Q2 2022 Everest Re Group Ltd Earnings Call
Welcome to the Everest re group second quarter 2022 results conference 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 today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Matt Warman Senior Vice President head of Investor Relations. Please go ahead.
Good morning, everyone and welcome to the Everest re group limited second quarter of 2022 earnings Conference call University executives, leading today's call are warm and dry president and CEO , Mark <unk> Executive Vice President and CFO . We're also joined today by other members of the management team.
Before we begin I will preface the comments on today's call by noting that every 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.
There are reconciled in our earnings release and financial summary, with that I'll now turn the call over to Juan.
Thank you, Matt and welcome Jeffrey we're excited to have you on board and good morning, everyone. Thank you for joining us today.
Average delivered strong results in the second quarter with positive momentum across our key objectives.
We expanded margins in both of our underwriting businesses.
And our insurance segment delivered another standout performance.
Further scale, our platform with strong overall and underlying results continuing the positive trajectory for this business and.
In reinsurance, we see opportunities to improve the diversification and profitability of our book, while reducing volatility.
In a complex environment average global talent disciplined underwriting and market leadership provide strength and stability to our customers, our relevance and impact I've never been more important.
Improvements in underwriting profitability and operational efficiency supported by our investment portfolio delivered $386 million and net operating income and a 15, 3% annualized operating Roe.
We achieved these results through consistent and relentless execution of the strategy that was articulated at our Investor Day last June .
Our strategy is to profitably scale, our insurance platform and capitalize on our reinsurance leadership position to continue building a broadly diversified and consistently profitable company that provides leading returns in the sector.
Our results quarter after quarter demonstrate we're accomplishing what we set out to do.
Operational excellence is also a core component of our strategy.
<unk>, resulting from investments in our systems and technology make us more resilient. So we can respond nimbly to changing market conditions and emerging opportunities.
Coupled with our ability to attract and retain great talent.
Is that versus the competitive advantage.
This is increasingly important against the backdrop of macro volatility.
<unk> ambitious growth and profit today requires companies to operate with both a strong offense and defense.
Our second quarter financial results demonstrates ever stability to strategically do both in a complex environment.
I'll share some highlights now first from the group and then for each of the underwriting businesses.
Second quarter results for the group were strong and underscore the earnings power of our company.
We grew gross written premiums by just over 10% in constant dollars.
The growth was broadly diversified in both divisions and is supported by continued momentum in insurance as well as underlying margin improvement in both businesses.
We continue to benefit from positive rate exposure growth and deliberate portfolio management actions keeping us ahead of loss trend.
The combined ratio for the group was 91 eight.
That includes $85 million of weather related natural catastrophe losses, primarily in South Africa.
Uh huh.
In the United States.
Overall, our catastrophe losses for the second quarter and year to date remained well below our cat loss ratio target for the year.
Spite, an estimated $39 billion of insured industry losses in the first half of 2022.
Good morning to Aon this level of natural catastrophe activity is 18% above the average for the 20 <unk> century.
We also recognized a $45 million IV in our accrual for the Russia, Ukraine War.
We have limited direct exposure to the Ukraine, and expect any potential losses to be manageable earnings event, Mark will provide additional details in a moment.
The group Attritional combined ratio was 87, 2%, a 40 basis point improvement from the prior year.
This includes a one nine point year over year improvement in insurance.
The group Attritional loss ratio also remained strong in the quarter at $59 eight with continued improvement in both segments.
The $240 million in underwriting profit for the quarter is a direct result of continued portfolio management.
Net investment income for the group was $226 million balanced between fixed income and alternative investments.
Now turning to our reinsurance business.
Reinsurance gross written premiums were up in the second quarter by over 5% in constant dollars.
Our growth is broadly diversified which allows us to target higher margin opportunities in each region and line of business.
We are not reliant on one market or one product to drive our growth and profitability.
For example, second quarter growth is driven by our international operations, particularly our casualty book, where we're focused on key seasons or achieving strong underlying profit improvement and results ahead of loss trend.
We also grew our global facultative business and our mortgage reinsurance business, where there has been a significant pickup in deal flow.
This growth is partially offset by a reduction in property pro rata as we continue to optimize that portfolio.
I talked about the advantage of flexibility this is where our ability to manage market dynamics makes a meaningful difference in the quality of our portfolio.
The reinsurance Attritional combined ratio was 86, including an attritional loss ratio improvement of 30 basis points year over year to $58 eight.
This contributed to a strong underwriting profit of $175 million supported by successful midyear renewals.
With respect to these renewables market conditions have steadily improved over the course of 2022.
We are seeing improved economics for property cat.
<unk> position as a preferred market as allowed us to reposition our participation in key programs.
Other away from frequency losses, and achieve better expected profit or reduce cat exposure.
Our underwriting teams deployed capacity with discipline.
Casualty market remains stable with some tightening of terms driven by market concerns over social inflation and emerging risks.
The market is showing signs of discipline, especially in pro rata, where seeds appeared to be stabilizing.
Our underwriting teams are data driven carefully tracking and analyzing trends to ensure we manage the underwriting cycle.
Summary, we are positioned to capitalize on opportunities as we maintain our strong underwriting discipline.
We are well place going into the January renewal and we expect further improvements in the market.
Now for our insurance results.
During the quarter, we continued to deliver on our strategic objectives generating record underwriting profit and continued growth while investing in our talent technology and analytics.
We achieved strong gross written premium of $1 2 billion.
A quarterly record for our insurance division up over 20% in constant dollars.
This growth was broad and diversified across our target product lines channels and regions.
We had strong growth in our U S casualty.
Specialty lines and in our international business.
We also continue to see significant opportunity in the E&S space, where we're well positioned.
Growth was driven by several factors.
Increases in underlying exposures across many lines of business, including general liability property and workers' compensation.
Strong renewal retention.
And positive rate in excess of loss trend across the portfolio.
In the quarter, we achieved a rate increase of seven 3%, excluding workers' compensation and a total of 6% with high single digit increases in property.
Professional lines umbrella and commercial auto.
These rates remained well above pre pandemic levels.
It's also important to note that in addition to renewal rate change there are other levers we deploy to ensure that margins continue to expand.
Such as coverage terms and conditions limits management and attachment points.
Risk selection.
New business pricing, which continues to be higher than renewal pricing and the benefit of additional premium from inflation sensitive exposure basis.
Insurance growth was partially offset by continued portfolio management, including our reductions in U S property catastrophe.
We achieved an approximately 36% reduction in our gross one in 100 U S. South we swim P&L over the last 12 months.
In addition to robust growth insurance continued its strong profitability trend.
We achieved a record low attritional combined ratio of 92.
Approximately two points lower than second quarter 2021, and.
And with a one five point improvement in the Attritional loss ratio.
These results were aligned with our financial targets.
And build on our continually improving attritional combined ratio trajectory since the end of 2019.
We have gained over six points of underlying margin expansion and the combined ratio.
This is a direct result of the consistent and cumulative actions I just spoke about.
These improvements resulted in $66 million an underwriting profit.
Our second best quarterly profit in our insurance division's history.
We also made solid progress in the quarter with important milestones to advance our international expansion strategy.
Everest insurance received regulatory approvals to operate in Singapore, and Chile, where we are officially open for business.
Asia and Latin America are both significant opportunities.
We are well positioned with the talent customer first platform and proven track record to seize this opportunity in new markets.
I have personally witnessed the excellent reception of our presence by local brokers.
We will continue to bridge gaps in regions around the world, where we are uniquely positioned to serve clients and brokers with a strong balance sheet and broad suite of insurance products and capabilities.
Our leadership team is driving the strategy forward and Everest continues to be a net acquirer of talent.
During the quarter and since the beginning of the year, we welcomed a significant number of new colleagues all of whom are accretive to our organization and inclusive culture.
From underwriting pricing and claims we are innovating across the entire organization to deliver a world class experience and value to our stakeholders.
Our second quarter results demonstrate that Everest is nimble and strategic.
Diversified and well positioned to perform in any environment.
We enter the second half of the year with momentum.
We are leveraging our talent and the full breadth of our enterprise to strengthen every area of the business and bring our partnership to more people and businesses around the globe.
I will turn the call over to Mark to take us through the financials Mark.
Thank you Juan and good morning, everyone Everest had another solid quarter rounding out a strong start in the first half of 2020 to.
The company reported operating income of $386 million or $9 79 per diluted share in the quarter.
The operating ROE was 15, 3% for the quarter, while total shareholder return or <unk> was six 6% year to date we've.
We improved our attritional loss ratios in both segments, while generating double digit growth in constant dollars as pricing and terms remain attractive in virtually all of our core lines of business.
Just on the fundamental performance of the business year to date, our team continues to execute well and we remain on track to achieve on the goals, we set out in our strategic plan despite macro volatility.
Looking at the group results for the second quarter of 2022 Everest reported gross written premium of three 4 billion, representing eight 1% growth year over year or 10, 3% growth in constant dollars.
The combined ratio was 91, 8%, which includes two nine points of losses from natural catastrophes, one five points from the Russia, Ukraine Award.
While significant uncertainty remains around the Russia, Ukraine War, we felt it prudent to put up a provision which is all <unk> given the lack of claims to date.
Ongoing nature of the event.
Provision was driven by our marine political risk and trade credit books in the reinsurance segment.
There's no direct exposure in our insurance segment.
The group Attritional loss ratio was 59, 8%, a 50 basis point improvement over the prior year's quarter led primarily by the insurance segment, which I'll discuss in more detail in just a moment.
The group's commission ratio improved 20 basis points 21, 6% on mix changes, while the group expense ratio, which remains a competitive advantage forever was five 8%.
Moving to the segment results.
Starting with reinsurance.
Reinsurance gross premiums written grew two 5% to $2 2 billion or five 2% in constant dollars.
Growth was driven primarily by casualty pro rata and strategic growth in international lines with.
The combined ratio was 91, 8%, which includes three seven points related to natural catastrophes and two one points related to the Russia, Ukraine War as mentioned earlier the.
The Attritional loss ratio improved 30 basis points to 58, 8% as we continue to achieve more favorable rate in terms as well as shifting the book towards accounts with better risk adjusted return potential.
The Commission ratio was 24, 8% broadly in line with last year.
Underwriting related expense ratio was two 4% as earned premium grows and we remained focus on operational efficiency across the entire platform.
Moving to insurance, where we continue to build significant momentum gross premiums written grew 19, 6% to 125 billion or 25% in constant dollars in the quarter.
The combined ratio improved two points to 91, 5%, primarily driven by a one five point reduction in the Attritional loss ratio to 62, 7% as rate continues to outpace trend further supported by our focus on risk selection and favorable loss experience.
The commission ratio improved 50 basis points, largely driven by business mix and increased ceding commissions.
The underwriting related expense ratio was 15, 1%.
Within our expectations as we continue to expand our global footprint and continue to proactively invest in a number of growth initiatives across the business.
Finally, the cover and investments tax in the balance sheet.
Net investment income for the quarter was $226 million and we are starting to see the benefit of higher new money yields in the fixed income portfolio overall, our reinvestment rate improved sequentially from two 9%.
Three 7% during the quarter and today is well north of 4%.
We continue to have a short asset duration of approximately three one years and as a reminder, the 20% of our fixed income investments are in floating rate securities.
For the second quarter of 2022 of our operating income tax rate was 10, 1% benefiting from the geographic distribution of our income streams.
Thus favorable to our working assumption of 11% to 12% for the year.
Shareholders equity ended the quarter at $8 9 billion, driven primarily by the second quarter rise in interest rates, particularly towards the long end of the curve there.
There was a corresponding negative $717 million impact on the value of available for sale fixed income securities year to date unrealized losses in the fixed income portfolio equate to approximately one 5 billion.
Cash flow from operations was $715 million during the quarter and.
And book value per share ended the quarter, a $224 59 per share.
A sequential decline of six 3% adjusted for dividends of $1 65 per share.
Book value per share, excluding unrealized depreciation and depreciation of securities stood at $257 27.
Versus $256 <unk> per share at the end of the first quarter, representing an annualized increase of 2% that.
Net leverage at quarter end stood at 22, 5% an increase in the leverage ratio driven by the unrealized fixed income market value declines noted previously.
In conclusion Everest ended the second quarter of 2022, and our strong 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.
That summarizes our second quarter results and with that I'll turn the call back over to Matt.
Thanks, Mark operator, we're now ready to open the line for questions. We do ask that you. Please limit your questions to one question plus one follow up then rejoin the queue. If you have additional questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad excuse me 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 yarn Qunar from Jefferies. Please go ahead.
For taking my questions.
First question just looking at the reported combined ratio in the first half I think it's tracking a little below the midpoint of the 91% to 93% guidance range.
That said I do think that second half of the year it tends to have a little more catastrophe.
Losses in it so how confident are you in achieving that 90, 193%.
Very good.
Yes, Hi, Yaron. This is Juan in driving look I think we feel very confident about it.
And the reason I say that primarily its really all the reductions we have done in our property catastrophe book right.
If you look at our comments that we have been making consistently.
We have been managing the volatility down, particularly in the reinsurance book and a pretty significant way.
If you look at our Investor presentation, you'll see our trading range and where we are now compared to where we were in 2017 18 19, even 'twenty one 'twenty. So I think that part of it is a big help.
About the insurance division as well as you heard in my prepared remarks, we have already taken down our gross P&L in the southeast by about 36% in the first half of the year and so those steps I think are critical frankly to us being able to achieve that 91 to 93.
I would invite maybe mark to add any additional comments to that as well.
In addition, good morning, Europe in addition to the PM.
PMO reductions that we've seen on the cat side, I think we're making some solid progress on the attritional loss ratios as well and you can see that evidenced over the last.
Several years five years in particular when you when you look at insurance on a sustainable basis, and so we don't see that changing feel like we've got a lot of momentum good process a lot of opportunity in the market.
Good about it.
Understood.
And then my second question also a guidance related question. So I think you're a.
Premium CAGR targets three year targets are 8% to 12% growth in reinsurance 18 to 22 and insurance.
I think there were a bit ahead of target in 'twenty, one are low below target now in 'twenty two.
So, particularly in reinsurance.
With that in mind, how confident are you in those three year targets, especially as there is growing concern around a recession.
Yes, they're there they're not targets there are assumptions rather that we had in place for the three year plan. So in other words to achieve the plan itself. It's not like we have to grow at that level, we're very much focused on.
Total shareholder return profitability target for the group.
To your point when you look at.
The assumptions that we had eight to 12 for reinsurance in 18 to 22 on insurance last year, we exceeded those by a significant margin pretty close to 25 points of growth.
Last year for both divisions. This year insurances within its 18 to 22 I think we'll get there the reinsurance side is a little bit lower.
But that's not a problem for us we've done a lot of things, there, which I'm sure Jim will articulate as.
As we go on through the call, but we can certainly achieve our objectives, even if premium growth is somewhat muted because we're very much focused on profitability.
Understood and maybe just one clarification there.
The assumptions you were using those on constant currency or those absolutely.
Well, yes, those would be constant currency.
Okay.
Thank you.
Thanks Sharon.
The next question comes from Elyse Greenspan from Wells Fargo. Please go ahead.
Hi, Yes. Good morning. My first question is on the capital side of things you guys mentioned that you have ample capital we didn't see any buybacks in the quarter. So just hoping to just get an update on how you guys are balancing using your capital for organic and inorganic growth.
As well as capital return from here.
Hi, Elyse, it's Marc let me, let me take that one so.
Share buybacks, you're right we didn't have anything in the second quarter, it's still very much an option for us.
I think I put in my monologue.
To your point, a ample capital to support the business. So we have.
As I said ample capital, we still think that.
There's a lot of attractive opportunities in the market to grow youre seeing very nice growth.
In the insurance space, which we expect to continue.
Inefficiently, especially on the international side, and so thats where opportunities for us really present themselves in an attractive way. If there is a point in time, where we feel the buybacks are.
Provide that much more value.
In addition to balancing our franchise development, we'll execute them Theres no issue on our side for that.
Thanks, and then my follow up is a margin question, but a little bit of a different way right you guys laid out of 91% to 93% combined ratio target at your Investor day that included right around at the midpoint of $6 five point cat load.
Back that out right that would be an underlying of 84 and a half to 86. Five you guys were 87, three ex Russia, Ukraine to the first half of this year and you did make and some things like mix right. If you're shifting away from property rights that would perhaps lift.
Underlying.
And we're also dealing with higher inflation trends and when you put this guidance in effect. So can you just walk through the drivers of kind of <unk>.
Hitting the mid eighties from an underlying combined ratio perspective, that's included within that three year plan.
Yes. So there is multiple components here to your point, so you've got everything from the Attritional loss ratio acquisition ratio.
Cat load.
And I think back in February for the Q4 results, we made a remark that the cat load.
Of 6% to seven that we had in the Investor day.
Last June .
What is likely to trend down as we as we start to reduce our <unk> on the on the cat side, So that number I think.
<unk> is firmly less than 6% and our.
Anticipation for for 'twenty two and.
Probably for the foreseeable future.
So thats going to provide some relief within that 91 to 93, but you're also seeing a couple of other things.
On the mix of business Youre seeing a shift on the reinsurance side for example from a 60 40 property casualty ratio in the book.
Something that's closer to a 50 50, and so that has its own dynamics in terms of the perspective.
Attritional loss.
Impact overall when you when you take into account the.
The mix of business and then the types of treaties were underwriting and focus on profitability. We feel very good about the 90 193 range, even though we have some meaningful changes here both in the.
The level of expected cat and the proportion of longer tail.
Business. So we're comfortably in that 91 to 93.
Okay. Thank you.
The next question comes from Meyer Shields from <unk>. Please go ahead.
Good morning. Thanks, two quick questions. One one in your introductory comments you talked about growing international casualty.
And I'm, hoping you can update us on social inflation internationally, both whether or how it is trending and how it compares to domestic personal question.
Yes, Thanks, Meyer and that comment was specifically related to the reinsurance segment of our business, where we continue to see pretty significant opportunity and as I said in my prepared remarks, what we're doing is very consistent with our prior strategy of partnering with partnering with specific seasons that we understand that we know.
And that we also see getting rate in excess of loss trend. So from that perspective, we're pretty confident about that book of business with regards to the social inflation question I think thats more of a U S litigation issue than it is outside of the U S. Even in developed markets of Europe . So when we think about that.
Particular driver of loss in the book, we tend to think about it more from a North America standpoint that we tend to think about it from an international standpoint.
Okay.
Good news.
The second question.
Yeah.
Sorry, let me try that again.
You mentioned I think that ceding commissions for the reinsurance segment, the leveling off and Mark noted ceding Commission is actually helping to some extent the insurance acquisition expense ratio should we expect that benefit and insurance to level off or can we see different dynamics in these two segments.
Yeah, So maybe a <unk>.
Comment on that and then I'll ask my colleagues to jump in as well so I think on the comment about the <unk>.
Market, appearing to settle down on seeds I think that is right and I think that is what we saw during the quarter.
Order, primarily as our seat and sort of thinking about the same things that we're all thinking about the risk environment inflation etcetera, etcetera. So from that perspective, we see the discipline, that's going on with the primary companies.
And we definitely see less of an uptick if you will on seed conditions with regard to the insurance I think that's largely a function of mix and where we saw the growth come in.
Water.
I think you will see some fluctuation quarter to quarter, but we happen to see some very good growth in particular lines of business, where we do get.
Decent seek commissions from that and that's really where you saw the.
The offset that's also been a little bit of a trend. If you look at the last two or three quarters. We've also been benefiting from that essentially and that's part of our portfolio management to essentially drive our lines of business within the primary insurance business areas.
Our profitability, but let me ask maybe Jim Williamson to add a little bit of color on what you're seeing in the market from a commission standpoint sure. Yes. Mike. This is Jim look I think one of the comments that <unk> made obviously that you're picking up on is this idea that commissions are starting the process of leveling off we certainly saw that.
In the U S and some of our international Treaty casualty businesses.
Pro rata seeding commissions are beginning to.
To level and Thats, certainly a very good thing for us, but I would say that that's a broad comment.
You get under the covers of that there are clearly still areas of the market, where ceding commissions are increasing and so the mixed component, particularly when you relate it back to what you expect out of our insurance business is going to be very important.
Other thing that is critical and it's something that I commented on last quarter is this also varies deal by deal and there is no question that there are still seed into are achieving some increases in those commissions will often times that makes sense on the reinsurance side for us and we will write it sometimes it doesn't and we won't write it but I think Thats also a factor you have to.
Keep in mind when looking at the trajectory in our insurance Division.
Okay. That's perfect. Thank you so much.
Thanks Mark.
The next question comes from Josh Shanker from Bank of America. Please go ahead.
Sure.
Yes. Thank you.
Okay great.
Okay.
A little bit why misrepresenting.
Misrepresenting things if we go back to the last few years, obviously the marketplace and you have you decided that property re is less attractive and property cats less attractive than it used to be but it's gotten to the point, where it seems like a number of your competitors are.
Pulling out making an opportunity.
At the same time in your prepared remarks, you spoke about moving away from frequency bricks and I don't want to give away the secret sauce, but where do you get paid in property cat effectively and what has to happen for this market to be attractive again, and instead of a market were largely your costs about putting capital to work.
Yes, Thanks, Josh I think you broke up a little bit so let me make sure that I answer the questions that you're asking if I. This is one by the way.
Look I think if you go back to the strategy that we have been articulating.
A big part of that is really sustainability of earnings going forward.
A big component for us to be able to accomplish that is really to reduce the volatility in our earnings which basically has come from property cat and the impacts of climate change and the storms that have been out there basically since 2017 and as you heard from my prepared remarks. This morning. They certainly haven't debated right I mean, whether you believe Munich res number.
A $34 billion of Aon's at 39, it's still been a pretty active first half of the year and then you look at our cat losses for the first half of the year.
And there are certainly underway based on our market share and what we've been able to accomplish so that part of it we feel pretty good about the execution of the strategy. The other thing that I said in my prepared remarks is that we're basically getting much better pricing much better risk adjusted returns or total exposure for less exposure in <unk>.
And I think that becomes pretty relevant to us.
Other point that I would make Josh as we have articulated a trading range that we feel very good about or property cat thinking about earnings risks and capital at risk and our objective is to trade within that range as we trade within that range. We're also looking at the environment. That's out there for us and we're positioning our book to be.
Further away from loss higher layers, given the shortage of capacity that's out there in the market, we're actually getting a pretty good rate online on those layers that are further away from loss. So for us that's been a very good economic trade, but let me ask Jim Williams and down a little bit more color on that for you.
Yes, Josh Thanks for the questions Jim.
In terms of the first part of your question on where we think we get paid that is a little bit of a secret sauce as you say, but to give you some broad comments and echoing a little bit of what Juan said I think at the lower end of a lot of programs. What we saw as the impact of climate change in particular is just creating a frequency of smaller cat losses that make those.
In our view very unattractive risk to be taking and so we've for the most part moved away completely from what we consider more frequency layers all at a one in three one in four attachment type point and then at the very top of programs.
That's where there's obviously significant capital market.
Competition as well as the opportunity for real excess volatility, particularly if you start looking at things like aggregates structures et cetera. So it's really between those two points, where we see excellent opportunities that we've been able to put on some.
Some cases that includes growing with us with our core clients and.
And then to the second part of your question on what needs to happen for our approach to change one obviously laid out the idea that we've articulated a trading range that we're comfortable with for the long term. That's very important we are in a very targeted way given the hardening that we've seen in the market deploying additional capacity with our best clients.
But again, that's very targeted.
I would say that in many places in our portfolio, we're perfectly happy getting paid more or the same or in many cases less risk and I think that's very accretive and that's been a major strategy.
But then the last thing I would I would just sort of remind us all about is the idea that the reason the market is hardening is because people are being very thoughtful about deploying capacity and so when we get asked the question of why not deploy more capacity into what is it really good market.
You just have to remember the reason the market is really good is because people are not deploying a lot more capacity into it and so we're thoughtful about that dynamic.
Well. Thank you and this is going to be a bit of a pin done quick question I guess, but.
2006, it's too much to ask for but if if.
If pricing were at where it was in 2010 2011.
Is that kind of market give you any incentives to re embrace volatility.
Yes. He suggested Jim again, I'll, just reiterate what we said which is.
In a situation like that we have articulated a a.
Trading range of volatility that we're willing to accept on an earnings at risk in any capital at risk position.
That's a long term strategy, we're pursuing we don't plan to change it and the other thing I would say is in a situation in the more dislocated property rates become more on getting paid for the exposure I'm already taking that's more margin and in many cases and we've seen this in the more recent renewals, where we've taken capacity off the table, but total renewed premium.
Increased.
So not only are you getting more margin youre getting more total premiums or less exposure, we really like that trade.
I would build on that a little bit Josh by saying that if you go back and look at the trading range that we put out there there's flexibility right to the comments that both Jim and I just made.
We have capacity, we have the dry powder and Theres just a question of the trade right. If it is.
Attractive for us on a deal by deal basis, we can deploy capacity and as Jim said, we have for specific risks, but we will stay within that trading range. The key strategy for US is a broadly diversified company that can deliver sustainable earnings right and I think we got to keep that in mind and that's really what we're executing against.
Thank you for the answers and good luck in the hurricane season.
Thanks, Josh.
The next question comes from Brian Meredith from UBS. Please go ahead.
Yes. Thanks, a couple of them here for you first one I'm just curious maybe get some updates on you with respect to your loss trend assumptions, obviously, a company that you're pretty familiar with increased your loss trend assumptions on that topic too if you've got a seven 1% rate I know you said, there's some other things that are happening here, what's your cushion right now right versus where you think trend is running right.
Now or could potentially be here soon.
Yeah, Brian Let me, let me give you my thoughts and all of that.
And look I think first it's important to remember that we have been consistently prudent and our loss pick selection process and I think that's important to remember as I've said in prior quarters really starting in 2020, we deliberately strengthened our current accident your loss picks to reflect the heightened risk environment that we've been operating.
But the other important point is that we've also been consistently achieving pricing in excess of the assumptions that we built into those loss picks and we haven't lowered our loss picks as we've talked about in prior calls.
So we're thoughtful about the environment.
We're thoughtful about how we manage through it and frankly this has been a prudent choice and I'm glad we did it.
In addition, if you think about back to the end of 2019, we have been watching and increasing our loss trend assumptions also in reaction to supply chain disruptions social inflation general material inflation, and we responded very quickly to those signals and those changes drive our pricing and our underwriting decisions. So this is something.
We started early in 2021 'twenty, two and we have a process, where we very frequently throughout the year revised those loss cost assumptions.
The increase in those loss trend assumptions that I just articulated our pricing performance continues to outpace that and that's the case for both the written and earned pricing, but it's also important to note that new business pricing also remains stronger than what we articulated for renewable pricing. So all of these things are important to keep.
In mind.
Other thing is that it's important to note the growth in exposures, that's resulting from a place right, especially when you think about lines of business like general liability workers' compensation and property that also has a mitigating effect on loss cost because we're getting additional premium for that exposure and so when you think about the exposure growth.
Our rate achievement. This increases the margin further in our favor in excess of current loss trends and I think that's very important to keep in mind because it's all these things together and finally, the last comment I would make is that beyond rate beyond the exposure growth you have all of the things that I talked about in my prepared remarks today, but also in.
Prior calls things that we're doing from a portfolio management, including.
Improving terms and conditions higher deductibles.
All of that limits and attachments all of that helps to sustain our underwriting margin and so from our perspective. The final thing I would tell you is that since we are fairly well diversified and you just heard it in the cat discussion with Jim and I, we can actually shift our capital to where we see the best opportunity from a pricing and terms and conditions standard.
And that is what we're doing that's.
That's basically what's creating the margin that youre seeing from us quarter after quarter. So again I think it's a combination of increased pricing exposure growth in all of the underwriting actions that we're taking that are keeping us above current loss trends.
Great. Thanks, and then Mark I'm, just curious looking at the investment portfolio, obviously, a big increase in <unk>.
Fixed income.
Investments.
Income this quarter.
How much of that kind of increase that we saw on the yields do you think is directly related to the VII and can we expect to continue kind of big increases in your.
And your investment yields here.
Well, it's difficult to say, what the paces, but clearly we've got tailwind behind us and there is several.
Several factors.
Pushing it higher so we've got a new money yield that's well into the fours.
In the portfolio roughly.
$3 billion of our fixed income portfolio was converting to cash through maturities and interest coupons over the next 12 months.
And then you've got a run rate on operating cash flow, which is little over $3 billion a year.
Annualized 12 months I guess, so if you take those factors into account that's going to provide.
Some sense on what the yield pickup is going forward.
We also have some ability to extend the duration as well and pick up a few.
So on that so I see gotcha.
Still a good trajectory on that what's unclear is just how persistent the current rate environment is going to be.
Makes sense, one I'm just curious going back to the last question I was going to ask you are you willing to give us what you think trend is running right now.
Look.
We don't really disclose our how we price.
I have articulated in the past, it's running mid to slightly above mid single digits.
I appreciate that thank you.
Yes.
The next question comes from Mike Phillips from Morgan Stanley . Please go ahead.
Thanks, Good morning, everybody.
First question you guys aren't the only company, that's talking about reduced volatility and kind of turning back on property cat and you're growing nicely in reinsurance in the casualty side I guess.
Especially in light of Ron your earlier comments in a pretty pretty common comments on social inflation and Ron you've et cetera emerging risk can you just help us think about how what specific steps, you're taking and reinsurance casualty to kind of mitigate any surprises on the negative side there.
I don't think pricing is what we hear on the property cat side on the casualty side and the reinsurance more risk. There. So just help us think about how what youre doing with mitigating the risk.
The near term for that business.
Yes, Mike. This is this is Jim Williams and I'll really.
Take that down to two things. The first is what are seeing are doing and then the second is maybe a little repetitive around our loss pick process, but.
One of the things to keep in mind is most of the casualty growth. We've been experiencing is through quota share participation alongside of our seasons.
And so you really need to examine the strategies that they're employing to stay ahead of loss trend and to ensure that.
Current accident year picks can be sustained particularly as you get into an environment, where theres material inflation happening.
So what I, what I would emphasize for you and it's some of what we've already discussed is we've seen obviously a significant an extended period of time where rates have been going up meaningfully.
Years, three and a half years into a rate on rate on rate environment and that is very meaningful. We've also seen really significant re underwriting actions by many of our scene. That's risk selection at the attachment points, that's limits that terms and conditions and that builds a significant amount of underlying margin into the treatise that we're writing.
And then obviously in our own underwriting process, we're very thoughtful about which seats, we partner with we're choosing them very carefully and we priced all of our deals from the ground up to ensure that there is strong margin in those deals and that margin calculation that we're performing.
Includes our forecast around what's going to happen with inflation, whether its social and material and as we indicated earlier, we were very quick to react to changing trends around inflation and all of that gets factored into our pricing.
So I think that's really critical and then the second part of it obviously gets back to what one was discussing earlier, which is our loss pick process. We've been very very prudent about strengthening loss picks early on in this cycle.
Obviously performed better than expected against those picks from a pricing perspective, and again thats not reflecting all the underwriting I describe it as pricing has outperformed assumptions, but we haven't reacted too quickly to that price improvement by lowering our <unk>. So we're kind of going in with some very prudent loss picks and it's really the comp.
A nation of those two factors in our view it gives us the confidence we need to continue to sustain that casualty book.
Okay. Thanks, Tim So stay tuned on that one I appreciate the comments.
Switching over to insurance.
Good.
You've grown nicely in our specialty casualty segment there.
And it's not just this quarter. So it's been going for a while so I guess quickly just to make sure. There's nothing one off for this quarter, which I assume there is not.
But can you maybe drill down a little bit more detail than kind of some of the specific sub lines that are inside what you call your specialty casualty.
Sure. Thanks for the question. This is Mike <unk>, yeah within the specialty casualty segment. It includes mainly gel into the driver umbrella excess and commercial auto are the main factors that drive most of that business and again similar to the comments you made on the primary side, we're seeing a lot of.
The investment and so forth and just the rate and return a lot of areas around that as you've seen with the overall rate we've gotten in the last three and a half years, we continue to see a lot of upside and opportunity across that again being very selective and very cautious about managing limits and how we approach the market.
Just to build on that I don't think there was any particular one offs.
In the quarter for that particular line of business I think it was pretty stable execution across all of that.
The other things that we think about two or some of the specialty lines like.
Trade credit and political risk.
M&A transactional liability, we saw some pretty good growth in there as well.
Across the across the portfolio.
I think the one key thing for us ultimately, having a really well balanced and diversified portfolio across multiple segments and multiple geographies and given the market share opportunity of a 900 billion dollar market and where we stand today, we see considerable upside and we're in a position of strength. So we are very optimistic about opportunity.
Okay. Thanks I appreciate it.
Again, if you have a question. Please press Star then one.
Our next question comes from Ryan Tunis from Autonomous Research. Please go ahead.
Hey, Thanks, good morning.
Just talk a little bit on the IV in our provision for Ukraine.
The assumptions that went into that type of range of outcomes around around that is that.
Contemplation of a small number of potential claims or I guess, a larger number of smaller ones just give us some feel for how that could potentially a bowl.
Yes, Ryan This is Juan let me start and then I'll ask <unk> to give you a little bit more color I.
I think as we've talked about really from the beginning of the year. There's a lot of uncertainty to this event, obviously from the perspective that the worst still ongoing you really can't get claims adjusters on the ground.
And we have gotten less than a handful of notices at this point in time.
But these estimates are based on essentially a ground up assessment similar to frankly, what we did during COVID-19.
Season by season to really try to understand the exposure by different lines of business and it really does present sort of the best estimate that we havent disappoint for the lines that we articulated but let me have Jim give you a bit more color on that yes, sure Ryan It's Jim and I think one hit on something very important which is.
The comparison with the process, we use during Covid, where we review each and every treaty that could be affected by what's happening in the Ukraine. We are in communication with our seasons, obviously studying all other industry data as it becomes available.
Obviously, there's not a lot of information at this point.
And Theres, a great deal of uncertainty, but for in particular, the marine line the political violence line in trade credit.
Had enough information to make what we thought was it was a good estimate around the potential loss exposure and Thats, where we made our selection for the second quarter, obviously as Juan indicated we only have a small number of actual submitted losses. Those are all advisory losses. They don't include actual loss numbers and so we will continue to.
That're and make adjustments if it becomes necessary.
Thanks, and then.
Casualty reinsurance casualty pro rata growth could you just help us understand I guess like the dynamic there we had four quarters in a row where is the growth.
Growth was about 50%.
And now it's moderated some like what exactly was the story there did you add a bunch of new business last year.
Right on that or yes.
Yes.
Kind of trying to understand the dynamics there.
Yes sure Ryan This is Jim again, the way I would describe it is and it goes back to some comments that we've made a number of times around Seaton selection, but that is one of the most fundamental aspects of how we conduct reinsurance underwriting is picking the right seasons.
To partner with particular, when you're talking about a quota share structure and so as the casualty market began to dislocate pricing improved terms conditions were changing et cetera.
We worked with.
Our view are the best underwriters in the industry and we took meaningful positions on their trading and so a lot of that unfolded in 2020, and certainly in 2021 and so as you achieve that obviously you now have a really really strong position with an individual's even you may choose to sustain that position versus necessarily.
Increasing at year over year, and so some of the increase you'll get going forward on that particular scene might be more in the form of just the growth of their all business the growth in exposures et cetera.
That is a major factor however, even in addition to that we continue to see some really nice opportunities in casualty.
Typically on a pro rata structure, and we're pursuing those opportunities and we'll continue to do that Brian .
Brian This is Juan I would just jump in at the very end, if you're looking to supplement.
Our growth in casualty pro rata has actually been quite good for the first half of this year. We're at about $1 2 billion compared to about $954 million last year about this time and it is really what what Jim has been articulating.
Thank you.
Thanks Ryan.
There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Juan <unk> for any closing remarks.
Great. Thank you all for the questions and the great discussion today, I am very optimistic about our future opportunity as evidenced by our growing global team our consistent performance and track record. It is an exciting time to be at Everest and as we continue to accelerate our strategic ambitions, we're creating more opportunity for our investors clients and <unk>.
<unk> around the world. Thank you for your time and for your continued support of our company.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Yes.