Q3 2022 AXIS Capital Holdings Ltd Earnings Call
Hello, and welcome to the Q3, 2022 axis capital earnings call.
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Note today's event is being recorded.
I just had a conference over to your host today Ms. Yang Zheng. Please go ahead.
Thank you Keith good morning, ladies and gentlemen, I'm happy to welcome you to our conference call to discuss the financial results for Axis capital.
Quarter ended September 30.
Our earnings press release, and financial supplement issued last night after the market.
If you would like copies. Please visit the Investor information section of our website at active capsule with icon.
We set aside an hour for todays call, which is also available as an audio webcast on our website with me today are Albert them Tomorrow.
As a new CEO and Pizza Hut U F O b.
Before I turn the call over to Albert.
Everyone that the statements me during the call, including the question and answer session, which are not historical facts may be forward looking.
Forward looking statements involve risks uncertainties and assumptions actual events or results may differ materially from those suggested in the forward looking statement you see a variety of factors, including the risk factors set forth any company's most recent report on Form 10-K, and other reports the company files with the SEC.
This includes the additional risk identified in a cautionary note regarding forward looking statements.
Earnings Press release issued last night.
Let's take no obligation to publicly update or revise any forward looking forward looking statements.
In addition, this agency this presentation may contain non-GAAP financial measures. Reconciliations are included in our earnings press release and financial supplement with that I'll turn the call over to Albert Albert.
Thank you Mike.
Good morning, everyone and thank you for joining our third quarter earnings call.
Before we begin our review of results I'd like to stay that our foremost concern is with the welfare of the communities impacted by hurricane in.
Other catastrophic events across the globe, both natural and man made.
It's at times like these that our industry has an opportunity to just fulfill its social purpose to help people when they are down.
And for Axis, we're committed to do our part to support the victims and aid in the recovery effort.
Let's now begin a review of our quarter.
We believe the events in the quarter have validated the actions that we've taken over the past few years to enhance our market positioning and build a more balanced resilient and profitable portfolio.
During the quarter notwithstanding the impact of Ian another cat losses, our performance provided further evidence that the business. We're building is one that will deliver positive results in both high and low cash quarters.
Indeed, even in the quarter, where the industry is anticipating more than $70 billion of insured cat claims access is now generating positive operating income and.
And for the year to date, while our industry has already suffered aggregate cat losses in excess of $100 billion.
Access has increased its underwriting income by 75%.
And our operating income is up 30%.
Recent third quarter cats are a good illustration of our progress.
We estimate hurricane Ian will be a $60 billion of event.
And that were $160 million charge represents less than 0.3% share of the industry loss.
By comparison in last year's third quarter Hurricane Ida was a $35 billion of events.
And our $175 million loss estimate represented a market share of half of a percent.
We're confident that our progress will continue in every part of our company is executing on the actions that will add the most value to our business.
Our specialty insurance business delivered 12% premium growth for the quarter and 16% for the year to date.
While doing so.
We continue to see meaningful improvements in our underwriting performance with good underwriting profitability in both the quarter and year to date period.
Our nine month insurance combined ratio all in came in at an attractive 91, 2%, a one and a half point improvement of one point over the prior period and our nine months insurance underwriting income of $204 million.
Is up more than 40% over the prior year for our insurance business.
For our reinsurance business, we're encouraged by the early results from our efforts to reposition axis re as a specialist player.
The reductions that we've made to our cat exposures had been rewarded this quarter with a significantly lower market share of industry cat losses. Moreover.
Moreover, through the first nine months of the year, our reinsurance business is delivering an underwriting profit of $23 million with a combined ratio of 99.1.
And while we've seen decreases in our overall reinsurance gross and net premiums written it's all due to our planned reduction of property and property cat reinsurance.
The rest of our reinsurance book is up 7% for both the third quarter and the year to date.
Thus far we're lowering cat volatility in growing where we want to which is exactly our plan.
Peter will shortly be taking you through the highlights of our results.
But stepping back to look more broadly at our transformation.
We recognize that our substantial changes and business mix shift has led to challenges in comparing sequential results on a like for like basis.
And in establishing a foundation for projecting future performance.
To help in our third quarter financial supplement we've provided additional pages, where you can see what our company would look like without the reinsurance property and cat book that we've discontinued.
The highlights from the expanded supplements are highly encouraging.
Excluding reinsurance property and property cat business from all periods on a pro forma basis in 2021.
<unk> consolidated gross written premiums would've grown 16% with an ex cat current accident year combined ratio of $92, six which would be a four point improvement over the prior year.
And an all in combined ratio of 97 four.
And so far this year.
On a pro forma basis consolidated gross written premiums would have grown 13%.
The ex cat current accident year combined ratio of 90.1 would be a two and a half point improvement over the prior year.
And the all in combined ratio of $96 two would be one 2% better than the prior period.
On that same basis pro forma underwriting income would have been up more than 25%.
Our industry will always have some quarterly volatility and noise, but the positive but the positive trends are evident.
We've already taken all the actions necessary to deliver this new axis and the remaining property cat reinsurance exposures should have substantially run off by April of 2023, giving us confidence that we can deliver the kind of performance indicated by these pro forma results.
And as I will share later, when we talk about the rate environment. We're confident that axis is very well positioned in the current market.
The ongoing impact of high cat loss activity financial and social inflation, economic and geopolitical uncertainty and a little more limited reinsurance capacity are anticipated to drive favorable market conditions through 2023 and beyond.
With anticipated growing demand for specialty coverages and meaningful growth of interest income.
Axa should have the wind at its back.
Our focus now is to continue to build on the momentum drive further profitable growth and enhance the value that we provide to our customers and shareholders.
And with that I'll now pass the floor to Pete Who'll walk us through the third quarter financials, then I'll come back to discuss market trends and we will have our Q&A Pete.
Thank you Albert and good morning, everyone.
During the quarter, we generated net loss attributable to common shareholders of $17 million in an annualized ROA of a negative one 7% operating income was $3 million.
Diluted book value per share at September 30 was $43 50.
This was principally driven by net unrealized losses related to increased treasury rates and the widening of credit spreads.
As noted in our press release adjusted for net unrealized losses on available for sale fixed maturities the book value per diluted common share would be $55 and 21 sets.
Which would have been a modest increase from the comparable year end 2021 number.
As I noted in recent quarters, while the increase in interest rates has negatively impacted our book value per share.
We are confident we will recover these values as our high quality fixed income portfolio matures over the next three years.
In the meantime, new money yields are now significantly higher on our portfolio.
And this will give us an opportunity to grow investment income.
The company produced a consolidated current accident year combined ratio ex cat and weather of 88, 1%.
An increase of half a point over the prior year quarter.
And the consolidated current accident year loss ratio ex cat and weather was 57, 1% an increase of about 1.7 points over the prior year quarter.
Which was driven by the change in business mix in both segments.
As previously announced this quarters pretax catastrophe and weather related losses.
Net of reinsurance and reinstatement premiums were $212 million or $16 six points primarily.
Attributable to hurricane in.
This compares to $250 million or 27 points in 2021.
The consolidated acquisition cost ratio was 18, 7% a decrease of four tenths of a point over the prior year quarter and this was driven by a decrease in both segments.
The consolidated G&A expense ratio was 12, 3% a decrease of eight tenths of a point over the prior year quarter.
This was largely attributable to the growth in net earned premium.
Moving on to the segments.
I'll start with insurance.
Gross premiums written increased by 12% to $1 3 billion for the quarter.
This is the highest third quarter gross premiums ever written by the insurance segment.
And it follows on the heels of the highest first and second quarters ever written.
The increase primarily came from professional lines, driven by new cyber business and favorable rate changes.
Liability and marine lines due to favorable rate change.
And new business and accident and health lines and credit and political risk lines.
The current accident year loss ratio ex cat and weather increased by one eight points compared to the prior year quarter.
This was principally driven by a point of pressure due to our liability program business two thirds of which is a catch up in the quarter to reflect year to date performance.
There was elevated loss experience in marine and property lines, which I would characterize as normal volatility around these lines nothing concerning or systemic.
Lastly, we also had impact of mix as we write more professional lines liability and A&H business.
This is not a concern to us because while these lines have a higher X cat loss ratio we.
We do like the all in technical ratios combined ratio and the risk adjusted returns on these businesses.
Yeah.
The acquisition cost ratio decreased by three tenths of a point compared to the prior year quarter. This was primarily related to changes in business fit business mix, reflecting less high cost property MGA business and more lower cost professional lines and liability business written in recent periods.
The underwriting related G&A expense ratio decreased by one six points compared to the prior year quarter, mainly from an increase in net premiums earned.
Now, let's move on to the reinsurance segment.
The reinsurance segment gross premiums written of 400 million for the third quarter was $80 million lower than the prior year.
I'd remind you that the third quarter represents only approximately 15% of the segments annual gross premiums written.
Given our announced exit from the property and catastrophe lines in June the decrease in gross premiums was essentially attributable to these lines.
The decreases were partially offset by increases in agricultural lines, driven by new business.
The current accident year loss ratio ex cat and weather increased two eight points compared to the prior year quarter.
This was due to changes in business mix driven by the decrease in catastrophe business written in recent periods.
When you review the additional pages in the financial supplement that Albert mentioned earlier, you will read that this quarters loss ratio ex cat and weather, excluding the property cat business has improved from the prior year quarter and this is due essentially to rate over trend.
The acquisition cost ratio decreased by three tenths of a point compared to the prior year quarter.
This was primarily due to adjustments attributable to loss sensitive features driven by the motor lines in the accident and health lines.
Underwriting related G&A expense ratio decreased by seven tenths of a point compared to the prior year quarter.
This was mainly driven by decreases in personnel costs related to our exit from the property reinsurance business.
Net investment income was $88 million for the quarter compared to net investment income of $107 million for the third quarter of 2021.
In the quarter investment income from fixed maturities was $87 million.
Up over 35% from the $64 million in the third quarter last year as.
As the yield on the portfolio has increased from two 1% to two 9% over the last 12 months.
Offsetting the increase in fixed income net investment income or losses from alternative assets compared to gains in the prior year.
Alternatives will have some quarterly volatility, but in the long term. We continue to believe they are an attractive asset class.
As I just mentioned at quarter end, the fixed income portfolio had a book yield of two 9%.
It also had a duration of two nine years.
Our market yield is five 5%.
260 basis points above the book yield.
Given the duration of our portfolio and the current market yields we would expect net investment income from fixed maturities to be at least $125 million greater in 2023.
Then in 2022.
Lastly, I'll note that when you review, our PMO disclosures, you'll see that the pms have come down significantly as compared to July one.
The decrease was driven by catastrophe aggregate cover on our insurance property book, where the aggregate deductible has almost entirely been exhausted due to the cats in the third quarter.
As a reminder, the aggregate copper has a $10 million per event deductible.
Then cover 61% of the losses above that point for the event.
With this cover in place, we feel well protected on the insurance property book from now through May 2023.
Excluding the impact of this cat aggregate cover the October one P. M. L levels would be generally consistent with what you saw in July one 2022.
That summarizes our third quarter results and with that I'll turn the call back over to Albert.
Thank you Pete.
So we'll do a brief overview of market conditions and outlook and then we'll open the call for questions.
As with last quarter, the market environment continues to be favorable.
As expected the pace of pricing increases does continue at a moderate never.
Nevertheless, pricing improvements continue to be broad based with a vast majority of our product lines achieving rate change equal to or above loss trends.
The average rate increase in our insurance book was 7% for the quarter, marking 20 straight quarters of positive rate change, bringing the cumulative rate change for a book to almost 60% since the beginning of 2018.
By region International was stronger at close to 9%, while North American market it was closer to 6%.
By class of business professional lines. Once again saw the strongest pricing actions with average rate increases of close to 10%, but as I have noted in recent quarters professional lines are diverging and pricing trends and best explained the three parts.
The first is cyber which continues to experience hard market conditions.
With an average rate increase of 45%.
The second is public D&O, which is less than 7% of our overall professional lines.
This line is seeing the most challenging conditions with the rates down more than 30%.
This was driven by much greater reductions in the IPO and <unk> business, what traditional renewal business is exhibiting more modest reductions.
Consistent with past quarters. The drivers of this decrease are a combination of strong price increases in prior periods.
Fewer new business opportunities in IPO and specs the coming online of new capacity.
In a recent decrease in the number of filed cases, which has led to a more competitive environment.
Our view is that notwithstanding market supply and demand factors were in a period of high economic and geopolitical uncertainty and.
And that requires put in pricing for assuming risk thus.
Thus, we're focusing on risk selection and pricing adequacy, and therefore, providing much less public D&O business than we did at this time last year.
However, the rest of the other professional lines, which comprised nearly two thirds of our book remained healthy with average rate increases of more than 5%.
Casualty lines are averaging over 5% with primary casualty strongest at more than nine and excess casualty is up a bit over 3%.
During the quarter, 90% of our insurance portfolio renewed flat to up.
On a year to date basis, our average insurance rate increase was close to 10%.
And just as in prior quarters, we continue to see overall, new business pricing metrics at least as strong if not better than renewal pricing.
Let's turn to reinsurance.
As Peter noted the third quarter is a relatively small renewal periods for axis re impacting less than 15% of our reinsurance business.
By comparison, just over half of our reinsurance business will renew on January one.
For the third quarter, the average reinsurance rate increase was close to 7%.
Aviation generated increases of close to 13%.
The ability of motor were both up about 10%.
Marine accidents, and health and professional lines were all up in the high single digits, while credit and surety saw modest gains.
On a year to date basis, our reinsurance pricing is up 8%.
This brings the year to date rate increase in our consolidated acts as book to a bit more than 9% with almost all lines other than DNO, showing average rate change equal to or higher than loss trends.
This third quarter of 2022 was the first intern where average insurance rate increases were below 10%.
We're comfortable that current pricing is generally adequate to attractive in most lines.
Nevertheless, it would be dangerous for the industry to get complacent.
The loss trends, we witnessed over the last couple of years are unlikely to abate anytime soon.
We see financial inflation as being higher for longer and unlikely to get back to the levels, we had become accustomed to prior to 2021.
While social inflation is continuing a pace.
As an industry, we must sustain pricing at least in line with the emerging loss trends that this industry has seen since the 19 eighties.
Recent developments and talk in the industry would indicate that pricing discipline is likely to continue.
Since we last spoke hurricane Ian May have been the straw that broke the back of accommodating reinsurance.
This will likely be the six year, where the reinsurance industry will not earn its cost of capital.
Global reinsurers have taken meaningful reductions in book value with a bare capital markets and theyre, losing a substantial amount of retro capacity.
We expect a hard market for property cat reinsurance in 2023, and will likely see firming terms and other reinsurance lines as well.
We're cautiously optimistic that primary companies will adjust pricing to both reflect the heightened risk environment in which we find ourselves as well as their higher reinsurance costs. So as to protect current margins.
We also expect to see more risk transitioned to the E&S wholesale markets, our standard lines markets reduce their overall risk appetite.
In this environment.
This is particularly well positioned.
We're strongly established in the specialty markets that are seeing the most growth.
We've had great relationships with our producers and a talented team that know the lengthening track record of positive performance under its belt.
The portfolio that we're taking into 2023 provides a strong foundation for profitable growth and will lead to a much less volatile book for consistent profitability.
We're confident that the future for axis is bright.
And with that let's please open the line for questions. Operator, yes. Thank you at this time, we will begin the question and answer session.
A question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the he's just tell your question. Please press Star then two this time, we will pause momentarily to assemble the roster.
And the first question comes from your own Qunar with Jefferies.
Thank you good morning, everybody.
My first question.
Going back to the cat losses, this quarter and Ian in particular so.
How does the $60 million of hand losses pretax.
I think through how that compares to the published <unk> pet theme it seems like that losses come in well above the 100 and I don't think that's really the case, so I'm guessing there's some elements I missing there.
I think you had talked about lowering the cat load.
And even before exiting the property business and reinsurance to about 6% and it seems like it's running a little bit above that today, so was hoping to get a little bit of color there.
Thanks your own.
I'll handle the second part of that first are actually I'll handle the first part of that first year at 160 billion. If you look at the seven one <unk> you think that might be a little bit over one over 101 of the things I'd say is when every event in and of itself an actual event is different than all the modeled events and hurricane Ian.
Had some specifics about it that made it just a little bit higher and again the mass.
Our models give you kind of wanted a HUD reviews, so you've got a media and you've got a bunch of.
Events that modeled through there and I think this actual event was just a little bit higher than you would expect I also think that a part of what we do see is.
When we look at a $60 billion event like this especially on the insurance portfolio, we attach at our cat ex ol and so a one in 100 event is is not.
Not as much as a higher than you would expect from Michael one in 50 or 170 event and so I think it had to do with the specifics of the event as well as how the models kind of look at an array of events. In this actual event just had some particulars with it as well as us assuming it's a $60 billion event.
When I think about what we expect going forward, yes, we had hoped this year with all the changes we were doing to see the cat loss ratio come down 3% to four points is what we said at the beginning of the year I would say nine months were down two and a half points. So it's in the right direction, that's where we're headed I would say half three quarters of.
The way through the year did not really expect us to have 110, or so billion dollars of industry losses through nine months, but I do expect by the time, we get to the end of the year Our war our cat loss ratio will be down from where it was in 2021 and maybe not down to the five to six points that we were hoping to get it down to I.
Would say given the volatility that we've seen around cat that actually was part of the decision we made to get out of the reinsurance property in cat business and as we mentioned on last week's call. When I look at the all in number on a go forward basis, I would expect our cat loss ratio going forward to be somewhat less than 5%.
I can take that.
Okay. Thank you.
And then my second question with prop cat rates up 36% and potential spillover to other lines. How are you thinking about the session planned for 2023.
What do you expect to retain more.
And how does that impact growth opportunities.
Well, we keep talking to our reinsurers, we think we've got.
Excellent relationships with our reinsurers long.
Mutually profitable relationships going back a while from our talk right now is that we don't expect that access will be.
Anyway, this favored but what's happening in the market.
We will have to see I mean, our our cat program renews in May So we've got a little bit of time to see how this thing evolves, but for the moment, we're assuming we're going to keep more or less the same capacity, we expect that we'll have to pay more.
We will obviously need to charge more on the front ends to reflect that but for the moment, we are not assuming any meaningful change in reinsurance cover obviously as the year evolves, we will be able to to have more color on that.
Thank you.
Thank you and once again as a reminder, please press Star then one if you would like to ask a question.
And the next question comes from Elyse Greenspan with Wells Fargo.
Hi, Thanks, Good morning, My first question.
Yes, Ryan.
Dynamic embargo on and how that could evolve over the next year as well.
What are you guys are from a leverage perspective, I would assume that you're on the sidelines with buyback.
At least in the short to intermediate term, but can you give us some updated thoughts there.
Yeah, Hi, Elyse. This is Pete I would say I agree with your comment right now we didn't buy any shares back in the quarter right now I don't anticipate us buying any shares back in the fourth quarter. When you look at our leverage ratios, yes. They are elevated due to the decrease in shareholder equity.
However, we have done modeling and looking at the bond portfolio and how it will mature over the next three years and we do feel confident that as we look through 2023, our leverage ratios will actually should come down below 30, as we get into next year and should come back into reasonable ranges over the next obviously two to three years. So.
We're comfortable that we're not comfortable where I am I don't like the leverage ratio is as high as they are but I would not anticipate us having any issues getting back to appropriate levels just by the passage of time as the bonds look to mature. The other thing I would point out is I would not expect us to issue any more debt and I would say right now we feel in a good position.
And we don't have any debt maturing until 2027, so right now I don't have to worry about.
Refinancing and the high interest rate environment, we will see what it is in 2027.
And then on the insurance book you called out.
Yes.
In personal liability program and the current quarter.
Earlier this year.
Get some more color about what's going on there and then just like the outlook for that business.
Yes, we had some programs that as we're looking at the experience emerge through this year was not emerging to our liking we've taken already taken underwriting action there and we've canceled quite a number of those programs and they were on the liability side. So the good news is those are those particular programs have already been put on notice.
And and have been canceled, but it did mean that we did put up some reserves in those businesses. So if you read the Q youll see the increase in liability reserves and negative development, both in the quarter and year to date was essentially due to that book of business and because of that we increased our loss picks on that earned.
Premium as I mentioned that probably pushed the loss ratio up a point in the quarter and two thirds of that is attributable to catch up for full year.
You had mentioned that we started looking at this in the second quarter. It took some action in the second quarter and are we do feel while you can never say you're done, but we've taken some appropriate action so far year to date.
And then sorry, one follow up on my prior question on leverage if we see rates rise another hundred basis points.
Would you answer then change would you then think that you guys needed to manage down leverage or redeem some of your debt.
I think right now given.
The duration of our portfolio lease right now I don't feel that we would need to take those type of actions.
Okay. Thank you.
Thank you and the next question comes from Michael Phillips with Morgan Stanley .
Thanks, Good morning, I guess, a follow up on one of the earlier earlier questions and comments.
Sounds like you expect to have good success, passing on your higher reinsurance costs in your insurance primary book.
Casualty book I, just wanted to make sure that's the case.
I think that the issues around the higher reinsurance cost on property property cat or are going to fall across the entire industry.
And so it is my expectation.
That will have a push down effect on the primary market yes.
Okay, I don't assume that the pulmonary I don't expect I don't expect Michael that.
That primary companies are going to absorb.
Higher reinsurance costs without changing their upfront pricing.
Yes, okay.
And then there's lots of moving parts, obviously on the insurance loss ratio or loss ratio one of which of course was the mixed shift again.
And as you continue to kind of push the growth in those casualty and professional lines I guess.
Help us think about how we should think about that ratio going forward, what's continued to make some changes.
Yes, I think that what's happening is that we're growing obviously the longer tail lines more than we're growing the short tail lines or the property in particular, and so thats, having the impact on.
On the ex cat loss ratio, but is as Pete pointed out earlier.
The ex cat loss ratio is only one factor that we look at when we look at the technical ratio generally these lines come with lower acquisition expense. So the technology is actually quite good the all in the all in combined ratio for that business is good.
So overall I don't see we don't see.
That increase in the ex cat loss ratio as indicative of any reduction in profitability or attractiveness of the portfolio, but to your point as we grow that there will always be a little bit.
Of headwind.
Headwind, if you would from from from mix shift.
It's historically been on the insurance side, a point or less.
We will see what it looks like as we go next year, but.
It's been much more dramatic obviously on the reinsurance side given the significant reduction which is why we added those additional pages in the back of the financial supplement. So that you have a sense of of what's the going forward book looks like but I would say on the insurance side.
Clearly a point or less.
But I don't know that I can do much more than that right now.
Okay.
Thanks, Yes.
I would add is if you look at your year to date, Michael the mix shift has gone from 47% pro lines liability to now that's up to 51, so thats a pretty move shift this year and that's on the net earned and it's in the Q. So you can take a look at it but you're seeing kind of see a four point move there is about a point on the ex cat loss ratio, but to your point Albert.
The overall combined we really like and we see the combined ratio all in X cat down in insurance year over year.
So I think you've kind of got to watch the mix shift, but we do think that's really attractive business right now and it's gotten some of the higher rate changes over the last 36 months or so yes. Its a great ratio with a mixed as the mix doesn't change, but as soon as the mix changes you start to lose.
The message in the ratio.
Okay wonderful. Thank you guys I appreciate it.
Thank you and the next question is from Brian Meredith with UBS.
Hey, Albert Hey, Pete.
Couple of questions here for you.
The first one.
Hum.
When you listen to some of the other reinsurers and listen to some of the press the stuff, they're talking a lot about how.
Perhaps some of the reinsurers are going to leverage cat capacity to obtain more attractive terms on casualty business get more casualty business.
Just because there's such a demand for cat limit out there right now.
Just curious how do you think that impacts your alls specialty reinsurance business is there more pressure now is it going to be more challenging to keep some of that business at one one renewals.
It's a fair question, Brian and obviously, we've been we've been monitoring that.
What I will tell you is going back to the individual conversations we've had post the announcement of Monte Carlo CIB frankly, even button.
The message that we're getting from our customers that they like working with us they like the relationship we've had they like the value we provide and that they are good.
Going in position is they want to continue trading with us.
I think that where we're realistic and in some cases that may be it may be a factor where they may have to take some business to facilitate.
A cat placement.
But I would say two things, we're not the only reinsurer not providing cat.
So I don't think that we would necessarily be the first.
That gets to pay for that I would also say that there is a lot of customers that we have that don't need to buy cat and we would expect that those sessions, whether they be in the A&H business. For example, some of the specialty businesses mortgage business et cetera, we don't see how that would influence at all the reinsurance purchase.
But yes, there is a risk that we would lose some business Ive said this before we will defend every dollar of attractive business, but there is that risk, but here's what I would tell you.
And the longer pick.
Picture I don't think it matters, whether we renew $100 million more or less at the one one I think what matters is our transition to be a specialty underwriter with high profitability and low volatility.
And I will also say that whatever book, we renew into one one.
I'm highly confident will be a book with strong relationship minded buyers and that book will provide a very good base for future profitable growth for the period. So we understand the risk, but long term in terms of the company's strategic trajectory.
It's something that we will be able to manage through.
Great. Thank you second question Im just curious cyber market, obviously still getting big big price increases there.
It looks like loss activities, maybe slowed some here.
What are your thoughts about heading into next year, maybe increasing some of your retentions on that cyber book.
Yes.
Yes.
I think that the cyber it continues to grow.
From a from a price perspective.
And I think as everybody knows now it's actually a very.
Recently, good profitability now on an attritional basis, the real issue around that is the tail and so.
We want to make sure that we don't grow the tail too much as part of our risk management. So what I would say is that in 2023.
Going to continue to look for efforts to find.
Find protection for the tail, whether it would be more reinsurance or cat bond or.
Our sidecar I think in one way shape or form I think.
The number one driver of continued growth in cyber exposures for us.
Is our greater confidence in managing the tail.
That's great and then one last just quick one I'm just curious here strategic partners, what's the kind of outlook for your strategic partners business, how much of that business is cat related.
And with that I'm, assuming that goes away as you kind of exit the cat business.
Yeah, it's about 2025% of the business is cat related so as you point out we'll probably lose that.
Excuse me on the other hand.
We're encouraged by what we hear which is that most investors feel they're already very long cat and theyre looking for diversification and other lines of business and that's an area, where we have a lot of expertise.
And so we'll be looking to continue to grow our third party capital partnerships on the non cat side.
Great. Thank you.
Yeah.
Thank you and again as a reminder, please press Star then one if you would like to ask a question.
And the next question comes from Josh Shanker with Bank of America.
Yes. Thank you for taking my question.
Brian kind of asked what I want to know Bryan just one more I guess, if we're looking at.
The.
Oh, the new Euro beginning cap season is over these hurricanes you can go over you are getting out of that property re business is there an immediate capital relief that comes to axis, that's going to allow access to free up capital repurchase of own shares.
Once we get through against this hurricane season, and we have the commitment not to be writing new properly re business.
So I think the answer is twofold.
We feel that the reduction that we're going to have in the property cat book by definition.
Is going to allow us to fuel growth in other lines of insurance and elsewhere.
But as Peter mentioned earlier, and you may want to add comments to that Peter I mean from from a.
From a reported GAAP perspective, we already have a much higher leverage that we would like then we would like and so I think that we would want to see that the GAAP balance sheet get back to the to the economic balance sheet right. So the economic value is very strong.
But I think.
Would discourage any thought of share repurchases in the first half of next year unless something dramatic happens in the capital markets.
I would just echo what Albert said, Josh it's more than one thing we're going to look at when we think about share buyback and right now with the movement in shareholder equity due to interest rates, given where our leverage ratios are I think I would take share buy backs off the table at least for the next few quarters until we kind of see what that looks like going forward. So it's it's.
Less about just looking at the cat the capital we need for cat and looking at our GAAP balance sheet in total.
Okay. That's it for me thank you.
Thanks, Josh.
And the next question comes from Meyer Shields with K B W.
Great. Thanks. Good morning. Thank you for your question I think but when we look at the Q and it breaks that reserve development by line.
A step up in adverse development in liability I was hoping you could talk to whether that relates to the accident year adjustments you made.
That's a great question Meyer and it absolutely does equate to the accident year adjustments that we made when I when I look at the increase in the liability that you see in the Q as well as.
Both in the quarter and year to date, that's directly related to some of that program liability premium. We wrote in 2017 to 2021, and then that and that is reflective of where we've moved to those loss picks too for this current accident year.
Okay.
Helpful completely different direction.
Growing pretty rapidly in accident and health can you give us an update on what the market looks like.
The market for Anh is generally quite quite good I mean, I would say that some of our limited benefits health program business has not grown because of the lack of.
Opportunity there but.
For the rest of the book does well both internationally and here one of the drivers of the growth. This year has been the fact that we signed onto a large a partnership in the pet insurance area.
And so that's been driving the growth this year.
But what I would say.
They used to be a very stable business. It continues to be very stable business.
As you know the <unk> business is low to mid Ninety's high leverage good Roe racks.
And it provides good diversification and stability of the portfolio.
Excellent. Thanks, so much sorry for the interruption.
No problem. Thank you and the next question is a follow up with Elyse Greenspan with Wells Fargo.
Hi, Thanks.
You're right.
Your line is open.
Well about that book yield of 2.9, so as you continue to roll over that portfolio I think that's quite important.
North of 5%, 6%.
And just from a higher interest rate.
You bet.
Perhaps right into the high <unk>.
Is there a point, where you guys would consider.
Giving back some of that.
Net income benefit.
Potentially.
So mark welcome some of your businesses is there a breakeven point where perhaps.
What impact on pricing.
So, let's let's deal with one piece of it at a time I think youre right.
<unk> mentioned, we think that if rates stay where we expect there'll be based on the forward curves.
We should see a $125 million additional interest income in 2023 than it had been in 2022.
Your question really relates to should this leads to lower pricing and <unk>.
Personally I don't think so first of all the numbers just are not as.
As big.
These are not double digit interest rates number one number two and specialty insurance, it's not like like motor business, where you can dial the loss ratio to the decimal points.
There's only one way to rights to write specialty business Thats prudently.
And I wouldn't even know how to do what our underwriters and say by the way it will be a little more loose you can't do that you can only write the best portfolio that you can and as we mentioned earlier.
We're taking a prudent view of market conditions and loss trends and the most dangerous thing that you could do right now is fall behind loss trends so as far as we're concerned we need to maintain our underwriting margins in our book of business.
And we will take the higher investment income for as long as we can get it.
But we are not going to we're not going to take our pricing down because of higher investment income.
Thanks, and maybe one other one.
And it came up I think a little bit earlier, you gave us when you announced the company.
Spoke about.
The potential overlap with your powerful team reinsurance clients.
The question with your clients and as we go into next year renewals.
All come together.
Yes.
A lot more confidence.
Won't be as much of an impact in your casualty reinsurance business any kind of update there.
Yeah, So we mentioned that.
Earlier, and I think that.
I will just kind of repeat the general answer which is we have very strong relationships. We've been getting very positive comments from our clients and brokers, but their desire to continue to do business for us, but where we're realistic it might take it might be an issue.
That there may be one or two.
Or more I don't know accounts that may feel compelled.
To.
To provide more business to cat and reinsurers.
But as I mentioned earlier, we're not the only reinsurer not providing cat.
I Dare say that we've been receiving lots of compliments about the way we manage the process the transparency the working with our clients.
So our hope is that the relationships that we've built over time are going to service well here.
But I also mentioned that whether we book a little bit more or a little bit less reinsurance.
Premium at one one it does not change the core strategic direction of this company, which is to move towards a specialty underwriter, a profitable stable specialty underwriter and Thats the right call for this company and whether we write a little bit more or little bit less reinsurance in January one it does not change.
The wisdom of that decision.
Okay. Thanks for the color on it.
Youre welcome. Thank you thanks Elyse.
Thank you and this does conclude the question and answer session I would like to return to Florida restaurant bar for any closing comments.
Thank you Keith and thank you to all of you for your time this morning.
Before we wrap the call as always I want to thank our people for all that they do to support axis of our customers.
We've had a hell of a ride over the last several years and it's really on the back of the very hard work and commitment of our team and I want to thank them for that and to all of you. Thank you again for joining us. Thank you for your interest in access and we look forward to providing you with positive updates on our continued progress.
Operator, this will end our conference call. Thank you as mentioned the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Yeah.