Q2 2023 Everest Re Group Ltd Earnings Call
[music].
Good morning, everyone and welcome to the Everest Group limited second quarter of 2023 earnings conference call.
The Everest executives, leading today's call are one Andrea.
I didn't and CEO , and Mark Hershey and sick executive price.
President and CFO .
We are also joined by other members of the management team.
Before we begin I will pre face the comments on today's call by noting that ever SEC filings include extensive disclosures with respect to forward looking statements.
Management comments regarding estimates projections and similar are subject to the risks uncertainties and assumptions as noted in these filings.
Management May also refer to certain non-GAAP financial measures.
These items are reconciled in our earnings release and financial supplement.
With that I'll now hand, the call over to Matthew Roman.
Okay.
Good morning, everyone and welcome to the Everest Group Limited second quarter of 2023 earnings Conference call. The Emerson Executive leading today's call are wanting <unk>, president and CEO and Mark <unk> Executive Vice President and CFO . We are also joined by other members of your risk management team.
Before we begin I will preface the comments on today's call by noting that every SEC filings, including extensive disclosures with respect to forward looking statements management comments regarding estimates projections and similar are subject to the risks uncertainties and assumptions as noted in these filings management may also refer to certain non-GAAP financial measures. These items are reconciled and.
Our earnings release, and financial summary, with that I will turn the call over to Juan Thank you Matt.
Morning, everyone. Thank you for joining us.
However, second quarter performance was outstanding.
We grew the business at a significantly expanded margins.
Full advantage of the hard reinsurance market and.
And delivered industry, leading returns, including a near 22% operating return on equity.
And a record annualized 25% total shareholder return.
We have strong momentum across the board.
Capitalizing on the hard market opportunity in reinsurance, which continues globally.
Underwriting businesses continued to benefit from the global flight to quality image excellent and persistent market conditions.
In addition, our <unk>.
Superb execution drove strong results in the June and July reinsurance renewals.
We continued to invest in our primary insurance business.
He is also benefiting from similar tailwind with favorable pricing across a number of business lines.
In May we completed our successful $1 5 billion dollar equity base.
Bonds from the market was excellent and validates the opportunity we see before US we remain proactive and nimble with our capital deployment and we are on track to fully deploy the capital raised by the January one 2020 for renewable.
We changed our official company name and stock ticker symbol during the quarter.
This was another key milestone.
Updated average group name with our newly branded ticker symbol EG is a testament about a hybrid strategy and steadfast commitment to global reinsurance and insurance.
As we approach the back half of the year, our talent underwriting discipline and capital position give us significant firepower to achieve our objectives and drive superior returns.
That I will turn to our second quarter financial highlights beginning at the group level.
All of our group key financial metrics improved and included quarterly records for both operating income and total shareholder return.
Growth was broad and diversified.
We continue to see excellent opportunities for further expansion across our portfolio.
We grew gross written premiums by 22% year over year in constant dollars.
Led by exceptional reinsurance group, which had a new written premium record.
Net operating income increased to an all time high of 627 million up more than 62% year over year.
This was supported by underwriting profits in excess of 400 million.
The group combined ratio improved 410 basis points year over year to 87 seven.
This is an excellent result, especially considering this is projected to be the worst second quarter, our U S catastrophe losses since 2011.
Average net catastrophe loss was just $27 2 million.
Additionally, our investment portfolio performed well producing 357 million and net investment income.
A significant improvement from the prior year.
Turning now to our reinsurance business.
Second quarter reinsurance results were also excellent.
There are a product of our lead market position breadth of offering and outstanding execution by our team.
We grew our portfolio and we expanded margins.
The property cat pricing.
<unk> strong and.
In the 2023 hard market has now surpassed the post hurricane Andrew market.
This provided the backdrop for excellent midyear renewals.
During the first renewal centered on the Florida market was very strong with respect to returns exceeding the January one renewal.
This momentum persistent into the July one read.
Pricing was up sharply in key markets around the world.
For example.
Australian market under one day complete restructuring.
Moving away from frequency covers the true catastrophe structures.
Everest is the preferred markets by many of our customers.
As I noted earlier, we continue to benefit from a flight to quality around the globe.
We were able to deploy additional capacity many of our core clients at attractive returns.
Gross premiums for the quarter were up 27% over the second quarter of 2022 on a constant dollar basis.
$2 8 billion.
Noted earlier this is a record for the division.
Growth was widespread across business lines and geographies.
Pretty cat premiums were up 30% from last year.
Along with casualty and property pro rata premiums at 16, and 35% respectively.
We also grew in specialty lines, including Marine and aviation.
International growth was strong.
Clearly in Asia, where we nimbly took share in dislocated markets like South Korea.
Pre tax catastrophe losses were modest despite the active cat quarter for the industry.
Our deliberate initiative is to shape the portfolio and manage volatility continued to improve our results.
We nearly doubled our underwriting profit of $337 million.
Equating to a combined ratio of 85, 9%.
Five 9% improvement year over year.
Approximately 90% of our portfolio now renewed in 2023.
Typically improved rates and terms, we enter the second half of the year, well positioned and our outlook for the January one 2020 for renewal is positive.
Turning to insurance.
We made strong progress in advancing our global insurance business.
We grew the segment more than 14% in constant dollars generating a record $1 4 billion in premiums.
Growth was broad and diversified both geographically and by product line.
Particularly strong in property, both domestically and internationally.
As well as in specialty lines like Marine Aviation and energy.
We maintained our disciplined approach to managing and diversifying the portfolio.
Finishing our exposure in lines, where the market is not well priced.
Mono line Workers' compensation and public company D&O.
While it's still early days, we are also gaining traction in international markets, where we are methodically expanding our capabilities and local expertise.
Market response has been excellent reinforcing the abundant global opportunity that we see.
In aggregate rate continues to exceed trend across our core portfolio.
We achieved a double digit rating.
Leading workers compensation in financial lines.
Pricing was particularly noteworthy and property marine and other specialty lines.
The harder reinsurance market contributed to positive pricing in the primary market.
This coupled with persistent industry cat losses, and a heightened risk environment supports continued favorable pricing and insurance.
By severe weather in the U S.
Our cat losses were de Minimis and reflect our consistent proactive portfolio management and our focus on superior risk adjusted returns.
The enhancements, we have made to augment our technology and streamline our infrastructure are yielding greater efficiencies and connectivity across our platform.
Everything from planes to distribution is being scaled methodically around client.
Allowing us to remain agile and responsive as we grow.
I'm proud of beverage performance in the second quarter, and our team's consistent ability to adapt and serve the needs of our clients and deliver leading returns to our shareholders.
We have built a long and durable runway to profitably grow our hybrid platform, we're approaching the market opportunity with full force.
With that I'll turn it over to Mark to review the financials in more detail.
Thank you Juan and good morning, everyone. I, just had a very strong quarter rounding out a solid start to the first half of 2023.
Company reported record operating income of $627 million or $15 21 per diluted share in the quarter.
Waiting to an operating income ROE, where you have 21, 8%.
Total shareholder return or <unk> stands at 25, 3% annualized we improved our overall combined ratio by more than 400 basis points, while generating double digit growth in constant dollars in both segments.
In terms remain attractive in most lines of business around the world.
Well I mentioned during May we completed a successful one and a half billion dollar public equity offering in the quarter and are on schedule with the deployment of that capital.
The company's strong performance in the second quarter was led by our team's high level of execution in our core markets. We have a number of tail winds that are back throughout the remainder of the year.
And well into 2024.
Looking at the group results for the second quarter of 2023 Everest reported gross written premium of $4 2 billion, representing 22, 3% growth in constant dollars year over year.
Combined ratio was 87, 7%.
Which includes 80 basis points of losses or $27 million from natural catastrophes.
Constructs losses in the quarter were partially offset by $30 million of catastrophe bond recoveries related to hurricane in.
The group Attritional loss ratio was 59, 4% of <unk>.
40 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.
Group's commission ratio improved 50 basis points to 21, 1% on mix changes, while the group's expense ratio was six 3% up modestly year over year as we continue to invest in our talent and systems within both franchises.
Moving to the segment results and.
Starting with reinsurance.
Reinsurance gross premiums written grew 26, 9% in constant dollars during the quarter.
Strong growth came from the continued successful execution of our 2023 renewal strategy, we generated double digit growth across every line of business.
Bind ratio was 85, 9%, which improved 600 basis points from the prior year.
The attritional loss ratio improved 120 basis points to 57, 6%.
We continue to achieve more favorable rate and terms, which we expect to continue into 2024.
<unk> ratio was 24, 5% an improvement of 30 basis points from the prior year.
The underwriting related expense ratio was two 6%, which was essentially flat year over year.
Moving to insurance.
Gross premiums written grew 14, 1% in constant dollars through our quarterly premium volume record of $1 4 billion.
Growth was primarily driven by property and specialty lines in the quarter.
Pricing gained additional momentum.
Overall pricing remains.
The loss trend as Juan mentioned.
And bind ratio was 92, 7% up 120 basis points year over year. The division benefited from zero natural catastrophe losses in the quarter further demonstrating the success of our Derisking actions on our portfolio.
The Attritional loss ratio was modestly higher this quarter at 64, 4% driven by business mix and one off premium adjustments in our Lloyd's syndicate.
Commission ratio improved 100 basis points, largely driven by business mix as increased property writings earn through as well as increased volume of ceding commissions and decreased gross commissions across multiple lines. The underwriting related expense ratio was 16, 5% largely driven.
By certain one off expenses and continued investment in global systems in our platform. We expect the expense ratio to diminish over the course of the year and finally to cover investments tax in the balance sheet items.
Investment income increased 131 million 357 million for the quarter, driven primarily by higher new money yields are investment in floating rate securities and higher assets under management.
Turning to have assets generated $59 million non investment income a sequential improvement as equity markets have continued to rebound overall, our book yield improved from two 8% to 3.9 year over year and our reinvestment rate remains north of 5% we continue to.
Have a short asset duration of approximately two nine years.
As a reminder, the <unk>.
2% of our fixed income investments are floating rate securities.
For the second quarter of 2023 of our operating income tax rate was 11, 5% in line with our working assumption of 11% to 12% for the year.
Shareholders equity ended the quarter at $10 9 billion or $12 5 billion, excluding unrealized depreciation and depreciation of securities.
In conclusion.
Forest had an excellent second quarter of 2023, and it's well positioned heading into the back half of the year and 2024 with that I'll turn the call back over to Matt.
Thanks, Smart operator, [laughter], we're now ready to open the line for questions would you ask that you. Please limit your questions to one question plus one policy and rejoined the queue or any additional questions.
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Your first question comes from Greenspan with Wells Fargo.
Please.
Head.
Hi, Thanks. Good morning. My first question you know I was hoping you could you know just walk us through your plans I'm, putting the one and a half billion of equity you guys ways to work I know Mark you said you guys are on schedule. The appointment of the capital you just give us a sense you know expand upon that.
And give us a sense of the split that you see you know between property and casualty reinsurance writings as well as you know the expected or are we on the deployed capital.
Yeah. Thanks to Lisa This is Warren So let me get started in Alaska that Jim to join in and provide a lot more granularity to you on that topic.
Both Mark and I said in our prepared remarks were very much on track to fully deploy the capital by the January 2024 renewal.
As you saw from the numbers, we drove meaningful growth not only in order, but also during the July 1st renewal.
But in addition to the queue renewal dates and Jim will talk a little bit more about this in detail. We have also done a number of private or closely placed opportunities that excellent rates and firms that have also emerged outside of the renewable periods. So we continue to see plenty of opportunity we didn't see any change in the market and we're very much.
On track with the deployment, but now let me ask you to.
Deeper on that sure. Thanks for the question lease and I'm going to be a little expensive here because I do think this is connected to a number of.
Critical trends within the business I mean first to take you back to a little bit of what we said.
And the last quarters call around how we expected this to play out.
We sort of laid out look this this capital deployment really begins with a seven one renewal which is for us about $1 billion of expiring premium.
It would continue through the end of 2023, where you've got about another billion dollars a premium.
And then it would complete at the Jan one renewal, which at this point you know our expiring book will be somewhere on the order of $6 billion.
And and that proportionality would would account for the capital deployment and that's playing out as.
As we expected in fact, I would [noise] I would add to that that we did have some opportunities in a very targeted way outside of Florida, but at the six one renewal.
To take meaningfully increased lines with some of our <unk>, which were very attractive.
That continued into seven one we grew strongly at that renewal.
And we did at an excellent rate in fact, if you look at the rate we printed for North America in the second quarter of 47, we actually exceeded that in many cases for the June and July renewal. So we feel really really good about that and then there's one at indicated.
We participated on a number of private or closely broker placements and there's a variety of things in there whether it's.
A large layer on top of the cap program for a global scene down to Faq placements to deal with sort of dislocated single risks and everything in between and so we're.
On our front feet that way and taking advantage of those opportunities as they come to us and I would also add obviously I'm focusing here on property cat, but we've also taken advantage of trends in casualty, where we continue to grow and some of the specialty lines and one example, I would cite in the second quarter as our aviation book, which on the back of a really incredible rates.
Change was up over 50% a year over year at again terrific economics, and so as we've executed. This you know we've been focused on a number of key priorities and and before he even really talk about growth its portfolio quality and so all the things that we mentioned in our last call continue to play out attachment points are going up.
Our average attachment point is moving further out in the curve and certainly you saw proof of that you know our second quarter cat prints, which was simply outstanding.
Your sauce adjust our portfolio in Florida, you know a number of the demo Tech rated Florida specialists, frankly did not pass our our financial underwriting standards and we moved away from him and redeployed the capital elsewhere. So we are nimble that way and whereas focused on portfolio quality as we are on top line, even more so than the other thing.
I would say in terms of priorities is over 90% of the incremental capacity that we've deployed has been with our existing clients. These are people we know well.
And people, who we play with across a wide variety of lines and so that incremental cat capacity not only is a tremendous opportunity in itself. It also further strengthens our core relationships and.
So as you play all that forward to Chan one our expectation is that will be confronted with just excellent.
Prospective returns at the renewal.
Why do we believe that pretty fundamental stuff. The first is that the supply demand imbalances, it's been playing out in the reinsurance market hasn't fundamentally changed and we certainly seen seen analysis that suggests there is still a very meaningful gap between supply and demand and I would [noise] I would.
Deposit to you that demand is pent up and growing rapidly and that's because I think many scenes weren't able to complete their queue. There are one one placements the way they wanted to there.
They're facing a risk environment, that's not getting any easier climate change being at the front of that line, but also inflation geopolitics.
G O politics, and other factors and then obviously, while we had a terrific second quarter and cats. Many primary underwriters did not in fact, it's a record level or near record level of second quarter cat activity, particularly in the United States, but also in other markets around the world. So a really tough spot to be in as a primary underwriter and that's.
Increasing their demand for reinsurance.
We've also seen no capital formation of any meaningful extent, obviously, putting our capital raise aside and I've heard of nothing meaningful in the pipeline that's gonna really change that the other factor that I think.
As important as if you go back to one one <unk>.
Many of the panels that got put in place, particularly for the global seasons included a number of reinsurers that frankly, I think they'd rather not be trading with.
Very extensively in his wanted mentioned in his opening remarks, there is a global flight to quality happening and we think will continue to benefit.
From that at one one where we will have an opportunity to help our clients clean up those panels with a much higher quality underwriter and then the last piece that I'll site and I think it's important it's a little harder to quantify or maybe impossible, but there was an underwriter psychology component at play which is you know there's a reason this market hardened and it's because of.
Underwriters have taken a number of years of cat losses, and I haven't met anybody in this industry, who because they may have some additional capital coming into one one wants to trade down or auction down pricing and property cat that just that is not the mentality that exists in our industry. So.
So our expectation going into one one is that we're gonna push hard for increased rates, we think the industry should be pushing hard for more.
Given the experience we've had in all those external factors, we talked about we're gonna be looking to grow not just property cat, which we will grow meaningfully but casualty specialty in a number of other areas. We are globally diversified. So we can drive growth in multiple regions were also diversified by lines. So we can grow cat non-cash property specialty unit.
<unk> <unk>.
And we fully expect that we will complete the deployment of the incremental capital at the one one renewal at outstanding terms. So hopefully that gives you a call are you looking for.
Ah smart cause this one out a few points to gyms comments.
Some of the specifics you were asking earlier.
We're still see a greater than 90% of them comfortable Rus deployment. This you're going into the reinsurance Division you know, it's the Lions sure that's where we have a very strong.
[noise] functionally strong franchise, an underlying fundamentals the gym just walk through the really gives us the confidence, especially coming out of the southern ones are conviction just couldn't be stronger capital raise will be put to good use I do expect the property and casualty mix too sweating, a bit more single digit.
It's into into favor with property lines or property premium.
Moving forwards and and I think you're seeing some of that evolution and or financial supplement and a game the or are we on that Ah incremental billion five of capital is something we feel confident and exceeding our.
Q1 operating or are we.
Going forwards.
That's helpful and thanks for all the color of my my follow up you know we've been here, it's been headlines surrounding collateralized collateralized casualty reinsurance and I was wondering if you guys are seen you know.
<unk> looking to replace covers with you know high quality reinsurers like yourselves or if this is something that you're expecting we could start to see you know play out in the market.
Yeah at least this is Jim again, yeah. We've look we are we are definitely hearing.
Chatter around the topic, particularly given some recent events and you've seen some dislocation in a variety of of parts, particularly in the fronting market.
And look what I would say to that is obviously were opportunistic we have the flexibility. If there was an interesting opportunity that emerges.
That gives us an opportunity to earn great returns, we certainly take it but our priority remains building franchise physicians with the best Global underwriters overtime.
And and that means that's where our focus is and we don't get distracted by you know some of the noise that might exist around a particular opportunity even though we are ready to lean into it should should those opportunities come our way.
Thank you.
Thanks Elise.
Thank you. Your next question comes from Yeah, and cannot which Geoffrey Please go ahead.
Thank you good morning, everybody maybe to follow up on on the last line of questions.
We did hear some commentary yesterday from a couple of your competitors one thing that they believe that you know property cat rates were were now adequate for the industry.
And I notice Jim and your response, you said that you were looking to push a lot of right and one one so.
I I I guess I I'd be interested to hear your views on on how adequate pricing and or rates are today or if it's just a matter of.
Really just keeping up with lost friends going forward and then the other comment we heard yesterday was a preference by one of your competitors are really deploy capital in property more into insurance and reinsurance.
And clearly we're we're hearing a different tone from from you. So I would love to hear cause How're you were thinking about the the the two from that perspective.
This is one so let let me go ahead and and get started with that look I think from our perspective, we obviously liked the returns that were getting.
Property cat, but in general as well.
And I fundamentally agree with what Jim said, we will keep pushing for right terms and structure.
We really haven't seen any fundamental changes in the external environment I.
I think you've seen some of the headline news. This morning with one of our competitive reporting that in the first half of the year catch where over the 10 year average over $40 billion. So there's still an active cat environment that hasn't changed.
We also see the general risk environment continued to be very elevated you got your political issues, you've got social inflation, you've got all these other things that are out there that hasn't changed and then you also have inflation that comes into the equation right.
<unk> cost of materials et cetera. So this is why from our perspective, we don't see a change in the market and therefore, we're gonna continue which price right arms and structure. So from my perspective that that is how we we think about it.
To your second question on insurance and reinsurance and property gas deployment, we do like the property cat environment right now in reinsurance, but as you saw in our insurance numbers. We also group property insurance by about 37% as as we reported in the supplement so we're leaning into it as well and frankly, that's one of the.
Managers that we have in our hybrid models, we can take advantage of the best risk adjusted opportunities and move capital pretty nimbly to that but let me have gym old shed some color on this yeah. You are on thanks for the question and maybe at the risk of repeating a little bit of what once had I, but I do think it's a critical point you know the fact is whether we like it or not we live in a sick.
Local industry and we've come through a period of a number of years, where cap pricing wasn't where it needed to be losses were elevated and that hurt a lot of underwriting companies and losses are piled up and so my view is we're not sitting here, saying, okay. We're gonna kick right change until we hit adequacy.
Declare victory and then just sit there I mean, that's not how we're gonna run this business, we wanna be earning excellent returns and you've heard me consistently say starting with the one one renewal in particular, but really even going back to seven one of 2022.
Return perspective return profiles are excellent that does not mean, we're gonna sit idly in just except that we want to continue to push it is an elevated risk environment. There is inflation. There is geopolitical challenge cat is inherently volatile and we think reinsurers deserve to get paid.
For for that and we're going to continue to push for it.
[noise] and yeah, and this is my Karma luggage I would just add on the insurance side to the point that one that earlier you know take into consideration. The last couple of years, what we've done to really basically goes through our portfolio strategy not just on volatility of muting that would actually looking specifically and how we can actually take our concentration derisked that across not just the U S. But also the <unk>.
For tuning across the globe. So we basically lowered our gross limits over the last few years by over 41%. In addition to that and lowered her <unk> Ah premium the piano issues dramatically in the one in 100 and take that into consideration of.
What is giving us the opportunity and the capacity to the point Ginger said, we're leaning in very heavy seeing very meaningful returns with average rate increases of over 30%, but yet and exposure change talking premium change them over 40%. So we think the market is really robust b C really good opportunity at just domestically, but internationally with a really good strategy derisking.
Our concentration limited and a lotta pockets in both peak and Nonpeak areas, which I think just bodes well for us going into twenty-three and 24.
Thanks for for very comprehensive answer and then maybe.
We continue with you, Mike and and I apologize for for Nitpicking here I'm, a very good quarter, but one thing that did stand out was 170 basis point deterioration in the underlying loss ratio an insurance I know mark called out some premium adjustments and mix shift, but could you maybe give us a little more color there.
Quantify some of the the changes.
Okay, you're in it's Mark maybe I can start.
Couple of components like I said in my scripted.
[noise] scripted remarks that premium adjustments were.
You know there were there were a reasonable size you you're talking you know five 6 million Lions sure coming out of the lawyers syndicate. So that's that's flowing through earned premium and you know altering the ratio is mechanically.
Unfortunate situation, but definitely we would consider it to be one off in nature and then you've got a mix of business component, we we do see.
Property, becoming a much much more substantial portion of the earn premium moving forward and that's gonna help.
To change the composition of the.
Loss of Attritional loss ratio within their combined ratio and you'll also see I think a an age subside in terms of the size of its contribution to the combined ratio.
Dynamics. It brings in terms of Ah expected loss ratio an expense with him there so.
This is something that should you know mechanically moves towards a lower attritional loss ratio Ah moving forwards.
And what I would emphasize to you on this one is is mark was saying the uptick was really from one time and non-recurring adjustments and just emphasize his last point is as we continue to write more property at excellent prices and you heard the numbers being quoted by Mike.
Right frankly, more specialty products to which we also alert and we saw the growth and other specialty in order.
39% like aviation and marine energy et cetera.
All of that is gonna have a very positive impact on the loss ratios it earns in during subsequent quarters.
Thank you.
Think he your next question comes from Michael One with city. Please go ahead.
Thanks, guys good morning, maybe.
Maybe it's somewhat similar question, but for reinsurance just curious.
If you could talk about the pace of underlying margin improvement from here.
Yeah, My kids, Jim wife's and thanks for the question look I'd say if you if you look at the improvement in the current quarter.
Really driven by two factors one we we have selected a lower current accident year Attritional loss ratio for our cat portfolio based mostly on our experience. So just in prior years, we've outperformed that pack until we reduce that obviously I expect a tailwind from all the right word.
<unk> to continue to improve that take over time, so that would be a factor and then the second factor is really the beginning of a mix shift.
Toward property from casualty not because we are not growing casualty you saw we continue to use that in Q2 at a slightly lower rate, but that property outgrowth has picked up and will continue to earn from the portfolio. So all those tailwinds that I described will continue.
In particular and you really just you know really at the.
The beginning of earning through all of these positive impacts.
So you don't really positive that way and I know, you're you're talking loss ratio, but while we're talking margin. The other tailwind I would describe it is around commission you.
You did see a little bit of condition improvement in the quarter, which you know obviously a.
A good thing, which we welcome that was driven almost entirely by mix. So that's a mix shift toward the property and this property mix on the earned premium side increases that will continue the peace that you're really not even seen yet but you will see is the fact that casualty seating conditions had been coming down we seen that pretty consistently star.
Being with one one and it's really just beginning to earn into the portfolio. So tailwind there. So so the bottom line is you know.
We expect some really good friends in terms of total margin.
Thanks really helpful. And then so I guess that investment income was pretty strong including all its for the quarter was wondering if you have any outlook for the second half of the year.
Like it's a mark so a couple of points to make here I'll split it between the interest income component.
<unk> performance.
I think the interest income is is not very good momentum we've taken advantage of structuring our portfolio.
King into account the short end of the year.
The old turf and so you're seeing those floating rate securities that we speak about frequently really pay off in in terms of the the research and the higher yield is generated from those securities.
C. A strong tailwind there you are seeing our our book fueled rise year over year, we're clearly investing Ah well north of a 5% new money right on a on a global basis.
And the E. U M. I think is is turning nor even beyond the equity rates contribution we're getting some nice pick up on that so I feel very good I think the credit quality of the portfolio is it was quite strong were.
Really at the North end of an a plus average credit quality on the fixed income portfolio bordering on probably minus but Ah. So that's important as we <unk>.
Contemplate credit adequacy in the in the portfolio and the the old performance is something we're very pleased with.
Difficult to forecast, but we've got a broadly diversified.
Of investments there.
The private equity side for the most part and that is expected to give us a nice stable relatively stable distribution given the diversification of over 200 limited partnerships now it's somewhat cyclical in terms of how the contribution.
It comes in but generally correlates well with you know where the Austin P. 500 is coming in overtime, but don't think are you seeing any kind of one offs type contribution in the in the quarterly performance for for cute too, but rather you're seeing a broad base.
Support from from the <unk> and the income.
Thanks, guys.
Thank you. Your next question comes from C. Gregory penis with Raymond James. Please go ahead.
Okay, well good morning, everyone I guess I I had one macro question and then one more detailed question on a macro basis can you just can you just speak and and I know you've spoken.
Talked about the the hard property market can you talk about your perspectives on the facultative portion of the market versus the treaty portion of market I really don't hear a lot of commentary, but I believe you're pretty active in facultative side too.
Yeah. Greg. This is <unk> look up facultative has seen some very strong growth as well and it's frankly for the same reasons that we've been talking about right. You know basically seasons are looking for opportunities to.
Load if you well some of the risk that doesn't necessarily fit into their treaty structure. So from our perspective are global Factbook right. Now is also growing pretty significantly we feel very good about that as well the gym and you can add some specific color yeah, great. Thanks for the question I think it's an astute one because you.
As we mentioned, it's a tough environment for our seasons and they're looking to manage risk and if they're treaty attachments have gone up there looking at their per risk exposures and they're concerned so they turn to the Faq market. We grew our fact portfolio in the second quarter by almost 40%.
Based on those trends with a real emphasis on property as well as from some segments of casualty and specialty lines, you know what I would what I would add to that is.
You know very similar to what you'll hear us say about our insurance property business. The same factors are playing out in facultative in terms of our approach to underwriting we're controlling limits deployed so keeping limits very tight.
Focused on quality risk selection and ensuring that we're getting paid extremely well for the risks were taking and I would say similar again to primary insurance market.
Faq right, taking has really accelerated steeply, particularly as our competitors are dealing with their own reinsurance costs. So we view it as a as a nice opportunity.
Oh that makes sense I wanted to put it to the insurance operations is my second and follow up question.
You know when I look at some of the lines of business.
The accident help maybe not so much the specialty casualty professional liability worker's comp.
We're observing other primary companies report you know some volatility around prior year development and really not seeing that either you guys. So maybe you could spend a minute.
Just update us on sort of the given takes out of some of the older accident years and inside your book and how you how the reserves are developing.
Yeah, So Greg it's it's mark here a.
A few points to make work the social inflation and the pressure that you're seeing in the industry from from 16 to 19 is real.
That's something that you know it.
Comes through in the reserves studies.
A few points about our portfolio last year, we had Ah pluses and minuses in our insurance and our insurance reserves we had.
Very modest movements I'd say in in those specific yours for a longer two lines of the challenge will be lines and we also have.
Positive offsets coming from some shorter tail lines worker's comp as well Sutter roads. So.
One of the points to make here is that we do have a broad based portfolio that allows for you know pluses and minuses over over the course of time, we also benefit from from a couple of things I think we've since 2021, one started I'd say it'd be the prudent silver.
<unk> has been quite good.
We try to be conservative, particularly on the longer tail lines and we want our hold those eggs until we have quite a bit of certainty and so about conservatism I think is helpful. When you've got this level of uncertainty in the market place and then I think the proportion of the business that we re.
And 2000 22021 and onwards.
Particularly uninsured is significantly larger than the set of reserves that we have.
Four C 16 to 19, so they're kind of.
Relative scale is is really quite meaningful and one of the reasons. That's important as you really saw right.
Take off pretty much I would say.
Probably started more Q4 2019, and it's been compounding throughout those are quarters sometime time, and so I think it helps the equation and then overall, we're obviously vigilant and how we track right versus loss trends in in the margin there in overtime and we'd make adjustments.
S.
As needed and the heel ours in the reserves and so forth and so.
That's that's worked out so I was comfortable with with where we are.
Fair enough thanks for the answers.
Thanks, Greg.
Thank you. Your next question comes from Michael's R M ski with can I.
Please go ahead.
Hey, <unk>.
Good morning, Thanks, maybe touching on the the subject nope, we see I think in your numbers are underpaid, two incurred levels X a cat in P. Y D that you know there are creeping up a bit but.
Still well below you know I guess pre pandemic ratios. So are you.
<unk> kind of broadly seeing in others, it might be tough to to paint a broad brush by you're seeing a bit of.
Entering up in and lost cost inflation.
Maybe X X.
<unk> property cab within so that's a different discussion.
Yeah that's.
Like it's a mark it down here.
It's definitely you know a concern of trends you have different levels of of inflation or whether it's.
The social inflation I think is well understood and you've got access what I would call accidents inflation driven by C. P I or certain segments medical loss inflation, a wage inflation, depending on which lines.
All of this pertains to and so those are things that we monitor clearly there's an elevated risk environment as we've seen some of these increase in other words more moderately so it's something we'd take into into account with Ah Las picks setting and monitoring Ah right adequacy.
Again, I would reiterate the excess of right versus loss trend.
Let me jump into Mike. This is one cause I think that's a very interesting point and to build on what I said in my my prepared remarks at the beginning of this call. We are ahead of of trend and in a very comfortable way Rachel for instance, our insurance rate level, when you take out comp and financial lines, which.
Ah really not court to US right now, we we increased rate like over 12% and loss trend for us and insurance on an aggregate basis is significantly lower than that and then you can leverage on exposure on top of that and that gives you a pretty good level of comfort on how far ahead of that we are we.
Basically beans, you're building margin. So obviously, we look at a loss trends on a very frequent basis as I've mentioned on other calls in the past, we keep very close track of it but we are comfortably ahead of the trend right now with right and then you had exposure on that that gives you another buffer.
Got it okay and yeah, I guess now we've I think I think most investors feel comfortable that that that you know what you're saying is happening and just out we're not yet really seeing much reserved releases from address which you know that's not a knock just so it's it's <unk>.
It's sometimes tough Triangulating Ah Ah some of the Matt I'm just curious on the on the pricing environment also kind of excluding property cat, we're seeing some conflicting data points at the Marsh Mclennan commercial pricing index was kind of gladish sequentially quarter over quarter all of those.
Another hand, some of the carriers.
Larger carriers, especially as you can see in a bit of acceleration you know broadly pro your portfolio, maybe maybe even more on the Parada side. You know you are as pricing changing much sequentially.
Let me let me start by cause this is one and then I'll have a gym in my car and most of that a little bit of color. If I'm not mistaken I think the marsh numbers or global numbers and so you aren't gonna have variations in those numbers from Latin America, Asia, Europe , et cetera et cetera.
The right environment that we continue to see it's actually quite good and you know so I just had a couple of minutes ago, we have seen sequential improvement and pricing in primary insurance and shortly on the reinsurance side of things. So that is the environment that we're living in right now and that we're seeing as we trade on a daily basis, but.
Jim can give you some color on other providers and Carmen can give you some more color on the primary side.
Yeah, Mike [noise], it's it's Jim So look I think in the conversations we're having with our seasons and he.
[noise] analysis, we're doing a renewals I think fundamentally is wanted indicated the key trend is that right is.
Moving in the direction that needs to do to keep up with loss costs and hold loss ratios in place on that front and and what I would just caution in terms of looking at.
You know industry indices as a as a measure of this is portfolio mix really does matter and if you look at it in particular some of the areas of the quote unquote casualty market.
That are under pressure and are not experiencing some of the reacceleration that one discussed things like DNO or workers comp, where we have very little exposure and so that that can move an index, but what we're focused on obviously as our own portfolio and we continue to feel good about where those metrics or heading.
Sure [noise], Yeah, and I was far from the primary insurance group I focus on a couple of things you know, we we always stress the importance of cycle management. So when you talk about you know, which we've been talking about for the last you know year as well as workers comp you seem as an example, worker's comp go from what was 27% years ago now down to on the motto lying guarantee costs down to 4% and.
And then when you see opportunity wherever really leaning in besides the property size. The first party aviation Marine things that really actually we know we can drive right to terms and really take advantage of the marketplace. So I think you know based on one's comments about what we're seeing that just for the maintenance South and then exposure change I I think we'd be see the benefits, we see opportunity, particularly in the foreseeable future.
That's helpful. Thank you.
Thank you. Your next question comes from Bryan Meredith, but T. B S. Please go ahead.
Yeah. Thanks, a couple from your for your first one gym I Wonder if you could talk a little bit about some of the private transactions top up deals that you did in the quarter and Ah those continuing and and maybe you can kind of give us a sense of you know if they're not continuing kind of how that would have.
Benefited your gross just don't Wanna Wanna make sure I'm not.
You know for my Ford estimates, assuming those are continually it maybe they aren't I dunno.
Sure thing, Brian Jim Yeah, Yeah. Thanks, Brian Yeah look up we're seeing a variety of types, though to the first part of your question. One of the biggest features and I think one that points to this turns out <unk>.
Demand for capacity issue with a number of our global large global clients have come out into the market either in a closely brokered or in some cases.
Placement situation looking to top up their existing cap programs and I think you know the reality is they would have liked to have bought those top ups at one one I think they were advising and probably appropriately so.
Either brokers that that wasn't the time to get that try to get that done and so they waited we started seeing it really at four one right.
Right around that time, and it's continued and it's been nice activity and then at the other end of the spectrum as I mentioned earlier. Some of this is you know we have a variety of partners coming to us with even large facultative placements.
Smaller treaties et cetera, where you know they just Wanna deal with her risk exposures and peeks owns and and get a little more creative and on how they manage their total risk profile, but still keep the economics are acceptable and so it's it's continuing I would say, though.
The reality is the bulk of this of this market, particularly in North America is an open broker market. The big renewals are driving the bulk of all the results that were reporting I would just view. These these other transactions as a nice tailwind I think they're also more importantly, a key indication of what we expect it.
[noise] happen in the future in terms of supply and demand and so they are extremely useful that way.
Right I I would add this one I would amplify that last point that you made because this is exactly what we have been saying all along right. What this really illustrates is the fact that the fundamental macro environment that we're all operating in.
Not changed right you still have high cat activity, you still have a heightened risk environment and.
And our seat and start looking to also managed earnings volatility and so therefore, they're still coming to market to try to figure out a way to do that while at the same time, they're also trying to attack the property market on the primary side at the same site. So.
All of these are signs and I think Jim is exactly right that the demand still absolutely there and they want to trade with carriers like us right highly rated right quality et cetera.
Great. That's really helpful. And then the second question when I'm. When did you talk a little bit about kind of where we are in the international build out on the insurance business. So looking at you know operating expense growth 20 per cent, you know call it well over 20% year over year ish.
That continue here for the foreseeable future just you know big you'll be your increases you continue to build that out and kind of where are we in the process.
Yeah no. Thank you Brian look I think a garage. It's still early days you know, we really began a very methodical build out of the strategy really at the beginning of last year. We are now essentially in in France, and Germany and Spain.
And chili.
And Singapore and Australia at this point in time with a couple of other markets coming online later this year.
You know, we're really very excited about the opportunities that we see and and frankly the market reaction has been phenomenal you know I've traveled the world.
Over the last two years as I normally do meeting with our brokers are people our clients et cetera.
And frankly, the reception has been terrific. They they love. The fact that we have the a plus paper they like the name of the company. They liked the people that they are trading with because they know us and so from that perspective, the opportunity said who's been there part of that methodical buildout has been that the systems to target operating model the the people.
Underwriters et cetera, et cetera, and so all of this is is really frankly within our expectations. When we think about particularly the expense comment that that you're making but we do see that are beginning to trend down overtime I think cause bark at indicated in last quarter's call and we're doing this in a very disciplined way.
We're managing expenses were managing to build out and in a very careful way, but we're very excited about what we're seeing and frankly the reaction that that we've had in each of these markets.
Thank you.
Thanks, Brian .
Thank you. Your next question comes from my issue with.
Keith for yet.
Please.
Pretty thanks, one interact quick question I guess, Jim you talk about being more cautious.
Cautious on some of the seating in Florida.
Hoping you could update us on how you were thinking about the reforms themselves holding up in other words, how comfortable you are with the Florida market as long as me individual companies were okay.
[noise] Yeah Myers.
Thanks for the question and I'll I'll kind of break down into two parts first what I'll tell you a little bit more about what we did and why.
And then gets on the form so you know one of our most important I think underwriting screens when dealing with you know those Florida specialists, particularly the Democratic rated Florida specialists.
As our financial underwriting and.
You know, particularly given the stress these folks had been under over the last couple of years and the experience from last year.
You're just a number of of of clients that we did business within the past didn't pass that screen you know a little over a third of our demo Tech rated clients didn't pass that screen and so we were just no longer able to support their programs and so we ended up deploying less capacity to those folks now we were you know.
We're in a terrific market. So we simply reallocated it to both Florida, and non Florida opportunity. So I think a really good trade for us overall.
In terms of the reforms you know look we you know we think they're terrific reforms, we think the political class in Florida exercised a lot of fortitude encouraged to tackle this problem head on it was absolutely necessary I think given the fraud and abuse than what's happening in the state you know it was heading to a place where you were you know when you're ready.
Have an insurance and reinsurance crisis.
So we're positive on the reforms, but we're also you know where where folks that make decisions based on facts and it's not yet 100 per cent clear how the reforms will play out and lost cause I don't expect the plaintiff's bar in that state to you know to simply acquiesce to the reform and so we need to.
See that play out so as the result of the reform reveal themselves in an actual loss activity if they show that.
You know that that lost costs are coming down obviously that would.
Make us more favorable on the Florida market, all other things being equal and if that's not true obviously less so the only other piece I would add to that though is the the commitment we have to Florida. I think is the right size I don't necessarily not necessarily looking for signs to double down on the state either sort of irrespective of what happens.
Okay perfect. That's very helpful. Second question, and we talked a little bit about sort of broad concerns about casualty lost and.
I was hoping you could update us on your appetite for lost portfolio, writing lots portfolio transfers and have you seen demand the revolving.
Yeah, My art gym again.
Look at it it's an area of the market, where we've we've done a few transactions over time. It is really not something we we focus on it's it's obviously highly competitive.
You are typically competing with companies, who do not carry the kind of rating and quality balance sheet then.
Everest has in so that changes their economics.
We would rather build strong forward looking franchises with the best global and local seasons across multiple lines and that's where the bulk of our efforts opposite so I just don't see that being a big piece of what we do going forward.
Okay fantastic. Thanks, so much.
Thank you <unk>.
Chin comes firmly screen with Wells Fargo. Please go ahead.
Hi, Thanks, I just had one follow up on the insurance segment like you guys had laid out that you know 91% to 93% combined ratio target My financial plan, a coupla years ago I think.
Market is much better today and I know there was someone off Smith corner in the queue one.
<unk> reported results.
You have a sense when you know given the market dynamics when we could perhaps see now that Martin you know come in towards the lower end of the guy that range.
Yeah. So at least it's mark like I I think there's some very good fundamentals that we have on the insurance side you do have.
A little bit of noise coming from a few factors. So let me let me just develop this a little bit so few points to make.
One we've got a very solid topline premium and you can see pretty good growth in property more expected not necessarily translating to the earned right now some of that is coming in from our international expansion. So that's gonna be a driver and that exacerbates. The expenses you know good we're putting in some of the.
You know foundational pieces for the expansion, but you know no issue. There I think that's more timing. The key thing is that the business that we're writing internationally and domestically gives us a very good confidence and so from that standpoint, but the mix changing the expected margin growth over.
At all it was what I think is going to drive us to the lower end of the range.
I think to to add to it even further is this really the honchos derisking.
We've done on the top side for insurance and so when you take a look at this quarter for example, a zero print on the cat loss in a pretty low number in Q1 and some of the tactical changes, we've made and how we're constructing our cat appetite for insure.
Lawrence that's another meaningful driver of of how we get there and then maybe the last part I think you can see this and and all the commentary we give written and verbal the cycle management capabilities that we have in the insurance division are quite strong you've got a fairly diverse.
Suffice set of lines of business that allow us to transition into you know higher margin lines. When when the markets are are favorable in that respect and minimize other areas that are less favorable and so I think those pieces are are are really what's gonna get us to the.
Lower portion of the 90 193, and we're still quite comfortable without.
Working assumption that we gave you in the eye or two years ago.
Thinking this concludes that question and answer session I would now like to turn the conference back to one and marks of any closing remarks.
Right. Thank you for all the questions and and the excellent discussion and I'll I'll close this call by reiterating the confidence in our strategy and our team frankly, the exceptional talent, that's driving our execution, we remain an offence and we remain disciplined and have worked in a stick in his heart market, we have an unwavering.
Focus on creating sustained value for our stakeholders and that is top of mind.
Look forward to seeing all of you again to discuss our third quarter results. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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