Q2 2021 Everest Re Group Ltd Earnings Call
Welcome to the Everest re group earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star 1 on your telephone.
If you require any pretty good assistance, Please press star zero.
I would now like to turn the call over to Jon Levenson head of Investor Relations.
Good morning, and welcome to the Everest re group 2021 second quarter earnings Conference call.
The Everest executives, leading today's call are 1 on dry day, President and Chief Executive Officer.
Sure Mark Kersey, 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 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'll turn the call over to Juan on dry day.
Thank you John Good morning, everyone and thank you for joining the call.
Everest delivered an outstanding second quarter with strong growth and excellent underwriting and investment performance.
We set multiple records for our company on both the top and bottom lines.
These results serve as.
The foundation for our exceptional net income result of over $1 billion through the first half of 2021.
And there are another important step toward achieving our 3 year strategic plan objectives, and the delivery of superior results to our shareholders.
Everest achieved an annualized total shareholder return.
Turning to 0.5% through the first half of 'twenty 'twenty 1.
While exceeding our 3 year strategic plan target of 13%.
We capitalized on market opportunities to expand our franchises in both reinsurance and insurance driven by relentless execution and the strength of our.
On <unk> proposition to our clients and brokers.
Disciplined underwriting drove strong profitability in both reinsurance and insurance and our investment return was a quarterly record for the company.
The standout performance this quarter demonstrates the progress we have made in executing our strategy and the quality.
Quality of Everest diversified earnings.
As I discussed at our Investor Day in June our strategy has 3 building blocks first is building our underwriting franchises.
We are growing our specialty P&C insurance platform, while expanding its margins.
We are solidifying our lead.
<unk> position in global P&C reinsurance, while we are growing and diversifying this business.
Our investment portfolio is a core tool to generate solid returns and we're optimizing that portfolio, while sharpening our strategy.
Second we continuously pursue operational excellence.
So it starts with underwriting discipline supported by a system of management oversight and checks and balances.
On the underwriting we are transforming the operating model of the company to achieve greater scalability overtime.
We're also optimizing capital within our underwriting and investment portfolios.
Capital.
<unk> is valued and respected.
We are using the most efficient sources of underwriting capital from the capital markets, including the ILS investors.
And our industry, those who execute best win.
We're leveraging our flat agile organization to deliver best in class service and.
Solutions to our brokers and customers.
They routinely side, our responsiveness and capabilities as a key reason why they choose to do more business with Everest.
Finally, ESG principles are core to Everest. This includes focusing on the culture of our company.
Culture is 1 of our key.
Risks litigators and it's 1 of the reasons, we can attract and keep top talent.
Our culture fuels, our success by helping our team be the best it can possibly be.
We're investing in the talent of the organization as well as the diversity of our team.
At Everest, we have 3 drivers of earnings.
Different the first driver is about building a high quality specialty commercial P&C insurer, the underwriting excellence and a compelling value proposition.
We are embedding data in analytics across the organization, enabling more effective pricing and decision, making this means we make better underwriting decisions at improved.
Loss ratios.
We are improving our claims outcomes, while delivering excellent service to our clients.
And we're focusing our distribution efforts to be more sales and results oriented.
Our second driver of earnings is Everest, leading global P&C reinsurance platform.
We enjoyed a leading market position.
<unk> of our fully scaled platform.
And we are focused on continuing to grow and optimize our reinsurance business.
We're executing on underwriting transformation by improving operational oversight governance and controls our reinsurance division is entrepreneurial and nimble we will maintain it within.
Work on pricing reserving and process discipline.
We're further diversifying into higher margin opportunities.
And finally, we're expanding our risk financing by further partnering with capital markets and ILS investors.
The third core driver of earnings as the investment portfolio we.
On a Friday quality portfolio and we're focused on the efficient use of capital.
The successful execution of our strategies and all 3 drivers of earnings is clearly evident in our results.
I will now discuss our group reinsurance and insurance first quarter 2021 results.
We have a hot starting with the group results. We grew gross written premiums by 35% and net written premiums by 39%.
Our growth was broad and diversified stemming from 1 increased exposures in new business opportunities as the U S economy recovers.
2 continued them.
Is it rate increases 3 expanded shares on attractive renewals and 4 strong renewal retention.
The combined ratio was 89, 3% and 8 point improvement year over year.
The Attritional combined ratio was 87, 6% almost a.
Double doing better than prior year with both segments expanding margins.
We generated $274 million in underwriting profit compared to $51 million in the second quarter last year.
Underwriting profitability remains at the core of everything we do.
Net investment income was.
<unk> outstanding at $407 million compared to $38 million in the prior year second quarter.
These strong operating results led to a net income for the quarter of $680 million, resulting in an annualized return on equity of over 28%.
Gross written premiums in reinsurance were up 40% over the second quarter of 2020.
We are pleased with the ongoing execution of our 2021plan.
This growth was broad based in the areas, we discussed during our Investor day as attractive.
We achieved this growth, while also coming off or reducing.
Shares on less attractive business.
We drove continued targeted growth in property cat, which we achieved while lowering our pms in peak zones, thus, reducing expected volatility and improving risk adjusted economics.
Much of our growth came from our core trading partners that are.
<unk> to grow with Everest.
Because of our strong ratings and balance sheet significant capacity and the ability to write across all lines.
The Attritional combined ratio ex COVID-19 pandemic impacts was 86, 1 for the quarter, a 60 basis point improvement year over year results.
Were looking through from our continued focus on loss and expense management.
We see risk adjusted returns expanding in almost all treaties and classes of business globally.
We're also benefiting from investments in data and analytics.
As you can see in our results are focused actions improve the quality.
Resulting in profitability of the book.
We are riding a more balanced portfolio with improved economics on an appropriate level of risk.
We have achieved improved portfolio economics across all of our 2021 property renewal dates we improved in every dimension, we increased topline increased margin and achieve.
Roe's.
In casualty and professional lines primary rate increases continued to outpace expected loss trends.
Jim Williamson is available to provide additional details during the Q&A.
Our insurance Division continued its strong performance with excellent growth in.
Underwriting results.
We continued to expand margins as we execute our strategy.
We wrote over $1 billion in gross written premiums for the first time in a quarter.
This represents 25% growth year over year or 30% growth excluding workers' compensation.
This growth.
<unk> is driven by disciplined cycle management, new business opportunities continued double digit rate increases and strong renewal retention on existing business.
We're also starting to see a steady improvement in overall economic activity.
The growth was well diversified and target classes of business where.
Conditions are prime for profitable growth, including specialty casualty professional liability property.
Transactional liability and trade credit and political risk.
We are pleased with this diversification and so there is a core tenet of our strategy.
We also delivered strong.
Underwriting results with a 93, 5% combined ratio.
A 10 point improvement over the same period last year, which was impacted by Covid.
The underlying performance was also excellent with a 92.1 attritional combined ratio a 1.6% improvement over last year and almost 4.
Where market is better than the second quarter of 2019.
Renewal rate increases continued to exceed our expectations for loss trend of 14% in the quarter, excluding workers' compensation and up 11%, including workers' compensation.
Rate increases were led by excess casualty up 20.
2% property up 16% financial lines up, 14% and general liability up 9%.
We are building a diversified portfolio steering our mix towards product lines with better rate adequacy and higher long term margins.
We also continued to manage.
Average limits deployed to mitigate volatility.
We are pleased with the progress we have made and the strategic direction and granular portfolio management should continue to possibly impact our results going forward.
We continue to thoughtfully manage the workers compensation line, which now represents 10%.
Percentage of our second quarter premiums down from 14% year over year.
While this line remains profitable we have pared back monoline guaranteed cost writings and shifted to more loss sensitive loss ratable business, where we share more risk with our customers with more focus on risk mitigation.
Workers compensation is an area of expertise at Everest, and we're monitoring market conditions closely for potential opportunities, but these efforts illustrate our discipline cycle management.
Lastly, our strong position in both the E&S and retail channels continues to give us access to a wide set of opportunities.
<unk> is available to provide additional details during the Q&A.
In summary.
<unk> had on outstanding second quarter, with strong growth and exceptional underwriting and investment performance.
We are vibrant and well diversified reinsurance and insurance businesses with experienced.
Leadership and underwriting teams, providing industry, leading solutions to our customers.
We have significant momentum as we continue to execute our strategic plan.
The company has excellent financial strength.
Talent and a prudent capital management philosophy.
We are focused on sustained profitable growth.
A more diversified targeted and deliberate mix of business and superior risk adjusted returns.
We believe the relentless and disciplined execution of our strategy will result in maximizing shareholder returns.
I am confident that Everest future and our ability to deliver on our commitments to customers.
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 reported excellent results for the second quarter of 2021 with robust premium growth excellent underwriting results and truly outstanding.
Investment returns.
I'll provide more detail on these points over the next few minutes for the second quarter of 2020..1 Everest reported gross written premium of $3.2 billion, representing 35% growth over the same quarter a year ago.
On a segment reinsurance grew 40.
40% to $2.1 billion and insurance reported its first ever 1 billion dollar topline quarter, representing 25% growth year over year.
Turning to net income for the second quarter Everest reported net income of $680 million, resulting in an annualized return on.
Equity of 28%.
We also reported net operating income of $597 million.
Equal to operating earnings of $14.63 per share and an annualized operating return on equity of 24, 5%.
All 3 of our earnings engine.
<unk> provided meaningful contributions with significant underwriting income from both our reinsurance and insurance franchises capped off by net investment income of $407 million are.
Our record quarterly net investment income result.
The underwriting income during the quarter a 200.
Third $74 million reflects Everest disciplined execution of our strategy to grow and expand margins. The combined ratio was 89, 3% for the quarter compared to 97, 5% last year.
Catastrophe losses during the quarter of $45 million of pretax and.
Of reinsurance and reinstatement premiums with 35 million in the reinsurance segment and $10 million in the insurance segment.
Representing additional IV in our provisions for winter Storm Yuri.
Our reinsurance segment cat loss includes a provision for minor events and preliminary.
Net <unk> for the European convective storms of late June.
Finally, I note, we have not added to our COVID-19 incurred loss provision, which remains at $511 million with the vast majority remaining as IV NR.
Second quarter results continue to reflect the impact of our.
Underwriting and portfolio management initiatives, our underlying attritional profitability remained strong during the second quarter, excluding the catastrophe losses reinstatement premiums prior year development in COVID-19 pandemic impact the Attritional loss ratio for the group was 63%.
In the second quarter of 2021.
<unk> to 60% in the second quarter of 2020.
Year to date Attritional loss ratio for the group was 65% compared with 67% a year ago.
The Attritional combined ratio for the group was 87, 6% for the second quarter.
<unk> compared to 88, 5% for the second quarter of 2020, representing a <unk> 9 point improvement.
Year to date Attritional combined ratio for the group was 87, 4% compared with 89, 1% a year ago, representing a 1.7 point improvement.
For insurance, the Attritional loss ratio improved to 64, 2% in the second quarter of 2021.
Paired with 65, 1% year over year.
The Attritional combined ratio for insurance improved to 92, 1% as compared to $93.7 for the <unk>.
Same period of time.
<unk>, our U S insurance business, which makes up the majority of our insurance business overall continues to run very well with an attritional combined ratio in the high eighties for re.
Reinsurance the second quarter 2021, Attritional loss ratio was 59, 1% compared with 58, 2% a year ago.
The increase was due to a mix of business shift and more prudent initial loss picks.
The Attritional combined ratio was 86, 1% for the second quarter down from 86, 7% for the second quarter of 2020.
The group Commission ratio of 21, 8% for the second quarter of 2000.
1 was down 100 basis points from 22, 8% reported in Q2.2020, largely due to changes in the composition of our business mix.
The expense ratio remained low at 5.5% for the quarter as compared with 5.8% reported a year ago and the expense.
20th continues to benefit with our continued focus on expense management and the increased scale and efficiency of our operating model.
For the second quarter investment income had an exceptional result of $407 million as compared to 38 million for Q2.2020.
Alternative investment.
Ratio accounted for $266 million of income during the second quarter largely due to increases in the reported net asset values of our diversified limited partnership investments.
As a reminder, we reported our LP income 1 quarter in arrears and in 2020, the market and the world.
Investment, we're starting to experience the impact of COVID-19, while so far in 2021 results continue to benefit from economic and financial markets recovery.
Invested assets at the end of the second quarter totaled $27.1 billion compared with $21.6 billion at the end of.
World 2020.
$25.5 billion at year end 2020.
Approximately 80% of our invested assets are comprised of a well diversified high credit quality bond portfolio with a duration of 3.6 years remaining.
Investments are allocated to equities and.
Q2 investment assets, which include private equity investments cash and short term investments.
Our effective tax rate on operating income for the second quarter of 2021 was 9.3% and 10, 6% on net income this was a favorable variance versus our estimated.
In other <unk> rate of approximately 11%.
Just on the geographic distribution of income.
For the first 6 months of 2021 Everest generated a record $1.6 billion of operating cash flow compared to $1.1 billion for the first half of 2020, reflecting the strength.
On top of our premium growth year over year.
Our balance sheet remains very strong with a capital structure that allows for the efficient deployment of capital and ample capacity to continue to execute on market opportunities shareholders' equity was $10.4 billion at the end of the second quarter 2021.
John compared with $9.7 billion at year end 2020.
We repurchased $16.8 million of shares in the quarter.
Our debt leverage ratio is 13, 3%.
Or approximately 15, 5% inclusive of our $310 million of short term loans.
Strength in the federal home loan bank.
Book value per share was $260.32 at the end of the second quarter compared with $241.57.
At the end of Q1, 2021reflecting.
Reflecting dividend adjusted growth of 8.4%.
And I'll close.
With 1 final number.
Total shareholder return or <unk> target that we detailed in our Investor day, a few weeks ago recall that <unk> is defined as the annual growth in book value per share, excluding unrealized gains and losses on fixed maturity investments plus.
Dividends per share and for the year to date. The <unk> number is 22, 5% annualized and with that I'll now turn it back to John.
Thanks, Mark on.
Operator, we are now ready to open the line for questions. We do ask that you. Please limit your questions to 2 or 1 question.
Question, plus 1 follow up and then rejoin the queue. If you have any remaining questions.
At this time I would like to remind everyone and I'll get to ask a question Press Star then the number 1 on your telephone keypad again, it's not wanting a telephone keypad, we'll pause for just a moment.
Thank you.
On a roster.
Your first question comes from the line of at least Greenspan from loss for idle. Your line is open. Please ask your question.
Hi, Thanks, good morning on.
My first question was on <unk>.
Sharon.
Underlying loss ratio.
Ill see you guys mentioned that the increase in the quarter reflect net.
And more prudent and so I was hoping to get some more color. There and then how should we think about the Las Vegas deal kind of trend.
Trending downward from here.
Yes. Thanks Elyse. This is Juan so let me start out.
With that and then I'll ask John Williamson to add some additional color specific to your question on the loss ratio.
Start up by saying that reinsurance reported I think a very strong 86, 1 attritional combined ratio in the quarter.
And $85.8 year to date, and we achieved at the underwriting discipline strong.
Market conditions, and our prudent loss pick selection, you've heard us talk about our strategy and the disciplined we're implementing and that squarely focused on continuing to drive world class margins, but with that let me ask Jim to give you. Some additional color on what drove velocity, yes, sure and thanks for the question Elyse I mean, the first thing I would say and this is very consistent with the way we've described.
Our proposition and our strength in the market.
And that's that we're very nimble in this market, we have portfolios in markets around the world across many lines of business and we will look to trade in.
Those various areas to maximize our total economic returns and that was certainly the case in the second quarter and you see it in terms of some of our line.
On a business growth where areas like pro rata casualty were up 64% just incredible results. We saw a lot of great opportunities to expand participation with some of our core partners and we took advantage of that.
Conversely.
<unk>, which is a line of business were have a big appetite for it as a very.
<unk>.
Attractive line grew at 17%. So an excellent result, but obviously lower growth and thats aligned with a very low attritional.
Loss ratio and so mix is absolutely going to play a factor there and its going to bounce around from quarter to quarter, depending on where we see opportunities emerging in the market.
So those.
Very successful outcome for our company and then the next piece around loss picks and again a lot of consistency from us on this topic as we set very prudent loss picks and in particular, if you think about the environment, we're trading in with inflation social inflation. The reopening from Covid, there's a lot of uncertainty in the market and particularly.
And some of the longer tail lines like casualty pro rata, where we're growing our view is we really need to see the results of rate change and the results of underwriting actions by our seems to play through and mature in our book and so you will expect as we see those results come through we'll certainly be sharing those results but.
Trade time, given the nature of our business for that to prove itself.
And maybe if I could jump back and this is 1 and just add a couple of quick things..1 I think we also recognize that by growing casualty pro rata. We're also seeing lower volatility than from the growth in property cat ex ol.
It will take but also keep in mind, what's going on in the environment. Because I think this goes directly to your question on unexpected margin and we're confident based on all of our metrics that we're looking at debt. We are building future expected margin not only reinsurance, but also on insurance were still seeing rate exceeding expected loss cost.
From my prepared remarks.
You heard about the improvement in economics that we have seen across the board.
Our renewals last year and this year, particularly in reinsurance, we're basically increasing our margins, while lowering our exposure and again I'd point you to the fact that.
85 combined ratio for the year on an attritional basis for reinsurance is excellent.
That's helpful. And then my second question is on capital at your Investor Day in June on.
You're pointing to.
The increase on your lab.
Average.
Are you on.
Work on your 3 year financial plan.
About the leverage going up I, just wanted to get a better.
The timing as you think about adding to your leverage and as part of the answer to that question.
Would you guys consider adding to leverage to support capital return via potential share repurchases or would you just be coinciding with when you thought you needed more capital to support this.
Thanks, Tom female growth.
Hi, Elyse, it's mark.
Just a couple of points on that so I think the primary focus of our capital structure is really to support the organic growth of the business.
And so we'd look at it in context of supporting the growth and also from an opportunistic point of view of taking advantage of.
Good market conditions.
Issue that type of debt, so I do foresee that happening over the course of this 3 year plan I think it makes a lot of sense, having said that we are still committed to active.
Active capital management, so that includes share buybacks, but that would be what I would call a secondary consideration.
So we can't do it simultaneously, but the first part is really all about franchise expansion through organic growth.
Okay. Thanks for the color.
Your next question comes from the line of Michael Phillips from Morgan Stanley. Your line is open. Please ask your question.
Thanks, Good morning, everybody.
Want to start with comp 1 heard your comments in the.
Opening on on how Youre, making some changes in income and more loss sensitive accounts.
But I guess, there's been lots of talk of maybe we were starting to see a change in price in there.
I'm not so sure if that's materializing for you guys.
Maybe you can give some color on specifically on California.
Back out the Covid impacts in California, It looks like the current the current accident years are still trending pretty well pretty good margin. There. So just curious what youre seeing there and if that's if that's the case should we expect to see.
Turn on the market.
Especially for your accounts.
We're talking about.
Yes, Mike Thanks for the question and I will give you some additional color on ask Mike <unk> to also jump in.
I start by agreeing with you mean, our comp business is still very profitable and.
I stated that and also on our prepared remarks.
But we are mindful of how.
How we deploy capital and we.
We do see debt pricing has flattened in workers' compensation at this point actually in June we saw it go positive for the first time. So we're looking at that closely and Steve that's a harbinger of things to come on.
And as I mentioned in my prepared remarks, we like the comp business, but we're also smart about how we deploy.
Deploy capital and we're seeing frankly.
Return opportunities right now in other lines of business, which I quoted in my remarks, where we're seeing significant rate.
Ross the board, but we are starting to see not only the flattening, but again I would point to the fact that in June. We also started to see positive rate across the board, but let me ask my Karma Love.
Some additional color sure. Thanks, John and thanks for the question Yeah. As Juan mentioned this is a perfect example for us of a cycle management in the industry really fully focusing on where we see opportunity and we are starting to see stabilized across across the country, particularly in California for the first time, we think we're starting to see some pockets in green shoots and with explore.
Just to give you both coming on we're encouraged by where its going and ultimately we think that we will be prepared to take advantage of that you also see on are slowing down ultimately in our comp as far as the first quarter for second quarter, we're starting to see some changes there. So we feel that theres going to be some change in the marketplace, particularly in California keep in mind too with California. Some of the some of the reports that.
Exposure to mail from some of the organisations around some underlying cost we've noticed too that some of the overall costs that are associated with with such as the reforms on non pharmaceutical and other different things California's performed actually better from a loss cost perspective of some of these things. So we think that by the end of the year and into next year, Mike We will see some of that starting.
Going to benefit us and Youll see US go after the business if that opportunity presents itself.
Okay, great. Thanks, guys. Thanks for all the detail there second question.
Should we expect to see any uptick on the insurance side on the amount of business you want to just net.
Gross premiums, we expect to see that tick up over the next year.
This is Craig you cut out could you repeat the question.
Sorry is this better can you hear me, okay, yes, yes.
Okay. Good insurance net to gross premiums, we expect to see that tick up over the next year or so.
Look we have and you know we started a lot of segments over the years and we've been building. This out organically, so we particularly trying to hedge.
So some of the reinsurance and some of these lines. We do I think as you continue to see us gain scale, we will definitely see the net tick up with to our growth over time and as we continue to kind of pick the lines on the market to use increase you'll see that happen.
Yes, Mike I would add debt, we're feeling very confident about the underlying book in the insurance Division.
And particularly in this environment with better pricing better terms.
I think you can expect to see some of that going forward.
Okay. Okay perfect. Thank you guys.
Your next question comes from the line up Josh Shanker from Bank of America. Your line is open. Please ask your question.
Yes. Thank.
Thank you.
2 questions on reinsurance and without naming names when youre growing as fast as you're growing you need to be taking share from somebody else, who or the market participants again without naming names, but giving us a sense of what the market looks like who are.
Good choice ceding share.
2 rowers like yourself right now.
What the marketplace looks like that's allowing you to take so much here.
Yeah sure Josh I appreciate the question. So what I would say is and we've been very consistent about this we trade with a fairly select number of core partners and that's what's really driving our growth whether it's.
In property and casualty in markets in the U S or around the world and we are absolutely a preferred market for our clients where preferred because we're nimble because we're creative because we distribute authority to our teams they make decisions. They move quickly and we're benefiting from all of those things and in this environment I think for seasons, who.
Who are sophisticated.
Is it about their buying they are absolutely looking to trade up in terms of the quality of their partners and we benefit from that and so what we're seeing on programs around the world as we are getting increased signings with our core partners because of our broad capabilities. We're also able to trade into deals with core partners that we may not have been on before and then obviously as they introduce new programs.
Grams into the market, we're able to participate there as well and so we find this to be a very favorable competitive environment that way.
And the second question.
You know if you talked to a number of competitors in the marketplace.
I tend to say that there will be litigation environment is still gummed up from the pain.
<unk>.
The frequency of reported loss is lower than it should be but everyone's reserving for with a.
I too that will celebrate.
Being sort of re.
Earned normal some expense as a reinsurer, obviously, you're 1 step away from that and you are relying on the reporting.
On your students to help you frame your own losses.
How does the.
Gummed up litigation environment inform how you are.
I think in your loss picks at this point.
In preparing for that future.
Yeah look that's a very key point to make and it's an important trend.
And I think folks who expected some of the downturn and frequency of some of these losses during the period of Covid, who thought that that would continue I think that's a significant mistake in our view has never been that we should react to that temporary environment and so we've held our loss picks study, which is sort of where we started the Q&A today.
Without prudence really puts us in a strong position as things start to unwind and you do see a little bit more activity in terms of litigation and things of that nature, we don't have to react the other way either so that prudence that consistency benefits us when you see these very short term changes in loss trend we have to really.
The picking our losses for the long term trends that were experiencing and those trends have not ceased just because of the temporary slowdown due to COVID-19.
Have you seen any data that suggests the temporary slowdown in person.
No look I mean in terms of the reinsurance business to the point that you've made on your question.
And sort of reporting in terms of hard data.
It's certainly too early to tell.
But obviously, we're in constant communications with our seasons and I would say folks are starting to see some of the results of the reopening we're certainly seeing it in areas like auto for example.
But that's that's in the realm of anecdote at this point Josh.
And Josh.
This is what I would give you some color on the primary side, where you are starting to see frequency come back to more normalized lever, particularly around commercial auto or general liability et cetera et cetera. So this goes back to the theory that.
We have espoused since last year, which is the shutdowns on the lockdowns on the.
And that make did lead to a temporary change in frequency patterns, maybe even severity patterns, but that's not going to be a steady state I think you will see normalized frequency normalized severity come back.
Thanks for the answers.
Thanks, Josh.
Your next question comes from the lineup Mayor Shields from K B W. Your line is open. Please ask your question.
Great. Thank you good morning.
I'm asking this question not so much on the reserving side, but from the underwriting side.
The property Pro rata book is growing and what we've seen recently is obviously enormous.
Volatility and loss trends for property line can you give us a sense in terms of how rapidly you can respond to higher property losses with their pricing and underwriting.
Yeah. Thanks for the question Meyer.
I would say is you really have to break it down into its components.
And I think there are some areas, particularly in the commercial lines, which is really where our book is focused.
There can respond pretty quickly and it's a it's a combination of obviously right.
Which we're seeing very strongly in the market. It's a combination of terms conditions attachment points limits, our seedings and because we do partner.
With very high quality primary underwriters.
We're absolutely aggressively addressing changing conditions in the underlying property market and so I think it actually happens reasonably quickly, but again and I hate to sound like a broken record on this this is why we do maintain prudency in our locks loss picks because.
So some of these things take time to unfold and we want to make sure that they get proven out the other piece that's important when we think about our own profitability and property Pro rata is obviously loss pick is critical.
But we also look at things like ceding Commission and so we've seen improvements in terms, there and that allows us to get to a place where the overall <unk>.
Economics are very attractive and which is why we're willing to grow the line.
Okay. That's helpful and my next question was on the ceding commissions are you seeing the same success in casualty at you are in property with regard to I guess declining ceding Commission.
Well, it's obviously a very different.
Market and you know you hear a lot of the market commentary and you heard it from us regarding the rate changes that are happening in a lot of the casualty lines.
Here in the U S and around the world and so to.
To the extent, that's eaton's believe theyre, creating margin, they're obviously going to be seeking increased ceding commissions, we've seen a little bit of that activity.
It's very.
Very modest at this point and I think for seasons.
Who think about their reinsurers as long term partners, which really describes our core partners the ones that we've grown with over the last couple of years.
Sure.
They are very balanced about that and so while there is some upward pressure on you definitely see people seeking improved ceding commissions in the marketplace.
It Hasnt had a tremendous impact on our casualty business, we still see great opportunities to write new business and to expand lines in that market and we expect that to continue.
Perfect. Thank you so much.
Again to ask a question press Star then the number 1 on your telephone keypad.
Your next question comes from the line of field Stephano from Deutsche Bank. Your line is open. Please ask your question.
Yeah. Thank you.
Good morning.
Okay.
On the insurance side of the House I was hoping you could help give us an impression of what inning we're in in.
Keith.
This mix change benefit the attritional loss ratio.
Part of the question.
Theres been a reticence to recognize the benefit of rate over trend in terms of the conditions that et cetera, and I'm wondering if the attritional.
<unk> slowed down at some point.
Once the business mix changes Paydown played out but the the recognition of the rate versus trend. Another you know under our other industry trends has.
It has not come through yet.
Yeah, Phil This is Juan and good morning, all so let me start out.
You know please recall in.
I.
I think it was last quarter's earnings call, where we talked about all the levers that we're using to improve the profitability on the margins in our insurance division, but also within reinsurance right. So it's not just really about mix.
It's also about the glass the granular detail of managing the portfolio of making tough decisions.
What accounts for stay on where do you want to grow and been very purposeful about shaping the portfolio and being able to grow it if I look back at what we have been able to do on the insurance division over the last 18 months.
The numbers are pretty clear, we have been able to lower <unk>.
On the Attritional combined ratio.
By about 6 points over that period of time since really the end of 2019 and a lot of it has been these very presumptive actions on the lines of business that we choose to operate in non operating et cetera. The example, workers' compensation that we talked about earlier to Mike's question. I think is a perfect example of that right. So that gives you a sense.
So all debt, while yes, we have been prudent in our loss picks because we view the environment as I said earlier, a temporary environment because of COVID-19 with the frequency changes that we saw in that time. The reality is there's a lot of work beyond that and beyond mix that helps us to shape the portfolio going forward, but let me ask my comp to.
Sort of additional detail sure. Thanks, John Yeah, Phil So I think the short answer is that we still think we're in early innings. We started a lot of these businesses. We've seen obviously some of that improvement come through and again. This is dependent on what's happening in the marketplace. So as you can see to see opportunity and we see the opportunity to get scale and continue to expand our footprint I think youll.
Give you a little on this continue to play through over time, but again, we feel we're making great progress, but we're still in early innings.
Thanks, Steve.
Thank you and the last comment I would make to that is as I said in my prepared remarks, we are seeing rate very comfortably ahead of trend.
Particularly in insurance. So when you think about the expected margin Thats being built in addition to the actions that I described on the underwriting side I think that gives you a sense of where this could be going.
Why is it well for the last thing I'd say is we continue to hold on and hold the line on the loss picks for good reason because we recognize.
And that is it over time, so I think youre seeing us do the prudent thing and do this in a long term view.
Understood. Thank you I appreciate it.
Second question.
Looking more on the capital management side of the house.
And I still like the commentary or at least.
Some of the commentary has been around the fact.
We can grow organically.
Very quickly, but that doesn't mean, we can't repurchase shares concurrently with that growth.
We've seen some other Bermuda plays they get more active on the repurchase momentum just given where valuations are and maybe you can help us think through.
Usage of capital given where.
The issues are.
Maybe to put it bluntly why is now not a good time to really step on the gas with repurchases just given where the stocks trading.
Sure I mean, it's a constant.
Question for Us because.
Step 1 is always supporting the franchise expansion, where we're on the best.
Market and.
Almost a generation here. So we're privileges that growth you're seeing very strong topline growth on both segments reinsurance and insurance.
Having said that capital management, we've been active we could certainly be more active I don't see any hesitation on our side to do that.
I think you will see that in the future.
And we can complete both sides of that equation growth strongly without any constraints and manage our capital.
Even more efficiently.
Alright, well looking forward to thinking thank you.
Thanks, Phil.
<unk> there are no further question at this time I will hand, the call over to the management.
Great. Thank you.
Everest is a growing and leading global reinsurance and insurance company with a seasoned leadership team broadly diversified earnings streams, and a clear strategy to drive growth and expand margins, while reducing volatility.
<unk>.
Our goal is simple drive superior shareholder return.
We have the platform the financial strength the talent the focus and the commitment to succeed. Thank you for your time with US this quarter and for your support of our company.
This concludes today's conference call.
Thank you for participating you may now disconnect.
[music].