Q3 2022 Everest Re Group Ltd Earnings Call

Welcome to the Everest re group third quarter 2022 earnings 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.

I'd like to turn the conference over to Mr. Matt Warman Senior Vice President of Invesco.

Give me senior Vice President head of Finance and Investor Relations. Please go ahead Sir.

Good morning, everyone.

The Everest re group Ltd third quarter 2022 earnings Conference call do you ever see executives, leading today's call are one brought any president and CEO , Mark Clouse, Danzig thinking Vice President and CFO .

Also joined by other members of the Everest management team before.

Before we begin I would.

Preface the comments on today's call by noting that every SEC filings, including extensive disclosures with respect to forward looking statements.

Management comments regarding estimates projections and similar are subject to risks uncertainties and assumptions as noted in our filings.

Management May also refer to certain non-GAAP financial measures. These items are reconciled in our earnings release and financial supplement with that I'll turn the call over to Juan.

Thank you, Matt and good morning, everyone. Thank you for joining us today.

The current heightened and complex risk environment underscores the value of beverage balance sheet.

Our commitment to support our customers with solutions vital to navigating this turbulent period.

Ever suffer syndication strategy and underwriting discipline mitigated our exposure to one of the largest hurricane losses in U S history.

With our well defined strategy, we are poised to take advantage of the hardening market.

Focused on segments with the best risk adjusted returns.

Both underwriting businesses delivered sub 90, Attritional combined ratios and we are profitable on a year to date basis.

That's like top talent, we continue to grow and diversify globally by business and products.

We are focused on executing our strategic plan as we build a company for the long term.

Our purpose is to provide protection and stability in the face of uncertainty.

And if someone who was routes and family in Florida.

Devastation caused by Ian it's heartbreaking and our thoughts are with all those effect.

I am grateful to our colleagues around the world, who are supporting our customers and communities stay rebuilt.

We have improved the company's risk profile across both reinsurance and insurance.

<unk>, our cat exposure with a more durable resilient portfolio capable of absorbing historic industry lost like Ian and containing it to an earnings event and just 1% of our estimated industry loss and with our reinsurance segment being below 1%.

We apply the same consistency and discipline to how we develop the overall portfolio manage expenses investor capital and expand operational efficiencies.

Sure.

Everest value proposition has never been more important to our clients and partners and we arent committed that's both insurers and reinsurers to being where we are needed.

Now I'll turn to the company's financial results first from the group and then for each of the underwriting business.

In the third quarter, we grew gross written premiums by over 6% in constant dollars.

Growth was broadly diversified led by continued double digit growth in insurance.

We continue to benefit from positive rate and increased exposure growth.

We are ahead of loss trend and that is before the effect of all the deliberate portfolio management actions, we are taking to improve margins.

The combined ratio for the group was 112%, including the previously announced pre tax catastrophe losses net of recoveries and reinstatement premiums of 730 million primarily from Hurricane Dorian.

It is important to note Everest has additional hedging protection in place in the form of cat bonds.

We did not include a cat bond recovery and our net loss estimate.

However recovery start is the P. C S industry event for E N exceeds 48 billion.

Mark will provide additional details.

Again, the actions we took in both of our businesses to reduce that exposure have meaningfully benefited us.

In reinsurance, we significantly scaled back our retro.

Reduced participation in aggregate probe.

She had cat exposed pro rata and exposure to lower layers of cat programs.

And achieved significant rate increases higher attachment points and improved terms and conditions in the past several years.

Reinsurance gross and net P. M L have reduced significantly across the entire curve.

And in insurance, we decreased gross P M ALS for South east win by over 40% since last year.

Gross exposure limits in our U S property portfolio are down more than 35% year over year.

But this in concrete terms.

Our share of the industry loss for E. N is lower than any other major land falling hurricane and more than 15 years.

And we will continue to optimize our portfolio.

Turning to our underlying performance in the third quarter.

The group Attritional combined ratio improved to 87.6 year over year.

With improvements in both segments and a new historic low for insurance.

The group Attritional loss ratio was strong at 62.

It was a 70 basis point improvement from last year.

This includes an outstanding 110 basis point improvement year over year in reinsurance.

The group expense ratio in the quarter was stable at five 5% and remains a competitive advantage.

An elevated level of catastrophes during the third quarter resulted in a pretax underwriting loss of $367 million.

Net investment income was $151 million driven by stronger fixed income returns as new money yields continued to improve.

As expected this was partially offset by volatility in the equity markets.

On a year to date basis, we generated net investment income of 620 million.

Quite severe turbulence in all markets.

Finally, operating cash flow for the quarter was strong at $1 1 billion.

We continue to execute our strategy, despite the challenging environment evidenced by our year to date profitability.

Now turning to our reinsurance business.

Reinsurance gross written premiums increased three 4% over last year on a constant dollar basis.

Excluding the impacts of reinstatement premiums.

Growth was broadly diversified led by 16% growth in our global casualty and professional lines book, where we are focused on key seasons or achieving strong underlying profit improvement with pricing outpacing loss trend.

This was offset by targeted reductions in our property book, which was down 8% over prior year as part of our strategy to improve the diversification and economics of our overall portfolio.

We continued to benefit from a flight to quality.

We grew with our core clients, where affording those new and expanded opportunities across our portfolios.

This strategy served us well.

We bring clients a strong balance sheet.

<unk> ability and expertise.

Allowing us to target higher margin opportunities in all lines of business and geography.

Bind ratio of 115 was driven by the previously announced pre tax catastrophe losses net of recoveries and reinstatement premiums of 620 million from Hurricane Dorian as well as the European Hail storms Hurricanes, Fiona and typhoon them at all.

Year to date reinsurance generated $14 million an underwriting profit.

Our attritional combined ratio of 86.8 improved 30 basis points from the prior year.

A year over year Attritional loss ratio improvement of 110 basis points to 59.1.

Yeah.

Our attritional loss picks reflect our deliberate actions to improve the portfolio's risk adjusted profitability.

We continue to see improving loss ratios, while the pressure for increased commissions is easing.

Everest is well positioned to benefit from the underlying rate increases and improving terms and conditions in the market post in.

Events from the ear will affect the January one renewal and a variety of ways.

In North America, we expect the property market to be dislocated.

Particularly in property cat due to recent losses, combined with economic inflation, increasing demand and a meaningful contraction of capacity.

Underlying casualty pricing should remain strong.

Internationally, there are nuances, depending on class and region and we will flex accordingly.

We are well positioned with the balance sheet capabilities and relationships to capitalize on the momentum fueling improved economics across property and casualty and a targeted and disciplined manner.

Because of the balance between property and casualty in our book, we have the ability to dynamically deploy capital both the crossline angiography and can remain nimble and opportunistic as market conditions warrant.

Waste within our defined risk appetite framework.

Jim Williamson is available to provide additional details during the Q&A.

Turning to our insurance business, where we continued to achieve double digit growth with sustained margin expansion.

Growth in insurance was strong.

We achieved a new third quarter premium record for the segment with over $1 $1 billion of gross written premium up 13% in constant dollars.

Growth was broad and diversified across most lines and regions and was especially strong in U S casualty.

Excluding DNO and transactional liability, where the macro environment a slowdown in M&A activity Ipos et cetera has had an impact on deal flow our growth was 20%.

This is a testament to our underwriting discipline as we focus on trades meeting our underwriting return objectives.

We are benefiting from additional premium on many inflation sensitive lines, particularly in property general liability and workers' compensation.

We continue to exceed loss trends.

To more normalized levels in the future.

Increasing rates are important, but rich selection, improving terms and conditions limits management and growth in inflation sensitive exposures also contribute meaningfully to sustaining and increasing margins.

Insurance growth was partially offset by continued actions to optimize the portfolio, including reductions in U S property catastrophe exposure.

The impact of natural catastrophes, primarily hurricane and led to 110 million pre tax catastrophe losses net of recoveries and reinstatement premiums at the border and resulted in a combined ratio of $103 five.

As I mentioned earlier underwriting actions to diversify our property portfolio made a significant difference in our results.

We will continue to hone our portfolio to manage volatility.

This discipline is reflected in our year to date underwriting profit of $95 million and it is indicative of our progress and portfolio composition.

The insurance division's third quarter Attritional combined ratio of 89.8 is the best in its history and a 50 basis point improvement from the third quarter last year.

The attritional loss ratio for the quarter was 63 point too.

Up slightly compared to Q3, 2021 driven predominantly by business mix relative to last year.

Year to date, Attritional loss ratio, which is less affected by timing and business mix improved by almost a full point over last year.

We continue to diversify internationally with progress in Europe .

America and Asia.

We recently opened two new ever since <unk> operations in France, and in Germany. In addition to our operations in the Netherlands, Chile and Singapore.

Our success continues to be powered by investments in great talent.

And we continue to fuel our growth with sophisticated data analytics and systems that support streamline their best in class service across the organization.

My car beloved she's on the call to provide more detail during the Q&A.

Our discipline and seamless execution are essential to performing in today's environment.

We are targeted in our approach, we're highly diversified by geography business lines product and in our people.

You have a cultural advantage in how we manage the company.

We view this as essential to cultivating excellence in our business and we are proud to have been recently recognized as an industry leader in this area.

I am very optimistic about ever stability to deliver superior value to our shareholders clients and colleagues.

Now I will turn the call over to Mark to take us through the financials in more detail.

Yeah.

Thank you Juan and good morning, everyone. It's one mentioned given the impact of Hurricane in Everest reported an operating loss of $5.28 per diluted share in the third quarter. We remained profitable year to date with operating income of $14 91 per diluted share which demonstrates the resiliency.

Our diversified businesses and the disciplined execution of our strategy.

Income stands at $101 million year to date, while the total shareholder return or Tia Saar was minus 1% year to date, given the cat losses as well as continued volatility in the equity markets.

Despite those headwinds we them.

Proved our attritional combined ratio in both segments again, while generating disciplined growth as pricing and terms remain attractive in a number of our core lines of business.

Just on the underlying performance of the business. Our team continues to execute at a high level, despite the cat and macro volatility and we remain well positioned to take advantage of opportunities present in the current marketplace.

Looking at the group results for the third quarter of 2022 ever reported gross written premiums of $3 7 billion, representing 6% growth in constant dollars the combined ratio of 112% for the quarter.

<unk> 27, four points of losses from previously announced natural catastrophes, primarily for Hurricane Ian.

Well as European Hailstorms Hurricane Fiona.

Several other cat events around the globe.

While it is still early days following hurricane in our industry and company net cat loss estimates are $55 billion and $600 million respectively.

Everest also has up to $350 million of cap on protection that will begin to attach starting at a $48 billion P. C S industry loss threshold for Ian.

Recovery would be recognized on a pro rata basis up to a $64 billion tcs industry loss level.

Tcs is currently estimated the loss at roughly 41 billion. This.

This potential recovery is currently not included in our $600 million loss estimate, but it does provide significant downside protection should the industry loss grow.

I'd also like to mention that our exposure in Florida, which was primarily homeowners base.

It mitigates, our exposure to auto and flood losses.

But our participation to the NFIB is de Minimis.

Group Attritional loss ratio was 62%.

70 basis point improvement over the prior year's quarter led primarily by the reinsurance segment, which I'll discuss in more detail in just a moment.

The group's commission ratio improved 30 basis points, 29% on mix changes, while the group expense ratio was stable at five 5%.

Moving to the segment results.

Starting with reinsurance the reinsurance gross premiums written grew three 4% to $2 $6 billion in constant dollars the growth in the quarter was driven primarily by casualty pro rata as well as strategic growth in other international lines.

Combined ratio of 115% includes 32, and a half points related to natural catastrophes largely attributable to hurricane in the Attritional loss ratio improved 1.1 points to 59, 1% as we.

We continue to achieve more favorable rate and terms as well as shifting the book towards accounts with better risk adjusted return potential.

This shouldn't ratio was 23, 9% broadly in line with last year. The underwriting expense ratio was two 4% as earned premium growth and we remain focused on operational efficiency across the entire platform.

Moving to insurance, where we continue to build solid momentum gross written premiums grew 13, 1% in constant dollars to $1 1 billion in the quarter.

The combined ratio for the quarter was 103.5% up modestly year over year due to the cat losses I mentioned earlier.

The Attritional combined ratio improved 50 basis points to 89, 8% for the quarter at 120 basis points year to date is rate and exposure continue to outpace trend further supported by our focus on risk selection and favorable loss experience.

The attritional loss ratio was slightly higher year over year due to mix of business. The commission ratio improved one point, largely driven by business mix and increased ceding commissions.

The underwriting related expense ratio was 14% 10 basis points of reduction over the prior year, which is 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.

And finally to cover investments tax in the balance sheet.

Net investment income for the quarter was $151 million, we are continuing to see the benefit of higher new money yields in the fixed income portfolio, while the lag in reporting for alternatives was a modest drag on results in the quarter.

Overall, our reinvestment rate continues to trend higher as new money yields which were roughly 4% just a few months ago. We're now north of 5% in today's market.

Opinion to have a short asset duration of approximately three one years and as a reminder, 22% of our fixed income investments are in floating rate securities.

Hi, good equity investments yielded a negative 30 million P&L impact in Q3.

As equity markets have declined in 2022.

As a reminder, they are reported on a one quarter lag.

For the third quarter of 2022 are operating income tax rate was approximately minus 22% due to the geographic mix of income and loss significantly impacted by the cat losses, and thus favorable to our working assumption of 11% to 12% for the year.

Shareholders equity ended the quarter at seven 6 billion driven primarily by the third quarter rise in interest rates. There was a corresponding negative 671 million dollar impact on the value of available for sale fixed income securities year.

Year to date unrealized losses in the fixed income portfolio.

Wait to approximately $2 2 billion. However, operating cash flow of $1 1 billion was very strong during the quarter and it stands at $2 $7 billion year to date.

We also repurchased $58 million of our own stock during the quarter.

Well as approximately $6 million of subordinated debt.

Book value per share ended the quarter at $195 27 per share while the book value, excluding unrealized appreciation and depreciation of securities stood at $245 29.

Versus $252 12 per share at the end of 2021 due to the lower net income and foreign exchange headwinds of a stronger U S. Dollar.

That leverage at quarter end stood at 25, 1% an increase in the leverage ratio driven by the unrealized fixed income market value declines noted previously.

That summarizes our third quarter results with that I'll turn the call back over to Matt to begin our Q&A.

Thanks, Mark operator, we're now ready to open the line for questions did you ask you that you. Please limit your questions to one question plus one follow up and rejoin the queue. If you have any additional questions.

Thank you we will now begin the question and answer session 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.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Michael Phillips from Morgan Stanley . Please go ahead.

Thanks, Good morning, everybody.

Well first question one.

Sitting around the liquidity property cap market.

And I kind of want to get onto I guess, both your willingness and ability.

To take part in that.

You've been talking a lot about reducing volatility and kind of shying away from that business, but now things have changed.

And I would ask when your willingness how.

Do you want to grow in that in that business, but I think that's probably going to be a function of how rates move at the end of the year.

So maybe you could share with us and there was some kind of threshold you have in mind, where you would like to participate pretty aggressively.

Are you willing to grow in that property cap market and then.

I assume that you do want to.

How much is your ability to do so inhibited by.

The markdowns in book value.

See I impacts, especially in light of what we're seeing from S&P recently thanks.

Thats great Mike that's a pretty comprehensive question. So let me let me give you some thoughts on that and then I'll invite some of my colleague shop as well, let me address the growth question first and.

As I just said in my prepared remarks, we absolutely continue to see significant opportunities for growth in 2023.

And Everest is very well.

Very well positioned to achieve that growth given the market. As you. Just described it also the strong client relationships and broker relationships that we have.

The relationships that have been built over decades. We also have the strength in the portfolio and we have expertise across lines and geographies that allow us to deploy capacity, what we're seeing the best opportunities. So again very bullish about the growth opportunities that we see going forward in.

In the property cat space, specifically to your question there.

The hardening that we're already seeing is going to intensify post it and we've seen that in the discussions that we've been having initially.

Initially in Monte Carlo and certainly post that CIB and individual discussions that we've been having with our seats.

<unk> priorities with regards to property cat are pretty straightforward number one is continue to harden our portfolio from our limits structure rate and term standpoint, basically continue the work that we've been doing now for the past several years number two is getting paid significantly more for the risks that we're already taking.

And number three prudently grow with core seats, where we see the opportunity where we see the alignment of interests et cetera. All of this however, within the trading range that we've outlined with respect for natural catastrophe exposure.

The bottom line as the market affords us tremendous opportunity right now and we will select the best options to maximize our returns and appropriately manage the volatility so from a growth perspective, that's how we're looking at the market right now I would invite Jim Williams, just to talk a little bit more specifically about pricing and some of the other questions that you had as well sure.

Thanks for the question, Mike It's Jim.

Would reiterate some of what Juan said to start by.

Just really can.

Bang how tremendous we think his market opportunity is and I think in the U S that is really a complete dislocation of the property cat market and it's going to allow us to do a number of things. One described the categories. Let me give you a little bit more detail because I think it's critical on the first part in terms of hardening our portfolio, even while the market has been taking rate over the last couple of years.

Here's I think we've still been living for.

For the most part with.

Some of the areas of the market, which really makes you susceptible to climate change things like aggregate programs cat exposed pro rata.

Some of the peak risk that comes along with our retro book.

And then on.

And the second piece, which is really about getting paid more to put some context around that I would say the expectation that the market had for pricing going into Monte Carlo.

In terms of average rate increase is now the minimum for programs that really haven't been affected by loss and it'll go up from there and while I expect clients to try to mitigate some of those rate increases by taking higher attachment points, which which were in favor of it.

My sense at this point is that rate change will be topline accretive for us.

Even if we are making changes to the portfolio and then the last piece around growth with target seasons, that's a very real opportunity for us where we are in front of us we're already having discussions with our core trading partners around the world. There is an intense demand for capacity in general in Everest capacity, specifically and we are.

Very thoughtful about picking up high quality opportunities. So I think all of that nets up to a higher margin portfolio a portfolio Thats I would guess more likely to be bigger after one one that it is today.

But also one as Juan indicated that's well within the defined trading range that we set out in 2021.

And maybe what I would add to that Mike is that at the end of all of this we can see additional premium coming in because of this but also reduced exposure overall, which for us is a terrific trade.

Okay. Thank you guys Thats a pretty comprehensive.

Yes.

I can maybe take that you have more or.

E versus loss mix. This time that could come back if litigation can take off.

Things like that so other possible recoveries like that that might happen more so for this storm in prior storms.

Yeah. Thanks, Mike look I think a couple of thoughts and I think Mark Cushy answer alluded to some of these in.

And in his statement look the cat bond that would start attaching.

<unk> is a 48 billion.

It's a primary downside protection that is definitely worth keeping in mind and thinking about as you know peace.

Tcs is the trigger for that Dcs right now it's effectively at 49 rounded up to 41 billion.

And we could potentially foresee that loss growing to that trigger point at 48, and as Mark mentioned that would be a pro rata recovery up into the $60 billion range and it would be significant downside protection. So I think that's one of the most important things to keep in mind.

The other thing that I think Mark mentioned Thats worth spending a little bit of time on is our exposure to Florida is particularly to the specialty carriers that focus on homeowners. So to the extent that this is more of an auto loss or it has a higher proportion of auto losses as we are seeing already in the market.

That's essentially a good thing for us the other thing that is a good thing for US is essentially a higher percentage of flood losses. As we're also seeing in the market right now.

For for the estimate that we've put up there the other part of it is we do have.

Good L. A E load into our estimates as well given the dynamics of the Florida environment as well so from that perspective, we continue to see this as being a prudent estimate that we have out there right now, but let me ask my colleagues and see if they would add anything to that answer as well yeah sure Mike It's Jim Williamson again.

Just to add a little bit of flavor to what Juan has already described on lately <unk> loading in particular I think we've obviously leveraged a lot of the data we have to come up with a loading or L. A that we think is extremely prudent.

So if there is better than expected activity on that front, which I think is possible that would definitely in order to our benefit the other thing I would.

Seth it into to put this in some concrete terms I mean, I think our view would be if the loss ends up being.

Smaller than we've been we've indicated in terms of total industry loss. Our view is that our share would remain relatively stable over a reasonable range. So that means our net loss would that would ultimately come in smaller and then so once earlier point. There is also upside protection in the form of cat bonds, if thought Tcs calls.

As an industry losses.

Being larger which sort of caps our upside dollar value of net loss. So I think it puts us in a really confident position relative to the net loss that we had indicated.

And this is Mike Carmela I would just add on insurance division side, we'd be certainly benefited from third party reinsurance as well you, obviously infrastructures, but not to get into details, but we do have a quota share per risk and other kind of extra wells that we use that we'd be able to get some benefit from as well.

Okay wonderful thanks, guys all the best.

Thanks, Mike.

The next question comes from Elyse Greenspan from Wells Fargo. Please go ahead.

Hi, Thanks. Good morning. So my first question I guess picking up on the reinsurance side.

So it sounds like you guys will try to manage any increase within your risk tolerance is but you could write more business I think you said with existing clients. So as you see the market evolving next year.

How do you envision that coming together at both your cat load and your P&L, what would they be higher or how how do you envision managing those next year.

Yes Elyse. This is this is Jim Williams and yes. It took to first of all to reiterate some of what I said earlier I mean, I think this is a fantastic market opportunity.

And what that what that translates into is an ability for us to really set terms and conditions in a way that you know.

We're obviously going to be highly favorable and I think that will include an ability for us to manage our total exposures wanted indicated while still driving higher revenue and more importantly, much better margins much better contract terms conditions attachment points et cetera, and so.

I would say my sense is we're not gonna have to stretch.

Keith.

Our total risk load, whether you measure it in P&L or the cat load.

In order to drive the types of outcomes, we're describing which again could include.

Some really nice growth as well as margin expansion and I think this is one of the lease and again. Thanks for the question again are our goal is to expand risk. Adjusted return tried it's really to expand our margin and that's really the significant opportunity that we see in front of us and as I, just said to Mike a few seconds ago. The reality is with.

The current pricing. The current terms, we think we can grow the top line without necessarily growing the exposure and you know.

Our strategy to continue to manage volatility for the long term to diversify the company is still very much in place, but we do have the nuances of this market, which will allow us to make those trades, where we think we can expand margins and we can continue to grow.

Thanks, and then my second question.

You guys pointed out mix impacting the insurance underlying loss ratio, how should we think about the underlying loss ratio trending from here as youre getting price above trend.

We're also thinking about mix shift would you expect improvement in.

In that number I'm not just talking about the Q4 I'm also thinking about 2023 as well.

Yeah, no. Thank you Alicia and looked at what I would guide you to is what I said in my prepared remarks, and this is one which is look at the year to date Attritional loss ratio for the insurance Division and that's basically.

80 basis points better than the prior year and the way we get there is through a lot of the levers that I've talked about in the past right. It's the cycle manage it's the diversity of our of our business make sure we're able to move a pretty nimbly two lines that have better risk adjusted returns better profitability et cetera et cetera.

Our commitment is to continue to improve the profitability and the margin within the insurance Division and I think as I've said in prior calls you go back to the end of 2019, where that was running at around 96, now you're running sub 90 or not on the Attritional combined ratio for the division and Thats. What you should expect I mean, that's to come.

And that's where we're driving this too going forward, but I would invite Michael envelope, which may be dead.

Yeah, I would just add a couple of things. One. This is a long term game. We continue to focus on this business that drives the right margins and the other piece too is we focus heavily on the combined ratio as well so we see our package and as you've seen over the last four rolling perspective in the last 24 months, we've actually he's actually brought our combined ratio down 24 I'm sorry.

Couple of questions here, just first one I'm just curious.

Sure. Brian This is Jim Williams in a couple of things Mount Logan is structured essentially kind of a quota share basis and so the results that at risk generates for its own balance sheet or the same results that.

Our Mount Logan investors experience, which is I think a differentiator for us because it creates an incredible alignment of interests and it didn't mean it means in situations, where we have a large loss events.

Investors in Mount Logan are getting.

Exact experience that we're having on our side. So it will be very consistent that way.

One thing that I would mention.

Obviously any given quarter in the third quarter in particular can have elevated cat losses, you really need to look at it over time and I would say on a year to date basis. While we have had significant cat activity. This year. We have also collected a great deal of cat premium and that is ignoring to the benefit of our Mount Logan investors and so I think.

I don't think there'll be any surprises in that for them and then just a little comment on the external environment around ILS and fundraising we have a very robust pipeline of ILS investment opportunities I think theres a lot of interest in the offering that we have in Mount Logan and in particular.

Based on the factor that I, just mentioned around alignment of interests. It is a more challenging environment to raise ILS capital just because people are getting out of rethink, but that's what's driving a lot of the hardening in the dislocation we've seen in the market.

The good news is from our perspective, we think about gross lines management.

Really as an independent factor and so whether we raise X or Y amount of money in Mount Logan is not going to affect how we think about our gross line underwriting we're really looking to drive gross profits.

That translates into a net profit for our balance sheet as well as good results for our Logan investors and we're going to continue that approach.

Great. Thank you that's helpful. And then I wanted to just curious you may have kind of alluded. This to your comments, but what are your thoughts on the casualty reinsurance market. Here are these events could I have a favorable impact on pricing and terms and conditions in the casualty reinsurance market.

And it sounds like you're well positioned to take advantage of that if that's the case.

Yeah, Brian I would agree with you look I think number one I think we are very well positioned for frankly, the reasons that I stated earlier right. We're well diversified we have the client and the broker relationships, we have the balance sheet.

So from that perspective, we feel very good about where we are and you saw it in the numbers that we quoted this morning, right our global casualty book and reinsurance grew by 16% in the quarter and the reason for that is because we do see the opportunity continuing right. We do expect primary rates to keep up with trend in 2023 and the casualty.

<unk>.

We expect reinsurance terms and conditions to be stable to improving and that will allow us to continue to deploy additional capacity into the space and look when you think about the macro factors that are impacting that.

There's a lot of risks can be environment right. So if you think about social inflation in the U S. If you think about economic inflation around the world.

Companies are being very disciplined right and so from that perspective, we do expect that pricing terms and conditions to remain favorable throughout 2023.

I think that's a great opportunity for us to continue executing on our strategy, which is diversifying the book.

At our numbers in the supplement now our reinsurance Division is basically now split 50 50 between property and casualty and Thats important because we're not a one trick pony right, we have levers to pull and we're pulling them, but let me invite Jim 12, So maybe deepen that that answer sure. Thanks, Juan Yeah, Brian I think what our.

One is and what we're starting to see even in the 11. One renewals for example is relatively light, but we are seeing some indications is that we've really started to see the leveling of ceding commissions play itself out we expected that to begin to occur that is in fact occurring in fact, we're starting to see some examples of ceding Commission.

Receding, a little bit, which we think is quite healthy and I do think to a degree that's tied to what's happening in the property cat market and when we engage our seasons, we really tried to come up with constructive solutions across lines for those customers and in many cases, they are absolutely willing to.

Related to an increase in available cat capacity or a restructuring of another program and so all the cards around the table that way and I do think that combined with the ongoing strength in the underlying market that Juan talked about means that casualty will be a great opportunity for us and not 2023.

Okay. Thank you.

Josh Shanker from Bank of America. Please go ahead.

What might happen to that next year at the extent to which you are reliant on the ILS markets and as the next few years go by and.

Yes. Thanks, Josh This is Juan let me, let me start that and then I'll ask my Karma luggage to talk more about the ceded reprogram within the insurance Division look I think as as we've talked about in the past we are not dependent on.

On retro on the ILS market et cetera to deploy capacity and I think that is one of the significant advantages that we have here at Amyris Ware.

Some of our peer competitors are not in that situation and it's going to be a very difficult renewal in some ways. A January one because theyre also still into at this.

So we're actively working in the market to be able to deploy capacity. According to the strategy that we outlined a few minutes ago, but let me ask Mike to jump in and talk a little bit about the ceded reprogram that we employ within the insurance Division, yes. Thanks, Ron Thanks, Josh for the question, Yeah, I think specific to the insurance business. The reality is.

Just like <unk> said were not relying on third party coverage, even though we do purchase and manage our portfolio in that way. It doesn't help it doesn't we're not necessary for us to execute our business plan. So we see that market, having impact and I think we'll see some things.

Think it'll be material.

Having the wherewithal and the financial strength of Everest and having all the different scale that we've created over the last couple of years gives us the ability to be able to execute our plans with not being reliant on it I do we will tell you I do think it will have impact and behavior on a lot of peers, who are relying on reinsurance.

Yeah.

Thank you and just a question on the investment portfolio is there any arbitrage opportunity for you to crystallize and recognized investment losses.

We have the opportunity to redeploy at a higher yield or is it just a matter of.

Taking expiring bonds and redeploying them at the current opportunity.

Josh It's mark so we have we have that opportunity, but we do have a.

A few other considerations in that kind of <unk>.

Decision tree. So one you've got the strength of the operating cash flow coming in in the maturing portfolio. So that's feeding.

Second point is where are we with with rates in general I think the air for them seed card.

<unk> off guard in late September .

The rate rise and you have a question here is are they done.

We've seen them kind of undershoot throughout the year and so it's also a question of when you go in having said that I would say that we are looking.

Looking to lengthen duration a bit on the fixed income side and we do have the significant allocation to floating rate.

Securities the 'twenty two points, which rises in that environment. So.

I think we're quite comfortable with both the pace and the direction that we're moving yet but your first option is definitely something that's on the table. If we if we want it.

Thanks for the answers.

The next question comes from Mike Ceriman Zarefsky from BMO. Please go ahead.

Hey, good morning follow up to the last question on the investment portfolio I'm curious, what's the duration of the floating rate portfolio or maybe the yield to that we should think about in the floating rate portfolio.

Well the duration is.

De Minimis youre dealing with a 0.1 0.2 type of effective duration.

Calculation on it the yield itself on a on a standalone basis is quite attractive just depending on the.

Type of Cielo is we're dealing with so.

It's pretty much an investment grade portfolio, the triple as the Triple BS Youre going to get different series of yields between them. So you can get anything from six handles to even upwards of a nine.

Depending on the type of credit quality, that's being discussed.

Okay interesting. Thank you.

Moving to.

Outside of the investment portfolio.

<unk> are in excess of loss trend, which bodes well for margins.

I heard your commentary on ceding commissions on the reinsurance side.

Can I just just curious.

Yeah.

You have rates and then maybe I just need to read the re read the transcript there's a lot of good stuff in the prepared remarks.

<unk> versus kind of the first half of the year or are they holding kind of kind of up.

We have not seen a deceleration in the third quarter over the second quarter.

Okay, Okay interesting.

Yeah.

It sounds like you guys don't want to quantify what the dollar amount of recoveries would be between like the 48 to two.

Of the $1 billion, if it hits it versus your $55 billion pegged on the industry losses might thinking about that correctly, there will just be <unk>.

<unk>.

No no no.

During my prepared remarks.

Mike.

Was making the point that we have a $350 million limit.

On our cat bonds between an industry loss of $48 9 billion and approximately 64 billion and it's really a pro rata.

Recovery, depending on where PCF ultimately sets there industry loss pegged right. So currently they are below that 49, if I if I recall correctly.

So there is downside protection and obviously our loss pick for the industry is at a 55, so you'd have.

Full recovery in essence, with maybe some basis risk between our pegs and whatever the cat fund is coming out with.

Oh it could develop.

Okay understood. Thank you for the color.

Thanks, Mike.

The next question comes from Meyer Shields from K B W. Please go ahead.

Great. Thank you a.

Couple of.

Quick question first in the context of Mount Logan or ILS investors.

Are there new investors that are now looking at the asset class.

That you're speaking with or observing.

I think a lot of emphasis on sophisticated investors who have been in the asset space for quite some time, we have I would say a pretty good pipeline a high degree of interest.

Particularly given the.

Opportunities they have with Everest. The fact that we have such a strong alignment with the underwriting of our cat book and the reinsurance division so from that standpoint.

Like I said nice pipeline and sophisticated investors and lots of money to deploy tactically you know a different layers and we're fortunate that we can be.

Those different types of appetite because of our scale.

Okay. That's very helpful. Thanks, and then just a small question in terms of operations when you've got an event like.

Hurricane and how should we think about the impact on the acquisition expense ratio.

You might be referring to primarily on the reinsurance side.

In terms of what our commission ratio would be in a quarter, where we had a significant cat events and.

And reinstatement premiums and reinstatement premiums do come with <unk>.

No. That's helpful. I was actually asking about incentive compensation or whether there's a change to year to date numbers.

Uh huh.

Yes, Okay, I see I see your point Meyer from on a reinsurance basis, I think thats a relatively minor issue.

So that would not be the factored for transcribing.

The next question comes from Yaron <unk> from Jefferies. Please go ahead.

Good morning, everybody.

I wanted to circle back to the cat load.

And.

At the same time I think if we look at year to date.

Late into the fourth quarter, we are getting to about 10% cat load range for the year.

And Thats off of I think a relatively normal industry cat losses, you have call it $110 million.

And that just I think it's still coming up a little bit ahead of what you had guided to for the year. So was hoping to get a better understanding of what that delta.

And I appreciate the fact that you haven't.

Danny has a cap on recoveries on Ian yes, but I would think that those only start recovering.

If the loss really starts spiking to the point that we are well above.

Our annualized normalized cat load.

Sure you are on is Jim Williams and thanks for the question.

I think I'll take a couple of key points to unpack. The question because it's an important one and I will start with.

A little bit of a description on how we arrived at the 6% to give you some perspective on that and so we leverage both external.

Cat modeling capabilities, the same ones that are used across the industry as well as our own internal analytics to perform a ground up assessment of our enforced portfolio, which gives us an average view over an extended period of time of what we expect.

Net cat losses to look like so it's important to remember, it's an average and in any given year. Obviously actual results will vary from that average.

In terms of the alignment of that load to total industry losses.

Or the idea that we're in a period where industry losses are going to range, whether it's you think it's a 100 or $120 billion a year, how does that compare to our cat load.

It's very consistent.

Our view is that that is a relatively normal year, but what you have to keep in mind is what events make up the 100 or 120 billion is incredibly important and I'll share. Some specific examples just from this third quarter, we're tracking around the world 74 events that occurred during the quarter that are considered cats by the industry.

<unk>.

In various parts of the world is structured to avoid more attritional type of cat losses.

So that gives you a sense of that and then in a year, where you have a cat four nearly cat five.

Florida landfall hurricane, that's obviously going to be much more of a reinsurance event and drive more loss into the reinsurance market, which is what's resulting in our cat actual cat loss being in excess of our cat load. So hopefully that that allows you to square the circle and Theres. No question that there you could have a year with $120 billion of cat losses.

Our cat load is less than 6%.

It really is that dependent on what events are driving it and then the last piece as you do mention we're not including any cap on recovery in our estimate of net losses and my view would be a Pcs continues to develop upward and does trigger our cap ons remember, we called and at 55 billion. So my my gross loss.

Great that's very reassuring. Thank you.

My second question and it's amazing what a difference a quarter makes I think last quarter I asked about the 8% to 12%.

Cougar and reinsurance.

And your target in reinsurance for three years, maybe coming in a little bit below that expectation.

Yes.

Again, our quarters.

So a big difference.

Is it just given the different market dynamics do you think that that 8% to 12% CAGR maybe on the low end now.

Yes.

It's Jim again, I mean, I think the first thing I would do.

Remind everybody thought that that was an assumption that we made that was built into our strategy for getting to a total shareholder return we have a lot of levers to drive those returns outside of reinsurance growth rate. So that would be one key point. The next as we have driven significant growth. If you think about when we made that call we were really beginning.

Launching off point was the end of 2020. So we have driven very significant growth. It was very frontloaded, because we saw that market opportunity, particularly in casualty.

So that's very relevant but to your broader point is due do I believe that our prospects for growth in 2023 are greater now than I would have believed the last time, we talked about it absolutely I think the market opportunity that we all know is in front of us will give us the opportunity to drive more topline at better margins probably with less.

Total exposure on the property side, and then as one and others have indicated on the casualty side, we think there's a renewed opportunity to continue our growth rate in the specialty lines Theres a tremendous amount of dislocation that has occurred.

Due to the war in the Ukraine and other factors, we think that will present, some very interesting opportunities and then we continue to invest in our business, which gives us new capabilities to deliver value to our customers and drive top line growth. So I think.

What quarter does make a huge difference on that.

And the last thing I would say and I've said it before it's all about risk adjusted return and expanding margins and profitability and we see the opportunity to be able to do both.

Thanks, so much and best of luck.

The next question comes from Ryan Tunis from Autonomous Research. Please go ahead.

Yeah.

I guess first question could you just give us an idea of.

On the reinsurance side for me and the complexion of the loss.

Domestic Florida carriers national carriers.

How concentrated is it an individual programs.

Yes, sure Ryan It's Jim Williams.

The first thing to indicate just when we think about our view of the industry loss. We do think this is this is primarily going to be a residential driven loss.

With obviously, a very large component of home, but probably a bit of an outsized auto loss as well.

For our particular portfolio, we will definitely be concentrated in the Florida specialists for.

For the most part of this as a general comment but for the most part our large national clients wont see significant attachment and their programs, obviously there'll be some loss, but not not that significant they've managed their exposure in Florida very carefully. So there is that factor and as market indicated in his comments.

I think that's actually quite a good thing for us because.

Potential creep around the loss related to things like auto for example, or commercial flooding are not going to be a factor for us. So if that if those two factors were to drive uplift in the ultimate industry loss that really shouldn't have an impact on our net loss. So I think I I think about that as a very good thing.

Got it and then.

Just a follow up I guess.

Kind of a risk management standpoint, if I look at the 10-Q.

It would predict.

Our southeast wind loss of this size.

Somewhere between one in every 101 of every 250 years obviously.

Ian is not that rare so.

Is there any thinking internally about maybe dusting off these models are just putting a little bit more weighted toward common sense.

Yes, Ryan.

One just with respect to where you ended that question.

We use the models for a number of things, but underwriting judgment expertise and a whole lot of common sense go into how we manage risk how we set our risk thresholds, how we price our business, how we decide whether or not you'd want to.

To participate in programs et cetera, but in terms of your point.

Look I think what Ian shows if you look at our current loss estimate at 55 billion.

And our net P&L statistics, showing more like a $1 41 in 15.

Which which I don't think the return period on a storm like this is that remote I think it's more like call. It a 120 plus range and the delta between those two figures is really our prudence around the cap on recovery because again, we're publishing net P&L our expectation as market indicators to give you that number is if PCF catches up.

Cap on recovery, which would lower our net loss, which would with square.

Our Pms are published P&L. So that's why you're seeing a little bit of a headache, it's not anywhere near one in Ontario.

Got it.

Yes. The 10-Q it says that this will one in 'twenty to what should have been or should have enhanced rewards.

Thank you.

They can travel upward a long way without having any impact on our view of our gross loss, but we would begin to recover lowering our net loss and so I think.

It tracks to my view of what a one in 20 ish type of event would look like.

Thanks, Jeff.

Thanks, Brian .

This concludes our question and answer session I would like to turn the conference back over to Juan <unk> for any closing remarks.

Thank you for your questions.

And the great discussion today I think as you can hear from this management team, we are very bullish about the future and the opportunity for all of our stakeholders.

Passion innovation from our team is valuable in every facet of this business. Thank you for your time today and for your continued support of our company. We look forward to talking to you at the end of the next quarter.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

Yes.

Yeah.