Q4 2022 AXIS Capital Holdings Ltd Earnings Call
Hello, and welcome to the fourth quarter 2020 to access capital earnings call.
All participants will be unless I normally about.
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After today's presentation, there will be an opportunity to ask questions question question Press Star then one touchdown fault.
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Please note today's event is being recorded.
And I would like to turn the conference over to Miranda Hunter head of Investor Relations Misanthropy. Please go ahead.
Thank you operator, good morning, ladies and gentlemen, I'm happy to welcome you to our conference calls to stop the financial results for access capital for the fourth quarter and your ended December 31st 2022.
Press release and financial supplements were issued last night aftermarket club. If you would like copies. Please visit the Investor information section of our website access capital Dot Com, we have set aside an hour for today's call, which is available as an audio webcast on our website.
With me today are Albert basketball, our President and CEO people are CFO , and that's J C O C O specialty insurance and reinsurance and our future group C E O.
Before I turn the call over to Albert I will remind everyone. The statements made during the call, including the question and answer section, which are not historical facts may be forward looking statements.
Forward looking statements, including but not limited to our comments on January renewals involve risks uncertainties and assumptions.
Actual events the results may differ materially from those projected and are forward looking statements do to a variety of factors, including the risk factors set forth in our company's most recent report on Form 10-K, and our other reports the company filed with the SEC.
This includes the additional risks identified in the cautionary note regarding forward looking statements and our earnings press release issued last night, we undertake no obligation to publicly update or revise any forward looking statements.
In addition to this presentation may include non-GAAP final pleasures. Reconciliations are included in our earnings press release, and our financial supplement.
That will turn the call over at Albert.
Thank you Miranda and welcome to your first taxes conference calls and.
Good morning, everyone and thank you for joining us.
As we commented in our press release. This was a strong ordered a cap a milestone year for access.
Over the past few years during these investor calls we've shared our journey with you because we have worked diligently instead fast relief to reposition axis.
Leading specialty underwriter and create a stronger more resilient book of business, while placing the company on a pathway to generating lasting profitable growth.
To accomplish this we've significantly transformed our business, we drove consistent growth and attractive specialty markets reduce our exposure to catastrophes and created a faster more integrated and more efficient operating model.
We're very different company today than we were a few years ago, a focused specialty underwriter delivering steadily improving results.
To be clear, we're not declaring victory.
We're committed to continue increasing our growth our profitability in our efficiency.
But we are progressing into 2023 with accelerating momentum underpinned by years of improved underlying performance strong positions that are chosen markets and rising demand for specialty coverages.
We're confident that will not only continue to build on this progress, but I will well on our way to taking the business to even higher levels.
Let's get to the results.
So notwithstanding another year, where the industry was challenged by catastrophes financial and social inflation and Russia's invasion of Ukraine.
Excluding the impact of mixed with improved there are key performance metrics.
During the year, we generated record premium production reduce our expense ratio grauer underwriting income by 35% and.
And improve their overall combined ratio by 1.7 points to 95.8.
Our specialty insurance business continue to produce excellent results for the quarter it for the year.
For the year, when our specialty insurance gross written premiums by 15 per cent.
Net earned premiums by 18%.
An underwriting income by 46%.
And produce and all and combined ratio of 89.6.
Proving both our laws and expense ratios.
For accessory notwithstanding the finalization of our exit from property and property catastrophe markets mid year as we focus the business on specialty reinsurance our market presence remains strong and relevant.
Indicated by recent renewal activity.
I'm pleased to report to report that we performed very well the one one renewals we maintained our disciplined underwriting approach and standards exited nontarget business all the while remaining close to our customers and brokers.
In the end, we successfully bounce substantially all the non-profit he related renewals that met our thresholds.
We estimated losing less than $10 million, a desired renewals due to our exit from property and property cat reinsurance, where our shares were reduced.
In the end of our knowledge of our of our addressable non-profit he related renewals, we estimate of 90% retention ratio, 12.5% rate increases and 7% new business with more than half of the new business coming from target credit and sureties cyber and Anh lives.
So overall, we achieved mid single digit growth X ethics on the renewed parts of the portfolio.
We're encouraged these statistics indicate that our decision to exit the reinsurance property casually markets did not materially impact our ability to access and retain the business that we wanted.
Our performance during the one one renewal speaks of the value that accessory brings to the market through the knowledge and expertise of our underwriters and.
The deep relationships that we share with our customers and brokers.
We operate in a competitive environment for sure and the year is only beginning.
But I believe that our performance in recent renewals demonstrates that we have a strong focused reinsurance business within a broad specialty underwriting company.
Importantly, we are in the markets, where we Wanna be and where we have strong positioning that allows us to take advantage of what we expect will be continued favorable conditions for this foreseeable future.
Buoyed by rising demand for specialty coverage.
We've achieved our plan of rebalancing our business in 2022 on a pro forma basis specialty insurance made up 71% of our gross written premium.
We should report in excess of 75% this year.
Moreover were taken concerted action to sustain our growth and build upon our momentum while delivering increased value to our customers.
This includes the launch of our dedicated wholesale division with expanded products and resources.
Investments in production and product innovation and digital capabilities expense.
Expansion of to lower middle markets and efforts to further leverage our global platform.
To benefit our strategic partners.
And we've made this progress while cultivating a strong team and a purpose driven culture.
That's where it acts as recognition is the best place to work.
We're confident that the best days are ahead for access.
And we look to the future with excitement.
On a personal note.
It's been a real privilege to lead acts as during this time of transformation.
As we announced last month after 11 years as president and CEO of access all.
[noise] transition my responsibilities to Vince Tizzy on May 4th at our annual General meeting.
And Vince we have a fantastic leader, who I'm confident has the vision industry knowledge grit and tenacity to lead access to even greater levels of success.
I'm incredibly excited for the future of this company and I'm confident that with Vince at the wheel access will be in very capable hands.
On that note I'm sure, you're you're going to hear from both Pete and Vince.
So given the Seo transition, we've adjusted our typical call format.
Has the Florida, Pete who will share a financial summary.
Vince will then deliberate commentary on the market I'll come back with some closing comments and then we'll have our Q&A.
But I want to close by saying that for access I firmly believe that our moment has arrived.
And with that I'll pass the Florida Peak Bay.
Thank you Albert and good morning, everyone.
This was an excellent quarter for axis during the quarter, we generated net income available to common shareholders of $41 billion in an annualized or are we a 4.2 per cent.
Operating income was $167 million with an annualized operating our way of 16.9%.
Diluted book value per share increased $3.45 or almost 8% to $46.95 at year end.
This was principally driven by net unrealized gains reported other comprehensive income.
And net income generated.
This was partially offset by common shared dividends declared.
As noted in our press release adjusted for net unrealized losses and available for sale fixed maturities the book value per diluted common share would be $55.49.
The company produced consolidated car accident, your combined ratio X cat and whether of 90 per cent increase.
An increase of a half a point over the prior year quarter and.
In a consolidated current accident your loss ratio X gotten weather at 55.5%.
An increase of 1.2 points.
Both of these metrics impacted by mixing business.
This quarter's pretax cat weather related losses, net arena insurance and reinstatement premiums were $64 million or 4.7 points.
This compares to $54 million or 4.3 points in 2021.
Out of the $64 million, a cat losses $32 million or 2.4 points was due to weather primarily attributable to winter storm Elliot.
Additionally, we had 23 million attributable to the COVID-19 pandemic. These.
These losses were attributable to a handful of age contract agent catastrophe X O L contracts in Japan, we.
We have no exposure to other countries in that region.
We also had no million of losses due to the Russia, Ukraine War. These.
These losses, where the insurance segment with approximately two thirds associated with political risk and one third associated with Marine War.
Net fibre favorable prior year development was $8 million. This was equally split between the segments.
As announced in December we were pleased to complete loss portfolio transfer reinsurance agreements with Riverstone International reserves in our professional lines and liability lives in the insurance portfolio.
These reserves related to business is that we are generally exited years ago.
We acquired the protection at a cost substantially in line with our carried reserves.
The net financial impact of the transaction in the quarter was a cost of $11 million, including adverse prior year reserve development of 5 million and acquisition costs of 6 million.
We are included in exhibit at the back of our Investor financial supplement, which illustrates the income statement financial component of the transaction.
As noted in the press release issued by Riverstone on December 15.
The transaction covers net reserves for losses lost expenses.
Approximately $400 million and provides ground up cover to a policy limit of 605 million.
The consolidated acquisition cost ratio was 20.6 per cent in the quarter, an increase of 0.2 points over the prior year and this was driven by an increase in the reinsurance segment largely offset by a decrease in the insurance segment.
Consolidated G&A expense ratio was 13.9% a decrease of nine tenths of a point over the prior year quarter.
This was largely attributable to good expense control and neck earned premium growth.
We continue to focus on our expense controls.
Can be seen as our quarterly G&A expense growth rate was only 20 per cent of our net premiums earned growth rate.
The normalized DNA expense ratio in the quarter was 11.9%.
This was two points lower than the current quarter G&A expense ratio largely due to corporate expenses of $15 million attributable to our CEO transition and performance related compensation costs.
Reorganization expenses of 9 billion, we're mainly related to the exit from catastrophe in property reinsurance lines of business.
Reorganization expenses are excluded from operating income.
And lastly on a consolidated basis fee income from strategic capital partners was 12 million in the quarter compared to $27 million in the prior year.
Before I discuss the segments I'd like to bring to your attention. Some updates that we made to our lines of business for disclosure purposes.
You'll see on page eight of the financial supplement in the insurance segment. We've made the following updates cyber is now a separate line of business. It was previously reported within professional lines.
Property and terrorism lines of business have been combined the new line of business will be referred to as property as our terrorism business, mainly covers physical damage and business interruption. Following an act of terrorism and.
Lastly, we combined marine in aviation into a single line of business.
In addition, also on page eight within the reinsurance segment, the catastrophe property and engineering wise of business are now identified as runoff lines.
This update will apply to all our public company disclosures.
Prior year amounts had been reclassified and the business descriptions.
In our financial supplement also reflect these updates.
Now, let's move on to our discussion the segments I'll start an insurance.
Once again insurance had a strong quarter with good performance across a number of metrics.
Gross premiums written increased by 12%, one and a half billion.
You know our highest production quarter ever.
The increased primary related to new business and favorable rate changes and property liability lines as well as new business in marine in aviation lines, an accident and health lines.
The current accident year loss ratio X cat weather decreased by pointing to have principally due to approve lost experiencing property arena in aviation and cyber lines.
On a run rate base it it's better to look at the full year loss ratio.
The acquisition cost ratio decreased by three tenths of a point in the fourth quarter.
Excluding the laws portfolio transfer the acquisition cost ratio would've been 17.9% a decrease of a point from last year.
The decrease is primarily related to a decrease in profit Commission costs.
The underwriting related G&A expense ratio decreased by three points in the fourth quarter, mainly driven by an increase in net premiums earned and a decrease in performance related compensation costs and personnel costs.
Now, let's move on to the reinsurance segment.
Oh remind everyone that the fourth quarter is the smallest quarter for gross premiums written for reinsurance.
Representing just over 10% of the segments annual gross premiums.
Reinsurance segments gross premiums written increased by $40 million or 16% compared to the prior year quarter.
The increase was primarily attributable to increase line sizes, and new business and credit and charity.
As well as favorable premium adjustments, notably in motor and professional lines.
These increases were partially offset by a decrease in catastrophe lines attributable to the exit from this line of business as well as a decrease in liability lines due to timing differences.
The current accident year loss ratio X cat, whether increased by over six points principally due to changes in mixed up business associate with the exit from catastrophe property lines of business.
Additionally, we reviewed our last cost trend assumptions and given the current inflationary environment, we increase the year to date loss ratios and or a motor liability and professional lines of business.
And this impacted the quarter by over a point.
For a better view on the ongoing run rate of eerie insurance business I would look at the full year loss ratio for the business X property and cat, which is 67.3 per cent essentially.
Essentially flat from 2021.
The acquisition cost ratio increased by 1.2 points, primarily related to changes in business mixed driven by our exit from catastrophe property lines of business.
And adjustments attributable to Los sensitive features driven by approve last performance mainly in the credit charity business.
This was partially offset by the impact of retrocession contracts.
The underwriting related G&A expense ratio increased by a point, mainly driven by a decrease in fees related to arrangements with strategic capital partners.
This was partially offset by a decrease in personnel costs related to our exit from catastrophe and property lines of business.
Net investment income was 147 million compared to net investment income of 128 million for the fourth quarter of 21.
In the quarter investment income from fixed maturities was $105 million.
Up over 57% from $67 million in the fourth quarter last year.
As the yield on the portfolio has increased 160 basis points from 1.9 per cent to 3.5% over the last 12 months.
At year end as I, just noted that fixed income portfolio had a book yield of 3.5% at a duration of three years.
Our market yield is 5.6% 210 basis points above the book yield.
I would note that since you're in rates have declined a bit and our market yield is now at 5.25%.
Given the duration of our portfolio and the current market yields we would expect net investment income from fixed maturities to be at least $150 million greater than 20 twenty-three then we reported in 2022.
Overall, the continued improvement and most operating metrics and positive momentum and R for underwriting book.
This was a strong quarter practice.
That summarizes our fourth quarter results.
And with that I'll turn the call over to Vince for market commentary.
[noise]. Thank you Pete and thank you for your earlier comments and kind words and just a few short months I will succeed Albert as our company President and see you know C. E O I'm honored to do so encountered a privilege to advance our company strategy, along with our colleagues and build upon further.
Our stakeholders trust.
I'd like to provide a general view of the market and overview of bar right performance across all businesses and share our outlook.
Let's just jump in.
Within our insurance segment conditions remain largely favorable across most of our measures of production new business writings and in most classes. We continued to see rates generally in line or ahead of lost cost trends.
As evidenced in our financial results are distribution partners importantly continued to seek the value of underwriting specialist.
A broad products that.
And our little platform.
Let me provide more color are on our insurance market.
During the quarter there were a number of factors that play with different business lines performing at different points in the underwriting cycle.
As an example, we saw affirming conditions in many lines such as property liability credit and political risk all of which achieved rate increases in the fourth quarter that were higher than their annual averages.
Further as Albert has commented in the past quarters, we continued to see deceleration and in some instances.
Negative rate change in the public deno and financial institution markets.
A final example, and cyber we're seeing a moderation in right achievement, so pricing increases still remain a double digits I'll speak more to this last point in a bit.
Overall conditions are favorable as market dislocations continued to drive more risks into the specialty channel for axis, we're continuing to pursue a highly targeted.
Underwriting strategy across every line, we right across all channels of our distribution.
Let's get into the numbers and more detail.
Within our insurance book, the average rate increases with nearly 6% for the quarter and close to 9% for the year, Mark marking 21 straight quarters of positive rate change and bringing the cumulative rate change for our insurance book to almost 60% since the beginning of 2018.
By region International produced rate increases up 8% for the quarter and nearly 10% for the year.
In North America rate increases were 4% for the quarter and nearly 8% for the year <unk>.
Looking at rate by underwriting Division access wholesale which is a key area of investment for axis generated increases of more than 8% in the quarter and 7% in the year. These.
These results were fueled by a resurgence of pricing across property and select casually lines.
Property rates were up more than 10% in the quarter.
Over 8% for the year, we anticipate this momentum to continue as the market react favorably.
Casually lines are averaging an increase of more than several percent.
Primary casually strongest at 11% for the quarter and more than 9% for the year X.
X S casualty is up over 4% for both the quarter and year I noted earlier that in cyber we saw deceleration and rape momentum, but continued to experienced firm market conditions with an average rate increase of nearly 22%. This is compared to an average a year to date increase of almost 50.
Per cent I'll add.
That within access we have benefited from compounded rate increase of almost 140% over these past three years.
Well then professional lines, we we saw decreases up 2% in the fourth quarter.
Albert has remarked in prior calls public DNO is seeing the most challenging conditions with rates down more than 22% year to date. This is driven by a number of factors, including the reduction of IPO in dis back business, while traditional business is exhibiting more modest reductions.
Given the changing factors, we are writing much less public DNO business. Then we did this time last year, while closely adhering to a risk selection and pricing adequacy standards.
Importantly.
London based professional lines unit, which does not right U S. Public DNO is both growing and achieving average rate increases.
To give a complete picture on the right front during the quarter, 88% of our insurance portfolio renewed flat to up and for that for the year and that figure was 91%.
Overall, new Bryce, new <unk>, new business pricing matrix had been at least as strong if not better than renewal pricing in.
In summary, we are well positioned to capitalize on favorable conditions across our key insurance markets, including a resurgence of right and certain lines as mentioned, we have deep relationships with our customers our distribution partners a strong product set to service all of our channels of distribution.
<unk> and we look forward to the to the continuance of these results, let's turn to reinsurance.
Within reinsurance given the shifts in our property catastrophe market. This quarter was marked by significant disruption as Peter noted the for access the fourth quarter only represents approximately 10% of our reinsurance portfolio. Nevertheless, pricing in our reinsurance business approximated 11% within the court.
<unk> were observing a market, reflecting strong steering in the form of pricing terms and conditions and yes capacity deployment as evidenced by the one one renewal cycle that went down to the very end.
I'll concentrate my comments on the one one renewals where where for US 45% of our business renewed at that point.
Albert spoke earlier about our performance during the one one renewables I'll spend some time now talking about what we saw in the right front across our reinsurance book pricing was up more than 12% with most lines of business seeing positive right momentum by way of line motor performed the strongest with a 24% increase.
Marine was up 17% and we produced double digit increases in anh at 13% liability at 11%.
Professional lines was up 8% and credit insurance were flat.
To the credit of our underwriting team we approach the one one renewal season, when they focused and disciplined underwriting strategy grounded in our commitment to our chosen markets and with a clear and responsive communication stance with our trading partners stepping back and looking at our business in total we continue to be in.
By the favorable rate environment, we see across the vast majority of lines that we write and we anticipate that these conditions will last throughout 2023.
We are committed to answering the call from our customers for specialty products services and capabilities.
That I will turn it back over to Albert.
Thank you Vincent fee. So there you have it as we look at the year ahead, our specialty insurance business continues to fire at all cylinders and we're investing to create new avenues of revenue growth within our key markets.
The reinsurance market is firming up and were active and engaged participants that are chosen specialty lines.
And across both businesses were generally seeing favourable market conditions that should sustain throughout the year.
So why don't we open up our Q&A obsession operator.
Thank you at this time, we will begin the question and answer session to asking question Press Star then one on your Touchtone phone.
If you're using a speaker phone please pick up your handset before pressing the keys to try your question. Please press Star then too.
At this time, we will pause momentarily Drosophila roster.
And this morning's first question comes from Bayern Marinus with you yes.
Yeah, I think first of all we're just all the best in your in your retirement next to each of your I guess your career here.
First question for you is just maybe digging a little bit on this L. P. T cover that you bought a little more understanding as to why you bought it obviously, there's a cost to it not only the cost you booked in the quarter, but just the lack of investment income you're gonna have on the cash invested assets to transfer over to.
[laughter] star, So maybe a little bit more behind why you thought this was necessary.
Thank you Brian and thank you for your for your comment Ah. So Ah people are gonna get into the details but bottom line. You know we felt that this was opportunistically a very good move for US first of all of them are capital efficiency perspective.
It's R O we accretive because of the fact that we're releasing capital which is helpful. But.
But more importantly, we vs. Our lines of business that I have given us some issues in the past we think they are highly exposed to to inflation and so we felt that given the terms that we had this this was an attractive transaction for us, but pizza you want to spend on that.
Yeah, I guess, what I, what I would expand on it is you know just overall, Brian I think it really reduces our reserve risk going forward. This is really centered in the insurance pro lines and liability.
From 2019 accident ear and prior to that.
It would include a number of of product wise that we've had exited and it's just good to get that uncertainty off of our balance sheet and we did it was a good trading partner at what we think it was a good price point, so and as Albert noted it is accretive to to see the road and it does help free up working capital. So all in all I think these are opportunistic.
And we just felt that this was a good opportunity to actually move some of those reserves off.
It makes sense. Thanks, and then the second question I'm just curious.
What is your seated reinsurance program going to look like in 2023, and you know how could that affect you know call. It I know you had a pretty decent acquisition cost in your insurance business in the quarter could we see higher acquisition cost ratio there on some your quota shares and how's it gonna affect your you know.
[noise] appetite for property business going forward, just maybe a little color on what would you expect them to have to look like.
Yeah I appreciate that so the first thing I would say is that most of our large programs do not renew at one one so as you may be familiar are property programming and it was in May and then it will have a professional casualty programs in the middle of the year, but we certainly renewed a lot of our specialty programs, we renewed our cyber programs. So we can give you some insights on that.
You're buying large we came in with the capacity that we wanted.
We came in by and large within the pricing that we expected and that we budgeted for.
The one area, where we gave up a little bit was on the cyber program. We gave up a point of of seating Commission, but that's frankly, because we wanted to achieve.
60% quota share and we felt that that was the right thing to do.
But by and large I would say that we did not get any surprises.
We've got an incredible team on our seated side they stay in touch with Ah reinsurers all year long.
And so we had a pretty good idea of where the capacity was with the pricing would be and so we're we're very satisfied that we got the reinsurance program, but we needed in place I think going forward everything that I hear is that obviously will pay market conditions, but we think that we ought to be among the better tree.
Seasons, given the history of profitability of our relationships on the reinsurance side, but we'll do those.
As we get into May and June and you know when we will tell you about it when we do then but that's already been an account.
Corporate in our in our in our modeling has been incorporated in our pricing.
We feel very good about where we are.
Okay. Thank you you want to add to that.
I I would just reiterate that last point, Brian is one we've already reflected anticipated increase costs are low receding commissions in the pricing that we're actually out in the market with on the insurance side. So so our guys are on the front foot there.
Great. Thank you.
Thank you and the next question comes from your own car with Jeffries.
Good morning, everybody and I'll jump in on on the congratulations and best of luck to Albritton retirement, hopefully you get to enjoy watching the weather as a spectator.
I guess my first question goes to the the catastrophe losses have you run and exercise to try and determine what the natural weather catastrophe losses would have been for for access had you not exited the property and property gap reinsurance.
Okay.
Hey, you run this is Pete we haven't gone back and said Gee, what would the net cat losses have been if we had not actually exited the program I guess, what I can tell you is what I did look at because I could definitely see it was an interest in the market out there, but if we look at our actual.
Cat loss ratio in the fourth quarter. This time it was materially below our average cat loss ratio in the fourth quarter, whether you look over a five year horizon or a 10 year horizon.
And that is adjusting that cat loss ratio to take out the impact of Covid in 2020, which we did puts them up in the in the fourth quarter of 2020, but I mean, if I look at it all in group number.
A number yeah, we were.
We were down.
More than 50% from where we had been historically and I think that's probably the best metric to look at rather than trying to <unk>.
Re redo the book I would just say on a ton of true numbers basis. When you go and look at our fourth quarters average the last five years 2017 to 2021 for the last 10 2012 to 2021 and our loss ratio was down nine points and $6 six points, but on a cat basis, and I think that's sort of.
A testament to where we're going with our view on natural cats going forward.
Correct me, if I'm wrong, but I think I think if I. If we just take a look at that cats alone in this quarter, it's like around two point something.
Yeah.
Loss of his shows Yep. So I I think that that gives you a sense of of our exposure to that cats, you know compared to what we would have been in the past.
Okay.
Thank you and then I think you mentioned that you took you <unk> made some inflation adjustments I got friendly reinsurance portfolio were there any adverse.
Adverse prior development associated with that.
Yeah. Your own you know right now obviously, we don't have the cue out so you can't see it but when we filed a K you'll see all the all the details by line of business or what the P. Y D was in the quarter. So I wanted to get into specifics here, but but we really feel good about the the the view we got for inflation as I mentioned in reinsurance.
We moved the quarter up by about one and a quarter points.
And and I do think that you'll you'll see some adjustments when the K comes out as well as the global loss triangles, which we will also get out the first half of this year.
Okay, maybe if I can sneak one last one and she may be talking about the source of the coverage related losses in the corner.
Yeah, a couple of things to make sure we clarify there the losses are all associated with 2022 accident ear and.
And it's primarily associated with the seven way the seventh wave of Covid outbreak that happened in the early summer in Japan, we have some Japanese seasons, where we provide a catastrophe X oh well for a an age. So these are basically per diem hospitalization benefits.
And it's a straight simple indemnity benefit, but with the regulatory change there where if you were at home under the care of a position. It was a quote unquote deemed hospitalization or seat and saw a real spike in these per diem costs and it actually started to hit their cat X O L layers. So that's what it's Ah asosa.
It's a handful of clients that we have in Japan, and we have no other contracts like that in the in the area. So we're not exposed to other countries.
Got it and again enjoy retirement Albert and good luck to events for the rest of the team.
Thank you.
Thank you.
And the next question comes from release Greenspan with Wells Fargo.
Hi, Thanks. Good morning, you guys pointed to you know looking at the insurance right Attritional full hearing loss ratio, which I think was just under 51 is thinking about go forward modeling. You'll also write mentioned pricing of six per cent an insurance in the fourth quarter I'm not sure where the car.
Few of Moss Chinese, but when you think about pricing and loss trend how should we think about the level of improvement you could see found that 51% baseline an insurance as in in 2023.
But I think as you point out we have 9% average for the year, 6% of the quarter.
To be fair, we are taking a prudent view on on loss trends that inflation. So we think it's.
It's in the mid single digits, so there's opportunities.
There's opportunities for improvement, but not massive.
I think the book is in a really good place now to be fair you know we're delivering this year a sub 90 combined ratio. We think the book is where we want it to be.
The Gulf War US frankly is to write more at these margins I mean, it's it's it's really growth is very accretive for us. So.
We feel positive about the the the book that we have the premium that will earn as I said are basically at or ahead of lost cost and the goal here is to keep the book, where it is and growth.
Okay, and then in terms of that when you guys. Typically you might look at that you prefer to total capital right still above 30% is the goal still to get that to the mid twenties and is that a level that you need to see you know to think about capital return.
Yeah at least as his teeth I think as we continue to evolve more into any insurance specialty where we don't necessarily need to have as much as low a ratio that we're gonna live to get that ratio I call. It to the mid to high twenties, and and I don't think we need to exactly be there to have any opportunist.
[noise] plays a what we Wanna do with capital, but we are looking to get it below 30, and I would like to see you know get into the mid to high twenties, but before we do it probably talking about the share repurchase program.
I'd like to actually see the capital of those those ratios get below 30, but I don't think we need to get all the to twenty-five but I'd like to be comfortably in the mid to high twenties.
Yeah, I got a couple of comments to that I think the mid twenties is a good number for a reinsurer with volatile results I think the kind of company. We are I think if you look at specialty peers. They can afford a higher leverage but the other thing that I would point to as as you know the increase of the leverage ratio came only because of the market value of the <unk>.
<unk> and given a high quality portfolio and three year duration. We think there is a significant amount of opportunity for book value growth and leverage reduction simply.
With the the return to par of the bonds that we have in our portfolio.
And then do you guys have we seen the <unk> come down at most returned periods I did notice that Japan windstorm PM Al did go up a little bit in the corner, what's going on there.
Hey at least this is Pete I'll handle that you know a year and we had some of our third party capital partners. You know those are calendar year contracts and so some of the protection on the property book for reinsurance ended at 12 31, and then the <unk>.
Japanese renewals happened April one so you will see those those jumped up because we didn't have that outwards protection on the reinsurance book from our third party capital partners, but it will come down again on April what again, it kind of leaves us exposed a bit on my insurance, if there happens to be a quake in Japan in the next 90 days however.
I'm not too worried about it type food in the next 90 days, but that's that's what that was about and you'll see that it just again as we get to April one.
Thanks, Thanks for the Colorado Albert You know all my best to you in retirement as well. Thank you.
Thank you.
Thank you and the next question comes on my shelves with K B W.
Thanks, Oh did ask the same sort of question the beliefs that may be retrospectively.
The press release didn't attribute the insurance segment underlying losses, you improvements to a gap between right on trend and I'm wondering is that an accurate reflection of how you've been booking losses.
Hey, My this is Pete we've had some benefit of right over trend I, just think in the quarter. The predominant Ah the predominant movement was because we had such good results coming out of those three areas do do do do.
Due to experience. So we are still seeing a little bit of rain over trend.
Segment, but it did slow down in the second half of the year and the predominant reason was I think those three lines of business really had good a good experience in the corner.
Okay. No. That's that's helpful. The second question.
Mmm, So I think I'll hold you to Empathise then.
The loft portfolio transfer <unk>.
Yeah, I'm, sorry applies to a lot of lines that are mostly exited and I'm wondering if you could break down the reserves development on on the professional lines and liability lines or product that you're still in because we've seen the overall numbers, but I'm wondering if there was a material difference in terms of how the exited product lines reserves hyperform.
<unk> birth is b.
The ongoing lagerfeld lines.
Hey, this is feet had not planned on doing that again, when we do our global loss triangles, and we need to make any comment.
In that document about maybe exited lines will think about maybe adding some color there, but I was not planning on trying to break those reserves out and do them separately for you as we think about the G. L. Ts will kind of take that that advice under under advisement and see what we can do to help you understand the ongoing book better.
Okay. My advice is worth what you paid and Albert best of luck [laughter].
Yeah. Thanks. Thanks, Thank you and the next question I'm Gonna draw Shanker with Bank of America.
Yeah. Thank you I'm gonna add of course, the repertory of people with Ah.
Congratulations to Alberta, and Pete Albert for all you've done and and and best of luck.
And.
There's two things I want to remind me about the bank.
Oh, no I don't know.
[noise] may [noise].
Oh, that's true that's true and of course, I mean, I mean, Vince not not period of course I know.
And so my question involves the new disclosure I'm really happy I love, New disclosure and I'm looking for cyber Ah growth and you grew fairly strongly in cyber in the first three quarters of the year and the growth slowed in fourth I'm wondering if there's anything we can read it to price cyber as the your ended I.
31 per cent gross premium broken the first nine months of your interest three in the fourth order is there anything we can learn about the markets there.
No maybe I think what I can do is just give you a context right. So we've been for close to two years now.
Right sizing, our you know our our exposures and we were very happy taking the absolute exposures down while we were benefiting from pricing increases and Vince I mentioned earlier, we have 20% rate increase in the quarter.
Quarter, we've got 50 per cent average rate increase in the year. So you actually have the same rate of reduction in exposures.
But you're getting a lower amount of rate increase and so hopefully you understand.
What I'm trying to get through on the map, but I guess, if I could just take a bigger picture on <unk>.
On on cyber.
I continue to believe but cyber is going to become one of the most important lines of business for for insurance and you know whoever you talk to in terms of observers talk about you know the the strong growth that's expected over time.
But I think we also recognize that it's an important product, but it's a young product. It's emerging I think that there are the understanding of the risks and the tail is.
Drawing a lot I think the industry is doing a very good job of trying to manage around the tail exposure and as we've told you. We're big fans of the lines were very good at it.
But we Wanna, we Wanna manage our tailed exposure.
Where it is until we get.
Even more comfort around the tail exposures around reinsurance capacity around wordings and so on so we feel very good about the fact that we are sustaining leadership positions on on the cyber side, which I think is a great investment in the future, but on the other hand, we're not going to do it by taking excessive risks in the near term.
So we've got.
Incoming business, we've got a very strong reinsurance program and we see that right now that's the smartest way to approach cyber as we add more comfort around the tail risk.
Okay, and then second.
Surveying the new gross premium Ah Ah Ah disclosure you guys already know we're one one renewals look like I'm wondering if there's any help you can give us I'm thinking about the new terrorism slash property disclosure versus property only how much premium.
Decline should we think about in in the some of the former two versus the current given what you know about your one one renewals.
So I apologize I I I I don't follow the question are you asking about.
Anticipated terrorism in property premiums on the insurance or reinsurance, yeah, and I mean, I mean in my mind that you're not doing property reinsurance any more but the new disclosure holing terrorism property I think I might might be missing Yodelling Ah Ah Ah Ah one one a first quarter reinsurance volume because I'm I'm, making a mistake about things that are terrorism.
Things that are property, maybe you can sort of clarify a little bit about what we should expect the new property shared premium yep.
So a number one I think property premium.
There's a couple of leftovers or the reinsurance sorry, there's a couple of leftover previous but we're talking like single digit millions though.
We wouldn't worry about about that I think that the combination of property and terrorism is on the insurance side.
Not on the reinsurance side and and I would tell you that our position right. Now is that we expect to grow property of terrorism going into 2000 twenty-three, we're seeing very strong market conditions in both and.
Our posture on it right now is that we would expect to see growth in property and terrorism.
Vince anything no I think that's right Yep Yep.
And and again in the useless advice category the mayor.
I started it's a great opportunity given the new segment teach them to to give those triangles will look into the K and I fully support that.
Yeah.
Particularly I know gosh, we we will be separating cyber out because it'll be in the K now so when we do the G. L. T. As you will be able to see cyber separately, so I'm, assuming that'll be a nice big equipment for Ya.
Fantastic I do appreciate it and and and Vince welcome to Geico call.
Thank you.
Thank you and the next question comes from mascot home with a J M P.
Okay. Thanks, Good morning, I, just want to hold on Joshua Cyber question was hopefully you could just go back to the onion a little further can you talk a bit about kind of <unk>.
Modeling tools, how you view p&l's kind of some Albert some of those things you talked about in terms of management of the risk, but just R. D. S's, maybe maybe how much aggregate right online has moved.
<unk> pricing over the year, but just kind of you view.
<unk> online a few years ago versus now what are we looking at and then lastly, any view on rating agency you know potential.
Potential actions reviews of the line in terms of how they think about risk aggregation and some requirements and might put in place.
Right. Thank you for that so again, just kind of unstructured answer on cyber.
We tried to manage our our our exposure on.
On the front end and on the back in on the front and as you know.
We've significantly.
Increased our underwriting standards and guidelines in terms of making sure that we don't ensure any more anybody who doesn't have good cyber hygiene.
And place we've got.
We've got our own wording is making sure that we exclude ward infrastructure and in our coverages and then Ah we Ah analyze.
Analyze those we use I gotta say at least a half a dozen different models.
Including our own.
So I think that we try to make sure that we capture everybody's perspective on that and so you can imagine obviously, the where we're at Lloyds we use the Lloyds Rds scenarios, we use our own scenarios and they go through it all and at the end of the day you know as you know we buy a 60 per cent quota share we bought.
Stop loss.
Because we feel that right now additional security is a good thing. So we're certainly not stretching any more than we need two on that one.
We we let our people go crazy on threats and P. M L scenarios and just make sure that our weddings covered through it but my hope is that in this year.
The industry will continue to make progress on on Wordings, we're starting to see some pick up in a in a potential cat bonds and capital markets participation. So I actually think that this is a line of business that's going to evolve favorably for the insurance industry, but as you've heard me say.
To Josh earlier, we are continuing to reduce our our exposure counts, while we're while we're managing the tail.
And I think right now we still have some opportunities for growth in dollars and we'll do it cautiously.
Great and then I mean, just one follow up there you mentioned warnings a few times you know there are a couple couple of your big peers in the sector and put in some exclusions supplements on like a systemic risks would be the best term for it is that is that something you guys have taken a look at and acted in any way or like the industry might adopt more broadly.
[noise] excuse me, so I'd say that as I mentioned I think a number of organizations are looking at weddings.
That and we certainly are are are among them as I said, we've already got some some limitations in there I think there's still some work that's being done on the wording is in their coverage in their judicial.
Enforcement, but again my expectation is that we're doing this year, we will see a additional progress on the wording side and you can rest assured that we're not going to be you know standing back and providing more risks and.
Assuming more risks and we need to in the market. So my expectation is that we will see progress on wordings and reinsurance capacity developing into in 2023.
Alright, well. Thank you I appreciate the color best of luck in retirement and Vince Congrats.
Thank you.
Thank you.
And this concludes the question and answer session I would like to return the call from offering closing comments.
Great. Thank you very much operator, and thank you all for joining in for your time this morning.
<unk> as you can tell from our results that we feel very very pleased with with 2022. It was a terrific year for axis, one in which we took critical steps and bringing forward to life, our vision of becoming a leading specialty underwriter.
I cannot say this enough we are in the business as we want to be and where we are well positioned to take advantage of opportunities in the market.
And that's really due to the hard work of our team and I want to express my appreciation to our team for their hard work there continue their their commitment their relentless focus on the profitability of our business and I want to thank our customers that our brokers for supporting us for making part for us part of their business and part of their success.
I couldn't feel more optimistic about the future for access and I look forward to still being here in the next quarter and reporting hopefully a good first quarter to you. Thank you all and have a great day.
Thank you.
Confidence that concludes it. Thank you for attending today's presentation.
This country lines.