Q1 2021 Everest Re Group Ltd Earnings Call
Okay.
Welcome to the average to be group earnings Conference call.
At this time all participants are in a listen only mode. If you require any further assistance. Please press star zero.
I would now like to turn the call over to Jon Levenson head of Investor Relations. Thank you. Please go ahead.
Good morning, and welcome to the Everest re Group Ltd, 2021 first quarter earnings Conference call.
The Everest executives, leading today's call are one on draw day, President and Chief Executive Officer.
Cookie Ancic executive Vice President and Chief Financial Officer.
We are also joined by other members of the Everest management team.
Before we begin I will preface the comments on today's call by noting that Everest Etsy SEC filings include extensive disclosures with respect to forward looking statements.
Management comments regarding estimates projections and similar are subject to the risks uncertainties and assumptions as noted in these filings.
Management May also refer to certain non-GAAP financial measures. These items are reconciled in our earnings release and financial supplement.
With that I turn the call over to Juan Andrae day.
Thank you John good morning, everyone.
Thank you for joining the call.
Average this off to a strong start in 2021 with robust growth strong overall profitability continued improvement in attritional underwriting margins and excellent investment performance.
We achieved these results despite the meaningful impact to the industry of the U S winter storms in the first quarter.
Our thoughts are with those affected by the storms as well as the Australians lunch and I am very proud of the work on our claims team is doing on the ground to help people and restore their lives.
Our first quarter results demonstrate the earnings power of Everest and our success in implementing our strategy to build a broadly diversified company with a relentless focus on operational performance and disciplined underwriting.
We are bullish about 2021.
We will continue to profitably grow the insurance segment, while continuing to grow and strengthen our position as a leading global P&C reinsurer.
Our diversified reinsurance and insurance franchises financial strength Steve.
Distribution relationships and leading customer solutions enable us to thrive in today's market.
I will now discuss some group reinsurance.
<unk> and insurance first quarter 2021 results.
Starting with the group results. We grew gross written premiums by 14% and net written premiums by 16% with robust growth across both segments.
Our growth stems from one the combination of new business opportunities to improve terms and conditions three increased rate levels.
For expanded shares on attractive renewables in Pi I overall renewal retention.
The actual reported combined ratio was 98, 1%, including the previously announced U S winter storms and the Australian flooding catastrophe losses.
We generated 45 million and underwriting profit compared to 29 million in the first quarter last year.
While the pandemic is not over and as we have done in prior quarters, we completed a rigorous analysis of our COVID-19 exposure in the first quarter, resulting in no change to our COVID-19 loss provision.
Our COVID-19 loss provision remains at 511 million of which approximately 80% is IP NR.
The Attritional combined ratio was 87.3.
Two and a half point improvement over the first quarter of 2020 with both segments continuing to show significant year over year improvement in loss and expense ratio.
We continue to diligently manage our portfolio to improve returns with a broad array of underwriting actions.
This includes managing attachment points and limits improving on terms and conditions and targeting non renewals of business, which does not meet our hurdle rates as well as many other actions.
Underwriting profitability remains at the core of everything we do.
Net investment income was excellent at $260 million compared to 148 million in the prior year first quarter.
These strong operating results led to a net income for the quarter of $342 million, resulting in an annualized return on equity of 15%.
For our reinsurance division the first quarter continued our strong growth with gross written premiums up 16%. We were pleased with our successful execution of our January one renewal plan.
The targeted and disciplined growth was driven by higher rate increase share some profitable deals along with new opportunities in property casualty specialty lines and facultative business.
The Attritional combined ratio was 85 five for the quarter at 2.3 point improvement year over year.
This came from improvement in both the loss and expense ratio.
We saw better economics, and most treating some classes of business around the world.
We were disciplined and reduce shares were non renewed underperforming treaties or those where we did not see in our target rate.
<unk> conditions wordings or exclusions.
We also deployed additional capacity into the lines with more attractive risk adjusted returns.
This dynamic capital allocation resulted in an improved attritional combined ratio.
Overall, we continue to write a stronger more diversified and more profitable book.
With regard to the April one renewals, we achieved 10% to 15% rate increases on Japanese wind treaties and 5% rate increases and earthquake treaties.
Rates in other geographies continued to rise in both property and casualty lines.
John Doucette is available to provide additional details during the Q&A.
Our insurance Division continued its solid execution in the market.
Resulting in strong attritional underwriting performance and premium growth.
Gross written premium grew 10%.
If we exclude workers' compensation, where we see less attractive pricing gross written premiums grew 20%.
This growth is driven by disciplined cycle management, new business opportunities ongoing strong rate increases in our targeted classes of business and high retention rates on existing business.
We are also seeing a slow but steady improvement in overall economic activity.
The growth was well diversified and our target classes, where market conditions are prime for profitable growth income.
We would expect to casualty.
From a liability and property short tail.
We are happy with this diversification as it is a core tenant of our strategy.
Ever since <unk> delivered an improved attritional combined ratio of 92, two for the first quarter, a two seven point improvement over Q1 2020.
These results continued to be driven by proactive underwriting actions and a continued focus on expense management.
These actions are resulting in the continued expansion of our insurance margins.
The Attritional loss ratio of 64, three improved one four points year over year and the total expense ratio improved one three points year over year.
Renewal rate increases continued to exceed our expectations for loss trend up 16% in the quarter, excluding workers' compensation and up 10%, including workers' compensation.
Decreased rate, we achieved in the expected increase in margin is a function of market conditions and disciplined proactive underwriting actions across our businesses.
After years of soft pricing and rising loss costs pricing adjustments remain necessary. We expect this favorable pricing to continue throughout 2021.
Consistent with prior quarters rate increases were led by excess casualty up 33%.
D&O up 24 property up 13, and commercial auto up 13.
We are also seeing widespread rate increases in other lines of business.
We are managing the insurance business to build a diversified portfolio steering our mix toward product lines with better rate adequacy and higher long term margins.
We also continue to manage average limits deployed to control volatility.
We are happy with the progress we have made and we expect that the strategic direction should possibly impact our results going forward.
Conversely, we have been thoughtfully managing workers' compensation through the cycle.
This portfolio now represents 14% of our first quarter premiums down from 21% a year ago, we have pared back our writings in the mono line guaranteed cost base and shifted our portfolio to more loss sensitive loss ratable business.
Workers compensation is an area of expertise at Everest and we are monitoring market conditions closely for potential opportunities, but these efforts illustrate the disciplined cycle management, we have implemented and accomplish.
Lastly, our strong position in both the E&S and retail channels continue to give us access to wide set of opportunities.
Mike <unk> is available to provide additional details during the Q&A.
Everest had a strong start to 2021 with robust growth strong overall profitability continued improvement in attritional underwriting margins and excellent investment performance.
We have a vibrant and well diversified reinsurance and insurance businesses with experienced leadership and underwriting teams, providing industry, leading solutions to customers we have sustained momentum.
This company this excellent financial strength top talent and a prudent capital management philosophy we.
We're focused on sustained profitable growth.
We're diversified targeted and deliberate mix of business and superior risk adjusted returns.
We believe that the relentless and disciplined execution of our strategies will result in maximizing shareholder returns.
Im confident in average future and in our ability to deliver on our commitments to customers and shareholders.
Now, let me turn the call over to Mark <unk> for additional details on the financials.
Mark.
Thank you Juan and good morning, everyone Everest had very attractive results for the first quarter of 2021 with strong overall profitability continued improving underlying margins robust growth and an excellent investment result.
I'll touch on these points over the next few minutes.
The first quarter of 2021 numbers reported net income of $342 million, resulting in an annualized return on equity of 15%. We also reported operating income of $260 million for Q1 and operating earnings per share of $6 49.
Starting with underwriting income Everest had positive contributions from both reinsurance and insurance with $45 $2 million of underwriting income.
Reflects the improved underlying attritional loss and expense ratios offset by the impact of catastrophe losses.
Catastrophe losses of $260 million of pre tax and net of reinsurance and reinstatement premiums with $213 million in the reinsurance segment and $47 million in the insurance segment.
The vast majority of $250 million is coming from the U S winter storms with the balance from the floods in New South Wales, Australia.
Also worth noting is that we have not added to our COVID-19 loss provision, which remains at $511 million was approximately 80% of our pandemic loss estimate remaining is <unk>.
First quarter results continue to reflect the impact of our underwriting and portfolio management initiatives, our underlying attritional loss and combined ratios are strong and continue to improve.
Excluding the catastrophe losses reinstatement premiums and prior year development in COVID-19 pandemic impact the Attritional loss ratio was 67% in Q1 compared to 61, 4% in the first quarter of 2020.
The Attritional combined ratio was 87, 3% for the first quarter of 2021.
First to $89 eight for the first quarter last year, representing a two five percentage point improvement for insurance the Attritional loss ratio improved from 65, 7% in the first quarter of 2020 to 64, 3% this quarter and the Attritional combined ratio for insurance improved to 92 two per.
<unk> compared to $94 nine in the first quarter of 2020.
Our U S insurance business, which makes up the majority of our overall insurance business continues to run very well with an attritional combined ratio in the high eighties.
Our reinsurance for the first quarter of 2021 Attritional loss ratio was 59, 5%.
Down from 59, 8% a year ago. The Attritional combined ratio on the same basis was 85, 5% down from 87, 8%.
The group Commission ratio of 25 per cent for the first quarter of 2021 was down 150 basis points from 22% reported last year in Q1.
Largely due to changes in the composition of our business mix plus higher ceding commissions received in the insurance segment.
The group expense ratio remains low at five 9% for the first quarter of 2021 versus six 3% a year ago.
Expense ratio continues to benefit from our continued focus on expense management cost economies of scale as our premium base continues to grow.
First quarter investment income had an excellent result of $260 million as compared to $148 million for the first quarter 2020 alternative investments recorded a quarterly record of $120 million of income in the first quarter largely due to increases in the net asset values from our portfolio.
Diversified private equity investments.
Selecting the strong economy and financial markets. As a reminder, we reported our limited partnership income one quarter in arrears.
Invested assets grew approximately 2% to $25 9 billion during the quarter up from $25 5 billion at year end 2020, approximately 80% of our investment assets are comprised of a well diversified high credit quality bond portfolio with a duration of three five years.
The remaining investments are allocated to equities and other invested assets, which include private equity investments cash and short term investments.
Our effective tax rate on operating income for the first quarter of 2021 was seven 9%.
And eight 4% on net income.
This was favorable versus our planned effective tax rate of approximately 12% largely due to the geographic distribution of the catastrophe losses occurring within the United States.
For the first quarter of 2021 Everest generated strong operating cash flows of $904 million compared to $506 million for the first quarter of 2020, reflecting the strength of our premium growth year over year.
Our balance sheet remains strong with a capital structure that allows for the efficient deployment of capital and ample capacity to execute on market opportunities shareholders' equity was $9 7 billion at the end of the first quarter and broadly flat versus the $9 7 billion at year end 2020.
Our debt leverage ratio stands at 16, 5% and book value per share stood at $241 57 at quarter end.
And I close the noting that Everest re purchased approximately $24 million of common shares during the first quarter.
And with that I'll now turn it back to John.
Thanks Mark.
Operator, we are 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.
Then rejoin the queue. If you have any remaining questions.
Great. Thank you.
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Please standby, while we compile the Q&A Ralph.
Your first question here comes from the line of Joseph.
Elyse Greenspan from Wells Fargo. Please go ahead. Your line is now open.
Hi, Thanks, good morning.
First question.
We went back to last year you guys within your insurance book, We're getting 24 first time price that was excluding comp 12% with workers comp.
We were to assume a 5% loss trend.
Resulted in about four points of oxygen ear.
Your line loss ratio improvement this quarter and when you look at the insurance book and BOP out COVID-19.
You produced.
Just under one and a half point.
Is it is a good rule of thumb that you provide.
With the improvement followed at the bottom line and the other half.
Can we can build some reserve conservatism.
Yes. Thanks, Felicia this is Glenn and good morning also.
I think there is.
Couple of things to keep in mind number one is we had strong results across the board.
As I said in my prepared remarks, it's a two five point improvement in the combined ratio year over year. When you look specifically at the insurance Division, that's a $2 seven improvement that youre seeing there as well.
Frankly, it's led by the loss ratio with a one four improvement in the Attritional loss ratio now the mechanics of that improvement I think it's along the lines what we've discussed in prior quarters. So certainly we are seeing very good rate, we saw as I mentioned, 16% rate increases in the insurance book.
In the first quarter and that continues to do quite well as my fact that to put it in perspective that 16% is two times the rate that we achieved in all of 2019 so right.
All of that but the bigger part of all of this is really a myriad of actions that we're taking on the underwriting side.
As I've mentioned previously to continue to position our book of business, both on the insurance side and the reinsurance side.
Stained profitability over the long term and it's important to keep in mind. One thing right. We are deliberately shifting the portfolio towards segments that have better overall economics. In addition to all the underwriting actions that we're taking and that I've mentioned in the past and in my script too.
<unk> continued to improve sustained profitability now when it comes to logistics I think it's also important to keep in mind that we continue to hold the line on loss picks we have clear indications that underlying profitability is continuing to improve.
Some of that you saw in this quarter's results and some of that will need to be proven over time as the accident years continue to mature. So I think thats, probably the best guidance that I can give you on that.
With that let me ask also one of my colleagues to moving some to jump into this question as well, yes. Good morning at least the only thing I would add and I think it is important both in insurance and reinsurance and I suspect it's on the minds of Av.
Everyone on the call today is just this question of the loss trends and we talk about rate achievement exceeding loss trend, but we've also talked over the last few years about the fact that the trend line has been accelerating in terms of whether it's social inflation.
Inflation and building costs in terms of repair after natural disasters and things of that nature and so that does two things one it will certainly consume a little bit more of the re.
It increases and we want to be prudent about that that's I would say a smaller effect the larger effect, though is the degree that that places uncertainty around what the ultimate trend line will turn out to be which is why we're going to take a very conservative position around making sure that we've proven out our trend selections over time, which would ultimately.
Intimately allow us to be looking on these accident years more favorably, but it's going to take time for that to them to fully mature.
That's helpful. And then my second question on the other part of your margin.
On the expense ratio.
If I'm looking at share.
Consolidated expense ratio was around two.
26, before I think in the quarter and so.
In line with the levels that you guys saw second half of last year, but well below where you were.
Pre COVID-19.
To get a sense of what kind of and obviously the commission and brokerage ratio.
Underwriting expenses, but just trying to get a sense of.
Where the expense ratio should level out.
Once we're kind of COVID-19 and what's kind of a run rate level there.
Sure thing lease.
I think it's important I think as you were describing just now to decompose the parts of the expense ratio.
I think if we look at the at the operating expense ratio that five nine.
I think that 596 et cetera, it's going to be pretty consistent.
For us one of the things that you know about Everest and our company is our disciplined expense management, whether it's cool a bit where until COVID-19. The reality is we're pretty focused on being efficient so I would expect that.
The operating expense ratio would be relatively consistent with those numbers that you have been seeing that.
Commission ratio is going to fluctuate based on the type of business that we're writing in any given quarter right and so for instance, if you're writing.
On the primary insurance business lines that are growing faster, but youre getting better seeds.
Because of our reinsurance structure now obviously will have an impact on the reinsurance side, obviously the business.
Mixed up right at the one one renewals will also have an impact on that but let me ask mark <unk> to weigh in on that as well.
I would echo that at least so I think the expense run rate is going to be hovering around that six points you might see some quarterly volatility, but in general that's roughly the area I would expect it to go there could be awaiting differential depending on the growth rate of insurance, which comes with a higher general expense operating rate versus the reinsurance division.
And then the other piece that I would just highlight is we are having fairly strong net earned premium growth as we as we develop both franchises even more so these are things. We're all keeping an eye on so I wouldn't get caught up in quarterly volatility, but that run rate of 6%.
There is a pretty good bogey.
Okay. Thanks for the color.
Thank you Lisa.
Your next question comes from the line of tariff Maisano from Deutsche Bank. Please go ahead. Your line is now open.
Yeah, Thanks, and good morning.
We've been spending a lot of time with the first quarter earnings calls talking about the concept of rate adequacy.
And.
I was hoping you could give us your thoughts on just the.
The proportion of business that feels right adequate or.
The extent to which we're reaching rate adequacy in pricing momentum may start to decelerate and of course, the offset to that could be exposure growth as the global economy starts to recover in the back half of the year.
Overall, what this could mean for potential topline growth I mean is it.
It's more of an insurance question the reinsurance question, but I appreciate whatever color you have.
Great Bill. Thank you for that let me start with the topline growth question and then we'll come back to the.
The margin expansion point, Steve you've had free cash as I mentioned in my commentary in the script one of the things that we're starting to see is a slow and steady return of exposure growth.
Starting to get near pre pandemic and I think that's something that as long as the economic recovery is consistent.
Youre going to continue to see probably for the back half of the year. So I think that obviously bodes well for the insurance industry. As we are creatures of any economy as theres more to ensure there is more opportunity for growth. So I think again the back half of the year. If exposure growth continues you're going to see improvement index.
Hey.
With regards to re.
Rate adequacy et cetera.
We have been seeing rate exceeding our expectations for loss cost trend now for a number of quarters and obviously, it's going to vary by line of business, but you are starting to see where the majority of your lines of business are rate adequate at this point in time now that being said it's important also keep in mind the starting.
For some of the longer tail lines.
Such a general liability excess and maybe some of the D&O lines, where they may be needed more rates as an industry over time, and we're starting to catch up and were starting to get there now what you see in our numbers frankly is that we have that steady improvement of underlying profitability continued to improve.
Just mentioned to Alicia a few minutes ago, we are holding the line on our loss picks we expect that over time, we will be bringing that to the bottom line, but all of that bodes very well for expected margin growth over time, but let me also ask John Williamson to weigh in on this question. Yes. So the only thing I would add I think one covered it really well it's just the <unk>.
That when you were very disciplined underwriters and so when you see us moving our top line the way that we have in the last several quarters I think that's a very clear indication to you that we feel great about the trades, we're making both in insurance and reinsurance I mean, we would not be.
Putting up that type of growth if we didn't feel very good about adequacy levels and thats, probably the best indication we can give you.
Okay No I appreciate that.
Well I was going to be dialing in on the workers' comp line.
So we've now got four consecutive quarters of material declines.
How should we think about the impact of Remixing, the book of business versus exposure versus price and what has caused this line to come down and how should we think about this line and particularly as we move forward is that is it.
Economically sensitive or is price just not habit and E rate adequate point, where you feel comfortable turning the valve on and growing that business.
Yeah, Great. Thanks, Bill, Let me start and then I'll ask my Karma Lovage to jump in on this call look the first thing I would say is we like to workers' compensation.
We're experts at it at Everest, but we're also disciplined underwriters and as I said in my prepared remarks.
We see better pricing opportunities in other lines of business right now.
Property D&O specialty casualty those kinds of things.
As I also mentioned, we're still writing comp, we're just changing the type of comp that we're writing going forward.
When we see less attractive pricing right now isn't the mono line workers' compensation space. So as a result of that we have really shifted more towards loss ratable loss sensitive business at that point, but as I also mentioned in my remarks, we are very much looking for the opportunities as the economy begins to heal.
<unk> begin to improve we will see an improvement in exposure is also in the workers compensation line for us and when we see the opportunity in the pricing improving farm improving exposure is beginning to grow you will see us start to deploy more capital as to workers compensation as well, but look this is how we're managing this company.
Proactively presumptive leaks to focus on lines with better rate adequacy with better opportunities for growth and with better margin, but again, we like comp. We're just taking a pause on it right now from the perspective of mono line until we see conditions begin to improve but with that let me ask Mike to jump in sure. Thanks.
Thanks for the question Yeah, I think the only to follow up I think that was well said is we've been obviously managing overall net exposure down as exposure growth has also shrunk as well, but the reality is we are starting to see that bottom out and to the point that was made by one as we start to see that opportunity, particularly pick up I think we will seize that opportunity we've been basically focused in the <unk>.
Composition of the portfolio really around low and moderate type hazard risk and so we feel very good about where we are and we are starting to see signs, particularly outside of California, where rate is starting to go up and nudge up and then in California, we are seeing it starting to bottom out, but we're optimistic that that towards the end of the year should start to change in California and that opportunity presents itself you'll see.
Certainly continued to gain some market share.
Your next question comes from the line of Mike Phillips from Morgan Stanley. Please go ahead. Your line is now open.
Good morning, and thanks for the time guys.
Kind of a follow up to an earlier question I think one of the first questions on insurance margins.
Just kind of want a get a little more clarity on it one you mentioned the year over year increase.
Year over year improvement in the interest of the loss ratio.
Four three.
And you talked about how the loss trends are making things a little more cautious on your part I guess is that is that why for the first time in over a year we saw.
An increase in the loss pick from sequentially from the prior quarter.
Data per quarter over quarter over quarter and this quarter. It went up some from <unk> is that simple yet because of your concerns on.
On loss trends or is there anything else going on that would make you increase the support team.
Yes, thanks, Mike Thanks for the question.
Let's start with saying looked at the appropriate comparison is more of a year over year comparison than the sequential comparison, and that's going to be driven more by mix of business than anything else. So I think that's an important point. The second point that I would make is look we feel pretty good about the business that we're writing today.
The rate adequacy on that business and about the margin that we're building my comments about holding the line on loss picks are really pretty straightforward. It's the fact and I've been pretty consistent in this messaging over the last number of quarters.
In this business you got to wait for things to season not over time.
So in the meantime, it's not just about right. It's about all of those actions that we're taking on the underwriting site portfolio management limit management.
Attachment points etcetera to continue to improve the profitability and the quality of your book and that is what you are seeing those are the numbers that are being reflected not only in this quarter, but in the last several quarters as well.
And so going forward. We do believe we are building expected margin in those lines and as we start getting more certainty on the fact that rate has indeed exceeded our trend expectations that margin will start coming through through.
The bottom line basis.
Okay. Thanks, Thanks, a lot switching.
Switching gears, then then the capital I guess last quarter, you had deployed $1 billion of debt.
And you mentioned here today that you've put some new deployment of new capital in the reinsurance I might've missed it can you say anything on pet insurance, but can you just tell us where you are with that $10 billion that you did back in October.
Where that stands today.
You see kind of being deployed this year, maybe more growth or coming back a bit to anything else that you think might do with that thanks.
Yes, Mike It's Mark <unk> speaking, so first of all day.
We still have ample room to deploy the capital is fully deployed.
There's no constraints in terms of our growth expectations. This year, our ambitions on both the underwriting side and on the investment side.
So I'd say, we're just looking for the best opportunities in the execution of our plan and capital is not a constraint either in the execution of the business or on the capital management side in terms of buybacks or dividends.
Yes, it's Mike and what I would build on Mark's answer is remember what we said back in October when we did the debt price. It was purely a port touristic right, we have plenty of capital to be able to deploy.
And so as Mark said and I will affirm that.
We're seeing great opportunities in this market you are seeing the continued momentum on the top line in both reinsurance and insurance and we feel pretty good about the capital backing all of that.
Okay. Thank you guys.
Thanks, Mike.
Your next question comes from the line of your line Conagra from Goldman Sachs. Please go ahead. Your line is now open.
Good morning.
My first question.
I hope that you'll be well.
Or are able to answer it I'm going to give it a shot.
I'm looking at the slowdown in rate improvement 500 basis points quarter over quarter in insurance.
And I'm looking kind of across some of your competitors. It sounds like there's a pretty wide range there of the rate of slowdown.
And I'm, just trying to understand what would drive.
One company's slowdown to be greater than in others.
Is it business mix are you accounting for rate in a different way.
Any help you can offer.
Looking at those.
This wide variance of.
Trends would be helpful.
Yes.
Happy to give you a perspective, and then I'll invite Jim Williamson to jump in as well.
Starting with with Everest and as I mentioned to a lease shortly or in the call.
16% is very good.
Continued.
Significant momentum on the rate side of things.
Business mix, certainly will influence that the type of business that you write in a particular quarter brings.
For instance in this case, if it's more heavily weighted towards a property a short line type exposure and that carries a certain rate that certainly can impact the mix now if I elevate the answer to your question and basically then talk more about the industry and look across companies.
I think again business mix plays a part of that I think execution play some part of that right I think one of the.
The most important things.
About our primary insurance business and I talk about it off and I'm very proud of them is how well they execute in the market. So I would say business mix as part of that.
Execution as part of that.
Portfolio management, and how you look at risk is certainly part of that and ultimately risk selection, which is a component of that I think those are all the things that essentially go into play, but look speaking from our perspective, but Everest, we expect continued momentum and strong renewal rate growth throughout 2021.
Yes.
Not a lot to add yarn other than to say you know when you. When you start looking across companies just to give you a sense of how we think about it within our own portfolio. I mean, obviously, we're well aware of the topline number for our insurance Division for example, but we really do look at it in a much more granular level because of all the reasons that one sided and at the end of the day, we've got underwriters they have.
They're approaching the market in a very disciplined fashion.
But they are selecting one deal at a time they are focused on making sure. They underwrite to deal appropriately that they attach the right terms and conditions to drive a total margin outcome.
And so it's really only a debt level that the numbers are truly meaningful. So I would just be I'd just be careful about reading too much into the fact that there is variation across firms, yes, that's fair.
I appreciate the thoughts there.
And then for my second question, if I could shift to the reinsurance segment.
Helpful color around April renewals, just curious as were starting to look at six one renewals and the turmoil in Florida.
How do you see the potential for growth there I mean, we're hearing that there is a lot of made for re on the one hand much more involving citizens in cat bonds on the other hand, so what opportunity exists there.
As far as you can tell today.
No that's great day, now invite John Doucette to jump into this question. Please.
Yeah. Good morning, Yaron, Thank you for the call so.
As you said, we had a good April one renewals, we're looking at not only June one, but July one where we kind of finish out the treaty year. So.
Our expectation is we'll we'll be deploying about the same amount of capacity.
And we will be focused on pushing rates terms conditions.
Because there are a lot of moving parts, a social inflation the climate change the assignment of benefits issue. So our view is our book will probably be.
Similar to last year, and we will look to improve the economics.
Thank you.
Your next question comes from the line of Josh Shanker from Bofa. Please go ahead. Your line is now open.
Yes, good morning, everybody.
I'll stick with reinsurance.
So it would be and then sort of a question youre getting up the loss ratio underlying didn't move all that much.
Year over year, but of course the expense ratio did.
And I look at the business mix a lot of non catastrophe extra well business written I think there's a lot of business makes up of course on reinsurance there's very different acquisition cost of different types of businesses can you talk a little bit educate us on cat versus non cat property versus casualty.
On how the acquisition costs differ between pro rata that kind of explains what's going on I got in the combined ratio, which improved very well during the quarter.
Great. Thanks, John and I'll ask John Doucette to please answer this.
Yeah. Thanks for the question, Josh So, yes, you're right. It is a business mix issue a combination of and we do have different.
Commissions and expenses, whether it's in excess of loss or pro rata, but but it's more nuanced than that it really there are deals that have very low.
Commission structures certain lines of business that.
The commissions, even though they are on a pro rata basis the.
The commissions given it's a function of the loss ratio is a lot is a lot lower and closer to an excess of loss business. So it really has to do with the mix and it also has to do with we did see some improvement in ceding commissions on proportional deals.
Particularly on the property side, where we need it you know where the ceding commission is a function as effectively re change and so some of the proportional deals that needed. Some improved economics from a reinsurance point of view, we did see some downward pressure on the ceding commissions that then.
Flowed into the numbers you're seeing today.
So if I want to extrapolate the first quarter results into the full year, you're right. The most amount of premiums in reinsurance in the first quarter are the changes we're seeing year over year in the first quarter indicative of how the loss ratio and expense ratio might play out as we move across to.
<unk> thousand 21.
So I think the best estimate of where the loss and expense ratio would be this quarter yes.
Okay. Thank you very much.
Okay.
Your next question comes from the line of near Shield from K B W. Please go ahead. Your line is now open.
I know you've touched on this but when I look at the non acquisition expenses in reinsurance so.
So we saw a pretty big jump on a year over year basis, and I was wondering is that tied to mix also or are there other factors driving that.
Just to make sure I understand your question correctly when Youre looking at the non acquisition expenses, so when you're focused on the $2 nine.
Yeah, the ratio was flat, but the dollars were up a lot.
Yes.
I think theres a couple of things at play here.
Number one I think as Mark mentioned, we certainly are seeing a benefit from earned premium growth.
Through as a result of the business that we have been writing and frankly the success.
We had last year and growing the franchise. If you recall, we grew that franchise by about 15%. So you are seeing the benefit of that coming through.
Specifically to the dollar speed up in the quarter on the reinsurance segment I think a lot of that is frankly noise.
Mark said earlier, there is always going to be a bit of volatility.
In the expense ratio from quarter to quarter, So I wouldn't read too much into that but as both mark and I said earlier when you think about the operating expense ratio trajectory. That's 2.93 is probably a good number for reinsurance.
Mark I don't know if you'd like that income.
Yes.
Yeah, I'll, just build off that a little bit because I think one captured I think for this quarter Youre seeing a slight elevation just in terms of the volatility I know there was very strong earned premium growth in reinsurance. So perhaps we could've been washed through nine but theres nothing fundamental in there youll still see us.
We should be coming in in less than 30 per year.
Okay. That's very helpful and then a big picture question.
I can't.
Totally disagree with the rationality of rate increases slowing down at more business achieve adequacy, but the history of this industry is.
That second derivative continue then eventually become disruptive not Everest question, but as read and heard you talked a lot of companies.
And ever since then focused on relationship is there any reason to be more optimistic about the post heart market phase of the cycle whenever that emerges.
Yes, it's a great question I think youre getting into psychology, now my or not.
Not the insurance and reinsurance economics.
Okay.
From my perspective, there are a number of things that might be slightly different right. If you look at the underlying conditions that drove the need for rate right. So a number of years of salt pricing.
Inadequate pricing.
Inadequate rates et cetera that finally began to turn as you had the impact of the catastrophes in 17 18 19.
Had the impact of social inflation coming through now we have the impact of the COVID-19 pandemic and the correlated impact on both the asset and the liability sides of the business. So all of these things are at play right now.
I think what you have found this debt.
People have achieved some level of discipline and you are hearing it from US certainly you have certainly heard it from our peers, particularly on the reinsurance side the stable approach to one one renewals with a level of discipline frankly from some of our competitors that maybe we haven't seen that level of discipline in the past.
So I'm, an optimist and and I think that.
Some of that will continue as we go forward.
There has also been capital that's coming in into the to the market into the industry, but that capital has only been impacting on the margins and nibbling on the edge. So it has not been a significant amount of capital. So look I think you'll still have some of the underlying factors that drove the need for rate.
Rates are getting more adequate as I've mentioned earlier, but again theres still environmental issues that we all need to keep an eye on particularly the more disciplined companies like others I think will be very focused on that going forward.
Okay. That's very helpful. Thank you so much thanks, Mike.
Your next question comes from the line of Brian Meredith from UBS. Please go ahead. Your line is now open.
Thanks, Good morning.
First question I'm, just curious in the insurance segment the acquisition expense ratio you talked about.
Better kind of seeding commissions benefiting.
The acquisition expense ratio is that a kind of a function of kind of or changes in your reinsurance buying philosophy and should we continue to see that lower kind of acquisition cost benefit ratio going forward.
Yes, So let me start and then I'll ask Mike envelope, which to jump in.
I think a big driver of that Brian was really the business that we wrote in the quarter.
And how that business then fits into the reinsurance structure that we have in place. So I think thats part of that.
The other part of that is that our re insurers for the primary business are seeing and have seen the quality of the portfolio and the quality of the book that we have put together and so because of that we are able to get slightly higher ceding commissions on that business, but let me turn it over to Mike and he can add some additional color on.
Yes.
Sure. Thanks, Brian Yeah. So.
Think.
Definitely business mix. The one point is certainly a factor in that as you saw like excess cash in some areas, where we've had significant growth that we're getting a little bit of the benefit of that also there's a little bit about shifting to some of the more open market from programs that growth in that business mix again, what will play into that and then finally, what I'd say to you probably see us as we continued to gain scale.
Its dependent we tend to be very conservative and basically buying reinsurance and so I think youll see that net to gross number change as well as we continue to kind of evolve, but but in general I think that the business mix is mainly they'd much driver for the quarter.
Great. Thanks.
And the second question I have I know, it's really early in the process here, but.
Just wanted to ask a quick question about taxes here in the discussion about corporate income tax rates going up and particularly the guilty tax does the guilty tax have a big effect for for you guys and then how should we kind of think about that in the event that we do get some big changes in the guilty tax.
Yes.
It's premature to say, how that's going to play out for US right now I don't think its what we see on the table from the administration or at least public dialogue.
It's not good for the <unk>.
General, but I don't think will have a material impact on us.
We're organized so.
I would expect it to be marginal or something like that is implemented in the fall.
Great. Thank you.
And I'm not showing any further questions at this time I will turn the call back over to management for closing comments.
Great. Thank you.
Everest is well positioned for this market and for the opportunities we've seen an improving economy.
Despite the material social and economic impact of the COVID-19 pandemic, we continue to grow unimpeded recruiting top talent and delivering value to our stakeholders, we have leading financial strength, our preferred market presence and a diversified global platform. We are nimble we have deep distribution relationships.
Great people and a great culture I am very excited by the opportunity ahead of us and I believe we are well positioned to excel.
You for your time with US this quarter and for your continued support of the company. We will talk to you after the second quarter. Thank you.
Thank you and this concludes today's conference call. Thank you for participating you may now disconnect.
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