Q1 2022 AXIS Capital Holdings Ltd Earnings Call
Pardon me. This is conference operator, the Axis capital earnings call will begin momentarily. We thank you for your patience.
[music].
Good day and welcome to the first quarter 2022 axis capital earnings call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I'd now like to turn the conference over to Matt Warman head of Investor Relations. Please go ahead.
Thank you Jason Good morning, ladies and gentlemen, I'm happy to welcome you to our conference call to discuss the financial results for Axis capital for the first quarter ended March 31, 2022, alright.
Earnings Press release and financial supplement were issued last night after the market closed.
Like copies. Please visit the Investor information section of our website at AXT capital Dot Com, we set aside an hour for todays call, which is also available as an audio webcast on our website.
With me today are Robert benchmark, President and CEO and Pete Vogt, our CFO .
I turn the call over to Albert I will remind everyone that the statements made during this call, including the question answer session, which are not historical fact 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 bonds have yet to see this includes the additional risks identified in the cautionary note regarding forward looking statements in our earnings press release issued last night, we undertake no obligation to publicly update or revise any forward looking statements.
In addition, this presentation may contain non-GAAP financial measures. Reconciliations are included our earnings press release and financial supplement with that I'll now turn the call over to Albert.
Thank you Matt.
Good morning, everyone and thank you for joining today's call.
Before starting our quarterly update I'd like to express that at Axis, where dismayed by Russia's invasion of Ukraine, and our Hearts and minds are with the people and families whose lives have been affected by the war.
In all instances, where it's possible we stop writing business in Russia in the impacted regions and through our philanthropic programs. We're supporting the relief efforts to address the humanitarian crisis, that's happening on the ground in Ukraine.
I'll now be Gunnar I'll begin our traditional quarterly update.
<unk> started 2022 with another strong earnings report the latest in a succession of positive quarters.
In fact, we've seen our operating income more than doubled as compared to the prior year quarter.
Even with some headwinds driven by business mix as we continue to reduce our exposure to volatile cat exposed lines, we delivered improvement across every key metric on our operating ratios and income statement.
During the first quarter of 2022, we continue to expand our footprint in some of the most attractive specialty P&C markets strengthened the overall quality of our book and materially lower our net cat exposures.
All the while delivering great service to our customers and distributors.
Our first quarter performance was highlighted by record premiums written and earned.
Our combined ratio of $91 for.
A materially lower market share of global Nat cats.
And an operating ROE of 15%.
Substantially every line across the company achieved improved poor underwriting results.
A handful of lines were impacted by the war in Ukraine, but we're confident our exposures there is our well contained and manageable given what we know today.
Our insurance segment delivered its fifth consecutive quarter of 20% growth.
Setting production records for gross and net premiums written and net premiums earned.
Our progress is underpinned by our focus on those lines in markets, where we have strong competitive positioning.
Enhancing the value proposition that we offer to our customers all while leveraging the deep expertise and relationships that we have in the E&S specialty and wholesale channels as well as our strategic retail partners.
This coupled with favorable market conditions has contributed to increased new business opportunities.
Rate increases on renewal and continued strong retentions.
At the same time, we've continued to drive meaningful improvement in underwriting performance.
Our insurance combined ratio of 87, five is down over six points from the prior year period with almost two points of reduction in the core ex cat loss ratio and almost four points of reduction in the Nat cat loss ratio.
The amendment the momentum underway. It gives me even greater confidence that we're on pace to become a top performer in the specialty insurance space.
I feel very good about the progress, we're making on the reinsurance side as well.
We continue to proactively build the best portfolio for enhanced profitability and lower volatility.
Our reinsurance segment's lower premiums written were purely on the back of a planned 45% reduction in cat reinsurance that only serves to increase the quality and sustainability of that book.
We're also making great progress in the profitability of our reinsurance business with a combined ratio of 92 and a half.
While the ex cat loss ratio is up over the prior year. This was entirely due to targeted mix shift.
Excluding cat.
Excluding cat lines, the core ex cat loss ratio for all other lines other than cat improved by over two points in the quarter.
Stepping back the actions that we're taking across both insurance and reinsurance are delivering strong results.
Finally, I would like to take a moment to recognize and extend my appreciation to access insurance Chief Executive Officer, Pete Wilson, who will transition out of the CEO role on the first of June and be succeeded by Vince studio.
Under Peter's leadership, we've driven significant transformation that strengthened our insurance business and we are grateful for all of his contributions to axis. Thank you Pete.
Vince is becoming our new CEO are at a great time, the business is delivering strong results and got terrific momentum.
Yeah.
While 2022 is off to a tremendous start.
We also know that we can build further on the progress achieved with.
We're excited by the opportunities available in pursuing new avenues for profitable growth and in further enhancing our efficiency all as we continue to sustain lower cat volatility.
We're committed to take the business to the next level and there is a palpable sense of excitement across the organization.
And with that I'll now pass the floor to Pete Who'll walk us through the first quarter financials, and then we'll come back and discuss market trends and we will have our Q&A Pete.
Thank you Albert and good morning, and good afternoon to everyone. This was another excellent quarter fractious.
During the quarter, we generated net income available to common shareholders of $142 million with an annualized Roe of 12%.
Operating income was $180 million and as Albert noted annualized operating ROE was 15, 3% in the combined ratio for the quarter was 91 four.
Which was seven five points better than the prior year quarter with core underwriting results continuing to show strong improvement.
The company produced a consolidated current accident year combined ratio ex cat and weather of $87 four or one eight points better than the prior year quarter.
The consolidated current accident year loss ratio ex cat and weather was $54. Two a decrease of nine tenths of a point over the prior year quarter due to the improvement in the insurance segment.
The quarter's pretax catastrophe and weather related losses net of reinsurance were $60 million or four seven points.
This included $30 million or two three points attributable to the Russia, Ukraine War.
The war loss provisions included $16 million for insurance, which was mostly attributable to terrorism and political violence covers it.
In reinsurance we have not yet received any notices however, we have about $25 million in war covers and as a precautionary measure we have put up about 60% of that limit.
The natural catastrophe losses of 30 million were primarily attributable to Australian floods and other weather.
Related events this quarter.
This compares to $110 million or 10, one points in 2000 2020 in 2021.
Quarter over quarter natural catastrophe industry losses are estimated to be down about 45%.
I'll note that our net cat loss ratio is down nearly 80%.
This speaks to the work that we've been doing to reduce natural cat volatility in our book.
We reported net favorable prior year reserve development of $9 million compared to $5 million in the first quarter of 2021.
The consolidated acquisition cost ratio was 19, 7% essentially flat year over year and this was driven by a decrease in the insurance segment, which was offset by an increase in the reinsurance segment.
The consolidated G&A expense ratio was 13, 5% a decrease of eight tenths of a point compared to the first quarter of 2021.
This was largely attributable to net earned premium growth.
Partially offset by the personnel costs associated with an increase in underwriting roles in the insurance segment.
Lastly on a consolidated basis fee income from strategic capital partners was $18 million compared to $12 million in the prior year quarter. This was associated with an increase in performance fees.
Now, let's move on to the segments and I'll start with insurance.
Which once again had a great quarter with impressive performance across a number of metrics.
Gross premiums written increased by over 20% to $1 3 billion this quarter, which is a record quarter for the insurance segment.
The increase came from significant growth from both existing and new business as well as favorable rate changes throughout the book, but especially in professional lines liability and property lines.
The current accident year combined ratio ex cat and weather decreased by more than four points with improvement across all metrics.
Current accident year loss ratio ex cat weather decreased by almost two points in the quarter.
This was principally due to the impact of favorable rate over trend in most lines of business and improved experience.
The acquisition cost ratio decreased by less than a point in the first quarter compared to 2021.
The underwriting related G&A expense ratio decreased by slightly over one and a half points in the quarter, mainly from an increase in net premiums earned somewhat offset by the underwriting roles that I noted earlier.
Now, let's move on to the reinsurance segment.
The reinsurance segment gross premiums written of $1 3 billion for the first quarter were 125 million lower than the prior year.
This decrease was attributable to significant declines of 45% and 40% in catastrophe and property lines respectively.
That came from Nonrenewals and decreased line sizes as we continued to make changes in the portfolio to improve balance.
We also saw a decrease in motor due to nonrenewals, the timing of some renewals and the impact of FX.
The decreases were partially offset by increases in A&H lines that came from new business and the timing on renewals.
As well as new business and credit and surety lines.
During the quarter, our current accident year combined ratio ex cat and weather increased by just over two points.
This was due to changes in business mix driven by the decrease in catastrophe business written in recent periods.
The current accident year loss ratio ex cat and weather increased by just over a point.
Due to changes in business mix from the previously noted decrease in catastrophe business.
As Albert noted earlier, when we exclude the catastrophe line of business. The rest of the portfolio's current accident year loss ratio ex cat and weather decreased by just over two points.
This reflects the impact of favorable pricing over loss cost trends in most lines of business as well as underwriting actions.
The acquisition cost ratio increased by just under a point compared to the prior year quarter and again. This was primarily due to the decrease in catastrophe business written.
Net investment income was $91 million for the quarter compared to net investment income of $114 million in the first quarter of 2021.
The decrease in net investment income was primarily due to lower gains from alternative investments.
At quarter end, the fixed income portfolio had a book yield of two 1% and a duration of three one years at our market yield was three 1%.
Diluted book value per share decreased by $3 81 sets in the quarter to $51 97.
This was principally driven by net unrealized losses related to increased treasury rates and the widening of credit spreads.
While the increase in rates has impacted our book value per share. It's encouraging the new money yields are now higher than our portfolio yield and bodes well for future investment income growth.
Overall with continued improvement in most operating metrics and positive momentum in our core underwriting book This was a strong quarter for axis.
That summarizes our first quarter results with that I'll turn the call back over to Albert Thanks Pete.
So we'll do a brief review of market conditions and outlook and then we'll open the call for questions.
Market conditions continue to be favorable and while rate increases are generally off their highs of last year. They continue to extend to almost every line, we write and remained by and large well ahead of loss cost trends.
The average rate increase in our insurance book was closer to 12% this quarter.
This represents the 18th consecutive quarter of rate increases and the eighth consecutive quarter of double digit increases for our insurance book.
By class of business professional lines once again saw the strongest pricing actions with average rate increases of 24%.
I would note however that professional lines is really best explained by thinking of it in three parts.
The first is cyber which remains in a hard market conditions.
The average rate increase was almost 70%, but in some cases was well in excess of 100.
The second part is public D&O and Thats less than 10% of overall professional lines book and that was only modestly positive this quarter.
The combination of strong price increases in prior periods lessen.
Less new business opportunities and the coming online of new capacity, all led to a more competitive market, especially in the excess layers of public D&O towers.
The third part is the remaining professional lines, which comprised more than 60% of our book and they remained healthy with average rate increases of close to 15%.
Casualty lines are averaging close to 7% with primary casualty strongest at nine and excess casualty in low to mid single digits.
Property rate increases were up close to 9%.
This is a line that has been much exposed to inflation and I would note that the 9% rate increase is risk adjusted for changes in exposure in terms and conditions.
We're achieving these rate increases over and above the reevaluation of exposure adjusted risk rates.
Among our other specialty lines, we saw mid to high single digit increases throughout the portfolio.
This included renewable energy and marine lines, which were up nearly 8% on average.
While aviation rates increased by 6%.
During the quarter, 94% of our insurance portfolio renewed flat to up and close to half of the increases were double digit.
We're generating record.
New business for the first quarter and just as in prior quarters, we continue to see new business pricing at least as strong as if not better than renewal pricing.
Axis is very well positioned in the best parts of the current market and there is significant opportunity to grow profitably, while adding value to our customers and partners in distribution.
Let's look at the reinsurance business.
For the quarter, we averaged reinsurance rate increases of close to 9%.
And each generated increases of more than 11% and.
In casualty and professional lines, both increased by close to 9%.
By and large other specialty lines, including credit and surety Marine came in in the mid single digits.
And catastrophe lines as I noted on our prior call, we significantly reduced our participation and lower layers of towers and aggregate treaties.
Focusing our efforts on higher layers of towers, where admittedly there was more appetite and capacity thus our average rate.
Increase achieved was about 6%.
Turning to the April one renewal season. This is a relatively small renewal period faxes covering about 12% of the total reinsurance book.
Nevertheless, we continued our practice of reducing catastrophe business, while looking for growth where conditions that our profitability thresholds.
Our property and catastrophe volume was cut in half, while we grew in casualty and professional lines.
On April one we achieved increases of about 5% on catastrophe lines and I approached 10% on casualty and liability lines as well as the anh.
Professional lines were up in the single digit range.
We did see pressure for more ceding commissions on certain quota share treaties.
In those cases, we generally reduced or even exited our participation where we saw the ask was just too much.
With a reduction in property and catastrophe exposure. These two lines represented about 16% of our year to date reinsurance gross written premiums down from 27% through April one of last year.
While the mix shift has put some pressure on the reinsurance portfolios X cat combined ratio, we're convinced that the business will ultimately benefit benefit from a lower all in combined ratio and less volatility.
Looking forward.
We expect disciplined pricing to persist in both insurance and reinsurance into 2023.
Given the quantum of pressures and uncertainties of loss costs and profitability the industry needs to maintain a rational approach to pricing.
Over the last few years as an industry. We've demonstrated the vital role that insurance plays in helping society and business navigate through tremendous challenges.
This will only continue as the world faces increasing losses, both by financial and social inflation climate change the Russian invasion of Ukraine, and the continued impacts of Covid.
For insurance to deliver on its social purpose of helping our customers during their time of need it's absolutely crucial that we continue to sustained pricing discipline. So as to deliver an adequate return on the capital that is so critical to fulfilling our role as a safety net for the free markets.
To conclude this was a very strong quarter for axis and one in which we continued to produce positive results and we're committed to building on this momentum that we've worked so hard to establish.
Moreover, we believe axis is poised to begin a new phase of profitable growth as we further advance us position our position as a leader in specialty risks and focus on continually delivering increased value to our customers and in turn to our shareholders.
We're excited for what the future can bring and we're committed to continue to work relentlessly to take our business to the next level and ultimately our chief our goal of becoming a top quintile performer.
And with that operator, let's please open the line for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Meyer Shields from K B W. Please go ahead.
Thanks, Albert I Hope, you'll indulge me in this I'm sure you saw yesterday, there's a new dark a news article talking about access considering a sale of axis re and I was wondering first of all whether you can comment on how you're thinking about that broadly.
And secondly, when there were articles like this out there, whether they're realistic or not that'd be impact on day to day operations that the reinsurance unit.
Yeah look Meyer as you know I can't comment on market rumors or speculation.
It should go without saying that we're always focused on value and positioning the company for success and we have and will continue to act with those objectives in mind.
But as you can see from the performance that we've delivered we've demonstrated that we're committed to driving top tier return on capital I think the performance that we've been showing in terms of our improvements over the last few quarters and this quarter provides real evidence that we're delivering on our promise.
I want to say I'm incredibly proud of the work that our team has done to strengthen our reinsurance business they've delivered on the ambitious task of improving the quality and reducing the volatility of our reinsurance business and now axis re as well positioned to deliver very attractive returns.
As to the second part of your question.
Look this is this is a business where occasionally we get crazy rumors out there and you know.
One of the things that we found is that the best response is to keep your head down focus on providing value to your customers and your partners in distribution.
And that works and I'll tell you we've got a really professional team. They are dedicated to what they do and they've got incredible confidence in their ability to stay focused and to manage through this.
Okay perfect that's helpful.
Second question.
As to your comments on public D&O pricing.
So I guess, there's increasing competition in your mind is that rational is it overly aggressive and mapping because of a concern that it spills into other lines.
I think it's really a unique situation that it's a very attractive line right now and given what I mentioned to you the fact that.
We've had some very good pricing improvement over the last few years.
There is frankly less deals on the table today than they were a year ago, there's less baxter's less IPO. So I think people are hungrier.
The new capacity is coming in and they're looking for ways to implant themselves.
But again I think where we're seeing it is really in some of the upper excess layers, where I think it's probably easier to get in and get out. So there is a unique set of circumstances that we're seeing in public D&O I will tell you that in the rest of the market, we have not seen quality incumbents lose business when they want to keep it.
Okay perfect. Thank you.
The next question comes from your own Qunar from Jefferies. Please go ahead.
Good morning.
So I think I'm going to steer clear of our questions around around noon.
News article.
What I wanted.
What I wanted to focus on was our personal he says the accident year loss ratio in insurance. So clearly we're still seeing improvement it has slowed down a little bit relative to where it's a V. The improvement has been the last year I think you call out some mix shift into professional lines and liability.
What I'm trying to get at is are you.
Is there also an element of the inflationary trends that we're seeing in headlines in loss trends are you, taking an extra level of level of conservatism here.
And what would the expectations of that underlying loss ratio in insurance fee from here.
So let me address that and I think the order of your question does right I believe that if you look at today I think for the first time, we actually have a majority of our earned premium and insurance, which is actually in professional and casualty lines as opposed to short tail lines. So there is a mix shift and in fact and in fact, we've identified well over a point of mix shift impact simply.
By moving away from Cat exposed lines.
The longer tail lines.
But you know.
We've been talking about inflation in loss trends now for a while and as we've mentioned to you. When we were planning for 2022 as we were coming into 2022, we have already modified our view of risk and our pricing models to reflect higher inflation and so thats already in place. We told you already that we would be prudent.
Incorporating loss trends.
Uh huh.
And the reserving of our business, but I can tell you that if it weren't for mix shift you would've seen a significantly higher improvement in the loss ratio.
So then going forward would you see.
Help us maybe think about that that actually your loss ratio going forward then.
So I think the shift is probably going to be a little bit less than it has been in the past because I think we're already moving towards the right balance, but you know you run we've been talking about the fact that we're still seeing pricing well ahead of loss cost trends. So were continuing to write business today that we believe will drive further improvements in the loss ratio because.
Of the rate over trend so.
So for the foreseeable future, we see we still see ourselves writing business that has better rates the trend and so we're optimistic about the trend in the loss ratio.
Peter is there anything you'd add to that yeah, I would just add that I think that the comments about inflation are noted and you have seen the.
The insurance non cat loss ratio was 58 in both third and fourth quarter of last year that was $50 five we feel very comfortable where it is we feel very comfortable about our inflation assumptions and you've heard the rate that we've been getting now that's being earned in.
So I think we're taking a very prudent view as to where we said it and I think the the loss ratios in a really good spot where it is now.
I guess, the other thing that I would add.
For our company as we've made huge progress.
On the ex cat loss ratio.
And.
At this point I think is going to be a lot more driven around rate over change and then the.
The changes that we make on the edge of the portfolio, where I think the big the Big Bang is still to come is all of the work that we've done in reducing our cash exposure is such that we have to expect a lower cat ratio going forward and I think that will have a positive impact on our overall combined ratio and frankly, we.
Know that we need to work on our expense ratio and focus on that so I still think that we got a good runway for ongoing improvement in our results.
That's very helpful. Thank you and then my second question on.
On Russia, and Ukraine related losses I.
I guess, it's a two part question so sorry, I apologize first on the reinsurance side.
Do you see losses, they're just being kind of follow the fortunes of the primary carriers or do you see challenges emerge or do you like between primary and reinsurance and then the second part of the question would be on fiber.
Do you think that.
You have adequate you or maybe more broadly the industry have adequate protection from war exclusions.
Yeah, why don't we I'll take that you're on this is Pete I would say given the war is still going on and it's complex with a lot of uncertainties.
I would say that we do expect their reinsurers will follow the fortunes of the primary companies Thats as we sit here today with what we know so that would be our expectation as we sit here today, but as you noted it's a it's a complex ongoing ongoing event, but that would be our expectation with regard to your second question we feel.
Really good about one the war exclusion we have in our cyber policies given the current landscape of ours is among the clearest and most effective for the market.
For some time, even before the current war and we've been training our underwriters extensively on how to have good minimum standards and their wording. So we feel pretty good about that but overall, we also we've been implementing a lot of minimum cyber hygiene standards in our book of business you know for quite a while now and we believe we've been seeing.
Positive momentum in both the frequency and the severity facts because of that underwriting and focus on hygiene in the book. So we feel solid about where our book is but specific I know there's been a lot of rhetoric in the industry about where exclusions on cyber we feel good about ours and we think it's one of the best.
One of the best out there.
Perfectly said thank you.
Thanks, so much and good luck.
<unk>.
The next question comes from Brian Meredith from UBS. Please go ahead.
Yes. Thanks, a couple of questions here first I'm just curious.
I noticed you didn't buyback any stock in the quarter your stock got hit like a lot of the reinsurance companies did pretty significantly in March you know why didn't you actually execute on your share repurchase program was there anything inhibiting your ability to do that.
Yeah. Thanks, Brian This is Pete I'll take that you know as we noted when we came out with a program it's going to be opportunistic throughout the year I would say when we hit March two things happen one the Russia.
The Russia, Ukraine War broke out and that created a little bit on <unk>, but also the movement in interest rates, we knew that was going to put pressure, but sort of a R.
Our fixed income portfolio in the quarter. So we thought it was just.
Not the right time to buy back some shares we will look to deploy that the rest of the year and again, we'll be opportunistic about it but I think it was more events happening globally at the moment, but you know what let's let's hold our powder Oh, we can use it later in the year.
Great. Thanks, and then next question just curious Pete you talked about the investment portfolio. I think you said market yield three 1% is that what your new money yield is right now versus your book yield of two one so theres a 100 basis point difference and then on that how much of your portfolio rules. This year.
Yes, so that's a great question, Brian I guess, what I'd say is at $3 31.
The new money yield was $3, one as you and I sit here today.
Actually three four so we can keep that a good look on that number these days with our investment department. So it's about 130 basis points now as I said the duration is about three years $3. One years. So we've got $12 billion portfolio 100, plus basis points as it rolls over my expectation is.
Straight math you'd rollover about a third of the portfolio this year.
The economics will see with some of our fund managers and our investment guys think about more of the opportunities today.
But I would say at a minimum you would probably see a third of the portfolio rollover.
As a minimum this year.
Great. Thank you.
Yeah.
The next question comes from Michael Phillips from Morgan Stanley . Please go ahead.
Thanks, Good morning, Albert you've done a lot of work and talked a lot about the work you've done on.
It kind of smoothing out your results over the last year or so if not longer.
How does that relate specifically if you think about that topic, just just in the insurance side of the equation.
Well I think that the numbers on the insurance space speak for themselves right. So we've taken well over 10 points of loss ratio out we've taken about two to three points of the expense ratio, we've been growing 20% for each of the last five quarters.
I can tell you how good I feel about that business.
It's delivering combined ratio was 87 last year was low nineties.
I think we are in the late we are in the late innings of the game here.
I really think that when you look at our results, they're going to look really good against other specialty insurers.
Okay. Thank you.
One quick one I guess I was also on the on the Russia events.
Or you would also be surprised by kind of the level of reported losses. So far today about some of your peers.
I don't know that I can really comment on that everybody's got their own books, but I'll recall two years ago. When Covid happened, we were probably very early in recognizing that look this could be it could be something we engaged you all and most of the industry really reacted to it in the second quarter.
I think theres, probably styles of management teams. There are some that want to come out and tell you Here's what we think we know today and there are others, who are saying you know what let us take all the dots and everything else that will come back to you tomorrow.
I think it's a style.
Okay. Thank you.
The next question comes from ally screen span from Wells Fargo. Please go ahead.
Hi, Thanks, Mike.
My first question I guess, just I'll start with the first quarter cat load, obviously, Russia right.
Included within that but Albert given that he buys that you've taken a lot of action tomorrow or the cat load do you think that first quarter was in line with you know slightly above normal.
Perhaps it is relative to where you would've thought it would've come out.
Well I got to tell you what we came up with a two point something that cat load.
And as Pete mentioned, I think industry net cat losses were down 45% of our loss ratio was down 80% I think we're making great progress obviously.
To the point that was just to the question that was just asked.
We decided to recognize some.
Russia, Ukraine losses, this quarter, others didn't but I got to tell you looking at a 2% Nat cat load I think that's pretty good.
And then my second question within.
The insurance segment, you guys have obviously been earning.
Ernie and might have good amount of rate over trend.
Albert I know you've mentioned that you guys are already reflected and responded to higher inflation, how do you think.
The level is the level of year over year improvement right I think it was around 100 and.
Basis points within the underlying loss ratio is that a good level to think about for 2022.
Just as we think about the <unk>.
You can see the underlying loss, making a chocolate any insurance.
Hi, Alicia this is Pete I'll take that yes, I think that's a that's a continuation of a good level to think about for improvement in insurance as I noted.
The rest of the year the second half of the year will depend a lot on pricing in the first half of the year and so those are those are written for those written rate increases will come through in the second half of the year, but I think that's a pretty good number I think you may see that kind of improvement slowed down on the non cat loss ratio.
The second half of the year, because as you said the second half of 'twenty 'twenty. One it was really quite good for insurance, but I think what you're really going to see the improvement is back to your question on the cat load.
Are very much focusing on our P&L if you.
Check the 12 month move at movement in the PMO that arent in our financial supplement you will see in most areas, they're down anywhere from a 35% to 50% from where they were a year ago and I think that's where we're really focusing on bringing down the volatility and the overall combined ratio for the company.
Look I think it's fair to say that just for the avoidance of doubt we continue to believe that we're going to if things go the way we plan, we're going to deliver a lower lower loss ratio in insurance the last year period, yes.
Sure.
Okay. Thanks for the color.
The next question comes from Josh Shanker from Bank of America. Please go ahead.
Yes.
My question.
Albert you've been doing a remarkable job lowering your PM Mountain cat load for probably about four years right now maybe maybe it's even longer.
<unk>.
When you look at the return in 2022 on deploying money into cat versus how you looked at the world one year ago, why does it feel them less attractive to you now and are you cutting the cat loads too much shouldn't actually be willing to tolerate some cat risk of their paid for it.
Yeah.
I liked the last part of your sentence of your question should we be able to tolerate some cat risk support pay for it. We just don't think that the returns today are adequate to.
It provides.
Sufficient return for taking the volatility.
When you look back at where we were in the first decade of this.
Of this.
The century, we had a couple of bad cashiers, but the rest of the year as we're delivering 25 30, 35% Roe.
In low cat years, you don't see the same kind of upsides in a low cat year and May I remind us that we haven't seen a low cat year in five years.
So I just don't think that is properly reflected and I look I don't think we're the only ones now I think that youre seeing a lot of pressure.
People filling lower layers.
Of towers, because I think most of the industry most of the capital providers are concerned that they're not getting adequately provided adequately compensated for taking exposure in lower attaching layers.
Yes, Josh I guess, what I'd also add onto that as Albert gave you a really good point on an absolute basis. We just in the Cat line don't don't feel the returns are right there, but I'd also point out that as a hybrid company with all the lines of business, we have to invest capital in on a relative basis, we just see more attractive areas of course, our portfolio to move the capital.
And that's what we've also been doing over the last year or two and seats and seeing us grow in areas, where we really see that capital returns are better than on a risk reward basis than what we would get in cat. So you also have to think about it for us on a relative basis, because we have other opportunities to deploy capital and we will always put it to the best use so if you can get better.
In return for lower volatility that yes, that's what we would do.
And I think with diversification, though sometimes you can put the same dollar of capital into two things.
At the same time or two were more.
We're looking at are things worse right now in the market for cat risk and they were a year ago or just the capital efficiency model tells you that by not writing cat you can deploy capital elsewhere that makes it the trade worthwhile.
So look I think different people will have different views on.
The frequency and severity of cats are some people who will tell you that the last five years.
A precursor for the next five years.
And there are some will tell you that was just an unlucky fluke and it is going to get back down and people will take positions.
On that.
Our perspective is that the last five years are a precursor to the next five years.
With regard to using our capital Josh we're very fortunate position that we've got a lot of good places to use our capital adequate returns as I said before incredibly proud of what we're seeing.
On the insurance side, where I said five quarters in a row of 20% plus on the reinsurance side, we're reducing the capital we're growing other lines. So we feel good that we can utilize our portfolio our capital to generate a diversified well balanced more profitable less volatile portfolio. So we think we're hitting.
On all fronts.
Very good well keep it going thank you. Thank.
Thank you. Thank you.
There are no more questions in the queue. This concludes our question and answer session I'd like to turn the conference back over to Albert benchmark for any closing remarks.
Well thank you.
To all of you. Thank you for your time this morning.
Pleased to discuss with you a really strong quarter and the continuation of a great trend for us and as is often my practice I want to reach out to my colleagues and just thank you all of you for all the great work that you've done your drive year resilience your commitment to our customers to one another.
It's why we're delivering the results that we are and I know that you share my enthusiasm for.
We're seeing this move forward so to all of my colleagues. Thank you for your contributions for making a quarter like this one happen and to our shareholders I look forward to talking to you, but continuing progress and more positive quarters going forward. Thank you all.
This will end our call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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