Q4 2020 AXIS Capital Holdings Ltd Earnings Call
[music].
Good morning.
Well go to Axis capital fourth quarter, 'twenty 'twenty earnings conference call on.
Participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. Please note that this event is being recorded I.
I would now like to turn the conference over to Matt Warman head of Investor Relations. Please go ahead.
Thank you Kate good morning, ladies and gentlemen, I'm happy to walk me to our conference call to discuss the financial results for Axis capital for the fourth quarter and year ended December 31, 'twenty and 'twenty art.
The earnings press release, and financial supplement were issued yesterday evening after the market close.
And you like copies. Please visit the Investor information section per website at Axis capital that Com, we set aside an hour for todays call, which is also payables and audio webcast. This is also available through the Investor information section of our website with me today are Albert bench, while our president and CEO and Pete Vogt our CFO.
Before I turn the call over to Albert I'll remind everyone that the statements made during this call, including the question and answer 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 and the forward looking statements due to provide a variety of factors, including the risk factors set forth and the company's most recent reports on form 10-K, and form 10-Q, and other reports the company files with the SEC.
This includes the additional risks identified and the cautionary note regarding forward looking statements and our earnings press release issued yesterday evening, we undertake no obligation to publicly update or revise any forward looking statements.
In addition, this presentation may contain non-GAAP financial measures reconciliations 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. Thank you for joining our fourth quarter conference call.
Got it.
<unk> was a tough year.
Axis and our industry faced a combination of COVID-19.
Which impacted both our underwriting and investment needs.
Compounded by heightened hurricane activity that May 2020 to fifth costliest cat year on record.
Given our president and the diversifying U K market and global reinsurance business, we cannot avoid COVID-19.
But I am proud of the manner in which axis responded to the pandemic.
Our team did an outstanding job of sustaining excellent service to our clients and partners and distribution and.
And we exhibited our values and our support of our colleagues and our communities.
And we're early and identify and our potential COVID-19 exposures and establishing treat and reserves and the first quarter.
Unfortunately, the pandemic expect again on the fourth quarter.
And recent court judgments also increased the potential cost to the insurance industry.
This caused us to take and additional COVID-19 charge and the fourth quarter.
While the pandemic is still an ongoing and catastrophe event.
I believe we have taken a prudent approach to analyzing our exposures.
And then we have the reserves to reasonably address our potential liability for both short and long tail related exposures.
<unk> and <unk>.
Well get into various catastrophe events on 2020 materially impacted our financial performance.
And we delivered disappointing results, Unfortunately, overshadowed and encouraging progress and our core underwriting performance.
The fourth quarter of 2020 marked the fifth consecutive quarter and six quarter and the last eight and.
And which we delivered significant year over year improvement and our current accident year ex cat combined ratio.
The fourth quarter's accidents.
Accidents year ex cat combined ratio of 91, eight was four five points better than that of last year's fourth quarter.
And the full year 2020 accident year ex cat combined ratio of 92 to one.
It's close to five points better than the full year 2019.
We delivered better core underwriting results across nearly all of our lines of business.
This is encouraging progress reflects the re underwriting of our book and <unk>.
Strategic growth and the more attractive lines, where we could achieve above our minimum return targets.
We entered 2021 with a significantly stronger and more balance book of business.
But we also recognize that there is still more to do.
In particular, we will continue to take advantage of the market conditions to accelerate our growth and non cat exposed lines of business to deliver more balance and our results.
We will continue to improve the construction of our portfolio to increase our resilience to cat events.
And we are in excellent position to do just that.
Across our business, we're capitalizing on favorable market conditions to continue growing and our most attractive markets, while improving terms and conditions, reducing limits and increasing attachment points where appropriate.
Where appropriate.
At the same time, we're continuing to remediate and eliminate unprofitable business and feel very good about the quality of our book heading into 'twenty and 'twenty, one and we believe axis is poised to drive profitable growth.
I'll provide additional context, shortly but first I'll pass the floor to Pete Who'll walk us through the fourth quarter and year end financials, and then I'll come back to discuss market trends and we will 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 heavily influenced by COVID-19, and above average natural catastrophes.
It also included strong core underwriting results.
During the quarter, we incurred a net loss attributable to common shareholders of $5 million and and annualized Roe of negative 4%.
Operating loss was $16 million and annualized operating ROE was negative one 4%.
As previously announced the quarter's pretax catastrophe and weather related losses net of reinstatement premiums were $198 million or 18.4 points on the loss ratio.
This included a 125 million loss provision for the COVID-19 pandemic.
Which is in addition to the $235 million loss provision recognized and the first quarter of 2020.
Resulting in a full year 2020, Kobe charge of $360 million.
The fourth quarter Covid loss provision increased the fourth quarter consolidated combined ratio by 11 six points.
And the full year Covid loss provision increased the full year combined ratio by eight two points.
The fourth quarter Covid loss provision was determined following a detailed review of all lines of business and considered new information and the quarter, including data provided by clients and the global shelter and place orders that came into effect and the fourth quarter and outcomes of recent court judgments.
Including the U K 's approved court ruling.
I would like to spend a couple of minutes, providing some additional color on our approach to COVID-19.
The $360 million of loss reserves established in 2020 represent our ultimate estimate of losses from direct exposures incurred as of December 31.
Most of the reserves are for property coverages and the vast majority of the reserves are IV and <unk>.
We also analyzed loss potential from indirect exposures, especially in casualty lines professional lines and credit lines.
We recognize that while emerging claims in these lines may be more difficult to directly attribute to COVID-19 the <unk>.
<unk> has caused and economic and legal environment, which will likely lead to an increased frequency of claims and some of these areas.
We therefore considered a range of potential economic and claims scenarios arising from the pandemic.
We consider these scenarios together with the nature of our exposures claim notifications, we have seen to date the reduced underlying exposures in some areas.
Our existing systemic loads are overall favorable claims emergence and 2020 and.
And that our 2020 loss ratios do not yet reflect all of the benefit of the rate improvements that we have achieved over the year.
After this review we concluded that we have established adequate reserves in the lines of business that have potential indirect exposure from COVID-19 or its economic impact.
Given the recent press on the Tokyo Olympics, I remind you that we have exposure to this event.
At this moment with the information we have we expect the Olympics to take place in 2021.
Lastly, I note that our Covid loss estimates are subject to a higher than usual level of uncertainty because of the inherent difficulty and making assumptions regarding COVID-19 due to the lack of comparable historic events, its ongoing nature and far reaching impacts.
In summary, with the addition of the $360 million recognized in 2020, we believe that our total loss reserves established in 2020 adequately reflect the ultimate estimate of Covid impacts both direct and indirect for all lines of business incurred as of December 31.
In addition to the Covid loss provision, we experienced other natural catastrophe and weather related losses net of reinsurance premiums of $73 million in the quarter or six eight loss ratio points.
These losses were primarily primarily related to hurricane Zeta and Delta and regional weather events in the United States.
As I noted in my opening remarks, COVID-19 losses, and above average catastrophe and weather related losses overshadowed the continued improvement and our core underwriting results.
And the quarter. The company produced a current accident year combined ratio ex cat and weather of 91 eight per cent or four five points better than the prior year quarter and as Albert noted the full year current accident year combined ratio was better than full year 2019 by four six points.
In the quarter, our consolidated current accident year loss ratio ex cat and weather was 57, 4%.
A decrease of four eight points from the fourth quarter of 2019.
For the full year the ratio was 57, 7% a decrease of close to three points from full year 2019.
We reported net favorable prior year reserve development of $7 million and the quarter largely related to insurance property and marine as well as reinsurance credit and surety lines.
This compared to $14 million and the fourth quarter of 2019.
The consolidated acquisition cost ratio was 21, 3% a decrease of one point compared to the fourth quarter of 2019.
And mainly attributable to the insurance segment. The full year is also down a point as compared to the prior year.
The consolidated G&A ratio was 13, 1% in the quarter and.
And increase of over a point compared to the fourth quarter of 2019 and.
Normalized G&A ratio this quarter was 13, 8%.
For the full year, our dollars of G&A were down $55 million or eight 7% from 2019.
While much of this decrease can be attributed to the lack of spending due to COVID-19. We do expect to capture approximately a third of the decrease as pure long term savings.
Overall operating efficiency and expense control, we made important goals of ours, and we continue to target and G&A ratio in the low fourteens for 2021.
Fee income from strategic capital partners was $13 million this quarter compared to $23 million in the prior year quarter. The decrease was largely due to lower profit commissions.
Moving to the segments I'll start with insurance.
During the quarter, our current accident year combined ratio ex cat and weather decreased by over a point and for the full year. The ratio declaim declined by five points from 2019 as the repositioning of the portfolio continued to earn through.
The insurance segment reported an increase in gross premiums written of $143 million or 15% in the fourth quarter.
This increase principally came from professional lines liability and property lines, driven by new business and favorable rate change.
And an increase in credit and political risk due to some premium adjustments. This.
This is the fifth quarter in a row, we have had growth and the insurance segment.
The insurance segment current accident year loss ratio ex cat and weather increased slightly during the quarter as compared to the fourth quarter of 2019, principally reflecting some higher loss activity in the cyber line of business.
However for the full year, we saw a decrease of close to two points as compared to the prior year.
In the quarter the acquisition cost ratio improved by two points due to changes and business mix as we have a greater proportion of liability and professional lines business, which carries a lower acquisition cost and less MGA and facilities business, which carries a higher acquisition cost.
Now, let me move on to the reinsurance segment.
During the quarter the segment's current accident year combined ratio ex cat and weather decreased by almost eight points again as we've made changes to this portfolio for the full year. The combined ratio ex cat and weather is down by three five points.
Reinsurance segment gross premiums written was down 56 million and the quarter and this is primarily due to <unk>.
Decreases this was primarily attributable to decreases due to timing differences and the non renewal of certain contracts and a number of lines of business.
These decreases were partially offset by increases and liability and professional lines due to premium adjustments primarily related to favorable market conditions.
The fourth quarter is the smallest quarter for gross premiums written for reinsurance so.
So if we look at the full year gross premiums written are down 13% as we made changes and the portfolio to improve balance and profitability of the book.
The current accident year loss ratio, excluding catastrophes and weather related decreased by almost 10 points and the fourth quarter compared to the same period and 2019.
This was primarily due to improved loss experience and A&H, agriculture, and engineering lines as well as the impact of changes and business mix.
The G&A ratio increased by one eight points and the quarter largely attributable to decreases in net premiums earned and lower fees related to arrangements with strategic capital partners.
Net investment income of $110 million per the quarter was $8 million lower than the fourth quarter of 2019, primarily due to decreases and yield.
Year over year investment income from fixed income declined due to the decrease and our portfolio yield was partially offset by strong alternative gains in the quarter.
Our current book yield is two 3% and our new money yield is one 3% and a duration of our portfolio is approximately three three years.
Diluted book value per share increased by 34, and the quarter to $55 nine.
This was principally driven by net unrealized gains partially offset by net losses and common dividends declared.
That summarizes our fourth quarter results with that I'll turn the call back over to Albert.
Thank you Pete.
And for those joining via webcast, we understand that there was a technical issue and that you Miss the opening minutes minute on that.
We are deeply apologize for that but please note that a replay of the webcast will be archived on the investor information section of our website to make sure you have access to all of the information.
So let's move on to the third part of our presentation, which is the overview of market conditions.
And the outlook before we go to the questions.
So across both our insurance and reinsurance segments.
We saw positive pricing momentum continue during the fourth quarter and into the January one renewals.
And our insurance book, we saw average rate increases of nearly 18% and the fourth quarter.
This compares to 16% and the third quarter 15, and the second and 10 and the first.
For the full year, our consolidated insurance business average rate increases of more than 14% on a gross basis.
It's more than double the average rate increase that we saw in 2019.
Going into the specifics and our U S Division, we saw average rate increases of 17% on the quarter.
Within that excess casualty reported average rate increases of more than 28%, while primary casualty was up more than 12%.
Yeah, and Thats property saw increases of more than 21%.
Our accident and health unit had rate increases of up 8%.
And in our U S programs business, which focuses on homogeneous book to smaller accounts.
Increases of 6%.
Moving to our North American professional lines division pricing continued to accelerate and rates there increased by more than 21% and the quarter.
Our commercial management solutions unit.
Average rate increases of more than 30%.
We continue need to see particularly strong great action across public D&O.
We were essentially and excess rider as well as private equity with both up over 40% this quarter.
In addition, privately held companies was up close to 30% and ancillary lines increased 18%.
Separately, we saw rate increases of 34% and our Canadian specialty business.
And 33% for Bermuda excess.
Financial institutions delivered rate increases of more than 20%.
Within cyber and tech, we saw increases of close to 14% as rate accelerated and response to increase and claims related to the ransomware among others.
Given the recent developments in this line I expect the cyber market will rally to implement much improved pricing and changes in terms and conditions. This year.
Moving to our London based International Insurance Division ratio were up more than 16% on average and the quarter.
Renewable energy, where we're a global market leader was up almost 23%.
Professional and casualty lines were also up 22% and aviation saw increases of about 19%.
Our international Marine political risk and property books, all averaged in the low double digits.
But within that however, marine cargo once again continued to outperform and was up 20%.
While global property and construction were also both up close to 20%.
Overall for the entire segment and the quarter.
And we'll be 98% of our total insurance business renewed flat to up and.
And new business pricing is at least as good as and often better than renewal business.
More than 60% of the premiums renewed experienced rate increases in excess of 10% and within that 40% of our portfolio had rate increases in excess of 20%.
Let's move on to reinsurance.
Only a small percentage of our reinsurance book renews in the fourth quarter. So it's better to look at the full year.
And there we estimate that for full year 2020, we averaged reinsurance rate increases of about 8%.
This accelerated into the January one renewals, where we renewed close to half of our reinsurance book.
Rate increases of about 12%.
The renewal season started early and there was much talk of discipline and demands for better terms.
And the final two weeks most deals got done and in orderly fashion.
We expect new capacity at both incumbents and new entrants had some impact.
Especially in cat and retro covers where new entrants wrote a meaningful amount of business.
Terms and conditions did improve.
But it fell well short of being a hard market.
Looking across geographies within North America, we estimate the average pure rate increased about 13% on.
Most all lines achieved double digit increases professional lines and liability were both up over 15%.
We continue to see firming market conditions, and property and catastrophe with better rate momentum at regional levels as nationwide company has varied by risk profile.
And our global markets Division pricing also average, 13% with aviation was strongest at over 40%.
Within our EMEA and Latam division, the long downward trend and rates appears to have finally reversed on a broader basis, but pricing still shows much room for improvement.
Rates were up 10% on average with liability and professional lines the strongest.
While property and catastrophe, we're still stubbornly in the single digits.
And APAC, we saw average increases and the low single digits with catastrophe rates up and the high single digits.
And axis.
We entered the January one renewals.
And perhaps less optimism than many industry observers.
And so for US this meant that we achieve pricing that was a bit better than our expectation and in some cases.
Bid worst and others, but generally consistent with a moderate overall improvement that we had anticipated.
And the and we felt that we were able to execute well on our renewal strategy and that our portfolio is better positioned as we enter 2021.
For us.
That means close to a flat premium production year over year, and about 10% less premium and property and property cat notwithstanding we achieved rate increases as we continue to reduce our overall exposure to cat volatility.
While the price and momentum that we're seeing in both insurance and reinsurance is encouraging we still believe a multiyear correction as needed.
There continues to be clear evidence of the catastrophic impact that climate change is having on whether property agriculture and other lines.
According to industry data.
Three of the five worst cat years on record happened and the last four years.
And 2020 tied as the hottest year on record and also saw a record number of Atlantic storms.
Separately, we are still on the midst of a period of social inflation, and increasing cyber threats, including ransomware and there remain many uncertainties on how society will emerge from Covid.
These trends and ongoing uncertainties must be reflected both in our pricing and and prudent reserving.
All of which means the day remains clear motivation the sustained strong pricing and reviews of policy Wordings and for the foreseeable future.
And this current phase.
And the cycle, most if not all of our growth has been within the insurance business as market conditions, there have been much more favorable.
And on the short term, we anticipate that much of our growth will continue to come from insurance, particularly and the non cat exposed lines of business.
We're looking at our hybrid model as a differentiator.
<unk>, a broad range of opportunity from which to choose the best possible outcomes and allocate capital to the areas offering the best returns as we build our optimized one axis portfolio.
We look to the future with optimism we feel very good about the book of business that we have and we're confident that we'll be able to continue to improve our results.
And we've got a terrific team strong and lasting relationships with our producers and our growing and the areas, where we want to grow.
We believe that the continued positive momentum that we're seeing and our underlying performance provides evidence that our strategy is working on.
Our team is disciplined focused and intent on driving meaningful profitable results and 2021.
And with that I'll open the line for questions operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on you touched on some if youre using a speakerphone. Please pick up your handset before pressing the keys.
Your question. Please press Star then Tim at this time, we will pause momentarily to assemble our roster.
Our first question is from Brian Meredith from UBS.
Go ahead.
Thank you.
A couple of questions here first one Albert I'm wondering if you could just dig a little bit more on your cyber exposure I know you are a leader and that market.
I understand the ranch and more situations.
How do you protect yourself and that market given kind of the escalating kind of loss trend we're seeing there.
And Brian that's a very timely question and obviously as you know we have seen a little bit more.
Ransomware attacks and and we did increase the loss ratio on the fourth quarter.
With that and fact that was the driver if you would for the for the loss ratio and the insurance Division.
And we've obviously because of our leadership and that line of business.
We've got a lot of technical expertise on that line and we've actually been working on our cyber portfolio since probably the middle of the year.
We look at a number of models and.
And we've been looking at some changes and there is a lot of stuff that we've done obviously.
Obviously, we've changed our.
Underwriting guidelines.
We're making sure that our customers have much better cyber hygiene, we've partnered with a number of tech companies to ensure that our clients are both better educated about.
Cyber risk prevention as well as recovery.
Increased prices, we've changed and terms and conditions.
But we've also bought more protection.
So last year, we had a 55% quota share plus and ex ol AG. This.
And this year, we increased that to a 65% quota share and we bought more <unk> AG on it. So I think we've done a very good job of both identifying the issues early may.
And making clear changes.
Two our approach.
And by and what protection. So I think we're entering 2021 and a good place with regard to cyber.
Great. Thanks, and then my next question on the insurance segment low more broadly here looking at underlying loss ratios and what's going on there improved.
Call. It about 100, 150, 150 basis points year over year, but youre getting rate on rate and I assume loss trend is nowhere close to where rate is right now.
As we look into 2021 should we expect some pretty meaningful underlying loss ratio improvement.
Well the first thing I want to answer that my lawyers listening and the last thing is going to let me do it and give you some.
But that said.
We've had two good years now of rate, 7% and 19.
14% in 'twenty and as you've heard.
<unk> talked about it we took a very prudent approach.
In 2019 and view of some of the uncertainties both relating to the actual claims emergence given COVID-19 and the fact that we wanted to make sure that we had adequate reserves at the end of the year.
And you've heard me speak.
Just a few minutes ago, but all of the uncertainties that remain.
And the day with regard to social inflation with regard to the uncertainties around COVID-19 and so on and so forth.
And.
While clearly we believe that the rate increase that we're getting are ahead of trend.
We think that the right call is to also prudently reserve until we have more clarity on those lines. So the answer is yes, we expect to continue to make good progress, but I wouldn't ask you to use a formulaic approach to 14% minus loss trends and gives you a big reduction and loss ratios.
Great. Thank you.
Our next question is from Meyer Shields from K B W. Go ahead.
Thanks.
More questions, Brian I guess Albert can.
Can you give us some insight in terms of the cyber.
Loss ratio increase was that on <unk> losses was that and adjustment to the full year.
Loss ratio.
That's a fair price.
You can jump in on that.
Yes, Thanks, Albert and Mara this is Pete we did it we did a look at our full year <unk>.
Full year losses for cyber and the loss ratio, we take reflected what we think the full year experience.
And would be I don't like these words like catch up or whatnot, but we took we took a view as to what we're seeing and throughout the full year. So.
I think a little heavy and the quarter, but overall, we're comfortable with the with the full year you view, we have on on cyber and what we've put up and we feel comfortable with all the actions the underwriters have taken going into 2021.
And how.
And with.
Your cyber.
Last number we still showed meaningful improvement and year over year loss ratios for our insurance Division.
Right.
And I want to make sure that we see.
Wouldn't expect it to.
On the cyber issue to offset loss ratio improvement and 'twenty yet.
Thank the what we saw in the quarter was about two points due to cyber and I wouldn't expect to see that type of impact going forward every quarter.
Meyer.
Okay and then this is.
Sort of related but I was hoping you could update us on how we should think about loss trend per lines like cyber and based on your recent report for.
For chassis losses.
Could you relate cash.
The last half of your question.
And so I just wanted to get a sense of how we should think about loss trend per lines like fiber and <unk>.
You recently published a report on sort of long term climate change impact.
I wanted to expense in terms of.
Recognizing the hesitation on the formulaic loss ratio model, how should we think about trends that one offline.
So our expectation frankly is that we're going to be seeing pricing increases and cyber anywhere from 10, 25% and maybe even more as we go through we are reducing limits.
Decreasing and attachment points all of the things that you've been hearing us.
And other leaders of the industry make so.
And we'll be able to use all of those methodologies to book.
<unk>.
And manage quote the loss trend, but also make sure there is more premium to reflect that.
With regard to catastrophe.
I think you know on a message on the cat which is that.
Closure.
Biting us.
And so our view is that we just need to have less net cat exposure as we move forward because I think we.
And we're changing and the world is changing and.
I think it is very difficult to project with any accuracy the impact of climate change on frequency and severity and.
So.
From our perspective, we're obviously.
Updating our models to assume a net shift up and loss curves and.
And we're responding to that with both increased pricing and less exposure to property property cat and our goal is to make property property cat a smaller percentage of our overall book.
To make sure that we generate sufficient profits and other lines. So that even if profit profitability and property is not where we want it to be we don't let it dragged down the entire company.
Okay perfect. Thanks, so much.
Our next question is from <unk> Kumar from Goldman Sachs Go ahead.
Hi, good morning.
Mike going back on the cyber question or set of questions.
Can you maybe talk about what the size of the overall portfolio is.
And then with the price actions and the changes that you're making and the portfolio would you expect that portfolio to.
To grow and to next year or could there be some retrenchment.
And then maybe similarly would you expect the loss ratio on that portfolio to remain relatively stable to where you ended 2020 or would you expect some changes there.
So theres a couple of things first of all as I mentioned earlier, we use a fair amount of reinsurance.
On this thing and we're increasing increasing that as we're going forward. Secondly, we are going to be reducing the amount of units.
And we're going to be taking in terms of risk and 2021 the.
And the volume is really going to be a question of how much rate is ahead of our reduction and unit.
But net net you can expect us to reduce that.
We've got a good number for the loss ratio in 2020, I think we we reflected everything we knew on that line, but let's be honest, we're going to have to see how that develops and.
And make sure that we reserve appropriately for it.
I don't know on add anything to that.
No.
Sounds good Albert I would say that we acknowledged.
The risk and that business. That's why we increased our quota share back up to 65% and bought the sideways additional sideways protection.
But again I think we're comfortable with the loss ratio that we have for 2020, and we know the underwriters are getting rate as we go into 2021 and they are improving terms and conditions. So so we feel comfortable going forward, but its obviously a line of business to keep an eye on.
And it's probably worth mentioning that because we use a lot I mean, just to put the and scale here.
And going to end up with what somewhere between 125, maybe a little bit more of net earned premium and Ken and cyber and next year, it's not.
It's not a huge huge lie for us on a net basis, we write a lot of it but we see a lot of it too.
Got it and Thats helpful.
And then my second question and I apologize if you touched on and I did have some technical difficulties.
<unk> I think things day increased both year over year and <unk>.
Sequentially could you maybe talk about what drove those increases.
Yes, I wouldn't make much of a <unk> because obviously, we renew our reinsurance in may and.
The Big increase there is the fact that we non renewed.
A couple of AG and extra ol treaties at one one.
Obviously, we've got a good five months at least in front of us tonnage.
To manage the wind portfolio to do so.
It really matters is where the portfolio ends up at June one and what kind of reinsurance we buy at May 15, which is when we are into ours. So I wouldn't read I wouldn't read excessively into that right now as you know if you look at our numbers, we are writing less property.
Certainly we are writing less property than we're getting right. So on a unit basis that continues to come down.
That makes sense. Thank you.
Our next question is from Elyse Greenspan from Wells Fargo Security go.
Go ahead.
Hi, Thanks, good morning.
Meaning.
My first question Albert and thank you and in your prepared remarks viewpoint and E Q.
We're talking about reinsurance.
Thank you pointed to.
Thank you said you were down.
And property Cat and one one I just wanted to make sure I got those numbers correct and what those numbers are correct.
And that was kind of on.
Insurance statement, unless we see material changes.
Steven and the year.
Bob can be.
On a closer.
Close to flat I guess on what Youre, saying for 2021 and reinsurance book and Paul.
Yes, my expectation is that we're going to write less gross exposures going forward, obviously price, we're going to be pushing for price everywhere, we can but net net that portfolio should have less gross exposures as we go through the year.
We still have obviously the important renewal seasons of April May June and July.
Okay and that wasn't even.
And I watched reinsurance by the way Thats, a 10% was a reference to meet to the January one renewals.
Yes.
I guess if conditions remain the same but then on the casualty soldier property was down and.
At one one and obviously, we'll see what happens and the rest of the year I guess you saw ladies.
And like somewhat of growth on that.
Casualty side, the kind of net to kind of flat.
Flat overall level and I think you got that right.
And that is and it's consistent with the strategy that we've been sharing with you which is that we want to make there is a lot of good property written busy.
To be written by the way I don't want and I don't want anybody to to to broad brush.
Property property cat, but I think that we have to recognize the inherent volatility and property and so we think that there is an appropriate amount of property that we could take and our book as a percentage and as we can grow what is now looking to be attractive casualty and professional lines and other non cat exposed business we're going.
To use that as an opportunity and perhaps if you'd allow me a little editorializing.
This is not the first time, we've talked about the fact that we want to see more balance in our portfolio.
The difference or the issue is that over the last two to three years.
We've been a little cautious about what we were seeing and professional and liability lines and obviously I think that our.
Our judgment I think has now been proven and when Youre seeing a lot of people increase their reserves and <unk>.
17, 18, 19 and for those lines and while we very much wanted to rebalance the portfolio. We felt that was the wrong time.
I think that now what we're seeing in 'twenty and into 'twenty one.
And we think that we're seeing a much better relative value opportunity for us.
And professional lines and casualty and other non cat exposed lines and so we think that we really have a great opportunity for us to accelerate that rebalancing that the market did not really allow us to do with weather the last two or three years.
I'm just going to ask about reserve.
That's helpful and then my second question.
It was on reserves.
So I think on <unk>.
Glad you pointed out.
You will lead.
And the lines that you release further on that in the fourth quarter and all.
Jeremy and some other quarters of the year you had taken action to strengthen some of your liability lines.
Are there any.
We strengthened and the fourth quarter was it not material enough to call out.
And we wanted to yeah, I can handle that Albert yes at least probably the only line, we strengthened and the fourth quarter. That's worth calling out is we did strengthen the insurance professional lines and so we did that and the quarter and.
That kind of offset the positives we saw on the on the lines I called out and my comments, the reinsurance credit and surety and the and the insurance Marine and property.
And I guess, what I would say overall, if I look back on the full year, which which.
And I might suspect you'd want to know about if I look at the full year or for the full year, we strengthened actually both professional lines and liability over the course of the full year and we still showed positive py D. Because with all the other lines of business. We had we had positive <unk> coming out of other lines.
That offset the increases we didnt pro lines and liability.
And as I look at it for the calendar year, we increased pro lines and liability in total with reinsurance and insurance just over $100 million and.
And that really was focused on accident years.
17, 18 19.
Okay. That's helpful and then one more.
And obviously been running down and bite on the run off and nobody portfolio. That's been impacting your margin is that yes runoff that still need to think about for 2021.
No that's really gone I mean, there is and there is a little bit on <unk> left but it's less than $10 million. So it's insignificant in the Grand scheme. So.
So we're glad that's behind Us Elise.
Okay. Thanks for the color.
Our next question is from Josh Shanker from Bank of America go ahead.
Yeah. Thank you.
I appreciate the time.
This is a theoretical question I guess, if you look at a year of writing business is building a portfolio.
Given COVID-19 and cash that's been hard to measure what the real ROE of the business. When you think about the <unk>.
Portfolio built as of January one 2000 on.
'twenty one how much better do you think the.
Ro.
On that book of business is and the business you had one year ago Barton.
Normalization for cash and Covid and whatnot and maybe even over a three year period, how much better designed your per.
Portfolio as were more efficient and that's the right word.
Youre on mute.
So the first thing that I would say is.
The biggest impact needs to be interest rates.
Because obviously that is a factual and on every line of business that you look at.
And then the second issue is the loss trends that you have.
There is no question that other than Covid.
Pricing is ahead of loss trends and almost every line.
And if I'm looking at the business that we're writing today based on what we've achieved.
We're feeling reasonably comfortable that this business should earn out to a double digit Roe and.
And I'd say on a note obviously, because we're writing it today and this thing gets out over a period of time.
I would say that.
Between last year and this year.
The rate increases.
That allowed us to absorb.
The reduction in interest and interest rates.
And the loss trends and end up on about where we thought we were at the beginning of last year. When we did not know about the reduction in interest rates or COVID-19.
Okay. So.
And assume that's right and that the the book today is a double digit interest rate business on.
I guess and and co.
Covid is heartsick COVID-19 out of the equation why do you think it was one year ago.
So at about this time, one year and I don't know if it was you or somebody else, but I remember answering that we the business that we were writing a January one of last year was price to deliver a double digit Roe.
And so we felt that now since then what happened we had a one on 100.
No pandemic events, we had a.
We had a cat experience that was probably close to one standard deviation away from the Maine, and we had lower interest rates. So those are the things that ultimately were such that we were not able to deliver that double digit Roe.
But if you look on our book of business today versus last year, I would say that on a mean basis.
On a price basis, it looks better and when.
You look at it from the perspective of.
And just to give you some statistical model analysis.
The probability of breakeven.
Has improved the probability the coefficient of variation on the distribution has improved a one and 10 has improved so all factors and the portfolio have improved on a on a price basis year over year. After we fully reflected the trend and the lower interest rates as well as the price it.
And we and the various actions that we've taken to improve the portfolio during the year.
And and let's take like individual lines, like cyber or D&O or whatnot, how much of your return.
And is based on a.
Folio construction versus being a better underwriters and the.
Next guy and so your business will have several hundred basis points or better return on somebody else's your cyber business several hundred basis points or better points on somebody else's, how much as a risk selection.
The important part of that sort of double digit ROE goal and how much is it creating the right portfolio.
So I think it's a combination of both I mean at the end of the day.
If we don't do a good risk selection and we don't get a good line results and then it's the allocation of the distribution and by the way Josh you've actually identified the way we do our planning, which is we do individual bottom up.
Reviews of the individual portfolios and what we can do to improve each one of them and then we bring them together and compare the relative returns and Volatilities and and then we try to combine them to get the best optimize distribution of doing it. So I think there is a fair amount that's required to do that.
And.
And I don't want to get into a lot of weird numbers. So I'm just going to give you one.
Our brokers tell us with regard to quota shares we.
We generally get very generous seating commissions compared to the other people and the industry, which leads us to believe that our reinsurers are very happy to take a quota share of our business.
Yes.
And that certainly makes sense.
Well I appreciate the answers and good luck on the new year.
Thank you Sir.
Our next question is from Brian and Bob Pittman and some capital returns go ahead.
Hi, good morning, I hope everyone's well.
I had a couple of reinsurance protection questions.
The.
Yes.
The reinsurance asset I guess are recoverable against Covid losses, and I'm wondering what sort of magnitude.
The essence Covid reinsurance recoverable asset is at year end.
Helpful.
Yes.
Right I don't have that number right at my fingertips, but we do have some marine reinsurance recoverable specifically on on our per risk contracts on the insurance side.
But we can follow up with you on the exact number.
Okay. Thanks, and then.
Unrelated, but also sort of reinsurance were comfortable there was some disturb the reinsurance asset and under the program on the cyber business.
On the quota share that was referenced a couple of times and the Q&A and and the presentation.
Are there any sort of like loss ratio caps or event limits that constrained that or is it should we just assume that 65% per.
Touching on all losses.
Okay.
So some some have kept some don't.
And then of course on top of that we've got the <unk>.
Okay.
Could you describe generally and now.
Looking for terms, but like generally what type of caps.
There are multiples of their multiples of the premiums so that's basically a loss ratio caps.
Got you.
<unk>, which we feel are very.
Our very comfortable and gives us a lot of comfort in terms of getting protections across the curve.
Okay. Thank you Albert.
Thanks, Ron and that's it.
Yes.
Yes.
This concludes our question and answer session I would like to turn the conference back over to Albert <unk> for closing remarks.
Thank you operator, and thank you to everybody for participating and for your time this morning.
I think we've addressed all of the big all the big points. So if you don't mind I would like to take a minute.
To express my appreciation to our team and to all of our colleagues.
I continue to be inspired by the commitment and resilience that youre showing in the face of a very difficult year.
And as I've said before in one of the worst years.
We've seen the best of Axis and on have you Walter Thanks for that and to all of our investors and our analysts.
Just to remind you of our commitment we are absolutely committed to deliver superior returns and we've been working very hard over the last several years to change the portfolio.
We make no excuses 2020 was what it was but we also understand the unique impacts and we feel that the underlying improvements and our portfolio gives us a lot of confidence that we can deliver and 2021. So thank you to everybody and we look forward to keeping you updated with our progress operator. This ends our conference call.
The conference call has now concluded. Thank you for attending today's presentation you may now disconnect.