Q2 2021 AXIS Capital Holdings Ltd Earnings Call
Good day, everyone and welcome to the Axis capital second quarter 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's presentation.
And there will be an opportunity to ask questions to ask a question you May Press Star then 1. Please note that this event is being recorded.
I would now like to turn the conference over to Matt Norman Head of Investor Relations. Please go ahead Sir.
Thank you Paul Good morning, ladies and gentlemen, I'm happy to welcome you to our conference call to discuss the financial results for Axis capital.
<unk> second quarter ended June 32021 earnings press release, and financial supplement were issued yesterday evening. After the market closed if you'd like copies. Please visit the investor information section of our website at Axis capital Dot com.
We set aside an hour for todays call, which is also available on the audio webcast found on the information Investor information section of our website.
With me today are Albert <unk>, 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 in the forward looking.
Statements due to a variety of factors, including the risk factors set forth in the company's most recent report on form 10-K, and other reports the company files with the SEC. This includes the additional risks identified in the cautionary note regarding forward looking statements in our earnings press release issued yesterday evening, we undertake no obligation to publicly update or revise any forward looking statements. In addition.
The 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.
Yeah.
Thank you Matt.
Good morning, everyone.
And thank you for joining today's call.
This has been another strong quarter for axis.
There's channel data point that reinforces the positive momentum and our positioning and performance.
Which we believe is the outcome of a multi year effort to build a more profitable and resilient company.
In both the second quarter on first half of 2021, we reported record operating earnings per share underpinned by excellent.
<unk> production strong underwriting and solid investment income.
And we believe that we're only just beginning to show what we're capable of achieving.
While the broader industry benefited from a relatively low cat quarter the.
The Big story for Axis is the continued strengthening of our core underwriting performance.
Our current.
Current year ex cat combined ratio of $88.7 for the quarter.
Almost 3 points better than the prior year.
Mark the seventh consecutive quarter since the fourth quarter of 2019 that we've driven improvements in our underlying core results.
Our insurance segment, followed a very strong start of the year.
With an even better second quarter.
Indeed, our insurance business is delivering performance on par with the best companies in our industry, including strong growth and improvements across almost all underwriting metrics to deliver on all in quarterly combined ratio of 85.
Our work over the last few years has positioned us very fame.
<unk> and the market is experiencing the strongest conditions.
And we're firmly on the front foot leading to record new business production.
I'll expand on it later on our call, but we expect favorable market conditions will continue well into 2022, providing us with an even more broader set of opportunities to build on our progress.
Are our reinsurance team is also leveraging current market conditions to further optimize their contribution to our consolidated portfolio.
And the team is delivering on its goals.
We're growing where it makes sense holding the line where conditions are not as attractive as they should be and meaningfully reducing catastrophe pms all of which are leading to a straw.
For more profitable portfolio.
I'd make a couple of observations about our premium production in reinsurance.
We're building the book of business that will drive the earnings profile that we want.
Excluding property and catastrophe, where we're targeting lower exposures.
Gross reinsurance premiums written would be up 14.
Stronger in the quarter.
Importantly, as many of you have noted given the improved construction of our portfolio, we're keeping more of what we're producing and net written premiums are up 8% this quarter and thats, what will be driving profitable earned premium growth in coming periods.
Moreover, our reinsurance teams consistent approach to underwriting.
Writing profitability continues to deliver sub 90 is accident year ex cat combined ratios.
And in all in quarterly combined ratio of 90.
We're pleased with the progress that we're making across our company. We believe we're making the right moves and we have the wind at our back.
We've worked hard to get to this point and we feel great about the direction that we're headed in.
Percent throughout the business our team is playing to win.
I'll now pass the floor to Pete who will walk us through the second quarter financials, then I'll come back and discuss market trends and we will have our Q&A.
Pete.
Thank you Albert and good morning, everyone.
This was an excellent quarter for axis with a number of positive highly.
And underscored by the continuing improvement in the company's core underwriting results.
During the quarter, we generated net income available to common shareholders of $228 million.
On an annualized ROE of 19, 3%.
Operating income was 170.
Delighted with and operate with an annualized operating ROE of 14, 4%.
Diluted book value per share increased by $2.47 in the quarter to $55.50.
This was principally driven by the net income and partially offset by common share dividends.
As Albert noted the consolidated current accident year combined ratio ex cat and weather was 88, 7% or more than 2.5 points better than the prior year quarter, principally driven by improvements within the insurance segment.
The consolidated current accident year loss ratio was 58.
8.2% a decrease of 3.3 points over the prior year as both the ex cat and cat loss ratios improved.
The quarter's pretax cat and weather related losses net of reinsurance were $29 million or 2.5 points.
There was no change.
Net loss estimate of $360 million.
<unk> for the COVID-19 pandemic in 2020.
The consolidated G&A expense ratio was 14, 1%, which is consistent with our expectations.
Overall operating efficiency and expense control remained important goals for.
We continue to target a G&A ratio in the low fourteens for 2021.
And lastly on a consolidated basis fee income from strategic capital partners was roughly flat year over year.
Now, we'll discuss the segments.
I will start with the insurance segment.
US where we had impressive performance across a number of metrics.
Gross premiums written increased by 22, 3% to $1.3 billion.
A quarterly record for the segment.
And I would also note that the year to date production of $2.4 billion is a record for the first half of the year.
The increase primarily came from new business and favorable rate changes in the professional lines property lines and liability lines.
During the quarter the insurance current accident year combined ratio ex cat and weather was 84, 5%.
6.8 point improvement.
From last year, reflecting the combination of rate change and underwriting actions, we have taken to strengthen the portfolio.
The current accident year loss ratio ex cat and weather decreased by nearly 4 points in the quarter.
With all lines contributing with positive rate change.
We saw the greatest.
In the property lines, resulting from not only the impact of favorable rate over trend, but also from improved experience driven by the underwriting actions that we have taken.
The acquisition cost ratio decreased by 3.2 points in the second quarter compared to 2020.
<unk> 2 thirds of the decrease is due to changes in business mix.
As we have written less high cost property, MGA business and more lower cost professional lines and liability business, where we get a favorable ceding commission.
We also had about 1 point of benefit in the quarter.
Order due to just some timing differences.
Now, let's move on to the reinsurance segment.
The reinsurance segment gross premiums written of $673 million for the second quarter was $6 million lower than the prior year.
Due to decreases in property and catastrophe lines from non renewals.
Our price was partially offset by increases in liability and professional lines driven by favorable market trends.
We are comfortable with the reduction in premiums on our property business.
As this is establishing a less volatile portfolio as is demonstrated by a much lower reported <unk>.
During the quarter.
On the reinsurance current accident year combined ratio ex cat and weather increased by 9 tenths of a point.
This was caused by an increase in the G&A ratio due to a decrease in fees.
Ex cat loss ratio and the acquisition cost ratio both are essentially flat with the prior period.
Net investment income was $105 million for the quarter compared to net investment income of $45 million for the second quarter of 2020.
The quarter's exceptional net investment income was primarily attributable to positive returns from our alternative assets principally the credit funds real estate funds and private equity funds.
This was partially offset by a decrease in income from fixed maturities.
<unk> to the decreased yields on the portfolio.
At quarter end, the fixed income portfolio had a book yield of 2% and a duration of 3.1 years and our market yield was 1.4%.
Overall.
<unk> with continued improvement in most operating metrics and positive momentum in our core underwriting book. This was a very strong quarter for axis.
That summarizes our second quarter results and with that I'll turn the call back over to Albert.
Thank you Pete.
Let's do a brief overview of market condition.
Conditions on outlook and we'll then open the call for questions.
We're continuing to see positive rate action across both of our segments.
For our insurance segment. This was the 15th consecutive quarter on which we reported overall rate increases and the fifth consecutive quarter of double digit average rate hikes.
This.
This quarter the average insurance rate increase was a bit over 14%, which is up more than a point sequentially from the first quarter of this year and roughly flat with the prior year period.
We can see we continue to see a dynamic market responding to loss trends in supply and demand pressures with some lines accelerating their rates of improvements.
While others have crested and some exhibiting a deceleration in the pace of rate hikes. Nonetheless.
Nonetheless substantially all lines are showing increases at or above loss cost trends.
Looking at our insurance segment by region, the North American market is showing the larger average increase of 15% on.
International is up 13%.
By class of business professional lines saw the strongest pricing actions with average rate increases at 20%.
This is ahead of both last year's second quarter and this year's first quarter driven by the rapid escalation in cyber lines.
These have delivered accelerated increase.
Increases in the quarter, which reached more than 40% by June.
In other professional lines, London in Canada are stable, averaging close to 20%.
While in the U S rate increases are averaging in the low double digits.
Liability lines average close to 13%.
Primary casualty.
He has remained generally stable at these levels, while the pace of increase in excess casualty is down from its highs.
Marine liability remains strong in the high teens.
Property rate increases clustered at about 12%.
That is only very modestly down from last year's quarter, but sequentially, it's up from the first.
First quarter of this year.
Other specialty lines continue to do well in the low to mid double digits with renewable energy, where we are a global leader standing out at closer to 20%.
Aviation is up more than 12% and several lines within our marine book are up in the mid to high teens.
So with all the changes on the.
Market conditions remained quite strong with 97% of our insurance portfolio renewing flat to up.
And fully 60% of our portfolio by volume achieving rate increases of 10% or better.
Let's move on to reinsurance.
We estimate that the overall reinsurance rate change was up.
<unk> <unk> percent from the second quarter as compared to 11% on the first.
By region, the North American market was strongest with averages increasing or about 13%.
Followed by EMEA Lat am at 12 and Asia at 7%.
By class of business liability came in.
Above 20% professional lines, followed excuse me.
Excuse me professional lines follow on at 15% and property and Cat trailed with average is only in the mid single digits.
Looking at the Big renewal since we last spoke for the June Florida renewals there.
There continues to be an abundance of capital with heavy competition for the higher layers all of which pressured pricing.
While pricing was reported to be end up plus 5% to 20% range. The higher rate increases were mostly in the harder to complete lower layers, most exposed to frequency of losses.
For axis.
Yes, we've continued to reduce our exposure in Florida as we do not believe that pricing in this market has reached attractive levels.
Finally during the July 1 renewals, which impact approximately 10% of our portfolio. We saw overall rate increases in the 8% range.
The July renewals relate mostly to north American accounts.
We're on average rate increases were about 10% other.
Other regions were up in the low to mid single digits.
Specialty lines, including aviation Marine and A&H, where on the 10% to 15% range.
Putting it altogether, our combined insurance and reinsurance portfolios are averaging rate increases on the double digits.
<unk> for both the quarter and the year to date.
And while we're seeing pricing increases coming down from their peaks in many lines others are moving up the net of which is we still anticipate that positive market conditions will continue with average price increases in line with or above loss costs into 2022.
<unk> maybe beyond.
As you've heard me say in the past, it's essential that our industry maintained pricing discipline as we face the cumulative impact of a number of headwinds.
Including low interest rates for longer term impacts of the Covid pandemic.
Climate change and extreme weather as well as loss cost inflation.
It goes without saying that we shouldn't confuse rate change with the rate adequacy.
The recent price increases bring industry profitability to a barely acceptable level of rate adequacy. After many years of severe price competition and loss cost inflation.
The industry has not yet gotten ahead of the curve on loss costs or reserve adequacy.
And must sustain its discipline, especially in a low interest rate environment.
We're doing our part by pricing and reserving on the basis of prudent loss cost trends.
But given everything we see we feel great about our future.
We're encouraged by the positive momentum on our performance and where capitalize.
On favorable market conditions.
We're building a stronger more resilient portfolio that we believe will consistently deliver superior results.
We believe that the changes we've made to our company in the last few years have resulted in much stronger market positioning and attractive specialty insurance and global reinsurance markets.
And a more data driven collaborative approach to portfolio construction that prioritizes the profitability and stability of our consolidated results.
We're building an optimized hybrid underwriter that will deliver attractive returns to our shareholders.
We have a strong franchise grounded in the delivery of superior service to our clients and partners in distribution.
<unk>.
We have a terrific team and we continue to recruit great talent.
We believe the future looks very bright for axis.
We look forward to continuing to keep you updated on our progress.
And with that let's please open the line for questions operator.
Thank you and we will now begin the question and answer session.
To ask a question you May Press Star then 1 on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2 and at this time, we will pause momentarily to assemble the roster.
Yeah.
Yeah.
And our first question today will come from Brian Meredith with UBS. Please go ahead.
Yes. Thank you I've got a couple of them here for you Albert.
First 1 let's.
Let's talk a little bit about cyber.
Perhaps 1 can you remind us kind of the size of your cyber book gross and net basis and then on.
On the cyber book I appreciate that Youre getting substantial rate increases whats going on with terms and conditions on kind of contract structure to perhaps mitigate some of the loss activity.
Yes, Brian good morning, So I think that.
With regards to.
The changes in terms and conditions.
As you know, we're 1 of the leaders in cyber globally and so we've been on top of this thing very much since the beginning of last year.
And so since that time, we were noticing that there were significant model changes increases.
Creases in.
In ransomware attacks.
I think the view of aggregation and systemic risk.
Fiber really started to increase.
And so since last summer, we started to make significant amendments to our risk appetite and to work.
The portfolio construction among.
Among other things that we did we reduced our limits, we increase deductibles and we set.
Set up much more stringent underwriting criteria, including stronger vetting of insured cyber defense capabilities.
We've also increased the services and support we provide our insureds to make sure. They are better prepared to defend against breaches and to respond post the breach event and as you also know we reported this last quarter.
We also purchased.
Our reinsurance to protect ourselves through the transition period and the good news is there are other leaders in the industry are.
Our kind of acting with us so there's a I would say consistent effort, which makes these actions a lot easier to put in effect because everybody is looking at it that way.
So what are we think as a result of that.
We are seeing significantly less exposures because the more stringent underwriting criteria are affecting that and just to give you a sense notwithstanding the fact that our cyber submissions are up meaningfully year over year are close our quote count is actually down by almost half year over year, we've we've reduced limits we've reduced.
<unk> certain classes of business.
Pricing is going up.
And so right now actually.
If you look at the second quarter, it's essentially 100 combined ratio business. So the problem with cyber if you would.
Is not necessarily and by the way that 100 combined ratio is before the rates that we're starting to.
The issue with fiber is not so much the profitability of the current business, but given the views around aggregation it requires more capital to support it and therefore, you need to make more profits to support that capital and I think we need to continue to adjust our pricing to make sure.
That this line of business.
Delivers adequate profitable.
Earn NAV to support the capital that we need to put behind it but we're big believers in the long term attractiveness of Ciber, if only because of our society needs.
Got you anything thats as far as the size of the book.
Sure, we have approximately $300 million growth.
And.
<unk> built a quota share of 65% against that you've got some ex ol against that.
So basically it's less than less than 150 net.
And so we think it's very well contained for for the size of our balance sheet and for everything that we're doing.
Great Great and then the second question if I look at your underlying loss ratio on.
With business has been kind of running let's call. It roughly 52% for the last most recent 6 months is that a kind of a decent run rate right now at least considering where we are with the earned rate versus trend.
Hey, Brian.
Hey, Brian This is Pete and I would say, yes, that's where we expected it to be.
We really looked at this step to 55% last year was what we expected and we told you we thought that would come down 2% to 300 basis points given the rates we had already put on the books in the second half of 2020. So I think the 52 is a pretty good run rate.
Great and then last question just with respect to kind of capital management.
If I look at your stock still trades below book value.
Your financial leverage is definitely coming down it's not quite at 25% with coming down is there any visibility into maybe when you would be willing to start repurchasing your shares.
Yeah, Brian it's something that we will continue to look at.
But here it probably will not do anything in the near term obviously, we're in the middle of wind season.
But when we get towards the end of the year, especially with our P&L is coming down so much we will take a look at what we really think we want and we will take a view of it probably in December and at that time, we will make any any any announcements but from what youre.
That'd be the leverage ratio is coming down do you want to get it to that 2025 ish range and that is coming down nicely, but what I really want to wait to the end of the year before we really do anything there.
If there's 1 comment that I would add obviously, if we have the opportunity to grow our book of business at a double digit return.
We're also going to want to take advantage of that too.
Makes sense.
<unk>.
And our next question will come from Meyer Shields with <unk>. Please go ahead.
Okay.
Thanks, Let me start with 1 quick follow up can you talk about what's going on with I guess.
Reinsurance Tom on.
On the cyber book.
I'm sorry, you broke up are you asking about whats going on with reinsurance on the cyber book.
In other words, the costs to buy reinsurance because you've protected yourself very thoroughly and I was wondering whether or what the trends are in the cost of that protection.
We have a 1.1 renewal so will take we've got some time to work on it obviously.
Where are our quota share partners are going to enjoy the benefit of the very significant pricing increases that we're obtaining on the book.
So we're confident that we'll be able to renew it but to be fair. That's a 1.1 and we'll have to deal with that.
On the second half of the year.
Okay, 1 other underwriting question.
Can you give on I know, it's really really.
Can you just any thoughts about how much of the rising.
P&L for European Windstorm would be exposed to the German plug.
Yes.
The short answer is not that much and the reason is what you get is the 50 to 102 to 250 per.
<unk> and visa.
Early really affected more by your 1 and 10, 1% and $21.30 kind of area. So.
It's a little early because as you know these are not very well modeled losses for our customers and there are some very specific.
Local concentrations that we have to work through.
Certainly I promise you that if.
Is this that thing.
These are would be any kind of a material loss you to hear from us, but right now we're just following it.
Okay. No. That's helpful and then a final question.
The decrease in investment income from fixed maturity.
With a lot sharper than I would have expected.
Recognize administered rates were down.
But it seems to have moved faster can you talk us through what's going through that what's going on there.
Yes, I think.
Meyer this is Pete actually when I look at it it's down.
The weights down sequentially given that we're about a 3 year duration and kind of new money yields are at about 1.4% on the book was at 2.1.
Turned out of the I'll call. It decrease of middle single digits was kind of what I expected in the quarter. So I don't think theres anything from.
Any going on there other than the fact that yields are just really low right now for new money.
Okay understood. Thank you so much.
And our next question.
From Phil Stefano with Deutsche Bank. Please go ahead.
Yes, Thanks, and good morning, looking at the reinsurance book and focus on the cat and property in particular.
The gross was down but the net was up and I was hoping you could help us square that against the nice decline that we've seen.
And <unk>.
And how that's been able to trend versus the <unk>.
Net book being up.
Yes, I think the most important part is that theres been a huge amount of work made in the construction of the portfolio and I think that Steve to the <unk>.
Greater efficiency on the portfolio.
<unk> grid getting rid of the bulky.
Exposures are very important.
And I think more balance and geographically with regard to the portfolio all of which helped.
Driving the Pms down now of what we are keep it of what we're keeping in terms of the P&L.
It's not just.
Getting just a cat that goes to retro so although we've received we've reduced sessions.
We've reduced retro sessions in other lines also.
Where we are today.
We're seeding to our third party capital partners over 50% of our of our Cat book and that is the largest.
Just percentage, we've ever shared with our third party capital partners.
Okay got it.
And Pete I think you answered in your prepared remarks.
Insurance acquisition expense ratio had a slight benefit from from timing issues can you provide a little more color on what that was or what happened there.
It's not fill it was it was a number of things, but it was things like true ups for profit commissions that ran through some ceding commissions that got booked through so all in all they added up to about a point. So when I think about whats the right look at what that acquisition cost ratio should be long term I kind of look more at the year to date number of about.
On <unk>.
As a good proxy, but it was a number of small things that were kind of got cleaned up in the quarter Phil.
Okay understood. Thank you.
And our next question will come from Elyse Greenspan with Wells Fargo. Please go ahead.
Hi, Thanks good.
My first question.
Just wanted to get a little bit more color.
But you seem pretty bullish on the pricing environment, but you did say right that there are some lines that are loss trend, but it sounds like price all of mine where pricing is equivalent to trend.
In fact price.
Morning Day, Gabriel because I know you also said that you think pricing will stay at or above loss trend going into 2022. So just trying to I guess from the line that got into a good amount of rate and other closer to trend would you expect that they will just kind of day April from here as we go through the end of the Huron into 2020.
<unk> yeah.
I'm not I'm not anywhere near as bullish as I would like to be.
I think ultimately I do believe that we need to be.
We need to maintain strong pricing, but I think we're already seeing in a number of areas where the pricing is off its highs I want to be clear the rate of change is off its highs pricing is still going up.
If you think about us.
Through the first half of this year being at a 13% kind of on average and when you think of loss cost being more on the low to mid single digits. That's a long way down so I think theres a journey down.
Over the next several quarters call it for call. It 8 call. It how many I don't know, but I think that.
I feel very very strongly that the industry is not yet.
In control of its loss cost trends and I think because until it does and given the low interest rates.
I think that we're going to continue to see.
Hopefully some discipline for from.
For pricing ahead of loss cost that said.
Ed.
We fully expect that.
<unk> will start to gradually come down from where they are at some point they'll.
I'll stay double digit for a little while at some point it'll be single digit rate increases, but as long as we have an opportunity to sustain pricing that is at or ahead of loss cost we can continue.
Improve the profitability of our book and I feel confident that we will have those opportunities.
For a number of quarters to come.
And then Albert in terms of loss trend right. It seems like from what we've been hearing from other players right.
Inflation and just like social inflation.
Shannon, let's go on on the court Hasnt been per basket things have been slow to reopen per COVID-19, but what are you on being on the loss trend side and do you have any concerns just as it comes to inflationary expectation.
Yeah.
Who knows I think unexpected inflation is not a friend of the industry.
And so of course normally.
We had a problem on your on your bond portfolios because they tend to go down in value, but very often reserve development.
I've been following the debate that's been going on in the last few days and you know my perspective on this is it.
It's always a difference between price index related inflation and social inflation and if you don't mind I'll just give you my views on that so.
Do you think that right now given what we're looking at price index related inflation is a manageable issue for the industry.
Why why do I say that because we get to reset values for the exposure for the insured values on an annual basis. So whatever the impact of inflation is on on property values.
Use on payrolls on revenues.
That's the exposure base on you get and you capture that.
And then secondly to the extent that you've got.
You monitor prices.
Whats important is the claim handlers properly evaluating the cost of adjusting our claim and they.
When they look at the claim.
They take a look at where they are in time. They look at the cost of goods sold they deal with that and then again, we have an annual process of changing pricing, if we need to and we've got a loss cost trend analysis as part of our annually our annual planning process. So.
Loss of an issue I think it's manageable and certainly in our case I know I've heard people say that they've had.
Case reserves for European others, because of various Inflations, we took that.
We kind of estimated that and we feel pretty good about that I'd say loss I would say that social inflation.
That's a different situation and I think that's more of a concern for the industry now I defined social inflation as including.
2 encounters.
That will include politicians regulators or courts kind of redefining wordings in favor of claimants and increased propensity to sue new causes of action and ultimately larger awards jury awards and again as you know very well those are more of an issue in longer tail lines.
Because it can take years to discover that the loss trends are higher than you anticipated that pricing when.
When you wrote the policy and I think we and the rest of the industry are certainly seeing that for the teen years.
And so that's led to adverse development in professional lines and liability lines.
And it takes a while to kind of catch.
<unk> fab.
As the situation evolves now certainly the strong pricing we've seen over the last 12 months to 18 months.
In professional lines and liability lines.
As a result of that but I think what matters to me.
Is that what we've seen up to now is only.
Surely getting us to where we need to be for right now and I think we'd be diluting ourselves. If we think that the impacts of social inflation will stop social inflation is tied to perceptions of social and equity. We know that COVID-19 has affected people differently that we've got a K recovery and I believe that social and equity will be a clear and present.
Berenger for the industry for some time, which is why I think it's imperative that we don't lose our discipline and price ahead of loss cost as to what we're doing at axis.
We're making sure that we're pricing and reserving on the basis of putting losses, we've reduced our limits, which are a good defense against inflation.
Day manage our attachment points.
So I think we're addressing it but.
But this is again this is an issue that the entire industry needs to continue to address.
That's helpful. Albert Thanks for all the color there 1 last line on you guys lowered your P&L good amount this quarter I know 1 of your kind of.
For this year with to get your cat load down by about 2 to 3 points.
Relative to.
We think.
Average.
Covid.
And so does this put you within that range that is putting battery then where are you expecting it just looked like a good level of decline that we saw.
On a pass them on your peak P&L this quarter, yes.
Yes, it's a meaningful level of decline and it's exactly what we were planning on doing I feel really proud of the team I mean, we're literally delivering on all of the goals that we set for the team.
These are appropriate levels of the P&L I've also said.
As an organization with ultimately like to bring on.
Aren't you balance of property and cat closer to 20% of our overall net retained premiums were not quite there yet I would like to get there through growth of other lines.
But where we are right now is we're entering the 2021 wind season in the very best position, we ever have as a company and exactly where we want it to come into.
Okay, great. Thanks for the color.
Thank you.
And our next question will come from Josh Shanker with Bank of America. Please go ahead.
Yes. Thank you very much just an outstanding quarter in insurance there is no doubt about it and when I think about Albert you're a great student of history looking on.
2 at 4.5%.
On the underlying combined ratio with a lot of that is yet to be earned through behind that.
How sustainable do you think margins can be in a diverse book of insurance business that can produce those kinds of underwriting results.
E D.
So Josh from you. Thank you very much I'll I'll take the compliment.
The other thing that I would say is with reinsurance result wasn't bad either.
I would say that but let's get to your point on what we've seen we've seen those kind of reinsurance results those are more common.
Current is truly truly from special I think.
Good, but let's go back to the issue.
There is nothing unusual or special about the combined ratio that we delivered in insurance. This year, it's exactly what we expected based on the work that we've done in this book for many many years the run off of the discontinued businesses that the changes in risk appetite there is nothing.
Unusual and to your point.
I have no reason to believe anything other than that as we earn the higher rates that we've that we've been writing on the last 12 months as we continue to improve our portfolio I think there is more progress to come.
Yeah.
Josh This is Pete I'll just add Albert.
As I mentioned, a little bit earlier feel really solid about where the loss picks are Josh but just in the quarter. The acquisition cost ratio for insurance had the benefit of some of those timing items I mentioned to Phil. So so I definitely 84 or 5 great current accident year combined ratio, excluding cat, but I think our run rate might.
It's just about a point higher than that which is still phenomenal for us given the improvements we've done over the last couple of years.
And when you think back to like 2001 through I guess, maybe the 4 or 5 accident year.
It turned out that those initial picks were very very conservative.
Might be.
And and they threw up a lot of favorable development, but there was a huge amount of change in terms and conditions and insurers like yourselves werent necessarily willing to.
<unk>.
Take the better margin until there was evidence of its 8 claims.
Come on route.
I mean, there's been some changes in terms and conditions in this cycle, but it's not nearly.
As revolutionaries it was 20 years ago.
Obviously these are your best picks, but how do you think about the conservatism and the potential that the 2019 through 2022.
<unk> tracks and Pixar ultimately.
Samsung being materially overstated, given given past trends on hard market cycles.
So I'm not going to try and guess how overstated they might be but I will say on the following.
We feel very clear that in our approach.
We're doing a number of things 1 is we're assuming a higher kind of more than technical loss trends in our in our reserving and where and we're booking our reserves to reflect the ongoing uncertainty around the loss trends is number 1.
<unk> 2 as we've discussed.
You can match.
Somatic League figure it out we are not fully reflecting all of the pricing and on.
And our loss ratios right now and number 3 we are not giving any credit.
To portfolio construction, and our loss and our loss ratio year over year changes, so we'd like to believe.
We are there is prudence in our loss ratio as we'd like to believe that there may be an opportunity.
But I would be loath to project any more than that.
Alright, well, thank you for all the answers and good.
Good luck, if <unk> continues to unfold.
Thank you thanks, Josh.
I'll leave that then this will conclude our question and answer session I'd like to turn the conference back over to Albert <unk> for any closing remarks.
Thank you operator, and thank you everybody for participating.
In our call before we wrap up I really need to express my continued appreciation to our axis colleagues across.
Across the world for the work that they do every day to make axis a stronger company.
This was a great quarter. This is the result of many years of hard work. This is the ninth consecutive quarter of year over year improvement that we are delivering and this is really on the back of the hard work and engagement of our team and I want to thank them and to.
We look forward to continuing to update you on our progress. Thank you very much operator this ends our call.
And the conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Your lines at this time and have a great day.
Okay.
So all of that.
[music].