Q2 2022 AXIS Capital Holdings Ltd Earnings Call
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Yes.
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Okay.
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Good morning, and welcome to the Axis capital second quarter 2022 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey 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.
Please note this event is being recorded.
I would now like to turn the conference over to Amazing interim head of Investor Relations. Please go ahead.
Thank you Greg Good morning, ladies and gentlemen, I'm happy to welcome you to our conference call to discuss the financial results for half the capital.
Quarter ended June 30th 2022.
Our earnings press release and financial supplements were issued last night after the market closed.
If you like copies. Please visit the Investor information section of our website.
Axis capital Dot Com, we set aside an hour for todays call, which is also available as an audio webcast on the website.
With me today are Albert benchmark.
E L M people, our CFO before I turn the call over to Albert I will remind everyone that the statements made during this call, including the question and answer session, which are not historical facts may be forward looking statements.
These statements involve risks uncertainties and assumptions actual events or results may differ materially from.
From those projected in the forward looking statements due to a variety of factors, including the risk factors set forth in the company's most recent report on Form 10-K, and other reports the company files with the SEC. This includes the additional risks identified and E. 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 in our earnings press release and financial supplement now with that I'll turn the call over to Albert Albert.
Thanks, Mike and good morning, everyone and thank you for joining our second quarter earnings call.
We delivered another strong quarter of operating performance to reaffirming the sustainability of the improvements we've made over the last few years.
We continued our trend of year over year improvement some core underwriting metrics as we've advanced our strategy to grow access as a specialty underwriting leader that's recognized for the value and high level of service, we provide to our customers.
The second quarter was highlighted by a consolidated ex cat combined ratio of $88 four at all in combined ratio of $93 four and an operating Roe of.
Of 13, 7%.
Our industry will always have some volatility within quarters.
Therefore, it's instructive to look beyond just one quarter on a year to date results are very strong.
Record second quarter production contributed to all time high mid year production figures.
Have your gross and net written premiums and net premiums earned are all at record levels.
And on a year to date basis, we delivered a consolidated ex cat current accident year combined ratio of 87 eight.
Excuse me.
And all in reported combined ratio of 92.4.
And overall operating ROE of 14, 6%.
Further illustrating our progress over the past six months, our underwriting income of $255 million is up 36% over the prior year and our six month operating income of $329 million is up 30% over 2021.
We believe these performance metrics attests to the solid progress, we're making the shift to a more stable portfolio, especially when considering the headwinds created by our ongoing mix shift, which impacted our ex cat loss ratios by a point.
As we'll discuss further on this call we're confident that the actions, we're taking to position axis for an even stronger future will deliver better and less volatile all in combined ratios.
Excuse me.
Illustrate.
Our average market share of cat losses over the prior five years was about 0.5%.
And in 2022 were at less than half of that.
And we expect more progress as we run out the reinsurance catastrophe exposures over the next few quarters.
Okay.
Yes.
Our specialty insurance businesses continue to produce impressive results.
That increasingly put us among the best in the industry.
During the second quarter, we delivered robust 16% growth in our gross written premiums.
22% growth in net written premiums and an 87 eight all in combined ratio.
In a market that continues to offer attractive opportunities.
And with leadership positions and strong wholesale E&S markets, we're well positioned to build on that growth.
These improved results are the product of a discipline and concerted multiyear efforts to enhance our leadership in specialty lines markets and shift our book of business towards profitable specialty risks that provide attractive risk adjusted returns.
I do apologize.
And lower overall volatility.
That's that.
That continued into this quarter.
During the quarter, we announced bold moves to further advance our strategy.
Among them was the exit from reinsurance property and catastrophe lines.
We also recognize reorganized our businesses under a single front end organization led by Vince <unk>.
With an aligned underwriting supported analytics tower to be headed by our group CFO .
Let me address these moves in further detail.
First we completed the shift of accessory to a specialist reinsurer with a commitment to profitable casualty specialty accident and health and credit lines.
And this along with our overarching goal of being a leading specialty underwriter.
We find that reinsurance remains an attractive channel to access specialty risks that we can't easily obtained through our insurance business.
It provides additional scale balanced and geographical diversification to our consolidated portfolio and we're very good at our clients and brokers appreciate the value that we bring to their businesses.
On the other hand, we do not believe that the axis. We are building is the best market for volatile property and catastrophe reinsurance lines we.
We felt it best to be clear with our broker partners and customers as to the sustainable long term risk appetite of our business.
To be clear our exit from catastrophe reinsurance is not a view on the catastrophe business within the broader industry.
Indeed, we expect that this line will continue to improve at the January one renewals.
Rather this is a strategic decision to advance our progress towards the company we choose to be.
A leader in specialty underwriting with a strong and consistent earnings profile.
We also believe that combining all our front end business capabilities under one leader at all our underwriting supporting analytics under a C. U O will increase our efficiency and agility and speed to market and responding to our customers' needs.
Before I pass the call onto Peter to get to the specifics of the financial results I just want to speak to the importance of our team and our culture and achieving the progress we've reported over the last few years and intend on sustaining into the future.
Specialty business is all about talent.
And we believe we've done a good job of attracting and retaining great talent and cultivating a strong internal culture.
We're committed to growing our people and are proud of our consistently strong engagement scores, which are supported by external validation.
Such as our recent inclusion on the Forbes list of best midsize employers in the U S.
We believe that our team and our culture present, a sustainable competitive advantage as we look to do even more with our customers and partners in distribution and realize our potential as a leading specialty underwriter.
And with that I'll pass the call to Peter and then we tried to go over our traditional review of market conditions.
Thank you Albert and good morning, everyone.
Albert noted I will go through the particulars of the quarter.
He will also provide some comments on how exiting the reinsurance catastrophe and property lines will impact the reinsurance ratios on a go forward basis.
Overall this was another strong quarter for axis during.
During the quarter, we generated net income available to common shareholders of $27 million.
And an annualized Roe of 2.5%.
Operating income was $149 million and as Albert noted annualized operating ROE was 13, 7%.
The company produced a consolidated current accident year combined ratio ex cat and weather of 88, 4% in.
An improvement of three tenths of a point over the prior year quarter.
The consolidated current accident year loss ratio ex cat and weather was $55 three <unk>.
A decrease of four tenths of a point over the prior year quarter.
We continue to feel good about the progress that we've made across our entire portfolio.
Underwriting actions as well as rate in excess of trend have improved the ex cat loss ratio by over a point.
However, this has been offset by almost a point as a proportion of our portfolio associated with catastrophe and property lines continues to decline.
This quarters pretax cat and weather related losses net of reinsurance was $67 million or five three points, primarily attributable to south African floods and the high frequency of small to midsized other weather related events that occurred worldwide.
This compares to $29 million or two and a half points in 2021.
The consolidated acquisition cost ratio was 22% an increase of over a point over the prior year quarter and this was driven by both segments.
The consolidated G&A expense ratio was 12, 9% a decrease of over a point compared to the second quarter of 2021, and this was largely attributable to net earned premium growth.
Lastly on a consolidated basis fee income from strategic capital partners was $12 million in the quarter and as compared to $16 million in the prior year quarter.
Now, let's move into the segments I'll start with insurance.
Once again insurance had a great quarter with impressive performance across a number of metrics.
Gross premiums written increased by 16% to one 5 billion this quarter the.
The increase came from property and liability lines, driven by new business and favorable rate change.
Professional lines due to favorable rate change and accident and health lines due to new business.
The current accident year loss ratio ex cat and weather decreased by two tenths of a point in the quarter. This was principally due to the impact of favorable rate over trend in most lines of business, partially offset by changes in business mix associated with the increase in pro lines and liability business written in recent periods.
A change in business mix generated about a point of headwind in the year over year change in the ratio.
Additionally, there was some noise in the quarter due to a loss ratio catch up on some program business and so the six month number is likely a better indicator of our run rate performance.
The acquisition cost ratio increased by one nine points in the second quarter as compared to 2021.
If you recall last year I noted that the second quarter had some timing adjustments that benefited this ratio.
In 2022, we had some adjustments that actually negatively impacted this ratio clearly has affected the year over year comparison, we.
We expect that on a normalized basis, the quarterly acquisition cost ratio going forward would be about 18%.
The underwriting related G&A ratio decreased by one seven points in the quarter, mainly from an increase in net premiums earned somewhat offset by personnel and travel costs.
Now, let's move on to the reinsurance segment.
The reinsurance segment gross premiums written of 600 million for the quarter was $29 million lower than the prior year.
This decrease was attributable to cat past roofing and property lines due to Nonrenewals and decreased line sizes. These.
These decreases were partially offset by an increase in credit and surety lines, driven by new business and an increase in professional lines due to favorable market conditions.
The current accident year loss ratio ex cat and weather of 69% increased by half a point due entirely to changes in business mix driven by the decrease in cat and weather business written in recent periods.
This mix shift increased the ratio by about a point and a half year over year.
This was partially offset by favorable pricing over loss trends in most lines of business.
In fact, when I look at the current accident year loss ratio ex cat and weather, excluding the cat property business the ratio improve by more than two points year over year.
The acquisition cost ratio increased by almost a point compared to the prior year quarter.
Again, this was primarily due to changes in business mix driven by the decrease in property catastrophe business written in recent periods.
We also had some upward adjustments attributable to loss sensitive features driven by improved loss performance, mainly in our motor lines.
Well it is our policy not to give guidance I believe it is important for me to help frame the transition of our reinsurance portfolio as a catastrophe property business runs off.
I've just been talking to you about the impact of mix shift.
Since we're moving to a world, where it'll be zero property and catastrophe business in our reinsurance book I wanted to give you a sense as to what we expect the portfolio could look like.
If I take the first six months of this year and completely eliminate the catastrophe business and property business.
Pro forma year to date reinsure, its ex cat and weather loss ratio would be about six points higher than the 60% reported a year to date.
Also the pro forma year to date acquisition cost ratio would be about a point higher than the reported year to date acquisition ratio.
We anticipate these increased ratios will be offset by a significantly reduced cat loss ratio.
Over both the past three and five year Timeframes the annual reinsurance cat loss ratio has averaged 13, 5%.
So I expect that exiting the reinsurance catastrophe property business will be a net positive for the company.
While the X cat combined ratio may increase on a relative basis I expect a significant decrease in cat loss ratio were more than offset that increase.
And our resulting combined ratio should on average.
The flat or better with much less volatility.
These new ratios will manifest over the next 18 months as the Cat property book runs off.
To give you an idea of timing.
The net unearned premium reserve at the end of the second quarter.
The catastrophe and property business is about $190 million.
I expect about 60% of that to run off by the end of this year another.
Another 25% in the first half of 2023 and an additional 10% in the second half of 2023.
The remaining 5% is essentially gone after 2024.
I Trust this additional detail will be helpful in understanding our portfolio going forward.
And now turning to investments.
Net investment income was $92 million for the quarter compared to net investment income of $105 million in the second quarter of 2021.
The decrease in net investment income was primarily due to lower gains from alternative investments, which were particularly strong in the second quarter of last year.
This was partially offset by an increase in income from fixed maturities attributable to increased yields.
At the end of the quarter the fixed income portfolio had a book yield of two 4%.
And a duration of three years.
And our market yield was four 3%.
With the current book yield now at 60 basis points higher than at the beginning of the year and the market yield about 200 basis points higher than the current book yield.
We expect to see the benefit of higher net investment income over the course of the next quarters and years.
If rates stay at their current levels with our current duration and portfolio characteristics. We can expect to see income from our fixed maturity portfolio approached $300 million for the full year 2022.
And potentially increase by another $100 million for the full year 2023.
The significant increase in income from our fixed maturity portfolio will help improve operating earnings and restore book value loss due the increase in interest rates.
As previously announced the company's board of directors authorized the repurchase of up to $100 million of the company's common shares through December 31 2022.
During the quarter, we repurchased $35 million of our common shares pursuant to this program.
Okay.
Diluted book value per share decreased by $4.35 in the quarter to $47 62 sets.
This was principally driven by net unrealized losses related to increased treasury rates and the widening of credit spreads.
Well the increase in rates was impacted has impacted our book value per share. It's encouraging that the new money yields are now higher than our portfolio yield and bodes well for future investment income growth as I noted earlier.
Overall, the continued improvement in most operating metrics and positive momentum in our core underwriting book This was a strong quarter for axis.
That summarizes our second quarter results as well as provide some details on the reinsurance segment and net investment income with that I'll turn the call back over to Albert.
Thank you Peter.
Let's do a brief overview of market conditions and outlook and we'll then open the call for questions.
Market conditions are still favorable and while as expected the rate of increase was declining we continue to achieve meaningful increases across nearly every line, we write and remain on the whole ahead of loss cost trends.
The average rate increase in our insurance book was close to 10% for the quarter.
This represents the 19th consecutive quarter of rate increases for our insurance book, which in the aggregate now exceed 50% since the beginning of 2017.
By class of business professional lines. Once again saw the strongest pricing actions with average rate increases of more than 16%.
But as I noted last quarter professional lines are diverging and pricing trends and thus best explained in three parts.
The first is cyber which continues to experience hard market conditions with an average rate increase of 62%.
The second is public D&O, which is less than 8% of our overall professional lines book, but this saw a 15% decrease this quarter.
As I shared last quarter, the combination of strong price increases in past periods fewer new business opportunities the coming online of new capacity.
Along with the recent decrease in the number of filed cases.
All led to a more competitive environment.
As a result of these factors, we're riding much less public D&O business than we did at this time last year.
However, the rest of the professional lines book, which comprised more than 60% of our professional lines remained healthy with average rate increases of close to 7%.
Casualty lines are averaging over 7% with primary casualty strongest at more than nine and excess casualty at over five.
Property rate increases were up more than 7%.
Our other specialty lines experienced single digit rate increases with an overall low single digit average for that portfolio.
During the quarter, 93% of our insurance portfolio of renewed flat to up with about 30% of renewals delivering double digit increases.
On a year to date basis, our average insurance rate increase was close to 11%.
And just as in prior quarters.
We continue to see new business pricing metrics at least as strong as if not better than renewal pricing.
Let's turn to reinsurance.
For the quarter the average reinsurance rate increase was close to 9%.
Aviation generated increases of more than 13% and liability was up more than 11%.
Professional lines were up 9%, while motor Marine credit and surety also modest gains below 5%.
Overall as Pete noted are experienced in the second quarter reinsurance renewals was consistent with those of the first quarter.
We reduced property and catastrophe reinsurance volume by more than 50%, while growing other lines, including credit and surety motor and cyber by 13%.
Thus total reinsurance gross premiums written were down only 4%.
For the July one renewal season, we were substantially out of property and catastrophe, but still grew other lines such that the July one renewal volume was down 32%.
And the business, we renewed we experienced average increases of close to 7% with aviation motor in the mid to high teens and liability of about 11%.
Green A&H and professional lines were all in the mid single digits, while workers' comp in the credit and surety were close to flat.
And on a year to date basis.
Our reinsurance pricing is up eight 5%.
I'd like to take a moment to put these metrics in perspective.
And our rate change discussion.
We present, our renewal rate change on a like for like basis per unit of risk.
Our reported rate increases are over and above the additional change in pricing on renewals from a reevaluation of the exposure base that may be impacted by financial inflation.
Thus our year to date rate increases of close to 10% for our entire consolidated book.
Compares to a loss trends, which we see to be in the mid to high single digits.
We're thus satisfied that our pricing remains ahead of loss trends.
I hasten to add that we're not looking just the pricing to improve our overall results.
We continue to take intelligent actions on risk selection attachment points Lifesize and other terms and conditions all of which are expected to deliver a favorable impact on our underwriting results.
Stepping back when looking at our overall portfolio.
By and large we feel that the vast majority of laws are adequately priced at this moment.
However, we also know that our industry is experiencing an all in loss trend in the high single digits with all factors are considered.
We're also continuing to operate in an uncertain environment as we collectively work to navigate the impacts of political and economic instability.
The Russia, Ukraine War and the ongoing questions until the full long term costs and the effects of the COVID-19, pandemic beyond financial and social inflation.
It is therefore imperative that our industry keeps pricing in line with these loss trends to protect our margin.
On the positive side, our industry has a comforting historical record of adjusting to inflation and pricing to reflect those loss cost trends.
For these reasons, we expect that on average our industry should sustain pricing above loss cost trends through 2023.
We've already seen some lines re accelerating in light of new data and conditions and I believe that this reflects the discipline, we expect to see in this market.
This scenario would maintain industry margins at adequate levels and provide us with excellent opportunities for profitable growth, especially given the ongoing positive fundamental conditions in E&S and wholesale markets, where we have very strong positioning.
Overall, we look to the future with optimism and excitement with.
We've proven that access is no longer a transformation story, but rather a profitable growth story.
The progress delivered over the past few years has been both substantial and consistent and we're convinced that the actions. We continue to take will further advance our market positioning and our profitability.
We know we must continue to enhance our business at every one at axis is committed to that goal.
Feel privileged to be surrounded by a strong and talented team that's dedicated to supporting our customers and focused on advancing our goal of growing axis as a profitable leader in specialty underwriting.
Thank you for your time and with that let's open the line for questions operator.
We will now begin the question and answer session to.
To ask a question you May press Star then one on your telephone keypad, 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 is from Brian Meredith with UBS. Please go ahead.
Hi, Thanks, a couple questions here for you first I just wanted to make sure I heard I think you said that January one renewals were down 31% in reinsurance.
July one renewals, so I want to.
Yes property was.
It was down like 97% because as you know we had some quotes outstanding.
But property was 97% we grew the rest of the of the book that was available for growth. So net net it was 32, but as you know July is a very property heavy renewal so.
I absolutely would not.
Take that number and apply it to the book.
Got you got you that makes sense I'm just curious on that if I look at your liability reinsurance you know, it's it's growing but just a little bit how much of an impact are you seeing from getting out of the property business and certain other lines like liability so call. It in whole account type business.
Okay.
So.
We don't do a lot of whole account type business, but I think youre probably.
Addressing the question of how are we going to continue forward as a specialty underwriter.
And that's a fair question.
We've thought about that long and hard as we made our decision and.
Let me share with you some of the some of the components that went into our thinking so number one.
We've been building these multiline relationships and specialty lines relationships for quite a while now so we're actually in a good position as.
As of June 30th.
We had about $2 $1 billion of reinsurance premium in force in all lines other than property and property cat. So obviously, it was a little bit higher than that but assume that property and property cat goes away as we expect whats left as of June 30th as an in force book of about $2 $1 billion.
Of that amount Brian 55%.
Is with accounts that have no cat property business.
And so we think that those accounts should not be meaningfully affected by our announcement.
Of the $950 million or so of premiums with accounts, the Dubai property coverages from us.
50% of that volume is from accounts with property makes up less than 10% of the relationship premium and.
And 80% of that volume.
It is made up of accounts, where property makes up less than 25% of the relationship premium.
So we think that this reflects our deep multi line relationships that we've built with our customers. So.
Certainly, we hope and expect that given the quality of our relationships the multi lines that we have.
And the service that were off of what we're planning on retaining and even growing.
Those relationships over time.
As you know of course, we've been exiting property or reducing property for a year now. So this is not the first moment that we've taken certain accounts to zero and I can say that with virtually all of the accounts.
We've taken down to zero you were still trading very healthily with those people so.
We certainly.
Respect that our customers have choices.
But we plan to earn in defense every dollar of reinsurance premium that we want to keep going forward.
Makes sense. Thanks, and then I just wanted to just two quick questions. If we think about you know the mark to market on your investment portfolio, Alright, and then just with the impact of what that was on an equity piece, how should we think about your debt to cap ratio here do you think about it.
Actually it was she I do you think about it.
<unk> the marks and it looks like it's going to be above 30% as of the end of the second quarter definitely the cap. If we include the Mark how should we think about that.
Yeah, Brian you're right. It's a back over 30, if you recall it was over 30, a number of years ago, and what I would say is.
I do look at it I do look at the impact just due to the movement of interest rates and we will over time.
We really want that ratio to get back down to 25%, but I'm willing to do it over time as we see investment income come back into the into the balance sheet as well as interest rates continue to move going forward. So I would say right now it is high it's due solely to the change in interest rates as you looked at but I look at that as a long term figure and.
And really we'll expect to see us in the future get it back down at that 25 to 30 range.
I really want to target 25, but I'm willing to take time to get there right.
If that happens.
Got it sorry, Brian .
Only comment that I was going to add is obviously there is a mark to market component, but as you know our fixed income portfolio has a double a minus rating we.
We feel pretty good that.
Maturities.
We're gonna give us back 100 cents on the dollar so thats a discount that overtime should unwind.
Either through just the natural unwinding of the bond or a sale and then reinvestment at a higher rate. So we really view this as a temporary.
Increase in leverage that should unwind naturally over over a short period of time.
Thank you.
Yeah.
The next question is from Yaron <unk> with Jefferies. Please go ahead.
Good morning.
I wanted to go back to the the exit from property reinsurance and could you maybe help us think about what that means for capital.
How much capital is.
So you did with that book today, and what would your.
Goals for that capital be once it's released.
So I guess the short answer is as I mentioned to you just a second ago. We've got about 300 odd million dollars of premium in force.
In the property Cat book.
<unk>.
So that's running off over 18 months.
And certainly our primary goal is to use that to drive more profitable growth and other specialty lines. The PTO and anything else that I said, the only thing I would mention is Albert's number is a gross number you're on and when we look at capital requirements that cat business. We're really looking at the net written premium for rating agency Formula.
And that number because we do see about 50%.
Of our of our property business to our third party capital partners will be much less than the 300 that Albert mentioned sure I mean, I did note that I got about $190 million of unearned premium net premium on the books. So that's probably a better think we try to think what's the right number to think about for capital and average point.
The number one use I think for that capital as we continue into 2023 will be solid organic growth in our lines of business, where we continue to see some attractive opportunities.
Thanks for that.
Thank you and then my second question goes to the insurance accident year loss ratio, where I understand there is a mix shift that is continuing to influence the results. When do you see that mix shift starting to slow or the impact of that mix shift starting to slow and for us maybe to see more of the.
The rate over trend and.
Maybe the re underwriting of some of the businesses coming through more forcefully.
So there's probably two pieces to that I think there's always going to be some but there is no question that right now.
Because of our of our limited cat appetite, we're holding back on the growth.
Property, while we're not holding back on the growth of the other specialty lines. So it's probably on it given where we are right now it's probably accelerated.
So I think that's relevant I do want to make one comment you talked about re underwriting I've got to say, we like where our book is as I mentioned, we delivered an all in combined ratio of 88 in the insurance book, you've done a lot of work over the past five years I mean at this point.
I think we're very well positioned and it's really about continuing to build on that.
I don't see repositioning or re fixing or whatever the term was.
Thank you.
The next question is from Elyse Greenspan with Wells Fargo. Please go ahead.
Hi, Thanks, good morning.
My first question, you know given where your debt to cap is above.
Above 30% with preferreds right now as long as the move we've seen in.
Interest rates are you.
Do you guys still expect to complete the remainder that you have left under that hundred million authorization. This year.
I would say, we'll we'll look at that through the rest of the year lease I mean right now.
The $35 million in the quarter, we felt good about the purchases. We did there we will continue to evaluate it as we go through wind season here in the third quarter and if we think the market still looks attractive as Albert said I when I look at the change due to interest rates, we will be earning that back as those bonds March towards maturity, but also in higher invest.
Net income as we go forward and I think when we think about the stock buyback in our capital management. It will be I'll call. It a point in time, but it's also looking at it over a couple of years. So right now I know I've got to $65 million, we're gonna look if it makes sense.
We will decide when we get into probably after wind season, we see what the cats due to decide whether we want to use it or not but I think it's going to depend upon market, where the where the stock's trading where interest rates go as well as how wind season goes for us.
Okay.
You want right.
No. That's helpful and then in terms of the insurance.
Underlying margin and the mix that we were just talking about.
As you might assume that at least you know.
Given the mix shift going on there that at least for the balance of the year, probably the impact of mix on that underlying loss ratio could continue to overshadow the earned rate over trend or how should we think about the balance between those two items.
I don't know I mean, we still showing positive year over year.
Where.
So theres always we've had headwinds for some time as we've been shifting the book.
So our mind, it's the right call.
But even through the first six months.
The change in mix did not completely overshadowed the rate over trend yeah, we I would say at least when I.
Think about this quarter there was some some noise in the quarter onetime things that increase the loss ratio just in the quarter, but as I look out to the rest of the year as I said I think the.
Full year, we'll probably come in.
Somewhere around that 51, where we are year to date now may bounce around where specialty company could be a little bit lower could be a little bit higher in any one given quarter, but I think that 51 overall last year in the second half of the year. We ran at about a 58, we had some really good property results in the second half of last year, if they manifest themselves we could be right about the same place.
The second half of this year, but I mean, I think when I think about where that book is low fifties as really good solid.
Current accident year loss ratio for that book.
Yeah.
And then after that.
And the cat, we exited might you guys still have some cat exposure stemming from the primary operations.
Would you say on the consolidated catastrophe mode of Axis ends up at.
Well I guess I'd say two things on that one at least one I would say you still may see a little bit of cat because I don't think it's going to be zero in reinsurance because we're still in the marine business. There in marine is exposed to cat, but it will be negligible I'll just put it that way.
And when I think about the report card that we've that we've put out for you all and we've seen last year's cat loss ratio was nine 5%. We said, we really wanted to get that down.
Good 3% to 4% this year I would say, our new expectation would be a cat load less than five.
Okay. Thanks for the color.
Again, if you have a question. Please press Star then one.
The next question is from Josh Shanker with Bank of America. Please go ahead.
Yes. Thank you for taking my question.
Wondering I guess, if you can frame for me, how you think the reserves and paid to incurred ratio will trend in the coming year as the remaining property reserves come off the book and are replaced by higher amount of cash.
Casualty reserves, which tend to be more reserve.
Tensive overtime also you know a big onshore type resorts were coming off how should we frame that next year transition.
Okay.
Yeah.
We've talked about this metric before Josh I think in the quarter reinsurance was right around actually just slightly above 100 and insurance was down around.
78.
What I would tell you and you can look in the financial supplement to see those numbers, but I would say specifically for reinsurance what we're going to see is probably a top line coming down because the cat is going to run offs youre going to see your incurred number. This is pure math youll see the incurred number coming down we still have cat and property claims to pay out.
So those will be getting paid out so that might affect the reinsurance ratio in that way longer term over the next say 18 months when we actually close out a lot of property claims as you know will be an longer tails of business. They tend to run with a little bit lower paid to incurred because you're putting up the incurred especially if those books are growing.
And you ticked basically not paying the claims for it for a couple of years out. So I think right now we'll have to wait to see the reinsurance business turn into a growth mode. And then you should see them come down a bit because of the paid but moving mixed a lull period times. They just said moving the mix the long tail will definitely decrease that on the reinsurance.
Side over the next couple of years.
And.
And generally related where are we on a cool with IBM or is there still a large cobra.
Hum.
This reserve on the book.
I guess, what I would say on Covid is one we didn't change the reserves in the quarter again, we feel good about it.
On the paid side.
Again right now on the insurance side, we've got over 90% of the insurance is paid so we feel really good about that and then we're continuing to just drive that to an end on the reinsurance side. The payers are still pretty minimal and so I would say the page there are less than 25% is my recollection.
And so you've got a fair amount of case reserves and IV and are still sitting there in reinsurance and with that that was fully expected. We think that COVID-19 from a reinsurance perspective will be a longer event to actually come through.
Okay. Thank you for the answers.
The next question is from Meyer Shields with <unk>. Please go ahead.
Thanks.
Pete in particular, thanks, so much for the.
For the explanation.
Reinsurance on a pro forma basis, one remaining question pessimistic about it.
In the reinsurance segment with regard to Harrington the other partners.
Yeah, that's a really good question Juan I'll handle a couple of the details, but I know I think Albert you want to add some color there because we are seeing really good traction with our third party capital partners on other business outside of property Cat. We've done some really good deals when we think of.
Long tail business and we're also looking at other opportunities in that book in that particular business lines, all I'll, let Albert address that yeah, but overall I would say if you look at our fees year to date.
I've actually got.
There is about.
$12 million associated with property year to date, and so I think we're going to see that come off but I do think that we will see some fee income go.
Go back up due to.
Some of our business in the long tail lines I'd also note that everything we do at Harrington, which is a substantial part of our fees right now yeah. It's all long tail business Harrington re seat out pro lines motor and casualty business too. So if I look year to date.
We've got about 29 $30 million of fees about 12 of that was associated with property. So the fee income will come down, but we still think we'll be able to generate fees on those long tail business lines, yes.
Thanks Pete.
We started our third party capital, obviously with with Cat and property, but as you know we've been very proud of the fact that we've been able to expand our partnerships to include a very broad portfolio of risks.
To the point where today.
More than 50% of our fees are actually coming in from longer tail lines.
So I think to your point as Youre looking forward.
Very likely that there'll be a dip in 2023.
As we lose the.
The cat piece, but on the other hand, we're still working hard at continuing to share other risks. So over time, we would hope that those fees will be replaced.
By new relationships new fees as we look to expand the non the non cat lines with our third party capital partners.
Okay Fantastic that's helpful. And then just a second follow up on reinsurance.
Setting aside the the mix shift how our ceding commissions on the specialty lines that youre seeing and how are those ceding commission rates trending.
I would say that they probably hit their peak this year.
In terms of.
Of the reinsurance sessions I think that Youre seeing it is firming up so.
Our.
Overall, we've seen a little bit of pick up as you know in some of the quota shares and property and professional lines.
If I were to look forward. My guess is we probably seen the peak of those.
Okay excellent. Thank you so much.
This concludes our question and answer session I would like to turn the conference back over to Albert benchmark for any closing remarks.
Thank you.
I noticed a couple of questions on again on the impact of of mix shift and I realize that as the book is progressing.
It makes it add some.
Most of the comps but.
I just wanted to share with you some of the ways that I look at it.
Pete spoke about doing a pro forma of the book completely excluding property and property cat and we certainly do that because thats. The book that we want to see going forward and I can tell you that for the quarter and for the year to date.
If we were to take all the property in the property cat out of both sides, we would've seen a decline in the combined ratio even with the more active cats.
This year, we would have seen a decline in the all in combined ratio, we would have seen a decline in the ex cat loss ratio in both the second quarter ended the year to date. So when I look at this core books that we are growing that is the foundation of <unk> going forward, we feel very good that we're continuing to see progress in the profitability of that book and I believe that as <unk>.
The book runs off you will see that.
Much more visibly.
So thank you for your attention and thank you for your time.
As I do often.
Before.
Wrap up the call I'd like to say, thank you to my <unk> colleagues for all they do every day to support our customers and make us a stronger company.
They've delivered a great quarter for us, we're continuing to make great progress.
And we look forward to.
Speaking to you again and reporting on better progress and more progress as we go forward. Thank you everybody.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yeah.
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Okay.