Q1 2023 Verisk Analytics Inc Earnings Call

Speaker 1: Good day everyone and welcome to the various first quarter of 2023 earnings results conference call. This call is being recorded. Certainly all participants are in a listen only mode. After today's prepared remarks we will conduct a question and answer session where we will limit participants to one question so that we can allow everyone to ask a question. Good.

Speaker 1: We will have further instructions for you at that time.

Speaker 1: For opening remarks and introductions I would now like to turn the call over to the various head of investor relations Ms. Stacey Broadbrier. Ms. Broadbrier please go ahead.

Speaker 2: Thank you, Mandeep, and good day, everyone. We appreciate you joining us today for a discussion of our first quarter 2023 financial results. On the call today are Leigh Schabel, Verisk's president and chief executive results officer, and Elizabeth Mann, chief financial officer. The earnings release referenced on this call, as well as our conditional quarterly earnings presentation and the associated 10Q, can be found in the investor section of our website, Verisk.com. The earnings release has also been attached to an AK that we have furnished to the SEC.

Speaker 2: Information about the factors that could affect future performance is contained in our recent SEC filing. Finally, I'd like to remind everyone that the financial results for recent dispositions are included in our consolidated and gap results, but are excluded from all organic constant currency growth figures. A reconciliation of reported and historic on- GAAP financial measures discussed on this call is provided in our A.K. and today's earnings presentation posted on the Investor section of our website, bers.com.

Speaker 2: However, we are not able to provide a reconciliation of projected adjustity with an adjusted with a margin to the most directly comparable expected gap results because of the unreasonable effort and high unpredictability of estimating certain items that are excluded from projected non-gap adjusted with an adjusted with a margin.

Speaker 2: including, for example, tax consequences, acquisition of related costs, gain loss from disposition and other non-recurring expenses, the effect of which may be significant.

Speaker 3: Thanks, Stacy. Good morning, and thank you for participating in today's call. At our investor day in mid-March, we detailed the benefits of being an insurance-focused business and our comprehensive strategy to drive consistent, predictable growth at VARISC. Our first quarter results demonstrate the sharpened focus and results oriented operating discipline at VARISC. We are operating on a more integrated basis across the company and have been more engaged with our clients as I'll describe in greater detail. I will leave it to Elizabeth to walk through the details of the financials, but in summary, we delivered very strong organic revenue growth.

Speaker 3: combined with solid margin expansion yielding double-digit profit growth. The growth was broad-based with most businesses contributing to the result and we have strong business momentum.

Speaker 3: We deliver this performance despite a macroeconomic environment marked by high inflation, the interest rate volatility and market anxiety.

Speaker 3: Specific to the insurance industry, our customers are coming off a year marked by elevated underwriting losses and pressure on profitability.

Speaker 3: In fact, the U.S. property casualty insurers experienced a 27 billion net underwriting loss in 2022. The largest loss since 2011, according to industry data collected by VARISC and the American Property Casualty Insurance Association.

Speaker 3: One consequence of this tough loss and profitability environment in 2022 has been a hardening insurance market where rate increases are driving faster net-written premium growth in the first quarter reports of many major insurers. VERSC is partnering with the industry to help them reduce costs, better select and price risk, root out fraud, and overall operate more efficiently given the macro environment.

Speaker 3: One problem area has been the state of Florida. As we have discussed in prior calls, the insurance crisis in Florida is being driven by a litigious environment further complicated by extreme event vulnerability.

Speaker 3: The combined impact is pushing insurers into insolvency.

Speaker 3: The state legislature has passed reforms to address the crisis and there are currently efforts being negotiated to bring increased oversight to the state's insurance market. That said, the risk for more liquidations remains and we continue to monitor both the primary and re-insurance markets closely.

Speaker 3: while leaning in with our customers to help them adapt to new legislation to better select and price risk in the state and to identify the systemic bad actors in the market.

Speaker 3: A secondary of challenge has been auto underwriting as insurers hold back on writing new policies as they awaited regulatory approval for rate increases.

Speaker 3: Rate actions have started to roll through, and in the first quarter we saw a rebound in policyholder shopping activity in response to higher rates, driving strong transactional revenue growth for Varysk Disquarter.

Speaker 3: That said, we have yet to see behavior change on the part of the underwriters as they are still cautious about spending on marketing and underwriting new policies.

Speaker 3: We continue to expect that improvement in the back half of the year.

Speaker 3: One key pillar in our strategy that we discussed at Investor Day is being a more client-centric organization and the importance of strengthening the strategic dialogue with our clients and intensifying our industry engagement.

Speaker 3: To that end, I've been leading the organization with direct client engagement through full relationship reviews at several of our largest clients where we've been able to identify how we can better serve them and integrate new solutions to meet their specific objectives. I've also hosted our first CEO roundtable where we brought together the leaders of our clients.

Speaker 3: to discuss the issues that are foremost in their minds and where we can leverage our centrality and expertise to help address these issues.

Speaker 3: This has been followed by a client chief information officer roundtable where we brought our technology leadership headed by our CEO , CIO, Nick to find and chief data officer Eric Schneider to discuss technology and analytics trends that are on the minds of insurance industry. CIOs

Speaker 3: Our clients are recognizing the early benefits of change and focus at Barrisq and have provided great feedback. A recent quote from an important client stated, I can't remember a meeting with this degree of transparent dialogue where I felt like Barrisq was listening. Our recent NPS scores also reflect this change in perception. Barrisq conducts customer relationships surveys twice a year and our recent NPS scores in the first quarter of 2023 were 47, up four points versus this time last year. Further?

Speaker 3: So far this year we have hosted three in-person client events. At all our events, client can engage with our solutions and hear directly from those clients who use the products in the market and learn how effective they are in helping solve industry challenges.

Speaker 3: More specifically, in February , our claims business hosted two events including elevate our signature event for claims and restoration professionals which provided educational and networking sessions for over 600 industry professionals.

Speaker 3: We also hosted almost 300 industry participants at IFM, an industry-wide event targeting the latest issues and advances in fraud management. In the U.S. alone, insurance fraud is estimated to cost the industry $300 billion annually, impacting industry profitability.

Speaker 3: and Verisk is uniquely positioned to help the industry.

Speaker 3: We host this event in partnership with the National Insurance Crime Bureau. Both events included expert panel discussions featuring our clients and partners leading academics and thought leaders in the industry covering top of mind issues.

Speaker 3: In April , we hosted the inaugural Beresk Insurance Conference and hosted almost 600 clients for a four-day, multi-track conference designed to deliver a combination of product and thought leadership-focused content to key, extreme events, life,

Speaker 3: which combined three previously separate events, enabled us to educate our clients and prospects about Verisk's end-to-end capabilities, while continuing to provide them with valuable content applicable to their specific role and organization. It raised the awareness of the breadth and depth of solutions we offer to solve the industry's biggest challenges, and really highlighted the benefits of the integrated Verisk approach. We saw a great response to this event, with almost half of the extreme events professionals attending underwriting sessions, and 40% of the underwriting attendees joining an extreme events session. A recent notable competitive contract win.

Speaker 3: In our extreme events business is a great example of the benefits of being more focused and more integrated across Verisk.

Speaker 3: We recently signed a large multi-year contract expansion with a global insurer for Extreme Events Platform Touchstone.

Speaker 3: This client, who is already a subscriber to our property underwriting data solutions, will partner with Verisk on a workflow that will directly integrate those data solutions into the Touchstone platform.

Speaker 3: This partnership not only allows the client to obtain an enhanced view of their catastrophe loss potential based on Verisk data with minimal operational friction, but it also gives Verisk the opportunity to market the feasibility of the same solution to a broader range of market participants.

Speaker 3: What struck me at both our claims and underwriting events, after dozens of client conversations, was the genuine enthusiasm our clients have for our ability to help them address industry issues with our scale and centrality.

Speaker 3: A commonly expressed sentiment is, Verisk has a unique perspective and we know you can help us.

Speaker 3: This is a tremendous privilege for us and we are more mindful of our responsibility to create value for our clients and stakeholders.

Speaker 3: Moreover, VERSC's sustainability team is currently working with an independent consultant to help the company complete a report meeting the expectations set forth by the task force on climate-related financial disclosures. As part of the exercise, we are conducting analyses assessing the impact of climate change both on VERSC's direct operations and across key elements of its value chain and developing a realistic pathway to support science-based targets and a commitment to net zero targets. The team is also engaging with internal stakeholders regarding VERSC's current risk assessment activities and framework.

Speaker 3: for identifying climate-related opportunities. We expect to publish the report in late 2023.

Speaker 3: Regarding governance, over the last 12 months, various cook steps to enhance our governance at the board level, including making changes to provide for the annual election of directors and separating the role of Chair and CEO .

Speaker 3: As of the 2023 annual meeting of shareholders, board directors, namely Anel Bay, Chris Fosquet, Dinos Yordano, and David Wright will be retiring from the board. I would like to express my gratitude to each of these directors for their leadership and guidance which have been invaluable to various journey and transformation. These changes will bring our board to a total of 10 members, 90% of whom are independent and 60% are gender or racially diverse.

Speaker 2: Before I start with the first quarter results, I have a few reminders for everyone. First, all consolidated and gap numbers are negatively impacted by the dispositions of 3E and various financial services. This will be the final quarter of this year over year comparison. Second, as it was in the prior quarter, Wood McKenzie is accounted for as discontinued operations on our income statement, and results are not included in continuing operations for either period. Third, all cash flow metrics include the results of all three disposed businesses in the prior year figures.

Speaker 2: income from continuing operations was $194 million, while diluted GAAP earnings per share attributable to bearish was $127. Moving to our organic constant currency results, adjusted for non-operating items as defined in the non-GAAP financial measures section of our press release, we are pleased with our operating results, which demonstrated strong core underlying performance across most of our businesses..

Speaker 2: dated by some in period one time benefit. In the first quarter, OCC revenues grew 9.8% with growth of 9.1% in underwriting and rating at 11.4% in claim.

Speaker 2: This quarter's result was boosted by certain transactional revenues that we do not expect to repeat for the remainder of 2023.

Speaker 2: Our subscription revenues, which comprise 80% of our total revenue in the quarter, grew 8.7% on an OCC basis.

Speaker 2: We saw broad-based growth across most of our businesses.

Speaker 2: with strengths in core underwriting, property estimating solutions, extreme events, anti-fraud, life insurance solutions, and many of our international businesses.

Speaker 2: specific to our core line services. We are experiencing a benefit on certain of our revenues from the stronger net premium growth in 2021, which is currently reflecting in our contract pricing.

Speaker 2: Working against this is a modest negative impact from the seven liquidations in Florida that occurred over the last 12 months, and which we discussed earlier.

Speaker 2: We do expect the impact from liquidations overall to become more pronounced as we move throughout the year.

Speaker 2: Our transactional revenues, representing 20% of total revenue in the first quarter, grew 14.4% on an OCC basis.

Speaker 2: The largest contributor to growth was from a strong rebound in our auto businesses.

Speaker 2: driven by increased rate shopping and the signing of a large non-rate action deal with a national insurer.

Speaker 2: Additionally, we experienced double-digit growth from life insurance solutions as we are seeing strong customer demand for incremental services.

Speaker 2: Our travel solutions are benefiting from a post-COVID rebound, particularly in markets like Australia and New Zealand.

Speaker 2: And our property estimating solutions experienced continued storm benefit in the quarter.

Speaker 2: These transactional results did include some one-time benefits, including overage charges on specific large underwriting contracts that were renewed in the quarter, and catch up the link for certain claims customers.

Speaker 2: Finally, the casualty workers compensation business delivered growth in the quarter, but continues to remain below pre-COVID level and is recovering at a pace slower than we had originally expected.

Speaker 2: On the auto underwriting side, we did see solid growth in transaction volume this quarter versus declines last year as rate increases are now driving shopping behavior by policyholders.

Speaker 2: However, as we mentioned earlier, carriers continue to be cautious and have pulled back on marketing spend to attract new customers as they measure the impact of rate increases on profitability.

Speaker 2: Moving now to our adjusted EBITDA results, OCC adjusted EBITDA growth was 15.7% in the first quarter, reflecting core operating leverage on the strong revenue growth and the impact of certain cost reduction actions we have taken in connection with our margin expansion objective.

Speaker 2: Total adjusted EBITDA margin, which includes both organic and inorganic results, was 52.2% up 480 basis points from the reported results in the prior year. On a pro forma basis for all divestitures, the first quarter margin expanded 320 basis points from margins of 49% in Q1 of 22.

Speaker 2: This reflects the impact of certain one-time expenses in the prior year quarter, as well as strong costs and operational discipline and the impact of our cost reduction program.

Speaker 2: This level of margin also does include several headwinds which in total represent about 150 basis points and include a decrease in our pension credit, pressures from recent acquisitions, and higher T&E expenses offset in part by foreign currency realized gains in the quarter. We're reflecting on our ongoing cost reduction plan.

Speaker 2: as well as actively manage the balance sheet to take advantage of the 3.1 billion in proceeds we receive from the closing of the Wood McKenzie transaction.

Speaker 2: To that end, in February 23, we paid down $1.4 billion in debt that was outstanding on our revolver.

Speaker 2: On March 3rd, we issued 500 million of 10-year senior notes at a rate of 5.75%, bringing our total debt outstanding at the end of the quarter to $2.85 billion.

Speaker 2: We then entered a $2.5 billion Accelerated Share Repurchase Plan and received an initial delivery of 10.7 million shares in the quarter.

Speaker 2: We expect to receive the final shares when the program is completed in the fourth quarter. The net result of these actions in the quarter was net interest expense of 26.4 million for the first quarter compared to 31.3 million in the prior year.

Speaker 2: Included in this number was $7.4 million in interest income that we earned on the proceeds of the Wood-McKenzie transaction, which we do not expect to continue as the proceeds are now fully deployed.

Speaker 2: Having now completed all these transactions, we now expect net interest expense for 2023 to be slightly below the full year 2022 level.

Speaker 2: On taxes, our reported effective tax rate was 27.1 percent compared to 17.4 percent in the prior year quarter. This higher tax rate included a one-time tax charge of $15.2 million.

Speaker 2: associated with the structuring of the energy sail which clothes in the quarter.

Speaker 2: to 25%. Adjusted net income increased 9.4% to 196.4 million.

Speaker 2: And diluted adjusted EPS increased 16.2% to 129 for the first quarter of 2023.

Speaker 2: These changes reflect organic growth in the business, contributions from acquisition, and a lower average share count offset in part by a higher tax rate.

Speaker 2: We are very pleased with the robust performance in the first quarter, but given that it is still early in the year, and transactional revenues are inherently less predictable, at this time we are maintaining our outlook for 2023. While the first quarter showed strong operating momentum.

Speaker 2: Based on what we see today, we have not changed our expectations for the balance of the year.

Speaker 2: To that end, our full year 2023 guidance is unchanged. And now I will turn the call back over to Leigh for some closing comments.

Speaker 3: In summary, we're excited about the opportunity ahead and our ability to focus all our attention, talent and resources on the global insurance industry.

Speaker 3: Verisk is best positioned to capitalize on the opportunity because of our scale, centrality, and expertise. Our motivating purpose is to work together with our clients in building resilience for individuals, communities, and businesses globally.

Speaker 3: The combination of our focused business model, unique market position, and strategy to deliver value for clients through improved decision making and operational efficiency is the formula that will also deliver value to our shareholders through predictable growth and returns. We continue to appreciate the support and interest in VARESC.

Speaker 3: Given the large number of analysts we have covering us, we ask that you limit yourself to one question. With that, I'll ask the operator to open the line for questions. The floor is now open for your questions. To ask a question at this time, please

Speaker 1: If at any point you'd like to withdraw from the queue, please press star 1 again. We'll now take a moment to compile our roster. Our first question comes from the line of Faiza Alwi from Deutsche Bank. Please proceed.

Speaker 4: Yes, hi. Good morning. Thank you. I wanted to ask about, you know, I understand that the transactional revenues do you cite it? There may be certain one-time items, but on the subscription revenues you cited, you know, increased growth in premium pricing. And it sounds like, you know, that should continue.

Speaker 4: So maybe talk about some of the offsets I know you mentioned Florida, but if you can further dimensionize that for us that would be really helpful.

Speaker 2: Yeah, thanks. Happy to you. I'll highlight a couple of the drivers of the subscription growth, which was broad-based and some of the potential later in the year. So, on the largest driver of the subscription growth was in our forms, rules, and loss cost business.

Speaker 2: This was the biggest contributor to the growth just given the size of the business within overall Veris. And the growth was driven across the contract. You know, probably about 20 to 25% of our contracts in the business overall are tied to premium growth.

Speaker 2: We are seeing an environment with strong premium growth with over 9, nearly 10% net-written premium growth in 2021, which is driving some of those contracts. In addition, we're delivering additional value to our customers and new products as we highlighted at the investor date. So we are partnering with them.

Speaker 2: In addition to that business, other contributors to subscription growth, our property estimating solutions business had a strong quarter, somewhat helped by easier comparisons in the last year, and some continued storm benefits there. In addition to our

Speaker 2: And our anti-fraud business in the claims business is also driving strong growth. That is fueled significantly by conversions to claims essentials, which is a subscription product for third-party administrators and self-insured.

Speaker 2: That transition from transactional to subscription product started in the back half of last year. So, we're still in kind of that overlapping growth period. And finally, you know, Extreme Events and Life Solutions business also had strong...

Speaker 2: subscriptions growth. So collectively strong contributions across across the portfolio.

Speaker 3: And if I would add, I think the other dimension that you were looking for is what what might not be sustained given that strong growth in the first quarter. And so there are a couple of things that I would point to. One is that we in subscription growth, we have some property estimating solutions subscriptions that come on associated with the storms in the fourth quarter. And sometimes the.

Speaker 3: conversion of the in the anti fraud to our claims essentials package. It generated some some growth in 2022 and in the early part of 2023. I think we will lap some of that exceptional growth and that will probably serve as a bit of an offset in the in the later part of 2023.

Speaker 3: of the in the anti fraud to our claims essentials package generated some some growth in 2022 and in the early part of 2023. I think we will lap some of that exceptional growth and that will probably serve as a bit of an offset in the later part of 2023. Thank you. Thank you.

Speaker 5: Our next question comes from the line of Andrew Steinerman from JP Morgan. Let me just like a little more detail about those certain transactional revenues that were elevated in the first quarter, like which product lines and what are you assuming?

Speaker 2: for the balance of the year for those same transactional pieces. Yes, happy to cover that. Maybe like the subscription, I'll go through sort of in order of magnitude.

Speaker 2: of the impact to the transactional growth. So the biggest single driver in the underwriting and rating portion of the business was the recovery in the auto space. There were really two elements to this. Um.

Speaker 2: First was we referenced the non-rate actions deal with a major insurer, and that's a unique opportunity for auto insurers to look at, look across their portfolio and see actions that they can take beyond rate increases.

Speaker 2: The second element, though, is the overall rebound in shopping behavior, which picked up quite suddenly in the quarter. We've seen industry data that supports it. The JD Power data shows a strong increase in auto insurance shopping this quarter.

Speaker 2: So those two factors contributed to our transactional growth. In addition, our life's business, which is both a subscription business but has a services implementation component, which contributed on the transaction side. In the property estimating solutions, there continued to be...

Speaker 2: carry over as well as some localized storm activities, the wind storms and tornadoes and some ice storms that you've seen, that had a component of an impact. And then there were a couple one-time elements including some overage charges on contrast.

Speaker 2: underwriting and rating, a billing catch-up in the claims business. There also, there happened to be an extra business day in the quarter, which will come out in the third quarter. So those were the main elements across the transaction growth.

Right Elizabeth, I also said how are you assuming these transactional pieces are guided for the balance of the year?

Yeah, so that's encapsulated in our 2023 guidance, which is unchanged.

Yeah, so that's encapsulated in our 2023 guidance, which is unchanged. Okay, thank you.

our 2023 guidance, which is unchanged. Okay, thank you. Thanks.

Our next question comes from the line of Greg Peters from Raymond James. Please proceed. Good morning, everyone. Lee, in your comments, you spoke about the client outreach initiatives. And I think you highlighted Net Promoter Score of 47, which as far as...

insurance industry standards is nothing to sneeze at. Can you maybe...

and meetings with your clients and provide a some perspective on how you're thinking about that, please.

Thanks for the question, Greg. So, certainly we view the net promoter score as one gauge of our client satisfaction and enthusiasm for what we do. I wouldn't say that we are targeting our client outreach.

primarily to drive an increase in NTS. We're hopeful that that will be a consequence, but our primary purpose is to elevate our dialogue strategically with our clients, which, as I indicated, I think there's a very strong appetite for because they recognize that

events modeling, we have the ability to solve bigger problems by tying some of those data sets together. We talked about the integration of our property data into the touchstone platform, which is an example of how as part of that higher-level dialogue, we were able to find solutions. So we are looking for ways to integrate more data sets.

and bring new data sets in to satisfy and delight our clients. And I certainly hope that we'll be able to see an increase in our NPS over time, but where the rubber will meet the road is going to be in sustained revenue growth and the development of new products that we can then monetize across the industry.

Thanks for the answer. Our next question comes from the line of Ashish Sadbedra from RBC. Please proceed. Thanks for taking my question. I just wanted to drill down further on your comments around

Some of the macro challenges, insurance specific challenges, but also better client interaction and some of the things that you mentioned in response to the prior question around new data sets. So the question here was, how's that helping build the sales pipeline? Have you seen any longations in the sales pipeline? Can you talk about the bookings and the traction you're seeing and how should we think about the contribution from these?

upsell cross selling to the existing customer base accelerator as we go through the year. Thanks.

Thank you. Thank you. She's a great question and I would start by saying through a lot of this client interaction. You have a very clear sense of what is on on the minds of senior leaderships at at an underwriters and reinsurers.

And I would start off by saying probably inflation and the impact of inflation on the insurance industry as they evaluate potential losses, insurance to value, replacement costs, pricing is first and foremost.

And to give you an example of how that manifested itself in our world at our various insurance conference, which we were tying a lot of these topics together our session on tracking inflation costs across a variety of aspects of insurance was a standing room. room only event in a pretty large room with people spilling out into the into the

involved in resolving those is very much on the front of their minds associated with regulatory changes. We've seen some regulatory changes in Florida to try to limit some of that exposure. So our engagement on both helping understand that dynamic, how to manage that effectively in settlement discussions, and also working towards some regulatory solutions.

climate-oriented models, as well as understanding how social, political, and environmental risk through our various maple cross subsidiary interacts with those risks. He's also an important topic as insurers are confronting broader sense of the risk.

So those are a few examples of what I would describe as the issues that are top of mind and that we have seen drive, I think, very solid activity on the on the sales front. I'd also mentioned that, you know, in light of that, and in.

In light of questions around the sales cycle that we have seen in other places, we have always dealt with a relatively long sales cycle. I think the insurance industry has generally been less volatile. We have not seen any changes in our sales cycle and the impact. So we recognize that.

Our next question comes from the line of Tony Kaplan from Morgan Stanley . Please proceed. Thanks so much. Lee, thanks for your comments on generative AI. I was hoping you could talk a little bit more about it in terms of your broader strategy and how you view the opportunities and risks.

And then, Elizabeth, thanks for sharing the pieces on the subscription and transactional non-recurring items, but I'm not sure I caught the quantification of how much the quarter benefited from the one-time items. Thanks, guys. So, Tony, on generative AI, I'll say at the start, our first approach is understanding it.

understanding it in the context of the potential use cases within insurance, listening to how our clients are perceiving it, and understanding on one hand how this can be an effective tool to be utilized to potentially automate.

functions of insurance to potentially integrate other data sets into their decision making. But there is, because I think of the breadth of this technology, there are clearly a lot of applications and we're working to identify those and the opportunity.

the outputs that it's creating. And so our primary focus has been in identifying a policy for us internally and as we think about the industry as a whole to provide scope for protected use cases that allow us to test and evaluate and understand the risks.

deal with this on a very disciplined basis where the industry is able to develop this in a in a safe and non-disruptive manner. And then Tony, yeah to your question on the the one-time item, we haven't quantified them you know they're not they're not of a magnitude that we

specific we just wanted to mention as a tailwind. Thank you. Congrats again. Our next question comes from the line of Heather Folski from Bank of America. Please proceed.

I was hoping you could touch on the Florida market and what you mentioned in terms of the potential risk as we move through the year. I think in last quarter you had had one additional bankruptcy. Is there anything in particular that you are seeing or is it just a cautiousness given the uncertainty?

Thank you. Thank you.

Thank you Heather. It's a great opportunity for me to bring Neil Spector, President of our underwriting businesses into the conversation and through his engagement with clients, particularly on the underwriting side has probably the best insight on what's happening within Florida. Neil. Thank you.

Great question. I would say it's going to take a while for the reforms that were passed there to have a positive impact on the market. There's still a lot of lawsuits that are pending from prior to that legislation that will flow through.

There's also a concern with reinsurance. The renewals will be coming up for the next storm season, and the expectation is that reinsurance costs are gonna go up. So, you know, just the overall market is still not favorable for insurers down there, so we need to continue to watch.

make sure that we don't have additional liquidations or additional challenges out there. As I've mentioned in the past, it also creates opportunities for new players to enter the market, and so we do see that as well. But it's just a dynamic market that will probably see the results of the situation for at least another 12 to 18 months.

Thank you for that incremental collar. Thanks. Our next question comes from a line of Manav Patnik from Barclays. Please proceed. Thank you for that incremental collar.

Thank you. Lee, maybe I can follow up on the technology question and specific to I guess you know the sun setting of the mainframes which you know obviously is a great step but I think it's you know one of the first steps I guess. I just wanted to understand what else is left in the tech modernization you know what your plans are and you know

What benefits that might read over, I guess, the next multi years? Thank you, Mono. I appreciate you asked the context kind of a sequential way. First, as I indicated, the accomplishment of moving off of that main frame was a really substantial challenge, particularly for an organization that has developed over the last few years.

Costs necessary for us to achieve achieve that outcome, but most of those costs have been have hit us. We're now experiencing the benefit of that from an economic perspective. But I'll remind everyone that, of course, that this also involves a geographic change in our balance sheet. Meaning that.

Now, we will also continue to expect to see our cloud expenses grow as we integrate new data sets, as we develop new solutions. So that will be part of our expense base that grows with the revenue opportunities that we see. But the strategic benefit for us that I believe we're really at the early stages of realizing is that

through associating data sets that are now in a cloud format, our ability to tie those data sets together to develop workflow software that is able to integrate that, to deliver that in a microservices context or an APA context to our clients and integrate it into those features expands the scope.

value, value objectives. And that's, I think, what we're very excited about. We also, from a technology standpoint, one other modernization step that we are taking on is an upgrade of our ERP system that will deliver also...

embarking under Elizabeth's leadership, the RERP transformation.

Our next question comes from the line of Alex Crum from UBS. Please proceed. Yes, hey, good morning everyone. Just wanted to come back to the guidance which was obviously unchanged. Just trying to understand since you're new to this first year of giving guidance what your philosophy really is here going forward.

So I know it's the first quarter in, but how should we be thinking about you updating the guidance throughout the year if you're running significantly ahead or below? And then as we think about this year, I know there was a lot said already on this call, but as you talk about the non-change guidance, what we really hate is too early in the year.

Was it anything maybe a little bit more uncertain, some of the transactional side you mentioned, or was the first quarter really just in line with what you were expecting all along? Thank you very much.

Thanks, Alex. We are excited to be giving this new transparency to the market.

You know, our overall philosophy is going to be to give you clarity on what we can expect. We do not intend to update for minor changes or for every kind of to market on a frequent basis. It's the first quarter of the year and so it's still early in the year.

we will update for material changes as we see things unfold. Okay, fair enough. Thanks. And maybe, actually, to your question on our views for the balance of the year, I'll repeat what I said in the comments, which is, we will update for the balance of the year.

from what we see today, as we think about the balance of the year, we don't see significant changes in trends versus what we talked to you about when we gave the guidance. Our next question comes from the line of Andrew Nichols from William Blair. Please proceed.

Hi, good morning.

Second quarter in a row where you've called out Anti-Fraud Analytics as a growth contributor, and I appreciate some of the insight on your capabilities there at Investor Day. Elizabeth, I think you called out some changes in contract structure in that business. Would you mind unpacking that a bit further? Is that something that's impacting growth in the near term? gear clear andkarat

Broadly speaking, are there other dynamics to call out with an anti-fraud that are contributing to the stronger growth of the planet?

to call out with an anti-fraud that are contributing to the stronger growth of life. Thank you.

Yeah, thanks. So that in that product we had, you know, it is for insurers, but it is also used by third party administrators and by self-insurers. Previously those customers, the TPAs and the self-insurers, had been on a more of a transactional business model. They would use

to a subscription model, you're seeing that shift in that business where transaction revenue may even be declining, but it is being replaced by subscription revenue, which is higher quality and more sustainable.

Great, thank you. Our next question comes from the line of Jeff Silber from Bank of Montreal. Please proceed.

Thanks so much. You called out your life insurance business a couple times. I know it's relatively small, but we've been reading about some of the pressure that the life insurance industry is in because of returns on commercial real estate, maybe some mismatches of assets and liabilities. Are you seeing that with any of your clients either in the life insurance industry or in the life insurance industry?

providing through our life solution, a completely renovated and fresh platform for our clients to deliver that product, to develop new products on a faster basis, and to substantially reduce the costs that they have in originating and managing that product.

to rethink some of them have exited the business and they are reestablishing it on this new platform that we are providing to them.

All right, that's really helpful. Thanks so much. Our next question comes from the line of Andrew Jeffery from Truist Securities. Please proceed. Hey, this is Julian on for Andrew. Thanks for taking the question. Just wanted to touch on the recent acquisition in the German market. Is that kind of, is it fair to say it's fair to say that it's fair to say it's fair to say that it's fair only to say that it's

dimension of that he can speak specifically to Krug and also how it fits into our broader our broader German German strategy given our prior acquisition of Actineo.

Thank you, Andrew. Good morning. So the crew is an auto on-site and remote adjusting firm that uses automation and digitization as well as invoice and bill review check to enhance the customer experience, provide more speed and drive done growth for customers. As you know, about a year and a half ago we acquired a firm in the body injury space called Actineo.

to provide an additional product or two to the German customers.

And this will also help us use the Kruk and the German platform as a launching path to explore growth into other markets in Europe . So it's both a product line expansion as well as the geographical diversification of our suite of solutions offering in the claims space.

Thank you. Our next question comes from the line of Jeff Mueller from Baird. Please proceed.

Yeah, thank you. Good morning and apologies for the multi-partner, but all on the same topic. So on the underwriting and marketing, I guess, just to what extent is.

There's still like a leg impact from some states that didn't get requested rate actions or just how much better is the performance in the states that did and then what specifically needs to happen for the marketing to really turn on I know you're saying the second half but

Is it a customer's success channel capacity constraint as they respond to the consumers shopping after they see the higher premiums and that needs to be alleviated or what needs to happen? And the last is just what exactly is the revenue model like as marketing demand improves to what extent is it flow through the subspace or to what extent is there?

meaningful incremental transaction revenue. Thank you. So Jeff, I think you win the award for the most complex, hyper-question, which we do appreciate, because it is a complicated topic. Let me start off, and then I'm going to ask Meal to jump in and provide more contacts. So the dynamic of what we are seeing is that right now, in general, is that we are seeing

higher rates and consumers are responding to that. So some of the strength that we're seeing in auto is they are beginning to shop more frequently because of the initial impact of rates. We expect that that will continue. Some insurers through non-rate actions that they're entitled to have been able to...

to market as aggressively and so that's why we have not seen the level of marketing activity on the insurer's side. So those are the dynamics that we are seeing right now. We do expect to see more rate increases that will probably encourage more competition and demand for new products but the insurers will have to evaluate where they want to write business and what they want to do to it.

the increases are flowing through, but not all states happen at the same time. And then of course, insurers are raising rates because their costs have significantly gone up. There's a number of drivers to that, which Lee mentioned, some of them, you know, severity, the cost to repair is up dramatically. There was a huge spike in used car prices, and you know, there's a huge increase in medical costs, etc. So...

they're unprofitable, these rate increases will help, and so their desire to write more business is really muted. And so when you think about the marketing function, that is really the growth engine, which is why insurers go out to grow their business. And that has been paused in a large part due to the unprofitability of the line. So.

We expect over the next 12 months that the lines will become more and more profitable as these rate increases go through. And that marketing spend will return, although it's questionable as to when. We don't know exactly when. I think it will return for certain players sooner than others because each insurer handles the situation differently.

We do have a subscription model with our overall marketing products. So there are, they are subscription revenues, but the subscriptions are tied overall to usage. And so as the market grows and marketing spend comes back, we expect that to recover, but it is not purely a transactional model. Yeah. And in specific to this, you know, embedded in our comments was.

Part of the transactional strength were some non-rate action programs that were insurers looking to address some of their higher risks within that. As these rate increases begin to flow through, that should diminish, but then it potentially drives other growth within the business. So again, a complex situation, but hopefully that gives you a little bit more insight.

It does. I think you addressed all 19 parts. Thank you. Our next question comes from the line of Harold answer from Jeff Rees. Please proceed. Good morning. This is Harold Lanto on for Stephanie Moore. Just wanted to ask about the percentage of price increases that...

the company plans to implement, you know, with the health and insurance industry, like you just talked about, particularly given an uncertain macro backdrop, as inflation was historically lost here. So, Harold, we lost you there for a little bit. I think that you were just asking the general question around how much flying insurance over the past year or two has overl overse Studio,

pricing items to value. I think I quoted before that the net written premium growth in the industry was 9.6 percent in 2021. That's the year that drives the growth for many of our customers.

about 20% of our revenue is tied to that premium growth in the year prior. So that has been an element. I would say we are in this environment where the business is growing. There are a lot of new issues that we're working to respond on.

of the pricing increases across our entire product set.

increases across our entire product set. Thank you.

Our final question comes from the line of George Tong from Golden. Please proceed. Hi, thanks. Good morning. I wanted to return to the non-subscription revenue trends. So, non-subscription revenue grew 14% in the quarter driven to a large extent by auto underwriting. How sustainable is the strength in auto underwriting non-subscription revenues with...

the trends that you're seeing with rate shopping. What are some of the puts and takes that could cause underwriting in autos to accelerate or decelerate in the coming quarters? Yeah good question George, thanks for that. Some of it ties back to the discussion we were just having on the industry and the impact of the rate increases that we're starting to see. So the strong auto

insurance shopping behavior that we saw in this quarter was a function of some of the rate increases that have started to push through. To some extent that is a recovery that we had expected to come later in the year and so it may just be a sole forward of that recovery.

We're waiting to see kind of the interplay of the dynamics that that we and Neil were talking about in there. There's the second driver of the auto business, the non-rate actions and are enabling our customers to do that.

That that may taper off as they start to get rate increases and that may turn turn into some of that shopping activity. So that's the interplay of those elements we see going forward. Great. Well, thank you. I think that was the final question. So I want to thank everyone for participating and we look forward to continuing the dialogue with all of you. Have a great day.