Q1 2022 Everest Re Group Ltd Earnings Call
Good morning, and welcome to the Everest Earnings Conference call I would now like to turn the call over to Jon Levenson. Please go ahead.
Okay.
Good morning, and welcome to the average to regroup limited 2022 first quarter earnings Conference call.
The Everest executives, leading today's call are one undrawn.
President and Chief Executive Officer, Mark Christy Ancic Executive Vice President and Chief Financial Officer. We're also joined by other members of the at risk management team.
Before we begin I will preface the comments on today's call by noting that everest's 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 Andres.
Good morning, everyone. Thank you for joining us today.
<unk> is off to a strong start in 2022 with first quarter results to reflect our relentless focus on profitability and margin expansion.
Excellent performance across our underwriting businesses and investments contributed to a $406 million and net operating income and a 16, 2% annualized operating Roe.
Our discipline and resilience standout in a challenging and complex environments.
We are a source of strength and stability and unprecedented times.
The world is facing historic volatility with the effects of the pandemic compounded by a web of macroeconomic geopolitical and societal issues.
Adding to this our climate driven industry catastrophe losses.
The first three months of 2022 rack with estimated economic losses over $30 billion and insured losses over $14 billion.
Significant events occurred in the quarter in Western and Central Europe , Australia, Japan, and the United States.
Historically quiet first quarter.
<unk> not been quiet for the past six years.
According to the National Oceanic and atmospheric Administration January February and March of 2022, where each of the top 10 warmest months any official observe record dating back to $80 80.
Amplifying. These challenges is the brutal rationalization of Ukraine and the upheaval.
And destruction station to Ukrainian people.
It is heartbreaking to witness team humanity and the cruelty that is unfolding in Europe .
This warranty stabilizes global economic systems, and financial markets and threatens democracy piece and decades long efforts toward share for Sperry ever.
<unk> stands in solidarity with the Ukrainian.
As underwriters.
Section and stability, we provide has never been more important.
This turbulent time.
Unwavering focus on consistent disciplined execution is most important.
Our focus was evident across our underwriting businesses in the first quarter.
Both performed well and continued to lead with expanding margins and highly relevant diverse risk solutions across lines and geographies.
And the insurance business, our focus on delivering profitable growth.
<unk> margins and best in class products and services advanced our mission to be the markets global diversified insurer of choice.
And reinsurance, we strengthen our global leadership position and maintain a laser focus on diversification.
Reducing volatility and maximizing profit.
This deliberate honing of our portfolio is an ongoing strategy, we successfully applied to the April one renewal.
We brought the same discipline to our investments, which continued to perform well in the quarter.
Our portfolio is diversified and well positioned for the current rising interest rate environment.
During the quarter, we continue to embed technology in our underwriting processes and to increase our capabilities productivity and efficiency.
Our momentum is powered by the extraordinary efforts of our people.
They are the bedrock of our inclusive culture and they drive our success.
As we announced last week, we lost a very special colleagues with the passing of Dod Mango, our chief risk officer, and Chief Actuary.
Don was the legend in our industry and that Everest.
I had the privilege of working with him to evolve our enterprise risk management framework to what it is today.
He is going to be greatly missed by all of us.
To carry Don's vision forward, we have appointed Ari logical which is average group chief risk officer.
RV is an accomplished leader with deep actuarial expertise.
In his former role as our reinsurance Chief operations Officer, and Chief pricing Actuary.
He played a key role in integrating risks discipline across the business and embedding it into everything we do.
He has also helped to advance our culture of diversity equity and inclusion as a founding member of our DDI Council.
I look forward to working with already to continue advancing our risk management agenda.
Let's turn to our financial results for the first quarter of 2020 to.
Beginning with our group results.
In the first quarter, we delivered $406 million in operating income with a 16, 2% annualized operating Roe.
This includes over $235 million in underwriting income a significant improvement over prior year.
$243 million and net investment income.
Our combined ratio of 91, 6%, it's a six and a half point improvement over last year.
The Attritional combined ratio was 87, 4% in.
In our Attritional loss ratio was 60%.
70 basis point improvement over prior year.
We also posted a competitive operating expense ratio of five 8%.
Rate continued to outpace expected loss trend in the first quarter and our margins continue to expand.
In addition to rate we are also benefiting from additional premium on lines of business with inflation sensitive exposure basis, such as general liability property and workers' compensation.
And we also continued to benefit from intentional underwriting actions.
<unk> limits and granular segmentation of our portfolio to ensure we are writing the most profitable business.
Our focus on profitability and expanding margins is clear.
We grew gross written premiums by 9%, 15% and our insurance division and 6% in reinsurance.
This growth was solid and broadly diversified in both of our underwriting divisions.
Diversification allows us to target higher margin opportunities in each geography and line of business. We are not reliant on one geography or line to drive our growth and profitability.
With regards to the Russian invasion of the Ukraine.
The war is an ongoing and evolving event.
There are significant uncertainties regarding actual and potential losses and on whether how coverage would apply.
We have completed a detailed coverage review of our businesses and we have limited exposure to this war.
To date, we have received only one loss notice for a de minimus amount.
Based on what we know at this point in time.
We expect that any potential financial loss to Everest as a result of these events would be a manageable earning side.
But due to the high degree of uncertainty around both exposure and coverage a reasonable estimation of potential loss is not credible at this time.
We are continuing to work with our brokers and seasoned partners to assess any potential exposure.
In sum our group results from the first quarter was strong and created meaningful momentum for the year ahead.
The combination of our financial strength capital position outstanding market reputation global offering and deep relationships uniquely positions efforts to capitalize on market opportunities.
Let's turn now to our reinsurance results.
In the first quarter, we grew gross written premiums by 6%.
Growth was strong in casualty and financial lines globally, particularly casualty pro rata, which continues to be supported by strong underlying rate and underwriting and increased average participation on treaties.
This is offset by deliberate and targeted reductions in our property catastrophe exposed business as we further reduce the volatility in our portfolio.
These actions resulted in significantly improved economics.
The combined ratio was 91, 4%.
A six one point improvement from last year and includes a $110 million of pre tax catastrophe losses net of reinsurance and reinstatement premiums from the Australia floods European storms and tornadoes in the U S.
Our Attritional combined ratio was 86, 2%.
Including that Attritional loss ratio of $58, nine which is a 60 basis point improvement over last year's first quarter.
Additionally, our expense ratio was two 4% during the quarter. This continues to be a strategic advantage for <unk>.
We achieved excellent underwriting profit of $177 million.
Driving this result, as our priority on maximizing profit while managing volatility.
We successfully executed on this strategy during the January one renewal season, and continued to make meaningful progress throughout the first quarter.
Specifically, we continue to grow our targeted classes of business and geographies.
Our international Treaty business grew by over 22% in the quarter we.
We expect this to become a bigger share of our business over time.
Global Facultative grew by 10%, we are making targeted investments to expand our facultative capabilities around the world, including industry, leading talent to our team.
Those investments are already paying off.
Casualty grew globally with our pro rata book up 48% year over year, and our casualty <unk> book was up 8%.
We continue to be measured and selective in our property lines.
And specifically in cat exposed property.
In the quarter those lines decreased year over year, and we further honed our portfolio to maximize your expected profit while reducing volatility.
We continued the strategy during the 401 and.
In property total written premium limits exposed hail in our P&L.
All reduced in expected profit in dollars increase.
This resulted in more profit for less exposure.
Any account that's an outstanding trade.
We also achieved growth in our casualty book with higher participation alongside some of the industry's best primary underwriters.
We expect conditions for upcoming reinsurance renewals to offer targeted opportunities for average to deploy capacity at superior margins.
We moved forward with the underwriting discipline and expertise to write in profitable markets and we have the tools talent and capital solutions to fuel continued profitability.
Now, let's turn to our insurance Division.
We continued our thoughtful intentional long term build of the insurance franchise with an absolute focus on underwriting profitability.
Our combined ratio of 91, 9% was excellent representing an eight point improvement from last year.
The Attritional combined ratio of $98 nine improved 130 basis points from a year ago.
It includes an attritional loss ratio of 63 one.
120 basis point improvement from prior year.
These improvements resulted in strong underwriting profitability, a $59 million in the first quarter.
A new record for the quarter.
Our focus on profitability and margin expansion is clear.
We have improved the attritional combined ratio by over five points since the end of 2019.
We also delivered robust and diversified growth in the quarter up 15% with gross written premiums once again over $1 billion.
It is important to note that excluding strategic and intentional underwriting actions taken this quarter to reduce volatility and optimize the portfolio our growth rate is higher at 25%.
As we have said ever since <unk> remains long term growth mode, but we will reduce exposures, where it makes sense as we continually reshape the portfolio to maximize profitability.
Growth in the first quarter reflects our relevance in the commercial insurance market.
It was driven by exposure increases rate strong renewal retention and new business across our core segments lines and geographies, most notably across our long tail lines.
In the quarter, we achieved a rate increase of 9%, excluding workers' compensation and a total increase of 6% and our core P&C portfolio.
Notably financial lines were up 15% umbrella excess was up 10 and commercial auto was up nine.
Rate continues to exceed expected loss trend across all lines with the exception of Monoline guaranteed cost workers' compensation, which now represent only 7% of our portfolio in the quarter.
We made excellent progress against our objectives for the insurance business, and we remain vigilant and driving and improving margins as we scale this business.
There is a significant runway ahead of us to grow profitably in the global P&C market and we're capitalizing on it.
As we strategically expand our offerings, we continue to build out our global platform from underwriting to claims. This includes leveraging key technology and analytics to improve productivity speed and accuracy and enhance the customer experience.
We are finding new ways to innovate with improved structures and new offerings directly addressing gaps in the market.
We continue to diversify and deepen our relationships with distribution partners globally.
We are infusing analytics to take a more quantitative metrics based approach to sales that brinci entirety of efforts to customers, where how and when they need us.
As our first quarter performance shows we built the runway to advance our objectives supported by our profitable underwriting operations investments market relevance strong balance sheet and our values based culture.
All powered by a world class global team.
I am fully confident in <unk> ability to create exceptional value and deliver returns for our shareholders.
As I said at the top of the call more than ever the world needs a partner it can depend on what the breadth of experience.
Capabilities and dedication every <unk> brings to the market.
In times of uncertainty, we are a source of strength and stability for our customers shareholders colleagues and the global community.
Now I will turn the call over to Marc <unk> to take us through the financials in more detail Mark.
In Q1, and good morning, everyone Everest had an excellent start to 2022 as we continue to make progress towards the objectives and our three year strategic plan we.
We had strong underwriting income and another good quarter of good investment returns leading to a 16% annualized operating return on equity.
Both of our underwriting businesses and our investment portfolio contributed to the strong result this quarter.
Now for a review of the first quarter results.
For the first quarter of 2022 Everest reported gross written premium of $3 2 billion, representing 9% growth over the same quarter a year ago.
By segment <unk>.
<unk> grew 6% to $2 2 billion, reflecting a 32% year over year growth in casualty and an 11% reduction in property.
Insurance grew 15% to an even $1 billion with notable growth in specialty casualty offsetting intentional underwriting actions to reduce exposure and property and optimize the profitability of our portfolio.
Everest reported net income.
Okay.
Everest reported net income of $298 million equal to $7 56 per diluted share and a total shareholder return of eight 6%.
On an operating income basis, the numbers are $406 million for the quarter and $10 31 per diluted share with an annualized operating return on equity of 16%.
Included in net income and consistent with the 5% reduction in the S&P 500 during the first quarter Everest experienced a $109 million after tax unrealized loss on our common equity portfolio.
Note that these are not realized losses, rather fair value declines, which flow through net income thus lowering our total shareholder return during the first quarter.
We incurred $115 million of pre tax cat losses, net of reinsurance and reinstatement premiums in the quarter.
Yes, Australia and floods in the first quarter represents the largest flood loss on record for the Australia, and the insurance industry and just over $3 billion U S.
Our cap provision includes $75 million for this event the.
The other cat events in the quarter, where the European storms at $30 million in late March U S winter storms in the amount of $10 million.
The total $115 million of cat losses incurred in the quarter of $110 million or in the reinsurance segment with $5 million from the late March U S winter storms within insurance we.
Also note that there is no net prior year development and cat losses this quarter.
We continue to see improvement in the Attritional loss ratio across the group along with a lower expected cat load given our emphasis on volatility reduction.
And we reconfirm our assumptions for the group combined ratio in the range of 91% to 93% for the full year 2022, as well as for 2023 as noted in our strategic plan.
Our first quarter 2022, GAAP combined ratio was 91, 6%, which includes four one points of cat losses, and no net prior year development.
Our attritional loss ratio of 60% was a 70 basis point improvement over the first quarter of 2021 with improvements in both the reinsurance and insurance segments there.
The reinsurance attritional loss ratio decreased by 60 basis points and in insurance. It was 120 basis point improvement.
In both segments, we continue to see rate.
Outpace loss trend.
Turning to commissions. The overall group Commission ratio is one two percentage points higher year over year, largely driven by the one nine point increase in reinsurance commissions the.
The 24, 9% acquisition ratio in reinsurance for the quarter is broadly in line with our expectations for 2022 and reflects the underwriting actions we've taken over the past few quarters, notably the increased writings of casualty pro rata business.
First quarter 2021 reinsurance commission ratio of 23%.
Benefits from approximately 120 basis points of nonrecurring Commission adjustments.
Balance of the year over year variance was primarily due to changes in business mix for the insurance Division the acquisition cost ratio of 12, 5% improved from the year ago figure of 13, 2%.
Largely driven by increased ceding commissions.
Everest continues to have a very competitive operating expense ratio of five 8% for the quarter versus our target of approximately 6% for the group.
Year over year.
Reinsurance expense ratio is lower to 4% versus two nine driven by favorable operating leverage as we continue to scale the business.
The insurance expense ratio is marginally higher 15, 3% versus 14, 8% and within our expectations as we continue to expand our global footprint.
Regarding the impact from Russia as war on the Ukraine and in terms of reinsurance and insurance losses. As one described Everest has gone through an extensive analysis of our exposures and coverages and at the present time, we simply do not have enough information to make a credible estimate of losses are.
Investment portfolio is the one area, where we have enough information for an initial assessment of losses.
Given the re pricing of Russian corporate Securities leverage total direct exposure to these instruments is $15 million on a book value basis and as of March 31.
We booked a $9 $5 million impairment with $5 5 million remaining in fair market value.
During the first quarter of 2022 efforts continue to generate strong operating cash flow in the amount of $846 million. Our strong cash flow also has the benefit of allowing us to invest into.
And to the rising rate environment, increasing overall portfolio yield.
Investment income for the quarter was $243 million a strong start to the year with good balance between fixed income of 148 million and 100 million from alternative investments.
Overall, our expected fixed income reinvestment rates are close to the 3% level.
Everest's investment portfolio is well positioned for the rising interest rate environment.
Addition to our high level of operating cash flow within the existing core portfolio. We have a short asset duration of three one years and also nearly 20% of our fixed income investments are in floating rate securities.
For the first quarter of 2022, our net income tax rate was eight 3% benefiting from the geographic distribution of our income streams, and thus outperforming our working assumption of 11% to 12% for the year.
Shareholders equity ended the quarter at $9 5 billion, driven primarily by the first quarter rise in interest rates and negative impact on the value of fixed income securities.
Particularly those towards the short end of the yield curve two year treasuries rose 160 basis points.
10 year treasuries rose 83 basis points during the quarter, resulting in an $811 million after tax fair market value reduction.
Our relatively low asset duration of three one years means that this change should amortize towards a more neutral balance over the next few years and we hold our available for sale securities to maturity for the most part and we benefit from strong profitability underlying operating cash flow.
And balance sheet liquidity therefore.
Don't view this transitory decrease in book value as a constraint on our ability to grow or upon our financial strength.
The resulting book value per share ended the quarter down $241 52.
A decrease of five 9% adjusted for dividends of $1 55 per share.
Book value per share, excluding unrealized appreciation and depreciation of securities stood at $256 <unk> per share versus $2 50 to 12 at year end, representing an annualized increase of six 2% debt.
Net leverage at quarter end stood at 21, 2% an increase in the leverage ratio driven by the unrealized fixed income market value declines noted previously in conclusion Everest ended the first quarter of 2022, and an excellent financial and strategic position, we have ample capital.
To operate in the current environment and we continue to see good opportunities to invest in the platform and scalability of our company 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.
For one question plus one follow up and then rejoin the queue. If you have any remaining questions.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad to your first question comes from Darren <unk> from Jefferies. Please go ahead.
Thank you good morning.
Mark maybe going back to your comments on the investment portfolio.
So you gave us the new money rate.
Where do you see the current fixed maturity yield and what.
How much of the portfolio turns over you Kevin here.
So I see.
Thanks, Darren going back to the reinvestment rate we're roughly at.
3% I see that increasing over time.
Certainly with pressure upwards on interest rates I see that only going up for us.
On a current basis, the market value or the market yield is greater than the Cork and so there is upward momentum on that side in terms of the portfolio.
Self I'd say roughly 109 to one as our converts to cash for 2022.
And then when you combine.
Approximately we would expect something around the 3 billion operating cash flow level for the year, that's a significant amount of investable.
Funds and I would also make a reiterate the point that I made in my opening remarks that we've got roughly 20% of the fixed income portfolio and floating rate securities, which will help that reinvestment yield.
Thank you that's very helpful. And then my second question maybe for <unk>. One in your prepared remarks, you talked a little bit about the cat load this quarter.
Can you maybe help us think about where how are you.
You see catastrophes, and this particular first quarter relative to expectations for our first quarter.
Were they above normal and in line.
Yes, Yaron. Thanks for thanks for the question as I said in my prepared remarks. It was an active quarter right. We did end up as an industry having over $14 billion.
In cat loss.
It translates to about $30 billion in economic loss. So I would say this is elevated.
For first quarter and as I said look I've looked at the data going back.
A number of years on all of this and as I said that first quarter that typically is quiet hasnt been quite right. So I would expect that that $14 billion is definitely more active than what you normally would have seen.
Got it.
Thank you.
Sure Gary.
Your next question comes from Jeff Zhang.
From Bank of America. Please go ahead.
Yes. Thank you.
Pro rata casualty business.
Prices are up for the underlying business from where they were a year ago.
But ceding commissions are also up.
The profitability between those two timeframe basically neutralized by the ceding Commission.
And has the ROI capital being put into that part of the reinsurance business.
Going up at the same or is it lower than it was a year ago.
Yes, Josh this is Jim Williams and thanks for the question and it's a good one look what we've seen and what we've been reporting as two two.
Two factors that you described.
There is a tremendous amount of margin creation happening in the primary casualty market driven by rates, but also by changes to limit re underwriting et cetera, and thats definitely playing through and we're seeing that in our data.
At the same time seasons are looking to recapture some of that margin creation.
The increased ceding commissions and we've seen that dynamic play out and what I would tell you broadly speaking.
Really only to have risk portfolio. Our view is that trade is resulting in improving economics for us meaning the improvement in the underlying market is exceeding growth rate in ceding Commission.
Not true on every deal across the market, which is why the thoughtfulness and the productivity of our underwriting is so important and we measure each and every deal and what we're looking for in this environment is margin expansion.
In those situations, where we see seeding commissions running ahead and deteriorating margins, we're choosing not to participate I would say broadly at this point overall, it's still a pretty rational market out there that way and so we see we see some real good growth opportunities continuing.
Yeah.
And then on the property and property cat side.
If you lowered your volatility to cat exposures.
But the capital that you are.
Or is it really being freed up because that capital ops youre using for other items isn't there a possibility that the capital charges are low for the additional business that you might be leaving money on the table as you trade volatility I mean, I guess, maybe I have explained but it seems like you got you.
You could use a dollar of capital that's associated with casualty business also underwrite property.
Yes, you've lowered your volatility, but you've also lowered your long term earnings power.
Yes, Josh it's Jim again.
Look the we have a very robust capital modeling and risk management process that we operate at the group level, where we are.
Really evaluating capital deployment across all of our lines at a very granular level between both reinsurance and insurance and our investment portfolio.
And we certainly take into account total capital usage and optimization, when we're making those decisions.
So when we talk about deploying relatively more capital to casualty versus property, we're accounting for the fact that.
You do get diversification benefits and you do get opportunities to deploy capital in some cases in multiple areas and so.
We're not seeing any area in the portfolio where.
We are failing to deploy capital at the most efficient level I think when you look at the growth.
Josh It's Marc I would just add one remark to that I think in addition to what Jim said, it's really more of a marginal movement, what we're seeing here with slightly reduced property cat and an expansion on the casualty side. So.
Jim pointed out portfolio is still very well diversified and we're very focused on accretive.
<unk> expectations for everything we write in excess of our CSR.
So for us, it's still highly efficient to.
Proceeded in this way.
Thanks for all the answers good luck. Thanks.
Thanks, Josh.
Okay.
Your next question comes from Ryan Tunis.
From Autonomous research. Please go ahead.
Hey, Thanks, good morning.
I was hoping on the insurance side, you could talk a little bit more about some of the re underwriting actions you are taking.
And whether or not we should expect that to potential.
Potentially impact the growth rate in that segment over the remainder of the year.
Yes, Brian it's it's one Android it let me start and then I'll ask Mike <unk> to join look I think the first point is we still feel very bullish about the growth opportunities in insurance as I said in my opening remarks.
Think in some ways, we're only scratching the surface of the potential thats out there and it's one of the reasons why we now have an international expansion underway and frankly, while we continue to gain traction in the U S market.
We are good underwriters and what you saw US do this quarter is what any good underwriter does you know you look at your portfolio you analyze it in some cases, there's going to be things that you like and then have.
A good economic return and there's things that we don't like.
And so therefore, you exit them, because we see better opportunities to deploy capital and move in that direction. So.
I think back at that 15% growth rate for the quarter. Some of that was impacted by the fact that we did reduce volatility as well in <unk> and the insurance side similar to our strategy in reinsurance and the other part of it was driven by one specific account that we decided to non renew and move move away from it.
But thats the general theory, but we do feel very bullish about the growth rates in insurance and I would ask <unk> to maybe jump in and add some additional color.
Thanks, Juan Thanks for the question.
A few things I would say first off as you know our focus is basically always has been as focused on underwriting would underwriting company as <unk> pointed out.
And I would reiterate to you guys. We had 29 straight consecutive quarters of growth most of those sales have been double digit.
We are very focused on cycle management, you see us talk about it with workers' comp we've taken actions of one point on property and other areas, but I don't see this anticipating slowing us down we see ample opportunity in the marketplace. We are well positioned with a lot of capital and a lot of thrust and so we will continue to execute that and where we see opportunity we'll take advantage of it but we don't foresee any.
Of that changing anything we do everyday.
Got it.
Then on the reinsurance side, obviously, a good margin quarter there.
Maybe a little more insight into.
What specifically drove that was it.
The lower loss pick as you're recognizing.
The portfolio is less volatile and better underwritten or was there anything onetime in nature that helped.
Sure Ryan This is Jim Williamson.
Some of that detail.
Look I think a lot of this is the result of some of the conversations we've been having with you over the over the last few quarters, which is we've seen very consistently.
Strong margin improvement in the underlying primary casualty market, that's right that's limit set terms conditions et cetera.
And we've been very prudent in how we've revealed that improvement in our in our loss picks and we've we've said we've waited and we've been waiting for that data to prove itself to start to see it in our numbers et cetera.
And so I think what youre seeing this quarter is the results.
Of that Prudence and it's the result of that underlying improvement and so on a year over year basis, we have seen an improvement in casualty pro rata in particular and other lines as well that have allowed us to basically settle on lower loss picks for those lines.
We're still being prudent were still being disciplined and were still not taking full credit for the trends, we see but we are starting to flow through some of that margin to give you a sense of quantum on a year over year basis, we saw about 140 basis points of margin improvement due to lower expected loss picks and that was then partially offset.
Net by the change in mix because if you look at Q1 2021 versus 2022, there is a dramatic change in our mix. We were about 60 40 property casualty. This time last year is closer to 50 50, now and that's certainly an offsetting factors casualty carries a higher loss pick and I think all of this is a result of the market trends, we've been discussing and we see those trends.
As we head into the year and we continue to see pricing in excess of even elevated loss trends.
Thanks, I really appreciate that level of detail Dan.
It's all I got.
Thanks Ryan.
Your next question comes from Elyse Greenspan from Wells Fargo. Please go ahead.
Alright. Thanks.
My first question, if I look on it.
Group consolidated basis weight, your underlying combined ratio actually did deteriorate a little bit year over year.
So I was hoping you could just give us a sense of just kind of an outlook.
The accident year ex cat combined ratio and then it seems like a big chunk of that is true Asian right with because the acquisition.
Ticked up around 120 basis point can you just give us a sense of the outlook for that acquisition ratio over the balance of this year.
So at least it's mark.
Viewpoints that you asked there so first of all let me just start with the Cat and then I'll get into the acquisition ratios.
On the cat.
I made this point last quarter that our expectations for 2022 with the payout ratio for the group of less.
Then, 6% and so Thats I think a meaningful.
<unk>, our expectation versus last year and definitely on a historical basis. So there is some.
Reduction that's expected there on the on the acquisition.
Ratio I would say a couple of points we have.
I start with the reinsurance I would say is.
Broadly in line with last year.
Probably a little bit higher you are seeing a trend of $24 nine here last year I think we were in the low 20 fours, that's principally because of mix of business I did mentioned some of the one offs. We had in Q Q1 last year that would drive it.
On the on the insurance side, we still see a declining.
Net acquisition ratio and Thats, a combination of things you've got both ceding commissions.
Coming in on certain lines of business, depending on the mix and then just lower lower broker.
Missions versus our expectations on some of some other lines as well.
I'd say theres, probably downward pressure in general on the primary side for acquisition ratio.
Okay, Great and then my second question.
On the reinsurance side.
A little bit of a follow up to Ryan question.
You talked about rate reflected.
Just more of the improvement on the casualty side and as we think about the mix shift to casualty.
And we also think about the impact that that could have on your margin as we're thinking about going forward I'm, assuming that you guys still see right a line of sight into kind of hitting getting that segments that 91% to 93%.
Combined ratio target.
Yes, Elyse this is Jim Williams.
We would definitely reiterate our commitment to that target and we're very confident in it and it's a combination of factors one while casualty does carry a higher attritional loss ratio.
And a slightly higher attritional combined ratio those numbers are coming down year over year, you see the improvements that we were talking about earlier flow through the book and we have begun to reflect that in our loss picks and while I cited 140 basis points.
Point improvement year over year, two our pic based on improved loss picks if it's higher than that for casualty and so we're seeing that happen and so thats critical.
And then the other part when you think about the total combined ratio that what Mark just said, which is for the group are targeted cat loss ratio was down and Thats also true of reinsurance and so when your lateral that up our expectation is certainly that those won't be headwinds to achieving our goals. We're very confident that the other thing I would just say.
And this is particularly important I think as we roll through the summer. We're still we're still very much a leader in the property cat market and we take meaningful lines, we've been doing that and improved economics at four one is wanted indicated in his opening remarks.
We were able to take less risk by any measure whether its P&L al et cetera, but we are going to getting paid more profit dollars more expected profit dollars will flow to the bottom line and that will certainly have an impact on our attritional and ultimate combined ratio and we see good opportunities through the rest of the year to continue to execute that strategy. So I think all of them.
That.
Comes together to give us a lot of confidence in the targets we set out.
Thank you.
Thanks Elyse.
Your next question comes from Mike Phillips from Morgan Stanley . Please go ahead.
Thanks, Good morning, everybody.
One given some pretty positive comments and kind of trajectory of insurance segment.
Margins expand and rates still.
Loss cost trends.
What's your appetite for kind of keeping more of the gross business over the next couple of years in the insurance segment, it's been pretty consistent.
For quite a while.
Any thoughts on kind of moving that up over the next couple of years.
Yes, Mike Thanks for the question, it's obviously something that we look at on a on a pretty regular basis, particularly as we go through all of our <unk>.
Ceded reinsurance renewals on all of this and we have made changes in our different.
Treaty protections et cetera et cetera.
The way we tend to look at this wrong philosophical standpoint is.
As we get additional rate additional terms.
We continue to feel very good about our own underwriting then by definition, we would want to keep more of that net with the company and you see us doing that in certain lines of business, but we balanced that against the volatility and the appetite that we have that we want to have on any particular line of business at the same time so the.
Short answer is we are constantly making tweaks to that depending on our line of business, depending on the geography et cetera.
But we feel pretty good about where we are right now and I would invite maybe Mike Carmelo, which to add a little bit of color as well sure. Thanks, Ron Yes, I would only add.
Add to that that we continue as we continue to scale up a lot of our existing businesses and get more critical mass to one point youll see us take one that we've done that already in a few different pockets and I see that continuing as we continue to grow and gain scale.
Okay. Thanks, Thanks for that and then sticking with insurance one you talked about again rate over loss trend I think you said, 9% rate ex comp.
Ahead of kind of a long term loss trends can you can you share with us how you're viewing that long term loss trend what number you're looking at there and how has that changed given recent times.
And increased risk.
What are you what are you using for your long term loss trend right now.
That's compared to the 9% rate.
Yes. Thanks, Mike. Good question look we feel pretty good about where we are as I said that I would actually say that.
Rate is outpacing expected loss trend comfortably for us across the board right. So you are right excluding comp, it's a 9% increase in rate that we saw in the quarter.
And it's hundreds of basis points lower on that where the trend would be basically I would tell you, though that we have consistently updated our loss trend assumptions really since 2019 2020 'twenty one.
Upward, reflecting higher loss trends and our pricing models and accident year loss trends. So we monitor that pretty closely but I can tell you. We're comfortably above loss trend right now really across all lines of business with the exception of workers' comp would be the only one that I flagged earlier.
And one sorry, just to jump in and make sure I understood. You said something about 100 basis points can you say that again, what you meant there.
Yes, so look if youre running at at a 9% increase in rate.
Loss trend is lower than that.
Several hundred basis points basically.
Okay. Thank you everyone. Thank you.
Sure Mike.
Your next question comes from Brian Meredith from UBS. Please go ahead.
Hey, Thank you.
Well I was just curious I appreciate the color you gave on Russia, Ukraine exposure.
There is a lot of uncertainty I know right now and your exposure gets diminished, but I'm. Just wondering as you think about your portfolio of business, where are you kind of looking at where you're focused at where could there potentially be some exposure.
Yes, no absolutely Brian happy to give you a little bit more color and context and all of that.
We reiterate something that I've said in.
In the earlier comments.
We don't see this event is changing our profit objectives for the year and I think thats, probably the most important thing.
To take away. The other part of that is any loss estimate that we can give you or frankly any of our competitors give you at this time, it's really purely speculative right.
And the reason for that is the worst ongoing physical damage and economic disruption are uncertain, it's changing.
The investigation application of key coverage is still in its infancy right. So that's essentially kind of where we are with all of this.
We have done that very detailed assessment of coverage that I talked about earlier in my remarks.
I can tell you that for instance on the primary side on insurance.
You would have close to zero exposure in any of that very very little.
On the investment portfolio Mike.
Im sorry, Mark shortly talked about that and you saw the impairment that we did in the quarter as well and on the reinsurance side, we would have limited exposure in the way I referred to that is we have very few like one or two former Russian seasons that are no longer clients of ours. So that's that's very little exposure.
From that perspective.
And then when we look at sort of lines that could be exposed to all of this.
Certainly look at some of the aviation lines it could be exposed although that's a relatively small business for us in the quantum of overall reinsurance you could also look at potentially some marine lines that could be exposed.
If you look at some trade credit and trade credit.
Political risk type stuff.
But we are much less concerned about that and then you would look at some of the political violence covers as well, but we're also relatively small on that but let me ask Jim Williamson to actually even go deeper into that and just give you a little bit more granularity.
Sure Brian This is Jim and I'll repeat a little bit of what one setting and give you a little bit more detail. Because obviously these topics have been heavily covered there is a lot of speculation happening in the media around potential losses.
On an aviation basis, as Juan mentioned, a relatively small there's a small part of our book.
Actual units of aircraft exposed in that numbers and changing the application of coverage notwithstanding some of the <unk>.
Posturing that you've seen I think there are real questions related to which coverage will apply into what amount. We've also taken very significant actions in our own aviation book over the last two years to position to withstand a shock losses in a much better way and so that gives us a lot of confidence on our marine basis.
Particularly given when you look at home, we do have and we know that there are trapped vessels in the Black Sea for example.
There is a lot of uncertainty around the size of those vessels, whether they will ultimately losses on those vessels or on land cover Paul wore et cetera can also be in the marine area.
Our properties in the Ukraine, obviously that could potentially be exposed as we've evaluated our book, though we don't really have concentrations of property in the area, where the conflict is ongoing and so it's both uncertain, but also.
At this point appears very manageable on a trade credit and political risk basis.
I think our seem to have done an outstanding job of managing that exposure.
Terms of those contracts as you likely know.
<unk> primary insurers a lot of options when there is dislocation in the market. There's been a lot of cancellation activity and so that exposure that potential exposure has been shrinking by the day. We've also seen a lot of payment activity continuing.
In those in those contracts that haven't been.
Canceled so that's so that's a good sign and then lastly on political violence again that'll have applied primarily to property exposures.
In the Ukraine, there is a time limit on those covers and again as we've evaluated potential exposures. We don't have heavy concentration in the major cities that have been subject to the conflict in a meaningful way.
We haven't had any reported losses other than one which was less than $300000.
A potential loss from.
From a political violence perspective so.
Looking very very manageable at this point and.
Tremendously uncertain and so we're just continuing to have dialogue with our seems we're assessing it and we'll keep a very close eye on it.
Thanks that was really thorough and then Mike My second question I'm just curious one.
Your stock actually had a point this quarter, where it dropped pretty significantly and I was a little surprised that we didn't see more share buyback.
Buyback in the quarter, maybe just remind us kind of your thoughts on kind of capital here and Mark and kind of managing it and do you have like the ability to kind of really go into market and buy back some stock win when we get this market volatility.
Yes, Brian So let me start and then I'll ask Mark to add so the short answer to your question is yes, we absolutely have the capability to go in and do buybacks as you saw us do last year as well.
Frankly, our strong was trading at a pretty good levels. During the first quarter that was surely had a bit of a dip.
As the war started et cetera, and you saw us come in and we did have some buying activity, even though it was relatively small but when you think about how we think about capital management that philosophy Hasnt changed.
From what we have been articulating frankly since I've been the CEO of this company and that we reiterated at our Investor Day last year, which is our number one priority really is to.
Privilege, our underwriting businesses as we see accretive growth opportunities and everything that we have been sharing with you this quarter than in past quarters is that journey that we have to continue to expand margins improve the underlying profitability of this company and you've seen us do that so from our perspective, not really a sort of priority number one.
Beyond that absolutely we will consider share buybacks, we will consider other things at the same time, but let me ask Scott Mark here to want to jump in.
Yes, Brian not too much more to add to that although I will say that we see.
Excellent opportunities on organic expansion right now within both.
Insurance and reinsurance doesn't mean, we can't do both but there is there is a really nice marketplace for us in our view.
No.
I'd say capital is really being privilege for that right now.
Thank you.
Thanks, Brian .
And your last question comes from Meyer Shields.
VW. Please go ahead.
So I want to start with one question on reserving and I'm not quite sure how to phrase this but if we breakdown reserving and sort of like the mathematical analysis and then the judgment associated with that.
Can you breakdown I guess, the absence of enormous or significant reserve development into those categories. Another way of asking it is are there indications of redundancies that youre just.
Hesitant because of elevated risk.
Or are the indications out there.
Sure Jim Williamson.
Wanted to step back just to reiterate our reserving process, which is very robust and has been strengthened meaningfully over the last few years.
We're taking a.
A very disciplined approach to reviewing all of our carried reserve positions every quarter, we've implemented a number of automated.
Tools to allow us to do that we are closely monitoring IV in our consumption at a very granular level across both reinsurance and insurance by line by accident year et cetera.
And then of course, we have our ground up reserve studies that were conducted none were actually completed in the first quarter, but we will start getting complete.
Completed reserve studies in Q2, and Thats on an accelerated schedule accelerated over last year, which was also accelerated from the prior year. So.
A lot of eyes on our carried position now when you look at you start slicing or IV NR and our carried reserve position in the all those pieces I described youre clearly going to see movement.
Redundancies in some areas deficiencies and some others et cetera.
But overall I would reiterate what we've said in prior calls which is we're very confident in the strength of our carried reserve position and we have seen no information.
Really since the end of 2020 that would cause us to take any action any meaning material action, one way or the other.
From from a reserve change perspective, and so and that's certainly true this quarter and so again, we'll continue to monitor it and if that changes we'll certainly.
Will be the first to know.
The other thing. This is one of the other thing that I would add to what Jim has just said is keep in mind the discussion that we've been having about rate in excess of loss trend.
And we have been saying that very consistently really for the past three years essentially and.
And so by definition you are building margin and you are expanding margin there as we have also said before we havent taken that to the bottom line, mainly because of all the issues that we're talking about with regards to inflation in severity and all these other things at the same time, but from our perspective and as Jim alluded to in his.
Answer to Brian with regard to the casualty loss pick.
We do look at this and we do change it we do tweak it right. So it's only a matter of time as we get the data as we examine things as things season that youre going to start see that coming into the bottom line. So I think that probably gives you also a more forward perspective, and again bring it back to the rate versus trend discussion.
Okay, that's very helpful.
Unrelated question.
When we're in an environment of at least I think broadly expected continued interest rate increases and your liability duration as you shift the mix towards casualty is also extending.
When is the right time to.
Really significantly increase your investment portfolio duration do you do it now do you wait for further interest rate increases.
So it's Mark Meyer I think as long as we're broadly.
Within alignment of asset and liability durations, we're in a good spot I don't think Theres a lot of benefit when you look at where the yield curve is right now in terms of the short end and the flatness of really going long.
So for US, it's really looking for kind of a mix of things so you're obviously looking.
Wanted to match generally the duration between or the ALR matching in essence to yield credit quality the liquidity of the securities in the actual also you think you can capture.
And the securities that you.
Youre looking at and specifically any any specific asset classes. So we look at it probably more granularly I wouldn't get hung up on.
For example, we got an asset duration of three one this quarter and a liability of four.
The yield curve is really not appealing to stretch it out for.
For the extra basis points that we see.
Okay, great. Thank you very much.
Thanks Meyer.
And there are no further question at this time I will turn the call back over to manage Smith for any closing comments.
Great. Thank you for all your questions and the excellent discussion.
I think as you can tell from our tone, we are optimistic about the opportunities before us we definitely see a trajectory for continued growth and expanded profitability.
We're continuing to build this company accelerate the progress and create greater value for our investors our clients and all of the markets that we serve so thank you for your time with US today, and we look forward to seeing you at the next earnings call.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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Yes.