Q1 2023 Everest Re Group Ltd. Earnings Call
Good day and welcome to the Everest re group first quarter 2023 earnings Conference call.
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I would now like to turn the conference over to Matt Mammen, Senior Vice President and head of Investor Relations. Please go ahead. Good morning, everyone and welcome to the Everest re group limited first quarter of 2023 earnings conference call the Emerson executives.
Paul I wanted to try.
Yeah, Mark Thanks.
Thanks, President and CFO .
We're also joined by other members of the management team.
Before we begin.
Comments on today's call by noting that everyone's on SEC filings.
With respect to statements management comments regarding estimates projections and similar are subject to risks uncertainties and assumptions.
Filings management May also refer to certain non-GAAP financial measures these items.
There are reconciled in our earnings release and financial supplement with that I'll turn the call over to Juan.
Thank you Matt Good morning, everyone. Thank you for joining us.
However started off strong in 2023 with significant growth increased underwriting profits and operating ROE over 17%.
Total shareholder return in excess of 14%.
We continue to diversify and expand our plant.
With both of our underwriting businesses delivering profitable broad base growth.
In reinsurance our leadership position was abundantly clear in the <unk>.
Ongoing hard markets flight to quality.
Our teams consistent execution resulted in record gross written premiums and expanded margins.
We continue to invest in scaling our primary business while remaining disciplined.
We capitalized on the diversification of our portfolio and strong pricing environment.
Led to stronger underwriting profits over last year.
Emphasis uniquely positioned to succeed in this market.
We are bringing the full power of the Everest global franchise.
With underwriting discipline and the best talent in the business to drive sustainable returns.
With that I'll turn to our first quarter financial highlights beginning at the group level.
Group underwriting profit.
Net investment income.
Operating income and net income all increased meaningfully in the quarter.
Growth was excellent and we continue to see great opportunities for continued expansion.
We grew gross written premiums by almost 20% in constant dollars year over year led by the reinsurance division, which achieved record quarterly premiums.
Continued rate increases.
<unk> growth and strong underwriting discipline, great margin expansion and keep US ahead of loss trend.
We delivered 443 million.
Net operating income up over 9% from prior year.
The group combined ratio was 91, 2%.
A 40 basis point improvement from last year.
It includes three seven points of catastrophe losses from the Turkey earthquake, and then usually don't floods typhoon.
We have no meaningful loss activity from the spring storms in the U S.
As our Derisking efforts continued to manifest themselves in both our reinsurance and insurance results.
We improved our attritional loss ratio 30 basis points year over year, reflecting pricing momentum and improving terms.
Underwriting profits were 273 million.
Which are among the company's highest orderly results over the past five years.
Turning to investments are.
Our high quality portfolio produced net investment income of $260 million.
A 7% improvement from prior year, driven by higher new money yields.
Now turning to our reinsurance business.
Reinsurance delivered an outstanding first quarter performance with significant top and bottom line growth.
We capitalized on our well positioned and scalable reinsurance franchise.
Our leadership position.
The property cat market, and our deep client and broker relationships, resulting in excellent outcomes for the portfolio at January one and April one renewals.
The precise and disciplined execution by our reinsurance team.
Efforts to succeed in this dynamic bark.
We targeted attractive opportunities to grow with trusted partners and materially improved risk adjusted returns.
Our practice of setting clear and consistent expectations early with clients and brokers led to significant improvements in pricing and terms and conditions across our portfolio.
Building long term relationship equity.
That excess of loss pricing is excellent.
With risk adjusted rate change as of January one plus 50% in North America and over 40% International.
Casualty lines.
Rate increases continued to exceed trend.
This included pretax catastrophe losses of 108 million net of estimated recoveries and restatement premiums from the Turkey earthquakes, and New Zealand floods and typhoon.
Our deliberate efforts to optimize our portfolio and reduce cat volatility continued to improve our portfolio economics.
Both the Attritional loss ratio, 58%.
The Attritional combined ratio was 85 nine <unk>.
Fruit down 90 basis points, and 30 basis points respectively.
Remember many of the rate and margin improvements made a January one and April one will take several quarters to earn into our financial results.
This should be a meaningful benefit for premium throughout the year.
As we head into the upcoming renewables, our value proposition and relationships in the market have never been stronger.
We will continue to bolster our global leadership position and maximize our portfolio's performance.
Now turning to insurance, where we delivered another solid performance in the first quarter.
We achieved a 92.4 combined ratio in line with our previous assumption, resulting in an underwriting profit of $66 million up 12% year over year.
We continued to grow and develop a world class talent capabilities and value proposition will enhance our portfolio and increase ever share of the global insurance market.
We grew the insurance segment by nearly 12% in constant dollars and generated over a billion dollars in premiums for the eighth consecutive quarter.
Growth was broad geographic driven by a diversified mix of trust property and specialty lines, particularly strong in marine energy and construction.
We remain cautious in certain lines, including mono line workers' compensation and public company D&O.
We also benefited from pricing improvements in the first quarter.
We achieved an 8% rate increase excluding workers' compensation across the portfolio.
Led by property and excess liability with continued strong rate across other lines.
This is the second sequential quarter with an increase in the overall level of rate changes are cheap.
We expect the hard market in reinsurance to put upward pressure on primary insurance pricing.
Dynamics should extend the favorable pricing environment in insurance for the foreseeable future and will also benefit our pro rata business in the reinsurance segment.
Despite severe weather in the U S in the quarter, our cat losses were immaterial at $2 million.
The overall Cat result reflects our disciplined portfolio management actions to reduce volatility over the last several years across the company.
The Attritional loss ratio was 64 point too.
Honestly year over year, primarily due to a current accident your adjustment to a single medical stop loss program, which we nonrenewed.
Mark will provide more detail on this in a few minutes.
Throughout the first quarter, we continued to prudently manage the business balancing investments in our people and infrastructure as we build a company for the future.
We are streamlining and scaling our operations to serve the market with greater efficiency connectivity and agility as we grow.
We are well positioned to seize attractive opportunities in this environment.
We are expanding our breadth of innovative products and advancing our leadership across the global P&C market anchored by our underwriting discipline.
Our sights are set firmly on shareholders.
<unk> and colleagues as we take full advantage of the robust opportunities in this market.
With that I'll turn it over to Mark to review the financials in more detail.
Thank you Juan and good morning, everyone as Juan mentioned Everest had a strong start to the year company reported operating income of 443 million or $11.31 per diluted share in the quarter.
Operating ROE was 17, 2% for the quarter, while total shareholder return or P. S. R stands at 14, 1% year to date.
We improved our overall attritional loss ratio, while generating double digit growth in constant dollars in both segments as pricing and terms remain attractive and the number of lines of business around the globe.
The company's strong performance in the first quarter was led by our team's eye level of execution in our core markets and we have a number of tail winds at our back throughout the remainder of the year.
Looking at the group results for the first quarter of 2023 Everest reported gross written premium of $3 7 billion, representing 17, 5% growth year over year or 19, 5% growth in constant dollars.
Bind ratio was 91, 2%, which includes 3.7 points of losses from natural catastrophes.
Group Attritional loss ratio was 59, 7%, a 30 basis point improvement over the prior year's quarter led by the reinsurance segment, which I'll discuss in more detail in just a moment.
The group's commission ratio improved 40 basis points to 21, 3% on mix changes, while the group expense ratio was six 4% up modestly year over year as we continue to invest in our talent within all franchises.
Moving to the segment results and starting with reinsurance the reinsurance gross premiums written grew 23, 2% in constant dollars during the quarter.
Strong growth came from the successful execution of our one one renewal strategy.
A significant amount of the premium growth came from property and casualty pro rata treaties, which will earn in more gradually and excess of loss treaties over the coming quarters.
One said this will be beneficial to earned premium for the rest of the year.
We generated double digit growth in all three of our operating divisions, North America International and global Fac.
Bind ratio was 98%, which includes five points related to the Turkish earthquake in New Zealand floods as one noted earlier.
Despite these events our loss experience came in lower than our planned cat load.
Traditional loss ratio improved 90 basis points to 58% as we continue to achieve more favorable rate and terms as well as shifting the book towards accounts with better risk adjusted margin potential.
The commission ratio was 25% broadly in line with last year, you're underwriting related expense ratio was two 8% modestly higher year over year, largely driven by the timing of certain expenses, we remain focused on operational efficiency across the entire company.
Moving to insurance gross premiums written grew 11, 5% in constant dollars to $1 1 billion, which is impacted by the seasonality tends to be our lowest quarterly production.
Growth was primarily driven by property and specialty lines in the quarter.
Pricing gained additional momentum from the fourth quarter and it remains well ahead of loss trend.
The combined ratio was 92, 4% up.
Up 50 basis points year over year.
Attritional loss ratio was higher this quarter at 64, 2% as we took a one time increase in the current accident year on her medical stop loss business a $15 million.
A portion of our medical stop loss portfolio saw an increase in large loss activity. We isolated the poor claim performance. So a single block of business took decisive action in nonrenewed. It.
The rest of the medical stop loss book is performing within expectations.
Testing any book of business, we want to make sure we are as proactive as possible triangulating and mitigating any losses as soon as possible.
Commission ratio improved 70 basis points, largely driven by business mix.
The underwriting related expense ratio was 15, 9%, which was within our expectations as we continue to expand our global footprint and continue to proactively invest in a number of growth initiatives across the business.
We expect to achieve a mid 15% insurance expense ratio by year end 2023, and we also reaffirmed the 91 to 93 combined ratio assumption for insurance and <unk>.
Finally to cover investments tax in the balance sheet.
Net investment income for the quarter was $260 million with interest income coming in at $264 million alternative assets at 7 million before expenses of $12 million.
To see the benefit of higher new money yields in the fixed income portfolio, while alternative returns should pick up in coming quarters, assuming the broader market remains positive.
Overall, our book yield improved from two 5% to three 8% year over year and our reinvestment rate.
<unk> well north of 5%.
We continue to have a short asset duration of approximately three years and as a reminder.
Proximately, 20% of our fixed income investments are in floating rate securities.
For the first quarter of 2023, our operating income tax rate was 9.2% benefiting from the geographic distribution of our income streams.
Thus favorable to our working assumption of 11% to 12% for the year.
Shareholders equity ended the quarter at 9 billion or $10 5 billion, excluding unrealized appreciation and depreciation of securities.
At the end of the quarter unrealized losses in the fixed income portfolio equates to approximately 1.5 billion $250 million lower as compared to year end 2022.
Cash flow from operations were strong at just under $1 1 billion during the quarter.
Book value per share ended the quarter at $229.49, a sequential improvement of seven 2% adjusted for dividends of $1 65 per share.
Book value per share, excluding unrealized depreciation and depreciation of securities stood at $266.64.
$259 18 per share at the end of 2022, representing an annualized increase of approximately 3%.
In conclusion Everest ended the first quarter of 2023 in a strong position with good momentum heading into the upcoming quarters. We continue to see good opportunities to invest in the platform and scalability of our company.
<unk>, our first quarter results and with that I'll turn the call back over to Matt.
Thanks, Mark operator, we're now ready to open the line for questions would you ask that you. Please limit your questions to one question plus one follow up and rejoin the queue. If you have additional questions.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on you touched on.
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At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Elyse Greenspan with Wells Fargo. Please go ahead.
Hi, Thanks. Good morning, My first question starting with reinsurance.
Appreciate the comments on the call pointing to it you know taking time for some of these wage increases to earn in.
The thing to get a little bit more color on just the cadence of how you expect might be strong rates you talked about it one one as long as that for one to earn into you know your margin right. So how should that 58% underlying loss ratio that you saw within reinsurance.
And over the balance of the year.
Oh, that's great at least this is self Wanna driving good to hear from you.
We kicked it off in first of all by saying you know our operating performance for the quarter was excellent as I just talked about in our in my opening remarks, we had significant top line growth. We had underwriting profit operating income and net income all up meaningfully for the quarter generating a 17% operating Roe.
14% T S R and I mentioned all of this because we're just getting started and so directly to your question.
It's important to understand that the current environment, particularly in reinsurance is providing us with meaningful margin expansion.
We expect to grow rapidly in 2023, and so our reinsurance franchise is very scalable.
Our combined ratio should continue to improve on the strength of the rate and improved terms and conditions and mix of business now directly to a question I think it's also important to understand that the earned premium that we saw come through in the first quarter of the year was really mostly from the fourth quarter of 2022.
Which basically means that as this earns in into the second quarter third quarter and fourth quarter, it's going to be earning in at those much higher rate levels that we experience a January one and that we are now experiencing at the April one renewals at the same time. So again I think the timing of this is going to be over the next few.
Orders for the rest of the year and I expect this to be very accretive and they have a positive impact on the portfolio, but let me ask Jim Williamson to maybe add a little bit of color just to give you some perspective, particularly on the four ones. Yeah. Thanks for the question of lease and I think to add some color to what one laid out.
Just wanted to give you a little more perspective on what we're actually seeing under the covers particularly starting with the Jan one renewal and then continuing in and a little bit of a view if you don't mind on where we see this market going as Juan indicated we had excellent operating performance in Q1, the Jan renewal and really in the lead up to the January renewal.
Which really translated into us having a broad set of opportunities and when I say broad I really mean, just about every class of business, starting clearly with prop cat, but also including casualty specialty lines financial lines really in every market around the world and our growth was very broad based that way, including.
North America Treaty business, our international trading business as well as <unk>.
Facultative and so when you think about us attacking that clearly Jan one renewal, we talked about a plus 50 in North America, plus 40 international on property Cat that continued into the April renewal, where we were over 40% in North America.
Mid to upper Twenty's internationally, which included markets that started taking rate in 2022. So that was exceptional at the same time and very important end market touched on this in his opening remarks, we also saw a terrific opportunities and both casualty and property pro rata and so we took those opportunities and I think our ability to.
Structurally engage our clients and scenes gave us preferred positioning around those opportunities and what are we seeing well on the casualty side rate continues to stay ahead of trend. That's what our clients are experiencing ceding commissions are also starting to come down and so those were terrific opportunities we leaned into that on the property side you know our view is.
We're at the very beginning stages of a major correction in the in.
And the primary property market and we will get an opportunity to participate with our clients alongside them on a pro rata basis and again at very attractive ceding Commission. So that was a meaningful part of our Q1 growth was in pro rata and then as we go forward you know the four one renewal with outstanding five one renewal.
You know a little bit smaller, but also excellent results and we're seeing a very consistent theme where property renewals as we go through the renewal periods are achieving or exceeding expected return levels. We saw at January one.
And then I'll end it at six one because it is relatively imminent.
But our view is it'll be very consistent with that we think the market will continue to dislocate, we will have incredible opportunities to grow with our best in class clients.
And really allocate our capacity to superior returns and again I would expect that to be at or above what.
What we saw at January one so all a tremendous amount of really high quality opportunity that we're capturing but to <unk> point. It is going to take time for that to earn into our portfolio and you're starting to see it a little bit.
In the first quarter, obviously, the effective Jan one begins to earn in an important point I would make on that earning is we are also at the same time that we're attacking this incredible opportunity. We're also being very prudent in our loss picks remember that cat ex ol does not get booked in at least at Everest with zero percent Attritional loss ratio, we are booking a very.
Prudent attritional loss ratio and you know our hope obviously is that we don't need those dollars, but we want them to be there in the event that there are attritional cat losses that don't meet our cat threshold and so you know over the next quarter or two quarters three quarters, you will start to see that become a bigger and bigger part of our portfolio and that will exert downward pressure on our loss.
Ratio and our combined ratio.
Okay. That's helpful. And then my second question is on the insurance margin right you guys had called out the medical stop loss you know the impact in the quarter. So if we adjust for that should we assume that the starting point for the second quarter and the rest.
Through the year should be a 90% or better.
Current accident year ex cat combined ratio in insurance given that that medical stop loss issue is it expected to repeat.
So elyse, it's mark good morning.
So look we had the one bump in the medical stop loss for this quarter, it's roughly $15 million charge.
We are confirming and I mentioned it in my script.
In the prepared remarks 91 to 93 combined so we feel very good about the margin that we're adding the growth that we're adding both domestically and globally. So I think the attritional loss ratio is showing good improvement definitely sustainable with the margins that we have and we feel confident.
About remaining in the 91 to 90 93.
Thank you.
Thanks Elyse.
Thank you and our next question today comes from your own Kumar with Jefferies. Please go ahead.
Good morning, everybody.
My first question goes to the loss picks and I'm. Just curious if you saw any increases in liability or financial lines loss picks are both in insurance and reinsurance.
Yeah. So you are on this is this is Jim Williams and thanks for the question I'll start with the reinsurance so when I look at our loss picks for the first quarter.
I would really indicate a few things one within casualty, obviously, where we're always evaluating in a very granular way our picks even even if the sub line level and there were a number of puts and takes within casualty, but the overall casualty loss pick as it earned into the first quarter is very consistent with where we were last year.
And our view is you know, we're continuing to see right.
Now in excess of trend that's a good guy at the same time, it's a pretty high risk environment, and so we're being prudent about that.
On the financial lines side, that's for us in reinsurance that really means our mortgage portfolio and again, we saw incredible opportunities in 2022 in particular with the.
Two G S sees which is very high margin business, but again, we're very prudent in our loss selections there in our loss picks in 2023 are exactly the same as our loss picks in 2022.
Even though we've been moving further away from loss and then lastly on the on property.
On the X O L side we.
We do see improving loss picks over last year.
But again, we're still being I think relatively prudent we don't book Cat ex ol at zero.
We're just a little under 20 for an Attritional loss pick there, which is an improvement over last year.
Sure.
Yeah. Thanks, Yeah. Thanks, Sean.
Actually I do have a second one if I could and just on premium growth if I may one.
The XO all premium growth was clearly a bit lower than the pricing you saw on property cat and just want to confirm if that's a function of moving to higher layers or is it a function of the shrinking limits or what's behind that.
Yeah, Yeah, it's a it's Jim again.
Look I guess the way I would describe that as is really in a couple of ways. One. The first thing we do when we're confronting the breadth of opportunity that I described in the earlier question as we look to create our own capacity. So a lot of that is moving away from any area of the portfolio. We're not seeing the expected returns. We want an example of that which was really a fan.
In 2022, as we were trimming some of our pro rata portfolios, which do have.
A heavy amount of premium with them.
And then obviously the second factor as you described is we are moving further away from loss and so you do tend to see lower premiums per dollar of exposure.
All other things being equal, but what I would also say is all of the things are clearly not equal the rates online that we're seeing in our portfolio overall from a cat ex ol perspective.
Up year over year and quarter over quarter, even though we're moving further and further away from loss.
So that's what's driving what we expect to be very strong premium growth both in the first quarter and through the rest of the year, but what I would also say and I think this is crucial is our modeled expected profit is growing much faster than our written premium and that's because you're seeing the scissors or margin expansion happening in those cat ex ol treaties I think that's it.
Terrific result, and our expectation is and it's certainly been proven out Jan One April one may one we believe June one and really through a 112024 and we expect that censoring effect to continue.
Thanks, so much.
Thank you and our next question today comes from Mike Zaremski with BMO. Please go ahead.
Okay great.
Ceding commissions are improving.
On the reinsurance side, we mentioned a couple of times or prepared remarks can you provide any update color and let us know if that's one impacting the financial statements.
If you expect that to.
To continue our into the mid year renewals.
Yeah, Mike This is Jim Williams and thanks for the question Yeah, we have seen improved ceding commissions.
Primarily driven on the casualty side, but also on the property pro rata side.
Now remember when we talk about improved ceding commissions and we mentioned it in our fourth quarter call. When we were talking about the January one renewal.
We're giving you indications on a written basis and so what we had said last quarter and I would repeat it is that we've seen about a point improvement in casualty ceding commissions and a little less than that on property, mainly because properties ceding commissions were already relatively.
Relatively lean we found them to be pretty attractive. So that's on a written basis now that's going to take time, you know similar to the other comments that we've made particularly when you're talking about pro rata premium that really earns over two years. It takes time for that to be reflected in the financials. So you really haven't started to see that yet but.
Okay. That's helpful.
Also another follow up on the in the prepared remarks.
The optima.
Optimism about the property side about beginning stages of a major correction, maybe you can kind of elaborate there you know why we're in the beginning stages of it. It's just simply because some of the primaries are are seeing their reinsurance rates go up a lot and there's clearly a lot of replacement cost inflation.
So the primary or getting ahead of trying to get out ahead of <unk>.
I've been issue or what are you seeing there and why why do you see that growth being so attractive if if some of the primary partner see themselves as kind of being a bit behind the inflation curve.
Yeah. Mike. This is one of the drivers let me start and then I'll ask Mike <unk> to add something to this answer as well look I think it all starts with the fact that we do have a structural supply and demand balance that's taking place in both insurance and reinsurance frankly on.
On property Cat right. So on the supply side of things you have essentially less capacity being deployed.
I rated companies you also have less of the ILS capital coming into the market and on the demand side, but we have all the issues that we've all lived through together right you have inflation, which is putting upward pressure on values.
There is volatility in the environment from social inflation and other things. So our seed partners basically are requiring to buy more insurance more reinsurance along those lines, so that structural supply and demand imbalance I think is really against part of the equation now Jim just talked about what we have seen on the property side and re.
Insurance, which is very attractive.
From a pricing perspective, and we expect to see that through one one.
24, maybe beyond.
On the primary side, we're seeing basically the same things. We're now basically seeing a property rates up in the high teens into the Twenty's and if you are in wholesale is plus 30, right. So you're definitely seeing that and keeping in mind that we have both the wholesale and our retail channel.
Channel, we are getting that right on both sides of the equation. So from our perspective that also makes a lot of sense for US also keep in mind that we have also been de risking the insurance side of our business not just the reinsurance side. It's one of the reasons why you don't see us picking up losses from spring events in the U S.
Basically we had $2 million of cat loss in the insurance segment. So we are seeing pretty significant rate increases on the primary side. We have continued to de risk and our strategy and property has moved more towards middle market retail than anything else. So all of these things I think is what makes it a fairly attractive.
But Mike.
Mike maybe you can add a few well sure no I think that's well said one I guess I would just add a couple of other comments, Mike that one we continue to push out in the retail side at the same time, given the market conditions, we've been able to continue to deemphasize the concentration risk, particularly in the peak zones, the cat prone zones and it particularly in the wholesale market. In addition that we've actually.
Now basically helping out with our foundational work, we do with our international expansion, we're now spreading that out and diversifying our portfolio across the globe, giving us a lot better balance and overall more risk adjusted returns that are more consistent and sustainable over the long haul.
Great color. Thank you.
It's Mike.
And our next question today comes from Brian Meredith with UBS. Please go ahead.
Hi, Yeah first question, just looking at Florida renewals with the legislation that went through or what are your expectations of what that means for potential capital moving in and how do you think ever still position itself for that six one renewal, meaning quota share versus excess of loss.
Sure Brian It's <unk>.
For the question Yeah.
Yeah look I mean first of all you know, let me just say that our view on the.
On the reform that has occurred as you know it's incredibly constructive I think the fact that.
The government in Florida was able to get such a broad based performed past us.
Just excellent won't work and we think over time that'll be incredibly healthy for the Florida insurance market and will provide much needed relief for for homeowners. There at the same time, we think it's going to take time for the effects of that reform to prove itself. We don't expect the plaintiff bar to sit idly by while they reforms are implemented.
And I think it remains a little bit to be seen on exactly what that will mean and so we're being you know were being very cautious on that now we have been a very consistent provider of capacity to the Florida market.
Our expectation is that will continue I mean, our view on pricing terms and conditions in Florida for a six one we expect a really modeled returns to exceed what we saw at Jan one. So we think six one will be better than Jan one there.
The headline rate increases may not be as large because we already took significant rate in 'twenty two but the economics of those programs should be outstanding and so our view is as long as that is.
Proven to be true, we'll continue to deploy a similar level of capacity to that market that we did in the prior year now in terms of our participation were almost exclusively in X O L market in Florida, We do have a couple of targeted quota share deals, but they are relatively small part of the portfolio and I don't really expect that mix to change.
Great. Thanks, and then my second question I'm, just curious of the Cat loss, how big was Turkey, and then on that I'm. Just curious given that those are the types of programs. They have fairly low rate on lines and I'm not sure. What the return dynamics are there why would you be running that type of business now given just the strength of pricing in there.
Tractive returns in areas like the U S in Europe and in other areas of the world.
Yeah sure Brian It's Jim again, yeah. So so on the Turkey Quake, a couple of things one our loss was $70 million for their Turkey, quake and what I, what I would describe to you in terms of that market as we've been a long term participant in the Turkey cat market. We have earned outstanding returns in that market.
Similar to the things that we've done in other parts of our portfolio, though coming in over the last two years, we have really significantly reduced our participation in Turkey, primarily in our quota share treaties, which we've cut back significantly.
But we are still in ex ol player. We've made a lot of money even after this event our profit position is very strong and the return profile is.
He is very good the other thing that I would indicate on on that $70 million losses. If you were to compare what happened in Turkey versus what happened say in the U S. In the first quarter I think it's it's an important contrast to point out that Turkey quake was probably something like a one in 50 event you had 50000 people are killed into.
Turkey alone another 10000 in Syria, it's a huge human tragedy. Our view is that that is a real cat loss, and that's where Everest and its value proposition is meant to be called a two.
To help out that country recover and I would contrast that with the U S storms in the first quarter, which really in our view.
Should be an attritional event for the primary market and you saw that play out in our portfolio.
So that gives you a sense of how we're playing those dynamics and really focusing on.
Leveraging our capacity, we're getting high return and also where you have actual cat losses.
Makes sense. Thank you.
Yeah.
Thank you and our next question comes from Meyer Shields with <unk>. Please go ahead.
You touched upon this a little bit with reinsurance, but tell me if you could talk about how I guess.
Conditions are expected returns are evolving in the international insurance market.
Say that again Meyer please.
I'm trying to get a sense of what I think that's a great sense of what's going on in in property, but for other lines in insurance I'm not sure a great handle on on the opportunity that you're seeing there in terms of how expected with friends are evolving.
Yeah, absolutely I'm happy to start and then I'll ask Mike Carnival of aged two to jump in look I think there's a few dynamics to keep in mind and in international markets.
By definition, they tend to be more short tail in nature, so that means that they're going to carry.
Lower E L ours than what we have in North America, because of our long tail.
Because in North America, it's not traditionally so I think that's an important thing to keep in mind. When we look at the broad trends, though we see pricing actually to be quite good.
In places like Europe , Latin America, and Asia for that short tail business and so for us that remains pretty attractive and as we were saying earlier and I said in my prepared remarks, one of the great things that we're building right now is really a very diversified global insurance company by geography byproduct line.
By distribution wholesale retail, which enables us to play and deploy capital where we find the most attractive areas. So for example in the U S. In the quarter, when we see public D&O and maybe workers' compensation not as attractive as other lines of business. We can move away from those lines be cautious as I said and deploy that capital into.
All other lines of business, which could be again short tail property in Europe or in Latin America, or even within the U S. Given what I said earlier, but that gives us a sense of how we manage the portfolio to get the most economic benefit for the company and I think I would just add a.
Comment on the short tail piece not only are we seeing opportunity within property, but also within marine and aviation businesses as well given our nature of some of these lines, which we don't have legacy issue, particularly for marine and for specifically aviation we have tremendous upside we have to hire great talent. We've got good teams and have great people.
<unk> capability to one point and given what's happening in the reinsurance market I think on the short tail lines, you're just now starting to begin to see that rate environment is starting to play through with just giving us ample opportunity to be able to capitalize on the market place right now.
Okay. That's very helpful. Thank you and then one small follow up and then maybe point too hard.
For the system Foundation that'll be good.
On the reinsurance side.
Yeah Meyer, it's mark good morning.
So look on the on the reinsurance side.
We've got a great rate environment, right now and I think Jim articulated a lot of the points that are behind that totally got it.
Loss experienced supply demand.
Factors impacting capacity and our Q1 results are really demonstrating.
Some solid growth in our reinsurance franchise is very scalable so we're able to take advantage of that.
<unk> become a larger component of our combined ratio over.
Over time.
We're still using our prudent loss picks no matter, what because you do have the loss experience of the past they cannot go down to the bottom line that quickly, but it is shorter tail business on the property side. So we would expect to realize margin you know notwithstanding.
Handing the the loss experience of the current year over time, So I think what we've got is fairly meaningful strength underpinning our combined ratio going forward. So as you see the net earned are earning you know with the increase of.
2023 premiums, whether it's the pro rata side or the excess of loss with the strong rate environment the shift towards a more property versus casualty. The combined ratio I think youll see improvements in the combined ratio within reinsurance, specifically and we definitely see.
The margin expansion through the renewals and we know that's going to filter down through the combined ratio over time. So I see this combined ratio question.
Kind of solving itself through through actual results in the coming quarters on an improved basis.
Yeah Meyer I would add just two more because I think that was well said this is one and I would repeat what I said to a lease earlier in the call is that our combined ratio should continue to improve.
The rate improved terms makes a business everything that mark was talking about and you look at the combined ratio that reinsurance had in this quarter and I think that gives you a starting point.
Okay fantastic. Thank you so much.
Yes.
Our next question today is a follow up from your own kind of hard with Jefferies. Please go ahead.
Thank you.
I just wanted to ask a follow up on the earning in of the pro rata premiums in reinsurance I hope over a two year period, where side would be one year or is there a multi here.
Treaty component there or is that just how pro rata earned I guess, it's a bad news to me.
It's Mark <unk> speaking so it's it's a standard accounting convention to earn pro rata them on a on what's called an eight basis. So over an eight quarter period of time, it's not a multiyear treaty, it's definitely one year treaty.
Sure Youre sealants are obviously producing business throughout the year. So they can produce premium for example in December and it takes time to earn that out so.
The premium recognition or earnings is really standard in the business for pro rata and it turned on an eighth basis than in the first quarter, you know without getting too technical you have kind of a slow ramp up because you would essentially starts out earnings are really at the midpoint of the first.
Quarter. The 40 50 of a 90 day quarter and then it ramps up over time throughout this eight quarter period, and so you've got last year's pro rata, whether it's property or casualty still learning into the 23 earned for example, you got the twenty-three writings, earning out and so that sure.
<unk> will occur through the year.
Combined with whatever the loss picks are kind of waiting for those specific segments.
Got it that's helpful.
And then one other follow up if I may.
I think you called out some timing.
Issues with expenses when do you expect that to normalize.
So I'll break it into two.
Two parts, so corporate and underwriting so on the corporate side.
Look we have two components the largest of which is really interest expense, we have a meaningful component of floating rate debt through the FH Ob and then a floating rate sub debt and that's based on three months, a sofa and so that increase I would say roughly $3 million a quarter on the run.
Versus Q1 of last year, I think that stabilizes for 'twenty three it's difficult to see so for moving not much. This year. So I think what you see in Q1 will hold for for the remaining of the year potentially go down if so for goes down.
Operating expenses I.
I think last year's run rate of approximately $16 million a quarter is a pretty good run rate for this year.
So I see pretty good stability generally speaking for the corporate side on.
On the underwriting two pieces reinsurance insurance, so I think on the reinsurance side, we feel good about.
Our.
Expense ratio in general you see a slightly elevated number in Q1 really for platform expenses for the most part but.
Somewhere in the 2627 expense ratio.
Areas are is a good number for for reinsurance in 2023 on the insurance side, we see that.
Getting a bit into the mid 15%.
Area, we started off the year at a 15 nine and I think that's a combination of two things talent acquisition.
And then a bit on the platform expense as we're building out and scaling our operations and.
Internationally and also domestically, but we're adding a meaningful a talent, especially at a senior level.
I believe within the insurance franchise, so I think that'll.
Pay off over time, but you do pay for it early on in terms of the expense load.
I would I would point out a couple of things. So one we feel we still feel very good about the technical ratio in insurance.
Fit ability that's coming in from the Commission and you know Lars.
That standpoint.
Hence my my comments in the prepared remarks are affirming.
Our assumption of 91 to 93 combined.
For the insurance division as a whole so we see a bit of Oh.
Next year in terms of our elevated underwriting expense.
But still good on 91 to 93 based on sound fundamentals of diversified businesses and the good margin.
That we're seeing in that business and I think you'll also see a pretty good growth rate in the AR for the remainder of the year typically we start seasonally with a lower production in Q1 for insurance and then it tends to ramp up Q2 Q4.
In particular, so we do feel that there will be some economies of scale occurring as as the division.
Rose even more.
Thanks for taking my additional question that spend for the comprehensive color.
And our next question is a follow up from Elyse Greenspan with Wells Fargo. Please go ahead.
Good morning, guys. So I wanted to go back also to the reinsurance question.
Appreciate that you guys are saying some of these contracts are going to take a couple of years to earn in but you know maybe asking it a different way you guys printed a 58% underlying last week here in the first quarter when its business. It's fully earned in and you see the full impact of the wage increases in your finance.
What can that 58% what can that never got too.
Yeah.
Let's look at least that's a it's a difficult question to answer let me, let me frame it with a few of the components that would be taken into consideration.
So I mentioned to you the composition of the business itself. So we do see property coming in stronger and I think both wanted Jim really articulated the level of rate increase that we're seeing I think the growth is self evident you're seeing very strong rate.
Jim was talking about risk adjusted returns that are significantly higher. So we believe the margins. There are are a superior really really good on the flip side, you're still seeing significant casualty growth, especially on the pro rata and we're using our prudent loss picks there.
We are in a elevated risk environment, we're getting paid to take that risk and so you got a mix of business that is still.
You know meaningfully impacted by by casualty.
And so those are the kind of factors mix and then the the rate itself, which we feel good about that.
Determined that over time not to mention whatever the loss experience but.
Again, the fundamentals are great. This is truly a generational hard market in particular for reinsurance property. We're just getting started we love our positioning and the ability of our franchise.
How were globally positioned to take advantage of it and really be selective in adding value to our to our clients.
This process. So I think that our combined ratio will solve itself based on these sound fundamentals.
Thanks, and then my one other from me on your P. M L.
Given your expectations like you expect could transpire at mid year. It sounds like you guys are still pretty positive about the reinsurance.
Reinsurance pricing environment, where would you expect your P. M L to trend once we get to June and July one.
Just give me reinsurance renewals.
Sure Elyse This is Jim Williams and Great question. So first of all you know.
We do see tremendous opportunity and we are leaning into that and we have selectively deployed incremental capacity.
Ways within the defined appetite of the group and we've talked a number of times about our.
Willingness to put both our earnings and capital at risk and we have plenty of room within that to find appetite to maneuver.
That's certainly what we've been doing.
The other thing that I would say that's a repeat of what you've heard from me in the past, but we always start with creating our own capacity in any portfolio. There's good better and best deals and I can tell you. The good deals are not getting capacity anymore, it's really moving to the best deals and so what that has allowed us to do is.
Does that mean that means gross PMA, let's go up modestly wasn't a huge move as you saw at one one when we printed R. P. M. L's I expect that trend to kind of play out through the rest of this year as I indicated earlier, it's six one.
Our expectations for pricing and terms I expect total capacity deployed to be consistent with last year, which I think will produce meaningful increases in premium even more meaningful increases in expected profit.
Very modest or no real change in P&L and then as you roll through the rest of the year I would expect again modest increases in gross p&l's.
With you know with with even larger increases in premium and profit. So that should give you a view I don't expect a wild move on the P&L is by any stretch the imagination.
Thank you.
Thank you and maybe this is everyone's today's final question is a follow up from Mike Zaremski of BMO. Please go ahead.
Okay, just one quick one.
Thinking through the.
You know the bullish outlook.
Generational hard market that term is used.
Location you know just curious is there would there be a scenario in.
In the cards, where our breast would want to opportunistically raise.
Capital.
Our debt capital was levels were increased last year, which looks like a great move just curious if there is any.
Any.
Scenarios in which equity capital need to be raised as well.
Mike It's Mark So look we we feel very good about our positioning in this market.
Our ability to execute our plan, we've got the franchise on a global basis.
We're a leading reinsurance market. So I think the platform is <unk>.
Clearly well demonstrated to meet this opportunity we've got a lot of financial flexibility and I'll just leave it that we're always exploring and evaluating our market opportunities and our capital structure.
To make it better.
Thank you ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Juan I'll draw on it for any closing remarks.
Thank you and thank you all for being with us today.
Because you can see our operating performance was excellent in the first quarter.
We're off to a strong start and we're on offense you've heard some of our commentary here regarding the market and regarding the bullishness.
Momentum is strong and our ambitious are high we're building on our first quarter momentum to continue delivering exceptional value for all of our stakeholders.
So with that I. Thank you for your questions for your time and for the support of the company and we'll see you soon at our second quarter results. Thank you.
Thank you. This concludes today's conference call.
Now disconnect your lines and have a wonderful day.