifying our business for profitable growth and sustained momentum throughout 2021.
The company is on solid ground with excellent financial strength ratings top talent and a prudent capital management philosophy we.
We are focused on sustained profitable growth a more diversified mix of business and superior risk adjusted returns.
The relentless execution of our strategies resulted and maximizing shareholder returns.
I am confident that Everest future and our ability to deliver the commitments to our customers shareholders and the marketplace.
2020 showed us all just how resilient we truly are.
Now, let me turn the call over to Mark <unk> for additional details on the financials Mark.
Thank you Juan and good morning, everyone as one discussed and our pre release outlined Everest had strong underlying results for the quarter and the year with positive net income and Q4, improving underlying margin continued growth and an excellent capital position I will touch on these over the next few minutes.
The positive quarterly net income result was achieved despite a prior year reserve strengthening charge of 400 million of Covid provision of $76 million and catastrophe losses of $70 million. This clearly demonstrates the diversification and earnings power of Everest.
Everest reported net income of $64 million for the quarter and $514 million for the year, resulting and a return on equity of five 8% for 2020, we had a $44 million operating loss for Q4, given the charges and generated an operating income of 300.
Million dollars for the year, our net income and the quarter reflect strong investment income performance and improved attritional loss and combined ratios offset by cash Covid and reserve charges.
Catastrophe losses of $70 million or pre tax and net of reinsurance with $60 million from reinsurance and $10 million from insurance driven by Hurricanes Delta Zeta and the Australia, Queensland Hailstorm.
The estimate implied market share of industry losses is just over 60 basis points for Everest.
This is an excellent result, reflecting the underwriting and risk management initiatives of the past two years.
There was also no development from prior cats, and the Q4 charge.
Year to date. The results include catastrophe losses of $425 million compared to $576 million. During 2019, all amounts of pre tax and net of reinstatement premiums.
And the fourth quarter, we added $76 million toward Covid loss provision, reflecting the ongoing nature of this event and our consistent reserving philosophy.
This additional provision is predominantly IV NR for third party lines. This amount includes 56 million and the reinsurance segment and $20 million and the insurance segment and is in addition to the $435 million of pandemic losses estimated and the first nine months of 2020.
Our fourth quarter estimates were not impacted by the recent UK Supreme Court ruling as we have taken a prudent approach to loss assessment, leading up to that ruling for.
For the full year 2020, the total pandemic loss provision is 511 million of which more than 80% is classified as IV and are.
Everest had an underwriting loss in Q4 of $219 million due to the prior year reserve adjustment charge as compared to an underwriting loss of 29 million for Q4 2019 as.
And as Juan mentioned, we book to $400 million prior year reserve strengthening and the fourth quarter exclusively for the reinsurance division, primarily within long tail casualty segments, such as GL auto liability and professional lines for accident years 2015 through 2018.
The reserve charge also includes actions on non cap property lines, primarily for the 2017 through 2019 accident years and driven by a few large losses to aggregate programs.
Our reserve studies indicate that the insurance division overall has strong and adequate reserve levels.
At a granular level, we address some redundancies and deficiencies with no overall financial impact for.
Lines, we strengthened included professional liability and the 2015 through 2018 accident years.
This was offset by releases and other lines.
Turning to Everest market position and growth on a year to date basis gross written premium was $10 5 billion up one 3 billion or 15% compared to 2019.
This reflects strong and diversified growth in both segments with reinsurance up 15% and insurance up 15% compared to 2019.
Our underlying attritional loss and combined ratios are strong and improving excluding the catastrophe losses and impact from the COVID-19 pandemic. The Attritional combined ratio was 87, 5% for 2020 compared to 88, 4% for 2019 exclude.
The pandemic loss estimate for group Attritional loss ratio for 2020 was 61% down from 62% for 2019 with.
With insurance improving from 66% to $64 eight.
For reinsurance for 2020, Attritional combined ratio, excluding the pandemic loss estimate and prior year Reserve charge was 85, 2% down from 85, 5% and 2019 for insurance for 2020, Attritional combined ratio, excluding the pandemic losses.
And that.
It was 94, 2% compared to 96, 5% and 2019.
Our U S franchise, which makes up the majority of our insurance business continues to run out and Attritional combined ratio in the low nineties, excluding the pandemic loss estimate.
For Group Commission ratio of 21, 6% year to date was down from 23% in 2019, largely due to business mix, a onetime significant contingent commission and the reinsurance segment during 2019 and higher ceding Commission in the insurance segment.
The group expense ratio remains low at five 8% for 2020 versus 6% for 2019 and.
As we benefited from premium growth and continued focus on expense management.
Q4 investment income had a strong performance of $222 million compared to 146 million for Q4 2019 for.
For the full year pre tax investment income was $642 million versus $647 million for 2019, the fixed income portfolio generated $542 million of investment income year to date compared to $520 million for the same period last year.
Limited partnerships recorded $91 million of income quarter to date, largely due to fair market value adjustments.
And limited partnership result was due to the continued improvement of the economy and financial markets.
As a reminder, we report our limited partnership income one quarter in arrears.
<unk> net assets grew 23% to $25 4 billion versus 27 billion last year and.
This strong invested asset growth was due to $2 9 billion of operating cash flow and the proceeds of our debt issue.
Pre tax yield to maturity on the investment portfolio was just under 3% down from three 4% one year ago and.
Approximately 80% of our invested assets are comprised of a well diversified high credit quality bond portfolio with duration of three six years.
The remaining portfolio is allocated to equities and other invested assets, which are largely private equity investments with the residual amount and short term investments and cash.
Our effective tax rate on operating income for 2020 was seven 7% and 12, 1% on net income.
For 2021, we expect our tax rate to be approximately 12%.
This reflects an annual cat load of about six points of loss ratio.
Everest generated record operating cash flows of $2 9 billion compared to $1 9 billion and 2019, reflecting the strength of our growing premiums and 2020 year over year and a more modest level of claims paid.
Everest enjoys very strong financial strength with ample capacity to execute on market opportunities shareholders' equity was $9 7 billion at year end 2020 up from $9 1 billion at year end 2019 net.
Net book value per share stood at $243 25.
Up 11, 4% versus year end 2019 and.
Adjusted for dividends.
A strong balance sheet was further strengthened by the 30 year 1 billion senior notes offering completed in early October 2020.
This is long term capital for Everest and enhances the efficiency of our capital structure with our debt leverage now standing at 16, 4%.
And with that I'll now turn it back to John.
Thanks, Mark operator, we're now ready to open the line for questions. We do ask that you. Please limit your questions to two or one question plus one follow up and then rejoin the queue. If you have anything else to ask.
At this time, if you'd like to ask a question. Please press star one Elyse Greenspan with Wells Fargo. Your line is open.
Hi, Thanks, Good morning, Mike.
Yes.
I wanted to touch on the reinsurance reserve charge.
So one I think in your opening remark.
And does that already.
The last day and more conservative loss.
Now can you just it would be helpful and just to provide more color there and then more recent accident years just COVID-19.
Good evening and some of these long tail lines.
Following up for accident year 2018, so can you provide a little bit more color on what loss trend youre booking too and some of these lines, but in your reinsurance book and.
And how we could think about confidence in the more recent accident years.
Yes, Thank you Alicia.
And we go through a pretty detailed review.
<unk> of each of our segments and frankly, one of the things that this new management team has done really in the past year is really look at our carried reserves at a level of granularity.
That is pretty detailed so we basically look at the accident years underwriting years, where using the latest information to better understand trends predict ultimate loss ratios and frankly try to figure out.
Detailed way the direction of travel for the underwriting portfolios and so I start there by giving you a sense of the detail of granularity that we go through and basically coming up with the strengthening that we did in the quarter now that being said as we said the accident years really beginning at the end of 2019 and as we said.
2020 accident year is we've set the 2021 accident year, we are already looking at some of the loss trends that are impacting the industry and so we baked those in when we made those loss picks. That's also one of the reasons why you don't see us taking up current accident year loss picks for the result of the reserve charge.
Okay.
Can you give us a sense of again.
And now we're going from many different business lines, but what kind of loss you are booking two within reinsurance.
I don't know if we specifically disclose.
Loss trends that.
That we book to Bill what I can tell you, though is that we are booking are.
Current accident year loss ratio is very prudently and we have been again, starting at the end of 2020 and going into 2021.
We have not seen a significant impact on severity and.
And the most recent accident years, and we're very confident and where we are at this point and time both for the prior reserve actions that we took as well as the current year reserve loss picks that we have in place.
Okay and then my follow up question is on me and Sharon on.
And the reserve there as well so I think Mark you mentioned there was no no overall financial impact from your view, but I believe you mentioned for Anthony.
And our lives.
2015 to 18, and Theyre being the leases and other line can you give us a sense of the magnitude of the compressor line strengthening and Thats what were some of the other lines I'm, assuming maybe workers' comp where you saw for example.
And.
Yes, the magnitude is relatively muted.
And Youre looking at overall $3 2 billion of net reserves and the insurance segment for the group and so the types of adjustments. We're talking about are in the teens, it's quite small and the.
The offsets are coming from other lines Workers' comp would be and example of one but again very modest movements relative to the overall reserve level of segment.
Okay. Thanks for the color.
Thank you Lisa.
Mike Phillips with Morgan Stanley Your line is open.
Thanks, Good morning, everybody I guess first on insurance so.
And looking at their core loss ratio ex the Covid losses, you're really really good improvement there three points or so and this quarter and increasing.
Last couple of quarters, I guess, how should we think about.
The margins there I guess and the near term this year as you focus on growth area and we've got industry concerns on COVID-19 and loss trends and everything else and the casualty losses.
Yes sure thing Mike This is Juan and dry day look I think we are building meaningful margin momentum and you can see that by our numbers for the fourth quarter and full year underwriting results.
Improvement both in insurance and reinsurance is really driven by portfolio management decisive underwriting actions and intentional shifts and our portfolio mix.
If we exclude workers' compensation were also seeing the rates are outpacing our expected loss cost and.
And as that rate has been earned on and on a growing premium base. That's also going to have a positive impact unexpected margin going forward.
But also and I would point this out because it's a very important point and addition to rate. We're also taking a broad array of underwriting actions, including more granular segmentation and the in force book management of attachment points limits and terms and conditions, we're doing targeted non renewals and many other actions. So we're doing a number of things.
And that you're starting to see show up and the underlying profitability of both insurance and reinsurance that are by design and that are very proactive. It's not just all about rate, but it's also about all the other tools that we have and our kit about improving underlying margins, but all of that being said and I think this goes to your question, Mike It's important to keep in mind.
And that some lines do require more rate than others. It also depends on the starting point that depends on the loss cost trends and we also have to recognize that we're in an environment, where the impact of Covid and the time that it will take for some of these claims to emerge. There is some uncertainty right. We also have to think about the underlying social inflation.
Cost so overall I feel very good about the margin momentum that we're creating and this business is not just about right, but it's also about all the underlying levers that we're pulling fourth and I feel very good and very comfortable with both both books of business going into 2021.
Okay. Thank you well I appreciate that I guess second question and specifically.
On your comp book and you guys have a pretty sizable concentration in one state and I'm curious to hear what you are seeing and California.
And Tom given.
Coming back from the shutdown and then theres been some concerns on loss trends kind of rising there and the states and thank you can share with what youre seeing and that book.
Mike Let me start and then I'll ask Mike <unk> to jump in as well I would say overall and the comp book a couple of key things to keep in mind is we.
Have reduced the percentage of comp and our book of business over the last year 18 months, it's now roughly down to about 16% of our mix down from about 24% and again. This has been done and a purposeful way right as you have seen less attractive pricing and the comp book, we have diversified into other.
It's a business and so you see our growth and lines like casualty property.
Et cetera, the other thing that we have done and our comp book as we have also moved more towards loss sensitive business loss rated business on the comp side and we've done less.
And basically guaranteed comp business at that point in time. So we are actively managing the trend we're actively managing and what we're seeing and the environment and obviously trying to continue to drive a lot of profit and that comp book, but let me ask Mike to jump and specifically on your question about California.
Thanks, John Thanks, Mike.
Yes look it's continuation of what we said and shared in prior quarters about starting to see it bounce on the bottom and we are seeing some pockets of of some of the momentum upwards, but in general and still a slightly and the negative side. That's why we're taking the actions we haven't just managing through the cycle.
But we're hopefully cautious optimistic of what we foresee possibly towards 'twenty, one towards second half of the year.
Okay. Thank you guys I appreciate that.
Your own Kinner with Goldman Sachs. Your line is open.
Hi, good morning, everybody for.
First question goes back to the reserves.
<unk> can you maybe talk about loss picks for <unk>.
<unk> 19, 'twenty and 'twenty, one accident years relative to where they currently are for the 15 to 18 accident years, and GL commercial auto and personal lines.
Yes, Thanks, Sharon I'll start with that and then I'll ask Jim Williamson Who's our new Chief operating officer to to add some color on this as well.
And as I mentioned before to <unk> question.
Particularly when we set the accident year loss picks for 2020 and 2021.
We were more conservative than depicts that had been in place for the 2015 through 2019 accident years and that was really a reflection of what we saw and the environment.
Some of.
The industry trends that we were seeing et cetera. So we took a more prudent approach and being able to to set those so I would tell you that.
As I sit here today looking at 2000 22021.
And they are stronger than the picks that we had in place for 15 to 18, but I would ask John Williamson to add some color on that as well, yes, sure and just in terms of a little bit more detail I mean, I think one thing to keep in mind as we're performing this analysis at a very detailed and granular level and so there's a lot of moving parts in terms of picks that have come up over that period.
We're now at a higher level and then other areas, where we've taken so much right. So many underwriting actions and the <unk> have come down I think the key thing to keep in mind, though is that it was one and indicated we took a very conservative approach to the setting of the loss picks for the 2020 accident year and the 2021 accident year.
And those picks are consistent with the level of ultimate loss ratio Thats coming out of the reserve studies and that gives us confidence that our starting point is the right one.
We're taking rate in excess of our loss trend right. So those things give you confidence that moving forward, we're positioned and the right way and the portfolio.
Got it that's helpful. I appreciate that and then my second question.
Actually goes to topline growth.
John in your opening comments did I.
Net.
And I got the feeling from the opening comments that maybe youre deemphasizing growth and reinsurance over insurance and the foreseeable future is that correct.
No not at all year, and what I was saying in my opening remarks is that we have a very good market right now and both insurance and reinsurance and our intent is very much to continue growing as long as the opportunities are there for us to be able to do this profitably.
We have a leading franchise and P&C reinsurance for the seventh largest and the world. We are aiming to continue to grow that presence continue to take advantage of those opportunities. So absolutely not from artifact I would also point you to my comments around our January one renewals and the fact that we had one of the strongest renewals we have.
Scene, and a number of years and so look as long as the market opportunity is there as long as we can underwrite profitably. We're taking advantage of that we are very well positioned whether it's from a capital standpoint, a distribution standpoint, a talent standpoint to be able to continue moving forward and this market with a lot of momentum.
Thank you I appreciate the comments.
Thanks Sharon.
Well, Josh Shanker with Bank of America. Your line is open.
Hey, good morning, everybody.
My first question and I know you can't others book, but we see something in your book that looks similar to what we've seen and others. Most of the improvement. During this year has come on the expense ratio side of the of the combined ratio, despite very very strong or re increases already coming through.
Through in earned rates I'm wondering if you can talk about why we're seeing such.
Large expense ratio improvements, whether it's staying nimble and.
And just giving your many many years of work and the industry whats going on here. This is not just an everest phenomenon.
Yes, sure thing Josh So I would say a couple of things, we certainly have seen an improvement and the expense ratio and that's really coming from from two areas. One is on the commission side.
And I think there's different factors there I think if you look at insurance first.
And part of that is that we're writing more direct business through our brokers and less day UA business overall, and so I think that's part of what Youre seeing there.
We also in our insurance business because of mix get the benefit of improved seat commissions.
I think our team has done a very good job and setting up the external reinsurance program. So you see some of that coming through on the commissions.
On the reinsurance side I think it's also pointed to mix at the same time on the commission line, but more importantly to me, it's really the operating expense ratio one of the hallmarks of our company has been that we are lean we're disciplined on how we manage expenses, we invest where we need to invest in technology and people and infrastructure, but we're all.
Also very disciplined about how we do that and that's something that you saw us continue to accomplish and in 2020 and up to 2021 that actually drives that that expense ratio to where you see it today. We also experienced loss ratio improvement and you see that particularly in the insurance business for.
For 2020 and that is really related to all of those actions that I mentioned in my opening remarks, what I term as really the hard work of running a profitable book of business right. This is managing attachment points and limits and running off programs and books of business that youre not comfortable with and always seeking out the best economic opportunities to continue to <unk>.
Prove the profitability of that business. So to me those were all the actions of one has to take to continue to improve underwriting profitability and sustained and profitable book going forward.
And Mike.
And my second question, and maybe I'll try and get back in line and then the.
And the 6% expected normalized cat load for the coming year.
It's obviously materially lower than where.
Everest has been in the past, although thats, where its been trending given the property cat renewals.
And which weren't as good as some are hoping and certainly better than they've been.
Do we expect that long term average volatilities and stay low or were just at a place right now and pricing where it just doesn't make sense to take on a lot of catalysts.
Yes, So let me start with that and then I'll ask John Doucette to jump in and add additional color to all of this.
Josh as you heard in my opening remarks, particularly at January one we didn't we did increase the amount of limit that we deployed on the cat side, and we did that and feel very comfortable with it because of the pricing the terms and conditions that were getting look at the end of the day volatility and of itself is not a bad thing as long as you are getting.
Paid for it and from our perspective, we were getting paid for it and January one we were getting paid for it throughout 2020 now that being said our goal is to build a diversified book of business is not just to ride one pony. If you will and so if the opportunities are there on cat to be able to do it profitably to get a good risk adjusted return.
<unk> improve our roe's et cetera, we're going to do it and you saw us do that in and the renewal seasons of last year and really going into into January 1st. So the appetite is there, but it's there at a price and it's there at a point that makes sense to us economically.
So with that let me turn it over to John Doucette and have him add some color as well.
Yeah, Thanks, Juan and good morning, Josh, Yes look we had a very good one one and with significant rate increase we saw double digit.
Growth across many many lines of business.
And in terms of property and we did see rate increases and the U S, 5% to 10% and retro 10% to 15% and really it was a question of how we allocated the book and where we decided to deploy the capacity.
And so number one where do we decide to deploy the capacity. We also saw very good opportunities in and the primary property space. So we deployed.
More capacity into both cat and two.
Primary property quota share, which we like the risk return on that opportunity. So that's number one number two.
As <unk>.
<unk>, we have increased the AUM and Logan and continue to look for ways to increase that and look to have that continue to be a very.
And strategic part of our volatility management capital management and that will help decrease the volatility that you're seeing and then number three as Juan said a lot of this is about diversification diversification within the reinsurance day.
<unk> vacation by growing the insurance operation. So it's different lines territories products and that will result, and just the a lower it dollars may be flat, but or even up a little bit, but as a percentage of overall gross premium per.
<unk>.
Of our cat load could be lower.
Okay, well. Thank you for all the answers appreciate it.
Thank you Josh.
Mike Zaremski with.
Credit Suisse. Your line is open.
Hey, great good morning.
First as a follow up to <unk> question. So.
I think.
A lot of us look at the historical cat load and.
And listen to your guidance and obviously you have a lot more info than us on on the cat load being six points. So.
So the answer to the last question is Mount Logan.
And taking.
A portion of the historical cat load.
And it's going to other investors that aren't equity investors and is that maybe the piece that.
We we as investors.
So don't fully appreciate.
Seating and <unk> kind of a new set of investors versus pre Mount Logan. It was it was all going to Everest.
Yes. Thanks, Mike. This is one and again, let me start and then I'll ask John Doucette to jump in as well.
I would say that.
On that 6% cat load that mark was referring to.
It's really a question of how we manage our exposure and the reinsurance book and really what we have been doing frankly over the last 18 months or so to make sure that we're in a better place more profitable place more sustainable place from a catastrophe standpoint.
Again, I'll go back to what I said earlier we.
We like cat, but it has to be priced right has to be managed correctly.
And a lot of things that we have done that have been frankly reflected and some of the catastrophe loss numbers that we've put out in the third quarter and the fourth quarter. We have moved up to higher attachment points were writing less aggregate programs, where frankly, writing a more profitable book and more sustainable book and so that's part of what you see there.
Other part of that is our capital shield, our hedging strategy.
For the company Logan certainly plays a role there are kilimanjaro bonds, certainly play a role there and there's other things that we're doing at the same time.
You will see that we grew AUM in our Logan.
Book and our Logan vehicle.
To the beginning of this year and that certainly helps as well and in essentially protecting our net position within the company, but let me ask John Doucette to jump in and add some additional color.
Yes, Thanks, one and so Mount Logan and we've been Mount Logan spend and effects.
2013.
And it's it's it has grown and then came down a little bit and AUM and now is starting back up so I don't think it's a definitional it used to go to Everest and now it goes to Logan, it's part of a holistic suite of both what we're doing on the gross side capital management side, and the hedging side and it's part of that but it's clearly a cash.
Core part of this of how we're thinking of capital management and volatility management going forward, but I mean, we also saw as Juan said earlier.
While we did increase limits on the gross portfolio and our property book across property Cat retro.
And pro rata, we did we did increase that because of the opportunity set.
But we saw an increase and overall premium and a larger increase and expected dollar margin and percentage margin and an increase and the ROE. So.
So part of it is how we're thinking of what we want to keep on our balance sheet and other parts of the balance sheet, but I do think it's more I think than your how you're focusing on it it's more a function of the diversification as a function of premium it. It really has more to do with the diversification and the growth in the insurance operation.
As a percentage the growth in reinsurance and different lines of business, we saw a lot of opportunities and and casualty continue to see opportunities and mortgage professional liability significant opportunities and fac and all of that is on the is growing the denominator of the 6% cat load that you're talking about and I think that is driving it more.
And then specifically in Logan or outside of Logan.
That's very helpful. Those answers and my last question is just thinking about the.
Reserving additions.
We're out of.
This past quarter, the $400 million.
Should we be thinking stepping back are you adopting and.
And new reserving methodology at all and a portion of the portfolio I guess, sometimes we get questions and some of your peers and kind of.
They seek to I think strategically kind of.
Book for me.
Maybe just over book and be really serves and I'm just kind of curious is there is there anything we should be thinking about that as kind of changing on a go forward basis versus how you historically picked.
Yes. Thanks, Mike. This is one look I think.
From from my perspective, the company has a very disciplined and multifaceted approach to reserving and risk management and.
That doesn't change.
But I bring you back to my earlier comments, there's always opportunities for improvement on how you look at the data so from our perspective.
The new senior management team that we have in place is very granular and very detailed and how we look at I b and hard groups and how we look at accident years by portfolio by segment et cetera, et cetera, and we're making fact based decisions based on the trending and the information that our reserving studies give us and what our.
Actuarial Department is able to provide to us and so that is basically if there's a change it's that it's the fact that we're being a lot more granular and how we look at the portfolios how we make decisions based on the information that its there and how we react to that basically.
Thank you.
Thanks, Mike.
Ryan Tunis with.
Economists your line is open.
Hey, Thanks, good morning.
I guess another follow up on the charge and reinsurance.
Just trying to get a little bit more texture.
Is this mainly a few large programs it was a little bit more broad based.
And then also just maybe you could give us some feel for how.
Youre reserved for those accident years <unk> relative to <unk>.
And the loss ratio and the.
Indications from the seating.
And how youre last weeks compared to the loss ratio is being reported to you and those years.
Yeah. So Ryan this is Seth one Android and let me start and then I'll ask both Marc <unk> and Jim Williams from to add a little bit of color on this one.
On the reinsurance strengthening that we took it was really a factor of a few things.
Number one we had a few seasons with poor experience and those accident years.
And on those seasons, we have subsequently reduced our lines or essentially completely non renewed the effected accounts. So that's part of that.
There's also the fact that we had some.
Pretty large losses coming through and some of those years, whether it was wildfires.
MGM et cetera.
And Thats part of that and then the other part of that is really just a.
General and social inflation or the trend that we saw out and the marker that was generating some higher severity losses do and what we anticipated. So that's basically what we saw and our reserving studies that essentially led to us taking the strengthening actions debt that we did but let me now turn it over to Mark and then Jim for a little bit of additional color on your question.
And just a bit more on that Ryan and I think in addition to what one was saying when we took a look at these individual lines and accident years. We were looking also at the magnitude of uncertainty. So in other words, where are we within the ranges and I think for the strengthening that we put up and these individual.
Years and lines.
We feel pretty good about.
So we feel like Theres, a good level of Prudence, that's been set up for these and it solves the problem for us.
Yes, and so sort of close it out with just a little bit of color around the piece of your question that sort of looks to translate seen underlying loss ratio to what we're experiencing.
The reserving process is based on our own loss activity and I think there are clearly areas, where you can draw a more direct connection if youre talking about for example, a quota share book, so and the cases, where we're participating in a proportional fashion with our seedings and theyre seeing social inflation and average claim sizes have increased on the cash.
T side or in the case of water damage claims that are elevating property losses that is going to be a more direct translation.
And that starts to break down those when you start talking about treaty structures that are not a direct quota share participation you can't always you can't always draw those direct lines and so it'd be a little bit careful about that but if you think about the things and the general trends that have affected primary insurers and the 15 to 18 on the casualty.
16 to 19 non property.
It's sort of the same drivers and loss that we're seeing and our book are the ones. You are hearing from other companies. So I think it's consistent in that fashion.
Got it.
And.
And I guess talking like hearing you guys talk about and how the loss picks and 2020 and also 'twenty 2021 or more conservative.
So obviously you've taken a view on 2021 and I'm, just curious thinking about the 58% ish ex.
Ex COVID-19 accident, your loss ratio and reinsurance.
Should we think that given the.
The higher 2021 loss pick.
Uh huh.
How easy or difficult you think it will be to improve on that next year.
And also taking into consideration the rate back drop.
Yes, Ryan this is Juan Thank you look I go back to some of my earlier comments, where for US it's not just simply about about rate, but it's also about all the other levers that we have within the underwriting portfolio and within the underwriting toolkit that we're executing upon.
So if you think about how John and his team are positioning the team.
From an attachment standpoint from a structure and the treaties, how they're playing on pro rata to be able to take advantage of the.
Improvement and primary rates et cetera, et cetera. All of these are things that are going into the improvement of our underlying margin and frankly, why I said at the beginning of all of this that we are building meaningful margin momentum and our underlying book of business and I feel pretty good about that so the reality is as we're working at this every day, whether it's and re.
Insurance on insurance with the goal of continuing to improve our margins improve our profitability.
Improve our loss ratios et cetera et cetera. So you are going to continue seeing taking actions across the board again, not just necessarily all rate related but theres a lot of things, we can do and the portfolio that also influence that and we're doing them today.
Thank you.
Thanks, Brian.
Brian Meredith with UBS Your line is open.
Yes. Thank you two questions. The first one well and just just.
Just curious if we look at the returns you are probably generating a new business right now and I'm. Just curious what your thoughts are and that is that better than actually repurchasing your shares at this point given that you're trading at a discount to book value.
Yeah. So look I think a couple of things and then and I'll ask <unk> to jump in as well from.
Our capital management philosophy standpoint, our approach really hasnt changed.
Number one we invest and our company and and the organic growth that we see there we happen to be at a place and time, where we have terrific opportunities and the insurance side on the reinsurance side and you'll see from our numbers. We're taking advantage of them factors. We're leaning forward and the fact that we grew 15% and a pandemic year with an economic recession.
And exposure reductions I think is a very good outcome and I think that gives you a sense of how we're investing and our business to continue to grow.
And take advantage of those opportunities at the same time. We also then look at other things that we can do to return capital to our shareholders and I'll, let mark talk a little bit about that.
So.
Brian I think both parts are on the table, obviously, the emphasis on franchise expansion and a hard market is paramount this hasn't come along and quite some time on the capital management side, though your points are well taken and Thats clearly on our radar screen I think share buybacks and dividend policy.
And that's still all in play and very much in our line of sight, but we do have I think a unique opportunity to capture a lot of benefits from this hard market.
And I guess, you don't have the flexibility to do both at the same time.
No we grow and.
Okay.
A full full capability on both sides so whether it's.
Attacking the market and taking advantage of opportunities and doing the capital management.
<unk> that <unk> seen in the past.
Yeah, Brian and I will jump in there as well so I mentioned in the third quarter earnings call. We have the capital flexibility to attack this market and we're doing it as I mentioned earlier based on the growth rates that youre seeing.
We also did the 1 billion debt race back in October of last year and that has not been deployed for growth yet that has been invested in our portfolio, but we have dry powder. So we have the ability to continue to do what we need to do and this market and take advantage of the opportunities that we see in front of us.
And real helpful. And then my second question, one and I'm just curious could you give us some perspective on where do you think we are with respect to COVID-19 loss recognition and what are the potential future exposures kind of related to COVID-19.
Yes, no. Thank you for that look I feel very good and very confident where we are with our COVID-19 numbers.
We were very consistent in our reserving throughout 2020.
Our processes were very good very thorough.
Mark mentioned in his remarks, we're at $511 million for the year of 2020 over 80% of that is IV and are we.
We look at the claims activity that's been coming in we have not been surprised everything has been tracking along sort of what we expected. So I feel very confident about where we are with those COVID-19 numbers now all of that being said depends on them. It's still ongoing right that has not eased it continues and <unk>.
Things that we look at are there going to be other legal regulatory legislative type things that happen.
But we haven't seen yet right. So those are the things that are still out there potentially.
Other thing Thats out there is the fact that as a reinsurer, we do get late information from our seats, but all of that being said I feel very confident about where we are with that $511 million that we took in 2020.
Thank you.
Thanks, Brian.
Yes, Colin with K B W. Your line is open.
Hi, This is bear with me.
Yes, Hi mirror great.
Great and I'm, sorry, I Couldnt testing so two quick questions one.
Cat load is consistent in terms of expectations on a year over year business your basis and.
Was hoping you could break that down between.
Business mix changes that had been driving down the cat loss ratio in prior years, and maybe just a more pessimistic expectation of losses.
Cause of climate change or other factors underlying trend.
Yeah no. That's good so let me start with that and then I'll ask John Doucette too to come back into it.
And again I think part of what Youre seeing in that 6% cat load that that Mark alluded to it's essentially the end result of a lot of the management actions to proactive underwriting actions that the team has taken really over the last 12 to 18 months.
And to better improve and better manage the volatility of our portfolio. So you are definitely seeing that essentially come through at the same time now regarding the point on climate change. We are very mindful of that right. So one of the things that that are modeling does particularly under reinsurance division is really look at the.
The impact of our rice and sea temperatures that you can clearly see from 1995 onto current and based on that we have adapted our modeling we have updated our our points of view on risk on pricing to be better be able to manage that so all of that is essentially baked into that but let me turn it over to.
John Doucette, and let him add a little bit of color on that as well.
Thanks, Juan and just.
And just continue on.
And things we spend a lot of time thinking about in terms of how we manage the risk and our property portfolio.
It's all of the aspects of climate risk and we spent a lot of time looking at wildfire and frankly de risking the wildfire exposure and our portfolio. Its been a lot of time looking at the warm sea surface temperature looking at <unk>.
Droughts and the propensity for drought so a lot of how we deploy capacity what should the right attachments products terms conditions and frankly rate be looking at that so number one is climate change and number two is we've also been looking a lot at the different social inflation and risk that we've seen in the books.
Things like assignment of benefits, the LAE increase and la <unk> that we've seen and different areas.
And the U S and outside the U S and so that's all factored into how we think about building the best portfolio learning from the lessons that the industry has seen and really positioning our book gone and go forward basis and it also so it has some loss trends for the reasons I just mentioned climate and some other social issues.
It also we also were seeing the uplift that we're getting from improved rates terms conditions occurrence occurrence causes hours clauses.
Etcetera etcetera. So all of that is we have several counter currents that result, and the 6% Youre looking at here.
Okay that was very thorough thanks, and then secondly, really quickly can you give us.
Some picture of expectations of seeding Commission and that's both what youre going to expect to pay in reinsurance and collect and insurance on a year per year basis.
Sure. So John Doucette, why don't you start with that and then we'll go to Mike <unk> for the insurance piece of it.
Yeah. Thanks, Juan so so and term it'll vary by line by territory etcetera by loss experience for the clients. So one of the.
And theres been significant underlying rate improvement terms and condition improvement on casualty and professional liability and so our view is that the casualty reinsurance market was rational for the most parts seat and commissions were about flat, but we did see and economic uplift.
At one one just based on our exposure to the underlying terms and conditions.
And then that would be very loss dependent if somebody had bad poor loss experience. So you could see a cut.
Cut and the ceding commissions and on property overall, we did see and improvement in the overall reinsurance terms.
And.
Both in terms of like occurrence occur.
<unk>.
And limits as well as seeding commissions and I think that really was just a function of the overall capacity dearth on proportional reinsurance. So we were able to deploy and wanted to deploy more into that space.
Yes, I think it really comes down some from the insurance perspective, really and the value of the reinsurance relationships that we are successful and maintaining all.
<unk> seen and conditions emissions that renewed over the last several months I would say one comment is our books very and and we had certain portfolios like I mentioned, we had the beneficiary of that for some other things I mentioned earlier about seeding commissions that we gained by some of the portfolio mix and certain lines like specialty casualty and other other other.
Specialty lines, like transactional and credit and political risk.
We tend to have really top talent in these areas, which I think have generated better.
Terms and conditions for us and some are reinsurance, but I think as we continue the journey.
And what we see opportunity and we certainly think Theres also opportunities for us desk and manage that and more effectively.
Okay, great. Thank you very much.
We have time for one more question, Phil Stefano with Deutsche Bank. Your line is open.
Yes. Thanks, I just wanted to ask a follow up to Brian's question about the Covid charges can you just provide us with a reminder of how to think about is there a date that you have book. This through is it just a calendar year 2020 losses or to what extent was 2020 and the potential.
Ongoing nature of the pandemic contemplated and and the 511 reserves.
Yeah Sure thing Phil Let me ask Jim Williams from to address that question for you, yes, Phil to provide a little bit of color.
I think it's important to understand the process. We go through to arrive at these estimates it's incredibly granular. So we are basically reviewing each and every reinsurance contract we have and each of our markets around the world, We do that multiple times each quarter and the goal of those underwriting estimates is to get <unk>.
A total view of estimated losses for those contracts and so so it's not really isolated to any particular time period. It's focused on the extent of the contract and what we think those losses are going to be.
So I mean, I think thats the core of the the answer to the question I think it's important to note, though that obviously our understanding of what that total is going to be as informed by the duration of the pandemic et cetera, as well as the reporting lag that one pointed out but but our goal is always to try to estimate the totality of loss.
Okay and.
As we think about.
And.
The growth is coming into the business and maybe this is more focused on insurance and reinsurance, but the potential for economies of scale and as we think about nominal expenses moving forward.
It feels like the insurance business had some investments and teams and the building out of the functions and things like that does it feel like that should slow down and and we've written or we come to a point where expense growth on a dollar basis as you know much more inflation plus or minus or.
Are there investments still to be made and helping us think about the economies of scale you can pull through.
Yeah, Phil I think that's a great question look the insurance Division is now a $3 $2 billion business right. So that's a good size insurance company.
We are still making investments and technology and people data and analytics product expansion, a number of things and that's not going to stop right. Because we think we have a terrific opportunity in front of us, particularly in this market to continue to be able to grow that now that being said.
We also expect that we will continue to manage our expenses and a very disciplined way and the way we have been now so focusing on things like digital automation and those types of things to make us more productive much more efficient those are things that are very much top of mind and they are also being implemented as we go forward. So there will be investment that will continue.
And this business, we will be reaching economies of scale as you point out I think we're pretty close to that and the focus is on how do we become more productive more effective more efficient as we grow that business.
And now I'd like to turn the call back over to management for final remarks.
Great. Thank you.
So I think as you can see from our results. We have strong growth we have strong underlying improvement and we have great momentum going into 2021. The company is very well positioned for this market. We have the financial strength, our preferred market presence and diversified global platform. We are nimble we have a deep.
And relationship will have great people and we have a great culture.
We're very well positioned so thank you for your time with US this quarter and for your support of our company.
This concludes today's conference call. We thank you for your participation you may now disconnect.
Okay.
Okay.