Q3 2023 Everest Group Ltd Earnings Call
Okay.
Welcome to the Everest group as to the third quarter 2023 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, they will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
To withdraw your question. Please press Star then two please.
Please note this event is being recorded.
I would now like to turn the conference over to Mr. Matthew Roadmap Senior Vice President head of Investor Relations. Please go ahead. Good morning, everyone and welcome to Everest Group Limited third quarter 2023 earnings Conference call.
Leading today's call are wanted <unk>, president and CEO and Mark <unk> Executive Vice President and CFO. We're also joined by other members of your risk management team.
And again I'll preface the comments on today's call by noting that ever since a few filings include extensive disclosures with respect to forward looking statements.
The comments regarding estimates projections and similar.
Our subject to the risks uncertainties and assumptions.
Thanks.
Management May also refer to certain non-GAAP financial measures. These items are reconciled in our earnings release and financial supplement that I'll turn the call over to Juan.
Thank you Matt Good morning, everyone. Thank you for joining us.
Average third quarter performance was excellent with.
We delivered outstanding returns.
Alluding, a near 20% operating return on equity.
And then annualized total shareholder return of 25%.
We are leaning into the heart reinsurance market.
Favorable conditions in a flight to quality persist.
As the lead reinsurance market and preferred partner, we are taking advantage of strong pricing, while deepening our client relationships and expanding our global portfolio and significantly improved risk adjusted returns.
We are positioned for success as we head into the January renewals.
We also remain on track for January 2024 for the full deployment of the equity capital raised in May.
Our primary insurance business delivered strong underwriting income with a significant year over year improvement in the third quarter.
And our high quality investment portfolio continues to support our underwriting performance with outstanding returns.
We achieved these results despite another active catastrophe quarter, we tracked over 80 material events globally. This quarter, resulting in a nine month year to date industry loss estimated at roughly $93 billion.
The industry's on course for another $100 billion loss this year.
This reinforces the need for continued underwriting discipline and four additional pricing increases across all lines.
As the world becomes increasingly complex <unk>.
<unk> value proposition, it's in greater demand.
As you have heard me say before we all run off.
With strong tailwind across all of our earning streams.
Strong balance sheet and top tier global talent.
At all.
With that I'll turn to our third quarter financial highlights beginning at the group level.
In addition to delivering exceptional returns we drove substantial improvement across our group key financial metrics underwriting income net investment income operating income and net income and we delivered record increases in operating cash flow and book value per share.
We grew the business at significantly expanded margins.
Gross written premiums increased by 23% year over year in constant dollars.
Led by record quarterly reinsurance growth.
We generated $613 million and net operating income.
A significant year over year, Inc.
And we have generated $1 7 billion.
Date.
The group combined ratio of 91, four also improved year over year by 21 points, which translates to an underwriting profit of over 300 million for the quarter.
And nearly 1 billion in underwriting profit year to date.
Our attritional loss and combined ratios, both improved by more than a point year over year to 59% and 86, 5% respectively.
We generated more than $400 million and net investment income in the third quarter and we delivered over 1 billion of net investment income.
To date.
In addition to the improved interest rate environment. This year over year improvement was driven by strong returns from both our fixed income and alternative investments.
Turning now to our reinsurance business.
The reinsurance division delivered an exceptional quarter with outstanding top and bottom line results and superb execution by our team.
Leaning into the strength of the market, we maintained our strategy of targeted and nimble capital deployment with core clients.
Faulting and significant growth across virtually all business lines and geographies and materially improved risk adjusted returns.
We grew gross written premiums on a constant dollar basis, and excluding reinstatement by 33% to $3 2 billion for the quarter.
This is a new record for the division.
In property catastrophe.
The market remains outstanding premiums, excluding reinstatement were up 41% from last year.
Pretty pro rata premiums increased 44%.
Casualty pro rata premiums were up as well at 20%, while we carefully manage the casualty market cycle and target best in class clients.
Internationally, we expanded in key target growth markets across Europe, Asia, and Latin America.
Despite the active catastrophe quarter, we improved our catastrophe loss ratio significantly year over year.
Reflecting our deliberate and consistent actions to manage volatility.
The attritional loss and combined ratios were down year over year by $1, six and almost two points respectively.
The overall combined ratio improving to 91%.
This helped us achieve an underwriting profit of $234 million.
Looking ahead, our outlook for the January one 2020 for renewal remains strong.
We fully expect the robust pricing and favorable conditions to continue.
And as the lead market, we stand to benefit.
Our nimble creative and collaborative approach allows us to simultaneously improve our economics and strengthen client relationships.
This tremendous relationship equity we serve as well.
Expectations for pricing and terms and conditions in the global property market are now well understood, which should make future renewals more order.
At recent industry events, including Monte Carlo in CIB, our clients told us that they want more of our capacity and wanted to further broaden their partnership with us.
Our confidence in our strategy and in the strength and durability of the market is high.
I am excited by the magnitude of the opportunity we have created for the business.
We are extremely well positioned with the expertise global capabilities and financial strength to seize this generational market opportunity.
To optimize the portfolio for the long term.
Now turning to our insurance Division.
And our primary business rate continues to exceed loss trends with improvements across multiple lines.
We achieved an 11% increase in our core portfolio, excluding workers' compensation and financial lines.
In addition to property improved pricing was particularly strong in marine and other specialty lines.
We grew the business approximately 4% and generated more than 1 billion in gross written premiums.
Growth in the quarter was diversified and particularly strong in cross property, where we see excellent opportunities.
In specialty lines, such as Marine aviation trade credit and political risk.
The growth was offset by reductions in workers' compensation and financial lines, where the market is less attractive.
Additionally, we are gaining traction internationally, where we are methodically scaling our capabilities and our platform.
Our focus remains on driving bottom line growth, we continue our disciplined underwriting and take advantage of high margin opportunities and reduce exposure in pockets of business that do not meet our profitability objectives.
The attritional loss ratio improved year over year to 63%.
Our pre tax catastrophe losses of $10 million net of estimated recoveries and reinstatement premiums.
Were modest.
Leading to an improvement in our reported combined ratio to 92 six.
We achieved an underwriting profit of $66 million in the quarter and a record profit of $196 million year to date.
We continue to attract and develop best in class talent, who share our vision for the company and our commitment to world class customer service.
I am bullish about the momentum we have created for our business and every position in the market.
We have every advantage at our disposal.
Our world class team.
The diversified reinsurance and insurance platforms and market tail winds at our back to accelerate our progress and build even greater value for our shareholders.
With that I'll turn it over to Mark to review the financials in more detail.
Thank you Juan and good morning, everyone Everest had another very strong quarter and built upon the momentum we saw in the first half of the year.
The company reported operating income of 613 million or $14.14 per diluted share in the quarter.
Waiting to an operating income return on equity of 19, 2%.
Year to date total shareholder return, where Tito SAR stands at 24, 5% annualized with.
We significantly improved our overall combined ratio, while generating double digit growth as pricing and terms remain attractive in most lines of business around the world.
The company's strong performance in the third quarter was led by our team's high level of execution in our core markets and we have a number of tail winds across both of our businesses.
Heading into the last quarter of the year and into 2024.
The combined ratio was 91, 4%, which includes five points of losses or $175 million from pretax natural catastrophes net of estimated recoveries.
Our natural catastrophe losses in the quarter were driven by a number of mid sized events globally.
Group's attritional loss ratio was 59% 120 basis point improvement over the prior year's quarter led by the reinsurance segment, which I'll discuss in more detail in just a moment.
The group's commission ratio increased 50 basis points to 21, 4% on mix changes, while the group's expense ratio remains a competitive advantage up six 1%.
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 grew 32, 7% in constant dollars when adjusting for reinstatement premiums during the quarter was one mentioned this was a record for the segment.
<unk> growth was driven by double digit increases in property pro rata property tax are well <unk>.
<unk> and casualty pro rata and was broad based globally.
The combined ratio was 91%, which improved from 115% in the prior year.
Prior year period included $620 million of pre tax catastrophe losses net of recoveries and reinstatement premiums.
Largely due to hurricane Ian.
The Attritional loss ratio improved 160 basis points to 57, 5% as we continue to achieve more favorable rate and terms, particularly in property, which we expect to continue throughout 2024.
The Commission ratio was 24, 8% an increase of 90 basis points from the prior year due to the impact of reinstatement premiums from the Q3 cats last year.
There was a modest 30 basis point underlying mix impact benefit excluding the Q3 2022 statements.
The underwriting related expense ratio was two 5%, which was essentially flat year over year.
We continue to lean into the hard reinsurance market and the equity capital raise deployment remains on track and will be fully deployed by January one renewals.
Moving to insurance gross premiums written grew three 5% in constant dollars to $1 2 billion.
As you May have noticed gross written premium growth was more modest this quarter as the division enjoyed double digit growth and a diversified mix of property and specialty lines.
Being partially offset by lower written premiums and workers compensation and financial lines.
Overall pricing remains ahead of loss trend and we continue to see attractive market opportunities across our book of business.
We will also continue to have underwriting discipline in areas, we find less attractive as we exhibited this quarter.
The combined ratio was 92, 6%, which improved from 103, 5% in the prior year.
Division benefited from a relatively low level of natural catastrophe losses in the quarter in the amount of $10 million net of estimated recoveries in reinstatement premiums further demonstrating the success of our derisking actions on our portfolio.
The attritional loss ratio improved slightly this quarter to 63, 1% driven primarily by business mix, given the higher proportion of longer tail lines of business.
The commission ratio improved 120 basis points, largely driven by business mix as increased property writings earned through as well as increased volume of ceding commissions.
The underwriting related expense ratio was 16, 7% largely driven by certain one off expenses and the continued investment in our global platform.
And finally to cover investments tax in the balance sheet.
Net investment income increased 255 million to $406 million for the quarter, driven primarily by higher new money yields on investment in floating rate securities and higher assets under management.
Alternative assets generated 75 million of net investment income a sequential improvement as the equity markets have continued to rebound.
Overall, our book yield improved from three 2% to four 2% year over year.
And our reinvestment rate remains close to 6%.
We continue to have a short asset duration of approximately $2 seven years, given the attractive level of short rates and as a reminder, the 23% of our fixed income investments are in floating rate securities.
For the third quarter of 2023, our operating income tax rate was six 5%, which was lower than our working assumption of 11% to 12% for the year.
This was largely due to geographic income splits.
We ended the quarter net unrealized losses on the available for sale fixed income portfolio.
To approximately $1 9 billion.
An increase of $242 million as compared to the end of the second quarter, resulting from rate increases and foreign exchange movements.
Cash flow from operations of $1 4 billion during the quarter was a company record.
And book value per share ended the quarter at $258 71.
An improvement of 22, 4% from year end 2022.
When adjusted for dividends of $5 <unk> per share year to date.
Book value per share, excluding net unrealized depreciation on available for sale fixed income securities stood at $301 <unk>.
76, <unk> versus $259 18 per share at year end 2022.
Representing an increase of approximately 16, 4% net.
Net leverage at quarter end stood at 18, 6% modestly lower on a sequential and year over year basis.
Conclusion, Everest had an excellent third quarter 2023, and is well positioned heading into the final quarter of the year and into 2024.
And with that I'll turn the call back over to Matt.
Thanks, Mark operator, we're now ready to open the line for questions would you ask you. Please limit your questions to one question plus one follow up and rejoin the queue. If you have additional questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our Roes start.
The first question comes from the line of Alex Scott with Goldman Sachs. Please go ahead.
Hi, Thanks, good morning.
First question I had is on the demand for property cat reinsurance headed into this next year.
I'd just be interested if theres any color you can provide some early discussions and indications around.
That piece of things in terms of just thinking through last year.
Retentions Brown.
<unk> brought up a bit I.
I think limits in certain cases weren't taken up as much as insured values were going up to that kind of thing are you seeing some willingness to reverse some of those actions do you think you'll see that kind of growth in the property cat reinsurance market. This next year.
On demand is that we see very strong signals that our clients are looking for more property cat capacity and as you say there was I think some pent up demand at one 120.
Three that ultimately didn't get fulfilled and so they're now back in the market and seeking capacity, we're having discussions with our clients.
Actively about the one one renewal and have also taken advantage of some opportunities to do some private placement activity.
In the latter half of this year to start filling in that demand. So I think thats, a very strong signal in our view with that is that that will continue to drive a really attractive returns in that market.
With respect retention levels and the markets.
Our reaction to that and what might happen next year.
Our view is overall the movement in retentions, where necessary and appropriate there clearly was too much industry loss activity flowing into the reinsurance sector that needs to be retained in the primary market.
Now does that mean that every single carrier landed in the right spot, probably not and I'm sure there'll be some adjustments around the edges, but fundamentally I don't see any change in terms of going backwards on retention.
Got it.
And in terms of a follow up I wanted to ask you about casualty reinsurance and just your comfort with the price adequacy of the quota share commissions and so forth.
Yes, we heard that there was some negativity coming out of Monte Carlo from some of the European Reinsurers Whats your perspective on some of the social inflation concerns and.
How well that's being captured in price and willingness to grow in some of those areas.
Sure Alex It's Jim again, so as you say I mean this issue is clearly on the minds of the market and it's been much discussed.
Including by Everest with our customers in both mining Carlo in CIB, I think to fully understand our view of the market and what happens next you really have to understand the context of how we built our book of business.
We've been incredibly deliberate and focused on managing the market cycle and growing with the best in class agents around the world right. So we timed it correctly, we grew after the market begin to harden.
In 2019, we grew with best in class underwriters, we did not right to the entire market and I think some.
Market participants did do that in their results and their market commentary reflects.
That error.
And you also may have heard recently in view expressed I think that reinsurers have been slow to recognize the changes that are happening around social inflation and the other trends you mentioned I mean that is absolutely not the case with Everest.
You would've seen our approach over the last three plus years, we've been very decisive on the reserves front, we've been prudent in our loss picks and which we've maintained by the way, even though pricing over the last couple of years has exceeded our expectations. We've been updating our trend factors on a frequent basis. So we're staying very much.
Close to these trends and staying on top of them. So today, we're sitting here with a very strong book with the best underwriters in the market and those underwriters are not sitting by idly waiting for bad things to happen, which by the way is why we're starting to see signs of some reacceleration of rate taking among many of our clients they're managing this closely.
That said social inflation is real it's a real trend that needs to be managed and so our approach.
Whether it's the January one renewal, that's coming up or really any renewal assess each deal on its merits.
And we do that in a very rational way.
Deal passes muster.
And delivering returns we want we'll write it if it doesn't we're more than happy to move away from that.
We have many many options to deploy our capital which is why diversification is so important in our business.
Many different ways to get to our financial goals and so we have the flexibility to move.
<unk> deals.
Other point that I would make just relative to a piece of your question around ceding commissions given all of these trends our expectation is that ceding commissions will continue to improve we have seen that movement already begin and we expect it to strengthen considerably as we move into 2024.
Thanks for all the detail.
Got it.
The next question comes from the line of Josh Shanker with Bank of America. Please go ahead.
Yes. Thank you for taking my question, maybe there is no answer this question, but obviously.
The attachment points have gone up this year and the portfolio is more risk averse than it was a year ago presumably.
Given the moderate and frequent catastrophe.
<unk> is there any way of putting in context, what the cat loss would have been had it happened last year instead of this year.
Sure Josh this is Jim.
Well, one point I would start with I know you've made a point that is a moderate cat quarter and I think we feel very good about our cat loss, but this quarter from an industry perspective was anything but moderate I mean, we track over 80 events around the world.
Had significant hurricane activity, which fortunately because of landing points et cetera did not too.
A significant damage, but the comment I would make and as you say, it's sort of an unanswerable question, but you've seen our year to date performance in terms of our reported cat losses, and thats happening against the backdrop of a year, that's likely going to be another $100 billion plus industry loss, a year, which is incredible right and our.
Expectation is that.
If you repeated the losses of 2022 for example.
<unk> loss this year against the same events would have been meaningfully lower and that's because of attachment points. It's because of the portfolio management, just because of aggregation its our underwriting discipline. It's all of those things ladders up so we have clearly changed and improved the risk profile of the book, particularly when Youre talking about a lot.
Number of mid to large sized cat losses.
And then if I can get one more in.
You mentioned that you are ready to deploy the capital you raised earlier then Youre at January 1st is there any way to discuss the degree to which.
Capital is under deployed right now in Q2, three and what the impact might be if you were fully deployed the way you want to be.
Tom.
Yeah sure Josh Jim again, well look so just to kind of go back to what we said.
After the capital raise our expectation was that we would begin the deployment meaningfully with the seven one renewal.
Would be incremental opportunities through the back half of 2023, and then we would complete the deployment at the January 1st renewals. So we have done exactly that we've begun the process of deployment, we had a really strong seven one at the.
Back half of the year after 71 gets quieter, but there's been some nice deal activity.
On a private placement basis and.
And based on the conversations we've had.
With our with our scenes, we see a very strong path to completing the deployment really have no concerns around that so I'm not I'm not going to speculate on well what if I adjust.
Sort of deployed all the capital at seven one, but what I can say is the path to completing that process. As we described is incredibly clear.
Yes, Josh it's Mark just to add a couple of points to Jim's commentary. So number one we're obviously very very certain of our ability to deploy by one one.
Dealing essentially with a six months.
Timeframe between the raise in <unk> deployment, along the way clearly, we're deploying it where we see fit.
From an investment point of view, it's fully deployed the way we would like it for the for the time being no issue for us to carry a little bit of excess capital that's going to get remunerated to some extent, but it will be fully deployed by one one.
And there is no.
Benefit to rushing any kind of deployment, we want to stay disciplined and focused just as our initial plan.
Back in May for the equity raise indicated yes.
Josh. This is one just maybe to put a fine point on it.
Hits are still improving and property and we also got paid a lot more for the risk that we took and so that's part of the confidence that we have and being able to deploy this fully.
By the one one renewal.
And so we should expect healthy growth with one one given all that you've set.
Yes, Josh it's Jim I mean, my expectation is we're going to grow our property cat writings with our core clients very nicely.
Again, we see significant demand our expectation is that risk adjusted rates will increase.
At the one one renewal so lots of opportunity in the environment.
Yeah.
The next question comes from the line of <unk> with Jefferies. Please go ahead.
Thank you and good morning.
My first question I piggyback on to your thoughts on one one renewals in the property reinsurance market.
So suddenly you sound very constructive Youre also talking about demand being up.
But what about the supply side, because I would've thought that.
Relatively benign reinsurance losses, this year and certainly in hurricane season.
Youre going to see an uptick in capital.
So how are you thinking about that and the <unk>.
Supply demand dynamic, especially for it maybe more remote risk, which seems to be where reinsurers are more interested in playing right now.
In Taiwan one.
Yes, Yaron this is juan thank you for for the.
Question look I think from our perspective Youre seeing a couple of dynamics that really have not fundamentally changed.
Since the beginning of the year since we've been talking about this issue number one there's still definitely a supply and demand imbalance that's out there and I think as we've discussed before whether that's $100 billion $40 billion. It doesn't really matter because it's a pretty big gap between supply and demand and there has not been a particularly.
Large or moderate influx of capital into the industry to close that gap. So there's definitely that imbalance that continues to exist on the supply side. In addition to that and building on what Jim said earlier, Youre still seeing pent up demand and increased demand from our seats across the board.
A lot of that is also generated by frankly, a flight to quality is.
Basically seasons wanting to work with more companies like us will have a stronger balance sheet and we've been very constructive into renewals et cetera. So from that perspective, we're not seeing anything in the environment right now that really fundamentally changes the pricing trajectory of the trajectory of this business going into one one and frankly further you saw.
The growth rates that I quoted earlier in my prepared remarks, where we were up over 40% of property you heard Jim's comments, just a minute ago about what do you expect to see a one one so we do expect that tailwind to continue to be behind us as we go forward, but let me ask Jim to jump in and see if he wants to add anything to that yes. Sure you are on a couple of us.
Their points I'd add to what Juan said I mean, there is I think.
Two of the sentiment, but theres, an underwriting discipline that underlies all of this irrespective of how much capital is available to underwriters.
Our industry every underwriter I've talked to they want to get paid more for the risks had been tanking and Thats a reflection of the last several years of elevated cat losses, and even what we've seen this year and in this quarter and I don't see any sign that thats dissipating.
Dissipating and then to your.
The other point you made around more remote layers and that seems like an area where more people want to participate you seen some cat bond activity up there et cetera.
How much rate gets added to the effects of 2023 and at which levels will remain to be seen but in our view it doesn't really matter if theres more more supply at the remote level that means that just below that there'll be great opportunities, we're very flexible and nimble and where we deploy our capital and so.
Those kinds of impacts don't really reflect or.
Or change our opportunity.
Thank you for that that's very helpful. And then if I could maybe shift gears to the insurance segment and I think mark in your prepared comments you talked about.
Some mix shift as maybe driving that.
Loss ratios.
Ste.
Unchanged year over year, despite the fact that youre getting rate over trend.
Can you maybe elaborate on that a little bit because.
For me as an outside of if I look at the book seems like <unk>.
Property and short tail lines grew by about 50% year over year.
In aggregate over the last 12 months.
Other specialty up 40% and then I see some of the lines that I would've thought have higher attritional loss ratios such workers comp professional liability actually coming in a bit so I'd love to better understand the dynamics there if you could elaborate.
Mark I'm going to start and then I'll ask <unk> to finish and add some color to it look first of all I think the attritional loss ratio is pretty much right, where it should be.
We're still setting conservative loss picks for charter.
Casualty lines in particular, we are an elevated risk environment.
Wanted to be prudent and Tom that we're obviously getting rate and we're getting.
The kind of business, we want to write in terms of cycle managing this.
Particular marketplace. So <unk> seen some increases in ratings and decreases in different lines and that gives you a sense of discipline in the marketplace and so that mix.
In the Attritional loss ratio is coming out to broadly stable with last year, we don't see any problem with that we've got on.
In embedded margin in there that were quite comfortable with quite confident in and we think it takes into account the risk environment. That's out there for the different lines, we've underwritten yes.
Yes, and I would add this is Mike.
I would add to it a couple of things first the focus for US is one thing is opening comments, it's about profitability and we've been leaning into the first party outlines pretty heavily particularly on the property aviation and Marine and then you see other specialty lines that you mentioned are driving lines like credit political risk in energy will be seasonally really strong risk adjusted returns I think youll see.
That played through hopefully on the <unk>.
Ultimately that's being offset when you think about what we are in that cycle management that Mark mentioned, particularly on the workers' comp in financial lines and that offsets and if you think about the quarter for US. We are focused on mix that is our general focus on today is to get the loss ratio can you get lower but for US ultimately is really trying to make sure that we're leaning into.
The market was theres opportunity and again being disciplined around what we don't Chase and we don't Chase the lines and we think right now we're not showing those risk adjusted returns. So if you took those out particularly in workers comp and particularly the financial lines. Our growth would have been where we are year to date around 9% plus so I think for US we tend to focus on the long term, it's really about <unk>.
We remain the right mix and making sure that were driving the best phosphates than we can do.
Thanks, so much.
The next question comes from the line of Michael <unk> with at BMO. Please go ahead.
Hey, good morning, Thank you.
Just looking at the paid to incurred ratio X.
Catastrophes and.
Reserves.
It's been I think not just you all but it's been it's been ticking up a bit.
Year over year and quarter over quarter if any.
Anything worth calling out or talking about in terms of trend there.
Yeah.
Mark It's Mark I wouldn't say, there's anything specific to say there.
I think it's largely your portfolio mix Thats, just driving that trend mix of property to long tail lines.
No particular.
Significant set of claims or COVID-19 settlements or anything like that.
That's in the mix.
So from my standpoint.
Just a natural outcome of the portfolio mix.
Okay.
That's helpful.
Yes.
Switching gears a bit back to the discussion on and.
On ceding commissions.
As a business mix has changed.
A lot over time and I know you used to I think the wording a improved considerably.
Any perspective on kind of like okay any.
Many points differently than they were many years ago right.
But I know your business mix has changed a lot too. So is there any context about what considerably could mean.
We'll go.
We continue to move in favor of reinsurers and two to 24.
Yes, Mike This is Jim Williamson look we've one of the things. We said this year is that seeding commissions on casualty pro rata overall.
Have moved by about a point and obviously it differs by deal in GL.
Geography, and all those sorts of things I think our view is that that will accelerate and needs to accelerate and we've certainly seen some anecdotes.
That you probably would have hurt them as well.
Deals in the back half of this year moving by more than that and we've seen some of that as well and I think that bodes well for us in 2020 for being able to accelerate.
From that one point to a larger number I'm not going to predict what that ends up being but the trend line around getting a better outcome is certainly there.
Okay got it and.
Maybe lastly.
Just wanted to make sure.
On average the historical cat load guidance is it correct that.
Your your last Cattalo guidance was less than 6%.
And I'm sure.
Last year happened this year, what would what would happen.
But then also.
The most recent update.
Yes, roughly 6% is.
The expected annual cat load that we would have in our in our operating plan for the for the year.
Well, that's consistent broadly consistent with what we said at IR day back in 'twenty one.
Okay.
Okay.
The next question comes from the line of Mike Ward from CD. Please go ahead.
Thanks, guys good morning.
I was just wondering if you had any.
Preliminary view on maybe the industry exposure for hurricane Otis in Acapulco.
Yes sure thing Mike. This is up one in driving look I think <unk> is a great example of what we've been talking about over the last few minutes and the reason why.
Frankly, the property cap market will continue to be hard into 'twenty four 'twenty five.
Put it into context of what we said earlier right. We saw 80 events roughly around the world that we were able to track the industry loss now it's about 93 billion nine months year to date ended well probably into a 100 billion plus on at the end of the year and how you would have something like <unk>, which if you follow what happened.
With that storm.
It basically exploded from being a 70 mile an hour storm to be at 165 miles an hour and a period of about 12 hours, which was pretty significant strengthening.
And then hitting Acapulco right. So this is one of the things that.
When you look at the World you realize that you still need to continue to push for pricing you need to continue to push for attachment points being up terms and conditions et cetera, but from our perspective, we expect that loss to be modest.
At the end of the day.
I can't speak for others out there, but I think this is also the discipline that you've seen from us on how we manage our volatility.
And our accumulations around the world.
Thanks Thats helpful.
Maybe on the expense ratio front, the internal investment seem a little weighted to insurance.
I guess as you look to 2024 do you expect that to set up softer comps in that segment or for the group overall.
Yeah.
I missed the last three words on that sorry could you repeat it Mike.
I was just.
Looking to 'twenty four I.
I was wondering if you expect.
The expense ratio.
Weighted towards insurance to setup softer comps, whether it's insurance searches for the group overall.
Well, we're continuing to.
Spans and insurance both in North America, but also internationally so that comes with a bit of.
Front end loaded expenses, something we think we can manage well within our combined ratio expectations for the for the business.
So a bit elevated right now compared to prior years as we as we start to gear up.
But it's not something that I would expect to have any kind of meaningful impact on our combined ratio.
Going forward, having said that I think the benefits of our expansion. This is something we'll get into in our Investor day.
It's something we feel very confident about going forward just in terms of being.
Future profit driver and an expansion of our franchise offering.
Thanks, guys.
Thanks, Mike.
The next question comes from the line of Ryan Tunis with Autonomous Research. Please go ahead.
And I guess, it's on the the Kilimanjaro bonds.
Earlier in the year it looks like you guys, let a couple hundred million dollars of those expire without replacing them.
It looks like.
It was almost another <unk> 5 billion of those that expire at year end I'm just curious.
If there is a plan to replace those with some other form of reinsurance or should we think about.
Awesome.
The capital raise that you did earlier this year.
Yes.
Potentially going to fill a little bit of that.
Bryan It's Mark So let me let me take a shot at this I think.
Whenever we talk about our capital shield, we always start with the gross risk.
We're underwriting.
Essentially we want to be gross underwriter, its not a flow through or anything else in terms of the use of retrocession cap bonds.
Et cetera. So that's that's kind of a starting point so we have a substantial lottery of.
Bonds.
Typically over a five four or five year type of duration, there are different layers of which the attach.
And our book changes as well on the growth side from time to time.
So we take the gross portfolio that we're underwriting into account, we take our overall cap.
Physician and toward our account and then we start to modify and Theres a couple of other.
Factors that would go into it.
So let me just start with the easy stuff. So we always we have the ability to use and we'd prefer to use Mount Logan.
Alright.
Party sidecar vehicle as much as we can in terms of.
Hedging and aligning it with the kind of risk we're taking in property cat.
Tactical use of Iow's on a periodic basis as another tool that we use.
And we use this proactively depending on where the efficiency of the pricing and the placements are for cat bonds and <unk> and then Logan of course. So we also take into account the capital position you referenced the capital raise.
May is an additional.
Source of capital base for the for the company so definitely enters the equation.
And lastly, ironwood I would throw into the mix.
The economic capital at risk graph that we've talked about frequently in our investor deck.
And essentially that space that we're comfortable playing and shows that we have a lot of room to expand.
Risk appetite within our tolerances.
For tail risk earnings at risk and we tend to do that especially when we see.
Superior margin.
On the on the types of risks that we're underwriting, particularly.
Property Cat and so we take all of these factors that I've mentioned to plan out our capital shield going forward and so obviously, we had a conscious decision to <unk>.
Not renew.
I think we had two bonds in the spring.
We did add another one.
Different layer.
Net net there was a reduction we've got significant capacity thats.
Up for maturity.
I believe it's November December and Thats, something that were taking into account now, but I've given you the framework of how we look at it so I can assure you that.
Given our ambition as a gross underwriter and pursuing superior risk adjusted returns, we're going to look at the options.
On the capital shield side relative to our gross book as we make those decisions.
Thank you that's helpful.
The next question comes from the line of Gregory Peters with Raymond James. Please go ahead.
Well good morning, everyone.
I guess I wanted to step back and.
With the substantial growth in <unk>.
We're leaning into the market and property and the reinsurance side and then Youre also reporting the growth in the insurance operations on property Shoretel.
Could you just talk to us about how you're managing risk aggregation, because it's a lot of growth and just.
Im sure.
There's a lot of involvement.
Managing your risks, but give us some perspective there.
Yes, Greg This is Jim Williams.
It is clearly an important topic, we have a very robust risk management process that at risk that spans both our reinsurance and our insurance business across really all aspects of the risks, we're taking whether it's property cat its credit risk casualty et cetera, and our robust processes underneath that frame.
Work, where underwriters in the respective divisions are analyzing our aggregations.
<unk> risk reward we have.
Companywide risk reward scorecard that shows us where we're getting best paid for.
For capital deployment, and we leverage that process to ensure that we're moving capacity.
To the areas of the business that drive the best returns and so what you would've seen for example, early this year, if we rewind the clock in those discussions.
Carmen I, we're staying very close on what was happening in the reinsurance market and so reinsurance started consuming more of the available capacity, because that's where the opportunities lie.
Starting to balance out a little bit more now is the opportunity in insurance has strengthened so much.
So that's the process we use.
If you if you look at our our P&L by peak zone, we're still in really good shape in all of our peak zones, we do monitor it very carefully but as.
As market indicated on an earnings and capital at risk or if you look at our stated risk tolerances.
Our <unk> filings et cetera were all well within our risk tolerances, which gives us room to grow both reinsurance and insurance as these opportunities emerge.
Right now and basically we're achieving that.
Yes, sorry, yes, youre going to get all four of us.
Greg It's Mark here, and then I'll, let Mike finish it off I just wanted to point. So number one we have very clearly defined risk tolerances inside of a company for how much risk where we're willing to take.
Those are not going to be breached those are governed at the board level respected by management and we have a clear process to to manage that stuff a lot of flexibility there as well and number two we are fairly diversified and broad based with our exposures as well on a geographic and line basis, which also helps so not seeing <unk>.
Concentrations that are onerous.
The different zones, Mike sure, yes, and I'll finish it off I guess just from a perspective that you've seen over the last few years in insurance, we meaningfully derisked a lot of the portfolio, particularly in the peak zones.
Over the last two years alone you saw us exit the Florida condo business, not just because it wasn't profitable, but because it didn't meet our risk adjusted returns and we just saw the regulatory environment and mitigation of AMT changing and then more importantly, the specific portfolio actions you've taken around our hurricane 100, P&L over 40%, we've reduced that we took our gross limits and our.
Which is more cat prone again and reduce that over 40% as the platelet and its over the last year and what Youre seeing from US right now is basically getting much much better risk adjusted returns, but really de risking our concentration around these peak zones and really basically diversifying the portfolio not just domestically, but globally as well.
Well that's good detail.
One I think you mentioned the durability of the market in your prepared remarks, and I know.
Many of US are focused on wind in North America wind.
It has not been an issue this year at least.
Sort of material way.
There hasn't been many losses in fire GIC in North America either.
And I'm just curious I know its rather specific question, but do you see any change in pricing or terms and fire GIC going into one one.
Considering the lack of.
Any loss there.
Look I think thanks, Greg as one I think ultimately all of this goes back to the fundamental question as to how much capacity is available for property in general. So I think it is part of the same the same equation and so in.
In our view, we expect this market to continue the way. It is you look at the rates that youre getting in wholesale in North America are basically a 30 or plus.
And the retail property in North America, 20% to 30% and that has continued that sort of gone unabated. In this period of time. So I think that same dynamic that we talked about earlier, where not only is there a supply and demand issue here, but there is also the psychology that Jim was talking about it I think Gary May have asked the question.
The environment Hasnt fundamentally changed and so because of that I don't think theres going to be a fundamental change in pricing in property ex cat at this point in time.
Fair enough. Thank you for the answers.
Thanks, Greg.
The next question comes from the line of Mayor Shields with Keefe Bruyette <unk> Woods. Please go ahead.
Great. Thank you much for fitting me in two really quick questions for Mark.
Addition to the investment spend I think you noted some one time expenses and insurance I was wondering whether there's any way of quantifying that.
Okay.
Well.
One time expenses, so let me break it down into kind of two components on the insurance expansion. So.
I would say roughly maybe a little less than two thirds of our expenses compensation related so human capital. So we are expanding.
Relatively modest amount and it is something that comes first and the growth is trailing somewhat but we definitely see CEVA is paying for itself and again manageable within the <unk>.
Combined ratio assumptions that we have for the plant.
Okay perfect that's very helpful.
Second question just to make sure I'm not overlooking anything I think one you've talked about a lot of.
Executives have noted that this year or sorry, the 124 reinsurance renewals to be much more orderly is there any benefits to the more chaotic renewals that we saw last year.
Or are there any good guides are better than that.
Well look I mean, you always want to be in a place where your customers your seasons and the brokers.
Understand.
The situation.
And understand what you are essentially putting forth the storms conditions et cetera, et cetera, and I think that was a more challenging renewal last year because the market changed so quickly I think what we see now is basically what I articulated earlier, where at this point in time I think we all recognize the world that we're living in.
We all recognize the environment discussions have begun much earlier than they did last year and so from that perspective, I think that's actually a pretty good thing.
So we feel pretty good about it I think frankly, the only benefit that I would've seen last year is the fact that Everest was one of the first if not the first to get out and offer a constructive terms and conditions and pricing, whereas a lot of our competitors. We're still looking to essentially fill the retro buckets to know how much capacity they had.
So I think for us that was.
As a good guide last year, but ultimately I think having an orderly market is good for the industry.
Perfect. Thank you so much.
Thanks, Brian.
The next question comes from the line of Brian Meredith with UBS. Please go ahead.
Yes. Thanks, just one quick one here Mount Logan I'm, just curious kind of plans are for one one you could think you could be able to increase capital there and maybe investor demand.
Four of those types of facilities.
Yes, Brian This is Jim Williamson, Yes, Mount Logan has had a pretty solid year from a capital raising standpoint, particularly against the backdrop of a lot of the big ILS allocators sort of being on the sidelines. This year, we've raised over $250 million AUM.
AUM sits just under $1 1 billion. So feeling very good about that the team at Mount Logan has done a terrific job of building a pipeline.
What we view as sort of world, leading allocators being really smart long term money sovereign wealth funds pension et cetera.
And we do expect some incremental capital raising at one one and throughout the course of next year I will say as a general comment.
I've had a number of discussions recently with some large pension fund allocators.
Challenge. They still have is they have seen a lot of deterioration in other parts of their portfolio, which tends to bump them up against their ILS risk limits and that is easing a little bit, but it's still a factor and so I think which by the way we view as a good guy it helps sustain momentum in our underlying market, which is our <unk>.
It's a priority.
But my guess is that we'll have some nice successes in 2021.
Great. Thank you I appreciate it.
Yeah.
Got it the last question for today is a follow up from Mike Ward with Citi. Please go ahead.
Hey, guys. Thanks, I was just wanted to follow up on the Otis and Acapulco is there any quantification on the potential industry exposure.
Ali.
No. Mike This is Juan I think its so early I mean this thing just made landfall really yesterday at this point in time.
And.
For us as I said this is a modest exposure.
Based on how we have managed the portfolio to reduce the volatility, but I think it's way too early we haven't seen anything yet from any of the modeling agencies at this point in time.
Okay. Thanks, so much guys.
Thanks, Mike.
That was my last question.
Okay, well. Thank you all for your questions and for the excellent discussion.
We had an excellent quarter and I look forward to discussing the company's strategic plan at our Investor Day on November 14th.
See you all then thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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