Q4 2023 American Financial Group Inc Earnings Call
Okay.
Operator: Good day, and thank you for standing by. Welcome to the American Financial Group fourth quarter full year 2023 results conference call. At this time, all participants are in a listen-only mode.
Good day, and thank you for standing by.
Speaker Change: Welcome to the American financial group fourth quarter, and full year 2023 results conference call.
Speaker Change: At this time all participants are in a listen only mode.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session you will need to press star one on your telephone.
You will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again please.
Operator: To withdraw your question, please press star 1 once again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Diane Weidner, Vice President, Investor Relations. Thank you.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to your Speaker today, Diane Weidner, Vice President Investor Relations. Please go ahead.
Diane P. Weidner: Good morning and welcome to American Financial Group's fourth quarter and full year 2023 earnings results conference call. We released our 2023 fourth quarter and full year results yesterday afternoon. Our press release, investor supplement, and webcast presentation are posted on AFG's website under the investor relations section. These materials will be referenced during portions of today's call.
Diane P. Weidner: Thank you good morning, and welcome to American Financial group's fourth quarter 2023 earnings results Conference call. We released our 2023 fourth quarter and full year results yesterday afternoon, Our press release Investor supplement and webcast presentation are posted on Afg's website under the Investor Relations section these mature.
Sales will be referenced during portions of today's call.
Diane P. Weidner: I'm joined this morning by Carl Lindner III and Craig Lindner, co-CEOs of American Financial Group, and Brian Hertzman, AFG CFO. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on slide two of our webcast. Some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties that could cause our actual results and or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in AFG's filings with the Securities and Exchange Commission, which are also available on our website.
Diane P. Weidner: I'm joined this morning by Carl Lindner, the third and Craig Lindner Cookie.
Speaker Change: <unk> financial group and Brian Hartman Afg's CFO.
Speaker Change: Before I turn the discussion over to Carl I would like to draw your attention to the notes on slide two of our webcast. Some of the matters to be discussed today are forward looking these forward looking statements involve certain risks and uncertainties that could cause our actual results and work on natural condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in afg's.
Carl Lindner: Filings with the Securities and Exchange Commission, which are also available on our website.
Diane P. Weidner: We may include references to CoreNet Operating Earnings, a non-GAAP financial measure, in our remarks or in responses to questions. A reconciliation of Net Earnings to Core Net Operating Earnings is included in our earnings release. And finally, if you are reading a transcript of this call, please note that it may not be authorized or reviewed for accuracy, and as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statement. Now, I'm pleased to turn the call over to Carl Lindner III to discuss our results. Good morning.
Carl Lindner: We may include references to core net operating earnings a non-GAAP financial measure in our remarks or in responses to questions. A reconciliation of net earnings to core net operating earnings is included in our earnings release and finally, if you are reading a transcript of this call. Please note that it may not be authorized or reviewed for accuracy and as a result, it may contain factual or transcription.
Carl Lindner: So it could materially alter the intent or meaning of our statements.
Speaker Change: Now I'm pleased to turn the call over to Carl Lindner, the third to discuss our results.
Carl Lindner III: I'll begin my remarks by sharing a few highlights from AFG's fourth quarter and four-year results, after which Craig and I will walk through more details. We'll then open it up for Q&A where Craig, Brian, and I will respond to any questions.
Speaker Change: I'll begin my remarks by sharing a few highlights from Afg's fourth quarter, and full year results chapter, which Craig and I.
Carl Lindner: We will walk through more details. We will then open it up for Q&A, where Craig Brian and I'll respond to any questions.
Speaker Change: Fourth quarter was a strong ending to a great year for <unk> and.
Carl Lindner III: In addition to producing a core operating return on equity of nearly 20% in 2023, net written premiums grew by 8% during the year, and we continue to create value for shareholders through effective capital management. Our compelling mix of specialty insurance businesses and entrepreneurial culture, disciplined operating philosophy, and an astute team of in-house investment professionals have collectively enabled us to outperform many of our peers over time. Craig and I thank God, our talented management team, and our great employees for helping us to achieve these results. And I'll turn the discussion over to Craig to walk us through some of these details. Thanks, Carl. As you'll see on slide three, AFG's core net operating earnings were $10.56 per share for the full year 2023, generating a core operating return on equity of 19.8%. This ROE is calculated using an average of the five most recent quarter-end balances of shareholders' equity, excluding AOCI.
In addition to producing a core operating return on equity up nearly 20% in 2023 net written premiums grew by 8% during the year and we continue to create value for our shareholders through effective capital management.
Speaker Change: <unk> mix of specialty insurance businesses, and entrepreneurial culture disciplined operating philosophy, and an astute team, but in house investment professionals.
Speaker Change: Oh boy have enabled us to outperform many of our peers over time.
Speaker Change: Craig and I, Thank God, our talented management team and our great employees for helping us to achieve these results and I will turn the discussion over to Craig to walk us through some of these details.
Craig: Thanks Carl.
Craig: As Youll see on slide three Afg's core net operating earnings were $10 56 per share for the full year 2023, generating a core operating return on equity of 19, 8%.
Craig: This ROE is calculated using an average of the five most recent quarter end balances.
Craig: Shareholders' equity excluding OCI.
Stephen Craig Lindner: As Carl noted, capital management is one of our highest priorities. Returning capital to our shareholders is an important component of our capital management strategy and reflects our strong financial position and our confidence in AFG's financial future. We've returned $900 million to shareholders during 2023, including $466 million, or $5.50 per share, in special dividends, $221 million in regular common stock dividends, and $213 million in share repurchases. Dividend payments and share repurchases totaled $5.92 billion over the past five years, and our quarterly dividend was increased by 12.7% to an annual rate of $2.84 per share beginning in October of 2023.
Craig: As Carl noted capital management is one of our highest priorities.
Craig: Returning capital to our shareholders is an important component of our capital management strategy and reflects our strong financial position and our confidence in Afg's financial future.
Craig: We've returned $900 million to shareholders during 2023, including $466 million or $5 50 per share in special dividends $221 million in regular common stock.
And 213 billion and share repurchases.
Craig: Dividend payments and share repurchases totaled $592 billion over the past five years and our quarterly dividend was increased by 12, 7% to an annual rate of $2 84 per share.
Craig: Getting in October of 2023.
Stephen Craig Lindner: Growth and adjusted book value per share plus dividends were an impressive 16.6% in 2023. We're proud of the value we've created for shareholders over time. Turning to slides four and five, you'll see that fourth quarter 2023 core net operating earnings per share of $2.84 produced an annualized fourth quarter core return on equity of 20.9%. Net earnings per share of $3.13 included an after-tax non-core realized gain on securities of $0.29 per share, which included fair value changes on securities that we continued to hold at the end of the quarter.
Craig: Growth and adjusted book value per share plus dividends was an impressive 16, 6% in 2023.
Craig: We're proud of the value we've created for shareholders over time.
Craig: Turning to slides four and five you'll see that fourth quarter 2023 core net operating earnings per share of $2.84 produced an annualized fourth quarter core return on equity of 29%.
Craig: Net earnings per share of $3.13 included an after tax noncore realized gain on securities of 29 per share which include fair value changes on securities that we continued to hold at the end of the quarter.
Stephen Craig Lindner: Now I'd like to turn to an overview of AFG's investment performance and financial position and share a few comments about AFG's capital and liquidity. The details surrounding our $15.3 billion investment portfolio are presented on slides 6 and 7. Looking at results for the fourth quarter, property and casualty net investment income was approximately 1% higher than the comparable 2022 period, excluding the impact of alternative investments. Net investment income and our PNC insurance operations for the three months ended December 31, 2023 increased by 19% year over year as a result of the impact of rising interest rates and higher balances of investment assets. For the 12 months ending December 31, 2023, PNC's net investment income was $729 million, approximately 7% higher than in 2022 and a new record for AFG, excluding alternative investments.
Speaker Change: Now I'd like to turn to an overview of Afg's investment performance financial position and share a few comments about afg's capital and liquidity.
Speaker Change: The details surrounding our $15 $3 billion investment portfolio are presented on slides six and seven.
Speaker Change: Looking at results for the fourth quarter property and casualty net investment income was approximately 1% higher than the comparable 2022 period.
Speaker Change: Excluding the impact of alternative investments net investment income at our P&C insurance operations for the three months ended December 31, 2023 increased by 19% year over year as a result of the impact of rising interest rates and higher balances of invested assets.
Speaker Change: For the 12 months ended December 31, 2023, P&C net investment income was $729 million approximately 7% higher than 2022 at a new record for AFG.
Speaker Change: Excluding alternative investments net investment income at our P&C insurance operations for 2023 increased 35% year over year.
Stephen Craig Lindner: That investment income and our PNC insurance operations for 2023 increased 35% year over year. As you'll see on slide seven, approximately 68% of our portfolio is invested in fixed maturities. In the current interest rate environment, we are able to invest in fixed maturity securities at yields of approximately five and a half percent. Current reinvestment rates compare favorably to the approximately 5% yield earned on fixed maturities in our PNC portfolio during the fourth quarter of 2023. The duration of our PNC fixed maturity portfolio, including cash and cash equivalents, was 2.9 years as of December 31, 2023.
Speaker Change: As you'll see on slide seven or approximately 68% of our portfolio is invested in fixed maturities.
Speaker Change: The current interest rate environment, we're able to invest in fixed maturity securities at yields of approximately five 5%.
Speaker Change: Current reinvestment rates compare favorably to the approximately 5% yield earned on fixed maturities in our P&C portfolio during the fourth quarter of 2023.
Speaker Change: The duration of our P&C fixed maturity portfolio, including cash and cash equivalents.
Speaker Change: Was two nine years at December 31, 2023.
Stephen Craig Lindner: We've strategically managed duration to take advantage of market opportunities as interest rates have increased from recent historic lows. The annualized return on alternative investments was approximately 0.8% in the 2023 fourth quarter, compared to 5.3% for the prior year quarter. Following several years of exceptionally strong returns on investments tied to multifamily housing, which averaged 15% over the past five years, we're seeing the impact of increased supply and the leveling out of rental rates on these investments, which represent about half of our alternative investment portfolio. We expect these headwinds to continue into 2024.
Speaker Change: We've strategically manage duration to take advantage of market opportunities as interest rates have increased from recent historic lows.
The annualized return on alternative investments was approximately <unk>, 8% in 2023 fourth quarter compared to five 3% for the prior year quarter.
Speaker Change: Following several years of exceptionally strong returns on investments tied to multifamily housing, which averaged 15% over the past five years, we're seeing the impact of increased supply and the leveling out of rental rates on these investments, which represent about half of our alternative investment portfolio.
Speaker Change: We expect these headwinds to continue into 2024.
Stephen Craig Lindner: Longer term, we remain very optimistic regarding the prospects of our investments in multifamily housing as these properties continue to generate strong net operating income and have desirable geographic positioning and high occupancy rates. The return on PNC Alternative Investments was 7% for 2023 compared to 13.2% in 2022. The average annual return on alternative investments over the past five calendar years into December 31, 2023 was approximately 13%. Please turn to slide eight, where you'll find a summary of AFG's financial position at December 31, 2023. AFG will have approximately $800 million of excess capital at the end of 2023.
Speaker Change: Longer term, we remain very optimistic regarding the prospects of our investments in multifamily housing as these properties continue to generate strong net operating income and have desirable geographic positioning and high occupancy rates.
Speaker Change: The return on P&C alternative investments was 7% for 2023 compared to 13, 2% in 2022.
Speaker Change: The average <unk>.
Speaker Change: Annual return on alternative investments over the past five calendar years ended December 31, 2023 was approximately 13%.
Speaker Change: Please turn to slide eight where you'll find a summary of Afg's financial position at December 31, 2023.
Speaker Change: AFG had approximately $800 million of excess capital at the end of 2023.
Stephen Craig Lindner: In reviewing our disclosures compared to peer companies and considering the diversity of practice and how companies calculate excess capital, we're likely to move away from providing a specific excess capital number in the future. Yesterday, we announced a special dividend of $2.50 per share payable on February 28, 2024. This special dividend is in addition to the company's regular quarterly cash dividend of 71 cents per share, most recently paid on January 25th, 2024.
Speaker Change: In reviewing our disclosures compared to peer companies and considering the diversity of practice and how companies calculate excess capital, we're likely to move away from providing specific excess capital number in the future.
Speaker Change: Yesterday, we announced a special dividend of $2 50 per share payable on February 28 2024.
Speaker Change: This special dividend is in addition to the company's regular quarterly cash dividend of 71 per share. Most recently paid on January 25 2024.
Stephen Craig Lindner: We expect our operations to continue to generate significant excess capital throughout the remainder of 2024, which provides ample opportunity for additional share repurchases or special dividends over the next year. We continue to view total value creation as measured by growth and book value per share plus dividends as an important measure of performance over the long term. For the 12 months into December 31, 2023, AFG's book value per share plus dividends increased by 24.1%. AMG's adjusted book value per share plus dividends, which excludes unrealized losses related to fixed maturities, increased by 16.6% during 2023. I now turn the call back over to Carl to discuss the results of our PNC operations. Thank you, Craig.
Speaker Change: We expect our operations to continue to generate significant excess capital throughout the remainder of 2024, which provides ample opportunity for additional share repurchases or special dividends over the next year.
Speaker Change: We continue to view total value creation as measured by growth in book value per share plus dividends as an important measure of performance over the long term.
Speaker Change: For the 12 months ended December 31, 2023, Afg's book value per share plus dividends increased by 24, 1%.
Speaker Change: Afg's adjusted book value per share plus dividends, which excludes unrealized losses related to fixed maturities increased by 16, 6% during 2023.
Speaker Change: I'll now turn the call back over to Carl to discuss the results of our P&C operations. Thank you Craig.
Carl Lindner III: Now, if you'd please turn to slides 9 and 10 of the webcast, and please report very strong underwriting profitability for the full year with an overall specialty, property, and casualty combined ratio of 90.3. We're proud of our consistent record of profitable underwriting results over many years. We're seeing opportunities to grow our specialty property and casualty businesses through increasing exposures, new opportunities, and a continued favorable pricing environment. We set new records for premium production in 2023, and we're meeting or exceeding targeted returns in nearly all of our businesses. As you'll see on slide nine, our specialty property and casualty businesses reported a strong fourth quarter, a nice finish to a successful year. The specialty property and casualty insurance operations generated an outstanding 87.7% combined ratio in the fourth quarter of 2023, about a point higher than the exceptional 86.6 reported in the prior year's fourth quarter. Results for the 2023 fourth quarter include 1.4 points of catastrophe losses, about a half point higher than last year's fourth quarter, and 3.3 points of favorable prior year reserve development compared to 3.6 points in the fourth quarter of 2022.
Carl Lindner: Please turn to slides nine and 10 of the webcast.
Carl Lindner: I'm pleased to report very strong underwriting profitability for the full year with an overall specialty property and casualty combined ratio of 93.
Carl Lindner: We're proud of our consistent record of profitable underwriting results over many years, we're seeing opportunities to grow our specialty property and casualty businesses through.
Carl Lindner: Increasing exposures new opportunities and a continued favorable pricing environment, we set new records for premium production in 2023, and we're meeting or exceeding targeted returns in nearly all of our businesses Astros.
Carl Lindner: As you'll see on slide nine our specialty property and casualty businesses reported a strong fourth quarter, a nice finish to a successful year the specialty property and casualty insurance operations generated an outstanding 87, 7% combined ratio in the fourth quarter of 2023 about a point higher.
Carl Lindner: Here than the exceptional 86 six reported in the prior year fourth quarter.
Carl Lindner: Results for the 2023 fourth quarter include one four points of catastrophe losses.
Carl Lindner: About a half point higher than last year's fourth quarter and three three points of favorable prior year reserve development compared to three six points in the fourth quarter of 2022.
Carl Lindner III: Fourth quarter 2023 gross and net written premiums were both up 8% when compared to the same period in 2022, and gross and net written premiums increased 7 and 8%, respectively, for the full year in 2023. Average renewal pricing across our property and casualty group, excluding our workers' compensation business, was up approximately 7% for the quarter, in line with renewal rates in the previous quarter, including workers' compensation.
Carl Lindner: Fourth quarter 2023, gross and net written premiums were both up 8% when compared to the same period in 2022, and gross and net written premiums increased 7% and 8% respectively for the full year 2023.
Carl Lindner: Average renewal pricing across our property and casualty group, excluding our workers' comp business was up approximately 7% for the quarter in line with renewal rates in the previous quarter.
Carl Lindner: Including workers' compensation renewal rates were up approximately 6% one point higher than the renewal increases reported in the prior quarter.
Carl Lindner III: Renewal rates were up approximately 6%, one point higher than the renewal increases reported in the prior quarter. This is our 30th consecutive quarter to report overall renewal rate increases, and we believe we are achieving overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed targeted returns. In addition to renewal pricing, we are focusing on insured values in our property-related businesses to ensure that our premiums reflect inflationary considerations. Now I'd like to turn to slide 10 to review a few highlights from each of our specialty, property, and casualty business groups. Details are included in our earnings release, so I'll focus on summary results here. The businesses and the property and transportation group achieved a 90.3% calendar year combined ratio overall in the fourth quarter, in line with the 90% achieved in the comparable period last year. Excluding crop, the fourth quarter calendar year combined ratio in this group improved three points year over year.
Carl Lindner: This is our 13th consecutive quarter to report overall renewal rate increases and we believe we are achieving overall rate.
Carl Lindner: Rate increases in excess of prospective loss ratio trends to meet or exceed targeted returns.
Carl Lindner: In addition to renewal pricing we are focusing on.
Carl Lindner: Insured values in our property related businesses to ensure that our premiums reflect inflationary considerations.
Carl Lindner: Now I'd like to turn to slide 10 to review a few highlights from each of our specialty property and casualty business groups.
Carl Lindner: Details are included in our earnings release, So I'll focus on summary results here are the.
Carl Lindner: The businesses in the property and transportation group achieved a 93.
Carl Lindner: Percent calendar year combined ratio overall in the fourth quarter in line with the 90% achieved in the comparable period last year.
Carl Lindner: Excluding crop the fourth quarter calendar year combined ratio in this group improved three points year over year.
Carl Lindner: Fourth quarter 2023, gross and net written premiums in this group were up 4% and 1% respectively.
Carl Lindner III: Fourth quarter 2023 gross and net written premiums in this group were up 4% and 1%, respectively, when compared to the 2022 fourth quarter due primarily to slightly higher crop insurance premiums related to the CRS acquisition, which was partially offset by the timing of renewals and silver over transportation businesses. Overall, renewal rates in this group increased 7% on average in the fourth quarter of 2023, a point higher than the previous quarter. Pricing for the full year for this group was up 6% overall. We continue to remain focused on rate adequacy, particularly in our commercial auto liability business.
Carl Lindner: When compared to the 2022 fourth quarter due primarily to slightly higher crop premium related to the Crs acquisition, which was partially offset by the timing of renewals and several of our transportation businesses.
Carl Lindner: Overall renewal rates in this group increased 7% on average in the fourth quarter of 2023, a point higher than the previous quarter.
Carl Lindner: Pricing for the full year for this group was up 6% overall, we continue to remain focused on rate adequacy, particularly in our commercial auto liability business. This is our 11th year of rate increases in this line of business Danny back to when we first identified an uptick in commercial auto loss severity in 2012.
Carl Lindner: So we've been at it for a long time and we're pleased that our starting point for rate increases is different than some of our peers.
Carl Lindner III: This is our 11th year of rate increases in this line of business, dating back to when we first identified an uptick in commercial auto loss severity in 2012. So we've been at it for a long time, and we're pleased that our starting point for rate increases is different than some of our peers. Businesses in our specialty casualty group achieved an exceptionally strong 84.6 calendar year combined ratio overall in the fourth quarter, 3.3 points higher than the 81.3 reported in a comparable prior year period. With combined ratios at these levels, the underwriting margins in these businesses are generating returns in the mid-20s. Fourth quarter 2023 gross and net written premiums increased 6% and 7%, respectively, when compared to the same prior year period. Renewal pricing for this group, excluding our workers' comp business, was up 7% in the fourth quarter and was up 4% overall, with both measures down about a point from renewal pricing in the previous quarter. Pricing for this group for the full year, excluding workers' comp, was up 6% and up 4% overall.
Carl Lindner: Businesses in our specialty casualty group achieved an exceptionally strong 84, six calendar year combined ratio overall in the fourth quarter.
Carl Lindner: Three three points higher than the 81 three reported in the comparable prior year period.
Carl Lindner: With combined ratios at these levels the underwriting margins in these businesses are generating returns in the mid twenties.
Carl Lindner: Fourth quarter 2023, gross and net written premiums increased 6% and 7% respectively when compared to the same prior year period.
Carl Lindner: Renewal pricing for this group, excluding our workers' comp business was up 7% in the fourth quarter and was up 4% overall with both measures down about a point from the renewal pricing in the previous quarter pricing for this group for the full year, excluding workers' comp was up 6% and up four per.
Carl Lindner: <unk> overall.
Carl Lindner: Specialty financial group continued to achieve excellent underwriting margins and reported an outstanding 81, three combined ratio for the fourth quarter of 2023, an improvement of one eight points over the prior year period.
Carl Lindner: Fourth quarter 2023, gross and net written premiums were up 27% and 26% respectively, when compared to the same 2022 period and 32%.
Carl Lindner III: Specialty Financial Group continued to achieve excellent underwriting margins and reported an outstanding 81.3 combined ratio for the fourth quarter of 2023, an improvement of 1.8 points over the prior year period. Fourth quarter 2023 gross and net written premiums were up 27% and 26%, respectively, when compared to the same 2022 period, and 32% for the full year. Renewal pricing for this group was up 9% in the fourth quarter, accelerating four points from the previous quarter. Renewal pricing in this group was up 5% for the full year of 2023.
Carl Lindner: For the full year.
Carl Lindner: Renewal pricing. This group was up 9% in the fourth quarter accelerating four points from the previous quarter renewal pricing in this group was up 5% for the full year of 2023.
Carl Lindner: As noted in yesterday's, earning release for many years AFG established a range of core net operating earnings per share guidance for the new year and provided various other guidance measures as a part of its fourth quarter earnings release.
Carl Lindner: After reviewing industry and peer practices.
Speaker Change: Following a number of discussions with analysts and shareholders. We have decided we will no longer provide a range of core earnings per share guidance. Our other guidance measures beginning in 2024.
Speaker Change: As noted throughout this call it's clear that our focus has always been a long term shareholder value creation by generating strong returns on equity that grow book value per share.
Carl Lindner III: As noted in yesterday's earnings release, for many years, AFG established a range of core operating earnings per share guidance for the new year and provided various other guidance measures as a part of its fourth quarter earnings release. After reviewing industry and peer practices and following a number of discussions with analysts and shareholders, we have decided we'll no longer provide a range of core earnings-per-share guidance or other guidance measures beginning in 2024. As noted throughout this call, it's clear that our focus has always been on long-term shareholder value creation by generating strong returns on equity that grow book value per share. We believe that historically providing a greater level of guidance metrics as compared to peer companies has created a distraction from our strong ROEs and a record of long-term value creation. As a result, we believe that this change aligns with that focus. In lieu of guidance, though, we have provided several key assumptions underlying our 2024 business plan, which you'll see summarized on slide 11.
Speaker Change: We believe that historically, providing a greater level of guidance metrics as compared to peer companies.
Speaker Change: Is create a distraction from our strong ROE and our record of long term value creation.
Speaker Change: As a result, we believe that this change aligns with that focus.
Speaker Change: In lieu of guidance, we have provided several key assumptions underlying our 2024 business plan, which you will see summarized on slide 11. These assumptions for 2024 include growth in net written premiums of 8% compared to last year, our combined ratio similar to 93.
Speaker Change: Achieved in 2023, a reinvestment rate of approximately five 5% and a return of approximately 6% on our $2 4 billion.
Speaker Change: Portfolio of alternative investments.
Speaker Change: We expect that performance in line with the assumptions included in our plan would result in core operating earnings per share of approximately $11 in 2024 and generate a core operating return on equity excluding <unk> of approximately 20%.
Carl Lindner III: These assumptions for 2024 include growth in net written premiums of 8% compared to last year, a combined ratio similar to 90.3 achieved in 2023, a reinvestment rate of approximately 5.5%, and a return of approximately 6% on our $2.4 billion portfolio of alternative investments. We expect that performance in line with the assumptions included in our business plan would result in core operating earnings per share of approximately $11 in 2024 and generate a core operating return on equity, excluding AOCI, of approximately 20%. We believe that our disclosures are sufficiently detailed and clear.
Speaker Change: We believe that our disclosures are sufficiently detailed unclear and over the course of 2020 for our discussions with investors will focus on the considerations that drive long term shareholder value.
Speaker Change: Our team and our management team remain available to answer questions and look forward to continuing to educate investors about our business.
Craig and I are pleased to report these extraction with strong results for the fourth quarter and full year and we're proud of our proven track record of long term value creation.
Speaker Change: <unk> professionals have exercised their specialty property and casualty knowledge and experience the skillfully navigate the marketplace and our in house investment team has been both strategic and opportunistic in our management of our $15 billion investment portfolio, we're well positioned to continue to build long term value.
Operator: And over the course of 2024, our discussions with investors will focus on the considerations that drive long-term shareholder value. Our IR team and our management team remain available to answer questions and look forward to continuing to educate investors about our business. Craig and I are pleased to report these exceptionally strong results for the fourth quarter and full year, and we're proud of our proven track record of long-term value creation. Our insurance professionals have exercised their specialty property and casualty knowledge and experience to skillfully navigate the marketplace, and our in-house investment team has been both strategic and opportunistic in the management of our $15 billion investment portfolio. We're well positioned to continue to build long-term value for our shareholders in 2024 and beyond. Now we'll open the lines for the Q&A portion of today's call, and Craig, Brian, and I would be happy to respond to your questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker Change: For our shareholders in 2024 and beyond now we will open the lines for the Q&A portion of today's call on Craig and Brian I would be happy to respond to your questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one of your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Charlie Lederer with Citi. Your line is now open.
Charlie Lederer: Hey, good morning.
Charlie Lederer: I'm wondering can you. Please break out the reserve development I guess for non workers comp casualty reserve development.
Charlie Lederer: Across accident years, 2020 to 22 versus the softer market years prior to that in the quarter.
Hey can you hear me.
Charlie Lederer: Hi, This is Brian heard spin on that question.
Brian Hartman: Where we've seen.
Brian Hartman: Development by by year, and casualty met them, we've seen some adverse development coming out of calendar years 2018 in 2019, so thats consistent.
Brian Hartman: With prior periods.
Brian Hartman: If you look at development of Raw casualty, we think it's best to look at it for the full year to understand trends. So if you're looking at the full year I think the first thing to do is to keep in perspective that we're talking about businesses, where the calendar year combined ratio for the full year of 87% with ROE is in the mid <unk>, So very strong performing businesses.
Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Charlie Lederer with Citi. Your line is now open. Hey, good morning.
Brian Hertzman: I was wondering, can you please break out the reserve development, I guess, for non-workers comp casualty reserve development across accident years 2020 to 22 versus the softer market years prior to that in the quarter? Hi, this is Brian Hertzman. On that question, if you look at where we've seen development by year and casualty, we've seen some adverse development coming out of calendar years 2018 and 2019, so that's consistent with prior periods. If you look at development overall in casualty, we think it's best to look at it for the full year to understand trends. So if you're looking at the full year, I think the first thing to do is to keep in perspective that we're talking about businesses with a calendar year combined ratio for the full year of 87% and ROEs in the mid-20s, so very strong performing businesses.
Brian Hartman: You've got to some of the previous quarters for the full year of 2020, while we did have lower levels of favorable development in workers comp.
Brian Hartman: Our initial loss picks have come down in recent years, reflecting our experience and considering some of the price decreases in that business as well as being mindful about the potential for medical cost inflation going forward.
Brian Hartman: <unk> talked in previous quarters about some adverse development from social inflation in areas like public sector and with any company that has any of that business there can be.
Brian Hartman: Over time, there can be occasional large loss activity, which we had in various lines of business in different quarters across across the year.
Got it. Thanks, that's helpful I get that sorry, if I missed it did you say that the adverse on 18 and 19 that you said at the beginning was that did you say what line does Brian.
Speaker Change: In the quarter.
Brian Hartman: No.
Brian Hartman: So most of that.
Brian Hertzman: As we discussed in some of the previous quarters, for the full year of 2024, we did have lower levels of favorable development in workers' comp. As our initial offtakes have come down in recent years, reflecting our experience and considering some of the price decreases in that business, as well as being mindful about the potential for medical cost inflation going forward. We talked in previous quarters about some adverse developments from social inflation in areas like the public sector. As with any company that has an ENS business, there can be, over time, occasional large losses, which we had in various lines of business in different quarters across the year. Got it. Thanks. That's helpful. I guess, sorry if I missed it. Did you say that the adverse on 18 and 19 that you said at the beginning was that, did you say what lines those were in?, and John R. Reilly, Jr.
Brian Hartman: For the year most of that is coming out of those social and placement exposed businesses in the quarter.
Brian Hartman: Wasn't necessarily all social inflation that was some of that was the just the occasional large losses that could happen in something like E&S.
Speaker Change: Got it okay.
Speaker Change: And then maybe just on the premium growth embedded in your in your business plan.
Speaker Change: Would you be able to kind of.
Speaker Change: Parse out I guess like what.
Speaker Change: Much of that what youre expecting for crop I guess from our non CRM, including Crs perspective.
Speaker Change: And kind of versus the rest of the business.
Speaker Change: Sure.
Speaker Change: We're kind of at with moved away from talking segment by segment I'm happy to.
Speaker Change: To give you some color on the crop.
Speaker Change: The crop business.
Speaker Change: Is that part of the premium determination for this year.
Speaker Change: Is a volatility factor, which is determined in the next month or so and also.
Brian Hertzman: .. .. .. .. .. .. ....
Brian Hertzman: Got it. Okay. And then maybe just on the premium growth embedded in your business plan, would you be able to kind of parse out, I guess, like how much of that you're expecting for crop, I guess, from a non-CRS and then an including CRS perspective and kind of versus the rest of the business? You know, we've kind of moved away from talking segment by segment. I'm happy to, you know, give you some color on the crop.
Speaker Change: Kind of the average of February <unk>.
Speaker Change: <unk> futures prices for the December contract in corn in the November contract I believe in soybeans.
Speaker Change: Look at the current pricing in the current pricing.
Speaker Change: It's the average of the whole month of February. So we don't know until we get down to the end of February or exactly what the impact on.
Speaker Change: The premiums are.
Speaker Change: I think.
Speaker Change: Our 8% reflects our current and our current view that crop premiums arent going to be as large as what we were previously.
Brian Hertzman: The crop business, you know, part of the premium determination for this year is a volatility factor which will be determined in the next month or so. And also, kind of the average of February futures prices for the December contract in corn and the November contract, I believe, in soybeans. When you look at the current pricing, you know, the current pricing is the average for the whole month of February. So, you know, we don't know until we get down to the end of February exactly what the impact on the premiums will be. I think our 8% reflects our current view that crop premiums aren't going to be as large as what we would have previously projected in that because of, you know, commodity prices. But I can't tell you that.
Speaker Change: Projected.
Speaker Change: And that because of that.
Speaker Change: The commodity prices.
Speaker Change: I.
Speaker Change: Can't tell you that with with the Crs.
Speaker Change: Business that were added.
Speaker Change: Business will be up about 50%.
Speaker Change: Gross on a gross written premium basis for.
Speaker Change: This year.
Speaker Change: I hope that's helpful. Yes. Thank you I guess, just one follow up.
Speaker Change: Would you expect any changes in your crop.
Speaker Change: Tension plans.
Speaker Change: If pricing is.
Speaker Change: Materially lower.
Speaker Change: No.
Speaker Change: I think.
Brian Hertzman: With the CRS, you know, business that we're at, that business will be up about 50%, you know, on a gross written premium basis for this year. Yeah, thank you. I guess just one follow-up. Would you expect any changes in your crop retention plans if pricing is materially lower?
Speaker Change: Probably one of the positive things if you're starting off if if the pricing for corn and soybeans ends up being lower.
Speaker Change: If from a price exposure.
Speaker Change: Sensus is revenue.
Speaker Change: Protection of revenue coverage.
Speaker Change: You could argue that it may be tougher to.
Brian Hertzman: I think, you know, probably one of the positive things if you're starting off is if the pricing for corn and soybeans ends up being lower, if from a price exposure, since this is revenue protection or revenue coverage, you could argue that it may be tougher to see prices come off by significant amounts from lower spring discovery prices if that's, in fact, what happens at the end of February. So, you know, that can kind of cut both ways or have a lower premium, but maybe you have lower exposure from a price standpoint from those base levels, if that makes sense. Yeah, I understand. Thank you. Thank you. Our next question comes from the line of Paul Newsome with Piper Sandler. Your line is now open. Good morning.
Speaker Change: See prices come off.
Speaker Change: By significant amounts from.
Speaker Change: Our lowest lower spring discovery prices if that's in fact, what happens at the end of February so that can kind of cut both ways.
Speaker Change: We will have lower premium, but maybe you have lower exposure from a price.
Speaker Change: From a price decline standpoint from those those base levels.
Speaker Change: If that makes sense, yes understood. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Paul Newsome with Piper Sandler Your line is now open.
Paul Newsome: Good morning.
Paul Newsome: Thanks for the call.
Paul Newsome: Wanted to touch back on your comments about pricing being.
Paul Newsome: Above where you think you could inflation.
Stephen Craig Lindner: Thanks for the call, wanted to touch me back on your comments about pricing being above where you think inflation is to achieve target, at the moment the ROE is very high. Is that really a comment that you continue to expect to achieve sort of the targeted returns, or are you thinking that the price increases are sufficiently to maintain the, current sort of margins that you have today. Yeah, Paul, I think overall, you know, we're achieving price, you know, overall price increase levels that, you know, are in excess, you know, overall of, you know, the perspective loss ratio trends in our business. And some businesses, you know, those increases might lead to returns that exceed, you know, our targets. And other businesses, they would lead towards meeting our targets. I think we're blessed today, except for a few businesses, you know, almost all of our businesses are meeting the targeted returns. Great.
Paul Newsome: Completion is to achieve target.
Paul Newsome: At the moment the ROE is very high.
Paul Newsome: Is that really a comment that you continue to expect to achieve sort of the targeted returns or are you thinking.
Paul Newsome: Thinking that the price increases are sufficiently to maintain.
Paul Newsome: Current sort of margins that you have today.
Speaker Change: Yeah, Paul I think overall.
Speaker Change: We're achieving price overall price increase levels that.
Speaker Change: Or any excess.
Speaker Change: Overall of.
Speaker Change: The prospect of loss ratio trends in our business.
Speaker Change:
Speaker Change: In some businesses.
Speaker Change: Those increases might lead to returns that exceed.
Speaker Change: Our targets and other businesses.
Speaker Change: They would lead towards meeting our targets I think we're blessed today, except for a few businesses almost all of our businesses are are meeting our targeted returns.
Stephen Craig Lindner: Maybe we could turn to capital management a little bit. You know, I think in the past we've talked about this, you know. The stock being attractive in your view, and you've got sort of 10, 11 times EPS, which is kind of where it's been, but you haven't seen a huge aggressive amount of stock repurchase focused more on special dividends. Is that still kind of your view, or is there a different view? Allocation of capital because of the M&A environment. You know, just your general thoughts on how those pieces all fit together. Yeah,
Speaker Change: Great, maybe we could turn to capital management, a little bit.
Speaker Change: I think in the past.
Speaker Change: Talked about.
Speaker Change: No.
Speaker Change: The stock being attractive in your view and you've got sort of 10 11 times EPS.
Speaker Change: Which is kind of where it's been.
Speaker Change: But you haven't seen a huge aggressive stock repurchase focus more on special dividend.
Speaker Change: Is that still kind of your view or is there.
Speaker Change: They're a different view on.
Speaker Change: Allocation of capital because of the M&A environment or just.
Speaker Change: Just your general thoughts on how those pieces altogether.
Stephen Craig Lindner: Yeah, I think every year is a different mix based on how we take an opportunistic approach. We think our stock is, you know, especially attractively valued. You know, we've shown over the past year that we have been in the market repurchasing shares and value where we are generating large amounts of excess capital at these kinds of returns. Special dividends can also be important, but obviously, properties are organic growth, building the business itself.
Speaker Change: Yes, hi.
Yes, I think every year is a different mix based we take an opportunistic approach.
Speaker Change: We think our stock is.
Speaker Change: Especially attractively valued.
Speaker Change: We've shown over this in the past year that we been in the market repurchasing shares and value that.
Speaker Change: So where we are generating large amounts of excess excess capital at these kinds of returns.
Speaker Change: Special dividends can also be important, but obviously priorities are organic growth building our building.
Speaker Change: The business itself.
Stephen Craig Lindner: We're tough buyers on the M&A side, but we look at lots of things, and we're always starting businesses, building businesses, and acquiring things that make sense and can earn double-digit returns for us over time. You've seen the, you know, our annual increase in our annual dividend has been substantial over time. So we also think our shareholders, you know, value a consistent increase in our annual dividend also. I mean, that's the way we think about things.
Speaker Change: We're tough buyers on the M&A side, but.
We look at lots of things and we're always starting businesses building businesses and in acquiring things that that makes sense and can earn double digit returns for us over time.
Speaker Change: You've seen the.
Speaker Change: Our annual increase in our annual dividend.
Speaker Change: Has been substantial over time, so we also thank our shareholders.
Speaker Change: Value of consistent increase.
Speaker Change: In our annual dividend also.
Speaker Change: That's the way, we think about things each year is going to be a different mix.
Stephen Craig Lindner: Each year is going to be a different mix. I always appreciate the help. I'll let some other folks ask questions. Thank you. Our next question comes from the line of Michael Czerwinski with BMO Capital Markets. Your line is now open. Hey, great. Good afternoon.
Speaker Change: Always appreciate to help I'll, let some other folks ask questions. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Mike most of the rescue with BMO capital markets. Your line is now open.
Mike: Hey, great good afternoon.
Mike: Just kind of want to make sure as we as we think through the.
Stephen Craig Lindner: I just want to make sure, you know, as we think through the combined ratio guidance for next year and, you know, what ultimately equates to a very strong ROE, of course, if we reflect on 2023 a bit, in investors' minds, there was a bit of a, I believe Crop was a little below normal, there was an A&E kind of ding, maybe 1 to 2% in earnings. So. I guess I just want to make sure that I'm thinking about those correctly, so on a go-for basis, you don't expect, you know, the combined ratio to improve, which is just because I guess maybe, you know, pricing is an excessive trend, but just, the trend is still... You know. I guess I'm just trying to think through, like, am I missing something?
Mike: Combined ratio.
Mike: And for.
Mike: For next year.
Mike: What ultimately equates to a very strong ROE of course.
Mike: If we reflect on 2023 a bit.
Mike: In investors' minds, there was a bit of a.
Mike: Top hall from kind of social inflationary adverse developments.
Mike: I believe crop was a little below normal.
Mike: There was an A&D.
Mike: Dan maybe at one.
Mike: 1% to 2% and earnings so.
Dan: I guess first just want to make sure that I'm thinking about those correctly. So on a go forward basis.
Mike: Expect.
Mike: The combined ratio to improve.
Mike: Just because I guess, maybe pricing can access a trend but just.
Mike: The trend is still.
Mike: No.
Speaker Change: I guess I'm, just trying to think through like am I missing something I guess.
Stephen Craig Lindner: I guess the trend is maybe moving a little higher, pricing's moving higher, but, you know, just returns might not be as good as Axelon. If I even if I, you know, X out those items, I just started kind of calling out. I think the returns are very similar, and you know, we're projecting our business plans for a combined ratio that's at the same level of a really great year. Certainly, in comparison to our peers, it's one of the stronger performances on underwriting and on return on equity. You know, and that's why we're proud of those results and there will be businesses that, you know, as in workers comp, you know, in this year that had less favorable developments that have outstanding results, you know, when you look back on this year, but the underwriting profit wasn't as large.
Speaker Change: The trend is maybe moving a little higher pricing is moving higher but just returns might not be as.
Speaker Change: As excellent if I, even if I.
Speaker Change: X out those items I, just started kind of calling out.
Speaker Change: I think the returns are very similar.
Speaker Change: <unk> our business plans for our combined ratio that's at the same level.
Speaker Change: A really great year.
Speaker Change: Certainly in comparison to our peers.
Speaker Change: It's one of the stronger performances on underwriting and on return on equity.
Speaker Change: And that so well.
Speaker Change: We're proud of those results in.
Speaker Change: There's there'll be there'll be businesses that.
As in workers comp and this year that had less favorable development that.
Outstanding results when you look back on this year, but.
Speaker Change: The underwriting profit wasn't as large.
Stephen Craig Lindner: There are businesses, as you said, like CropHale, that had a below-average year. You know, in our business plan, the way it is together, as we've, in the past, when we were giving guidance, we said we were planning for an average crop year. So that's, you know, the way we build our plan is really consistent with the way that we used to give guidance, as far as how we would, we would get their guidance generally was based on our, our business plan in the past. Mike, this is Craig.
Speaker Change: There's businesses so as you said like crop hail.
Speaker Change: That had a below average year end.
Speaker Change: And our business plan the way it is together as we used in the past when we were giving guidance. We said we are planning for an average crop year. So that's.
Speaker Change: The way we built our plan is really consistent with the way that we used to give guidance as far as how we would get there our guidance generally is based off of our business plan in the past.
Speaker Change: Yes, Mike This is Craig.
Stephen Craig Lindner: One thing that I think you need to recognize in this year's plan is an assumption on return on alternatives that is somewhat below the historical level and certainly below what we expect to see on a going forward basis. We have $2.4 billion invested in alternatives. About half of that is invested in multifamily, and the balance in more traditional private equity investments.
Craig: One thing that I think you need to recognize in this year's plan is.
Craig: Hey.
Craig: Assumption on return on alternative that is.
Somewhat below the historical level and certainly below what we expect to see on a go forward basis, we have $2 4 billion invested in alternatives.
Craig: About half of that is invested in multifamily in the balance and more traditional private equity investments.
Stephen Craig Lindner: In our plan for 2024, we're assuming a low single-digit return on our multifamily properties and a high single-digit return on the balance of our alternative investments, to give a little color on our view of multifamily. We still like the asset class over the long term. We've generated fantastic returns in the past. As I said in the conference call script, we've averaged a 15% annual return over the last five years. We are in very attractive markets. Florida and Colorado represent 53% of our multifamily investments. Dallas, Phoenix, and North Carolina, another 27%.
Craig: And our plan for 2024, we're assuming a low single digit returned on our multifamily properties.
Craig: And a high single digit return on the balance of our alternative investments.
Craig: Give a little color on our view of multifamily, we still like the asset class.
Craig: Longer term, we've generated fantastic returns in the past.
Craig: As I said in the conference call script, we have averaged 15% return.
Craig: And your return over the last five years.
Craig: And in very attractive markets, Florida, and Colorado represent 53% over our multifamily investments.
Craig: Dallas, Phoenix, and North Carolina, another 27% their markets with very strong population growth.
Stephen Craig Lindner: They're markets with very strong population growth. So the new builds in the recent past, the bulk of the new builds have been in attractive markets with population growth. That is impacting our ability to push rates the way we have in the recent past. So we think it's going to take 12 to 18 months to work through this new inventory, the new supply of multifamily properties, and then we do expect that we will have the ability to push rental rates more in line with what we've done in the recent past and generate strong returns. But if you are long term expectations for alternative investments are for a return of 10% plus, historically, we've done better than that. If you normalize this year's return and use 10% as a kind of a normalized number, it would add $0.90 per share to the EPS, which is about a point and a half of ROE.
Craig: So the the new builds in the recent past.
Craig: The bulk of the new builds have been at attractive markets with population growth that is impacting our ability to to push rates. The way we have in the recent in the recent past.
Craig: So we think it's going to take 12 to 18 months to work through this new inventory the new supply of multifamily properties.
Craig: And then we do expect that the.
Craig: We will have the ability to.
Craig: Push rental rates more in line with what we've done in the recent past.
Craig: And generate.
Craig: Generate strong returns but.
Craig: Our long term expectations on alternative investments would be for a return of 10% plus historically, we've done better than that.
Craig: If you normalize this year's return and.
Craig: Use 10% as a kind of a normalized number that would add 90 per share to the EPS, which is about a point and a half of Roe.
Stephen Craig Lindner: So I think that is something that investors need to recognize because of our significant multifamily exposure, which is going to hurt these returns in the near term. It's an unusually low return expectation for this calendar year, and I think that needs to be normalized when you take a look at this year's earnings expectations. Okay, that helps. I think investors will understand that. Okay. Lastly, and this might be for Brian, just, you know, on triangulating the excess capital and the parent company cash and all those moving parts, I believe the debt to capital, if I'm thinking about it the right way, is below the, The company is kind of a, maybe it's a max threshold of 30, or I don't know if it's a target of 30. You can clarify that. But if, is there a, you know, would there be an option to issue some debt in the future, potentially to release?
Craig: So I think that is something that investors need to recognize.
Craig: Because of our significant multifamily exposure, which near term is going to occur.
Craig: These returns.
Craig: No.
Craig: Unusual unusually low return expectation for this calendar year, and I think that needs to be normalized.
Craig: When you take a look at this year's earnings expectations.
Craig: Okay.
Craig: That helps I think investors will understand that okay.
Craig: Lastly, and this might be for Brian.
Craig: No.
Brian Hartman: On Triangulating, the excess capital in the parent company cash and all of those moving parts.
Right.
Brian Hartman: I believe the debt to capital if I'm thinking about the right way as is below the.
Brian Hartman: Yes.
Brian Hartman: The company is kind of maybe it's a max threshold of 30 or I don't know if its a target of 30, you can clarify that but if is there.
Brian Hartman: There.
Brian Hartman: The option to issue some debt.
Brian Hartman: In the future potentially to release.
Brian Hertzman: excess capital to the extent that there weren't, you know, M&A opportunities, or is that not something we should be thinking about as a lever? So yeah, so the 30% is sort of a guideline for us. So we would look to that as our maximum, not that we couldn't go over that if the opportunity presented itself, but that does leave open the possibility of borrowing money at the right rate in the right environment to move towards that ratio if it makes sense from a long-term value creation for shareholders perspective.
Brian Hartman: Excess capital to the extent that Werent.
Brian Hartman: M&A opportunities or is that not something we should be thinking about it as a lever.
Brian Hartman: Yes.
Brian Hartman: 30% is sort of a guideline for us. So we would look to that as our maximum not that we couldn't go over that if the opportunity presented itself, but but.
Brian Hartman: And that does leave open the possibility for for borrowing money at the right rate and the rate environment two to move towards that that ratio if it makes sense from a.
Brian Hartman: Long term value creation for shareholders perspective, so so it would be on the table, but none of them are immediate plan.
Brian Hertzman: So it would be on the table, but not in our immediate plan. Thank you. Thank you. As a reminder, to ask a question at this time, please press star 11 on your touchstone telephone. Our next question comes from the line of Andrew Anderson with Jeffreys. Your line is now open.
Speaker Change: Thank you.
Brian Hartman: Yes.
Speaker Change: Thank you.
Speaker Change: A reminder to ask a question at this time. Please press star one one on your Touchstone telephone.
Speaker Change: Our next question comes from the line of Andrew Anderson with Jefferies. Your line is now open.
Andrew Anderson: Hey, good afternoon in the press release, you mentioned lower underwriting profit in E&S could you expand a bit on that was that just large losses on property or casualty and does it reflect a change in underlying loss trend assumption.
Carl Lindner III: In the press release, you mentioned lower underwriting profit and E&S. Could you expand a bit on that? Was that just large losses on property or casualty? And does it reflect a change in underlying loss trend assumption? Yeah, I think, you know, the quarter was in the 80s.
Andrew Anderson: Yes, I think the.
Andrew Anderson: The quarter was in the eighties.
Carl Lindner III: The combined ratio for the overall group, you got to put that in perspective, so, you know, the quarter had an outstanding combined ratio to start with. But when you, as Brian said, when you put in the perspective of the whole year, there was the difference in the reserve development was less favorable workers comp for the whole year, some impact from social inflation. And, you know, in some quarters, some large losses on the casualty side activity. I think that's the right way to, you know, look back and if you're trying to look at trends, you know, for instance.
Andrew Anderson: The combined ratio for the group you got to put that in perspective so.
Andrew Anderson: The quarter had an outstanding combined ratio and to.
Andrew Anderson: To start with.
Andrew Anderson: As Brian said when you put it in the perspective of the whole year.
There was.
Andrew Anderson: The difference in the effect.
Andrew Anderson: <unk> development was less favorable workers' comp for the whole year.
Andrew Anderson: Some impact from social inflation and.
Andrew Anderson: In some quarters, some large loss on the casualty side activity I think thats the right way too.
Andrew Anderson: To look back and if you're if you're trying to look at trends for us.
Carl Lindner III: Thank you. And are you seeing any change in the competitive environment within E&S? Oh, I think maybe a bit more competition on the we're not on the E&S property side. We don't we've been expanding our property business on the E&S side. It seems like, you know, some more interest in that sector and, you know, some more competition there.
Speaker Change: Thank you and are you seeing any change in the competitive environment within E&S.
Speaker Change: I think.
Speaker Change: Maybe a bit more competition on we're not on the E&S property side.
Yeah, we've been expanding our our property business on the on the E&S side it seems like.
Speaker Change: Some more interest in that that sector and.
Speaker Change: Similar competition there.
Carl Lindner III: I think on the... And on the positive side, other interesting things I think we're seeing on the D&O side where, you know, the pricing's been down double digits. In the fourth quarter, we saw it being down single-digits, which I saw as a positive trend when we thought that there had been too many competitors, too much capital, and pricing levels that don't make sense in public D&L. So that was positive. I think another positive thing that we saw in the fourth quarter on the pricing front was our commercial auto pricing. National Interstate and Van Liner moved to double-digit, to 10% plus, which I see as a positive competitive trend. Signed. Thanks. And maybe just a quick math question.
Speaker Change: I think on the.
Speaker Change: And on the positive side of other.
Speaker Change: Interesting things I think we're seeing on the D&O side, where.
Speaker Change: The pricing has been down double digit.
Speaker Change: In the fourth quarter, we saw it being down single digit, which I saw as a positive trend.
Speaker Change: When we have thought that there have been too many competitors too much capital and and pricing levels that don't make sense and public D&O. So.
Speaker Change: That was positive I think.
Speaker Change: Another positive thing that we saw in the fourth quarter on the pricing front.
Speaker Change: Was our commercial auto pricing.
Speaker Change: National Interstate and Dan liner moved to double digit, 10%, plus which I see as a positive competitive.
Speaker Change: <unk>.
Speaker Change: Thanks, and maybe just a quick numbers question.
Brian Hertzman: 34 million of other expense in the quarter; I suspect that's higher amortization from CRS, but is that kind of a good run rate for this line item in 24? It looks like you're looking at our line item for sort of other corporate expenses. So what falls under that line is really everything that's not part of our property and cash operations, and then we show the interest expense separately.
Speaker Change: $34 million of other expense in the quarter I suspect that higher amortization from Crs, but is that kind of a good run rate for this line item in 'twenty four.
Speaker Change: So it looks like Youre looking at a lot of them for for sort of other corporate expenses. So what falls under that line is really everything that's not part of our property and casualty operations and then we show the interest expense separately. So that's mostly holding company expenses in that line, but it's also net of any investment income.
Brian Hertzman: So that's mostly holding company expenses in that line, but it's also net of any investment income earned by the parent company. So there are a couple of things going on there in the quarter when you compare it to previous quarters, particularly the fourth quarter of 2022. One of the bigger things in there is that during the fourth quarter 2023, we had lower levels of cash and investment balances at the parent company as we tend to keep most of our cash and investments down in the P&C operations. So the investment income that sort of netted into that number is about $4 million lower in 2023 compared to 2020, two in the same quarter. And then also in the fourth quarter of 2023, we just happened to have a couple of sort of one-off elevated expenses, and that was magnified by a benefit in the fourth quarter of 2022.
Speaker Change: Earned by the parent company. So there's a couple of things going on there in the quarter when you compare it to previous quarters, particularly in the fourth quarter of 2022, one of the bigger things in there is that.
Speaker Change: During the fourth quarter of 2023, we had lower levels of cash and investment balances at the parent company is we tend to keep most of our cash and investments down in the P&C operations. So the investment income that sort of netted into that number is about $4 million lower than 2023 compared to 2020.
Speaker Change: Two in the same quarter.
Speaker Change: And then also in the fourth quarter of 2023, we just happened to have a couple of.
Speaker Change: Sort of one off elevated expenses and that was magnified by a benefit in the fourth quarter of 2022.
Brian Hertzman: In the fourth quarter of 2022, we had a benefit related to some employee benefit plans that are tied to the stock market that didn't recur this year. So when you look at the things in the fourth quarter of 2023 versus the 2022 quarter that are different, I would say the lower parent company investment income, which is about $4 million. That's probably something that would go forward, and I would consider it if you're looking at a run rate.
Speaker Change: Fourth quarter 2022, we had a benefit related to some employee benefit plans that are tied to the stock market that didn't recur. This year. So when you look at the things.
Speaker Change: In the fourth quarter of 2023 versus the 2022 quarter that are different I would say the lower parent company investment income, which is about $4 million, that's probably something that would would go forward and I would consider if youre looking at a run rate. The other items are really sort of one off things that could happen in any quarter, but I wouldn't consider than something that I've put in a run rate.
Carl Lindner III: The other items are really sort of one-off things that could happen in any quarter, but I wouldn't consider them something that I'd put in a run rate. Yeah, I'm going to go back on the ENS umbrella and excess liability business just to be clear. If you just look at that part of our business in the fourth quarter, it would be in line with what the combined ratio was for the whole year. And, you know, we ended up with excellent underwriting results for E&S, Umbrella, and excess liability overall. Thank you very much.
Speaker Change: Yes, I'm going to go back on the E&S umbrella and excess liability businesses to be clear.
Speaker Change: When you look at if you would just look at that part of our business in the fourth quarter. It would be in line with what the combined ratio was for the whole year.
Speaker Change: And that.
Speaker Change: We had ended up with excellent underwriting results.
Speaker Change: And E&S umbrella and excess liability overall.
Speaker Change: Thank you very much.
Brian Hertzman: Thank you. Our next question comes from the line of Meyer Shields with Keith Brouillette and Woods. Your line is now open. Great. Thanks so much.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Meyer Shields with Keefe Bruyette <unk> Woods. Your line is now open.
Meyer Shields: Great. Thanks, so much.
Brian Hertzman: In terms of understanding, I don't want to call it guidance anymore, but the expectations. There are a few companies out there who provide some sort of outlook for combined ratio and explicitly say that that does not include reserve development. I just want to understand whether we should look at your expectations the same way, or whether maybe there's some measure of reserve we can anticipate. Hi, this is Brian.
In terms of understanding I don't want to call it guidance anymore, but the expectation is that there are a few companies out there who provide some sort of outlook for combined ratio and explicitly.
Meyer Shields: Say that that does not include reserve development I just wanted to understand whether we should look at your expectations the same way or whether it maybe there is some measure of reserve release anticipated.
Brian Hertzman: So when we look at our combined ratio overall, we feel like we've set our reserves optimistically and conservatively, and we're optimistic about the potential for future favorable prior development, but we wouldn't explicitly disclose any kind of components of our combined ratio. So I think it's important to know that we think our reserve position is very strong. And if you look at our plan for 2024, we did react to the higher frequency of catastrophe losses that occurred in 2023, along with CAT experiences in other recent years. When you look at things like social inflation, we've been really focused on price increases, terms, and conditions like attestable points and retentions. And so we feel really good about the actions in that area.
Meyer Shields: Hi, This is Brian so when we look at our combined ratio overall.
Brian Hartman: We feel like we've got our reserves optimistically and conservatively and are optimistic about the potential for future priority for future favorable prior year development, but we wouldnt explicitly disclose any kind of components of our combined ratio I think it's I think it's important to know.
Brian Hartman: That we think our reserve position is very strong and if you look at our plan for 'twenty four we did react to the higher frequency of catastrophe losses that occurred in 2023.
Brian Hartman: Along with cat experiences in other recent years.
Brian Hartman: When you look at things like social inflation.
Brian Hartman: Been really focused on price increases.
Brian Hartman: If the conditions like attachment points and Retentions until we run.
Brian Hartman: We feel really good about the actions in that area.
Brian Hertzman: So if you look overall, I think while we wouldn't explicitly put anything in there to say anything about prior development, we're optimistic that we could have some and feel good about where our reserves are. Okay, perfect. I just wanted to understand what the expectation entailed. Carl, you mentioned some timing issues with regard to transportation. I was hoping you could flesh that out. I'm not could you could repeat that? I couldn't.
Brian Hartman: So if you look overall I think.
Brian Hartman: While we wouldn't explicitly.
Brian Hartman: Putting anything in there to say anything about prior year development and we are optimistic that we could have some and feel good about where our reserves are.
Speaker Change: Okay perfect I, just wanted to understand what the expectation entailed.
Speaker Change: Carl you mentioned, some timing issues with regard to transportation I was hoping you could flesh that out.
Carl Lindner: Could you could you repeat that I couldnt.
Carl Lindner III: I wasn't sure what the question was. I'm sorry. So when you're talking about the property and transportation segment, you mentioned some timing, I think with regard to fourth-quarter premium growth, and I was just looking to understand whether some of that was deferred to the first quarter of 24 or how we should think about that. It's really just time between quarters.
Speaker Change: Not sure what the question was.
Carl Lindner: So when youre talking about the property and transportation segment, you mentioned, some timing I think with regard to fourth quarter premium growth.
Carl Lindner: And just looking to understand whether some of that was deferred to the first quarter of 'twenty four or how we should think about that.
Carl Lindner: It's really just timing between quarters, some stuff moved to other quarters, sometimes things renew renew in a different month or have a different.
Carl Lindner III: Some stuff has moved to other quarters; sometimes things renew in a different month or have a different policy term or things like that. Okay, and then one final question outside of crops. Can you talk about your expectations for reinsurance purchasing in 2024 versus 2023? So you're talking about reinsurance in general, across all of our lines? Yeah, I remember that. So, separating out the CAT program from our just traditional other non-CAT re-insurance, are you focusing on the CAT? Both.
Carl Lindner: Policy term with things like that.
Speaker Change: Okay, and then one final question outside of crop.
Speaker Change: Can you talk about your expectations for reinsurance purchasing in 2024 versus 2023.
Speaker Change: Are you, saying you're talking about about reinsurance in general across all of our line.
Speaker Change: Yes.
Speaker Change: Got it.
Speaker Change: So that branch separating out the cap program from our traditional other non cat reinsurance or are you focusing on Macau.
Speaker Change: Both.
Speaker Change: On the on the catastrophe reinsurance side.
Brian Hertzman: On the catastrophe reinsurance side, we did renew our property CAT treaty here for 2024. The attachment point for that CAT treaty moved up some from 2023, mostly due to our increased exposure as we have increased property exposures in both our E&S business and in our financial institutions business. So we'll be attaching at a $70 million level instead of a $50 million level. So if you think about our property CAT reinsurance power, the retention is $70 million. We then have traditional reinsurance for $55 million, in excess of the $70 million.
Speaker Change: So we did renew our property cat treaty.
Speaker Change: Here for 2024.
Speaker Change: Perhaps more important for that Cat Treaty moved up some from 2023.
Speaker Change: Mostly due to our increased exposure as we have increased property exposures in both our E&S business and in our financial institutions business. So it will be attaching at a $70 million level instead of a $50 million level. So if you think about our property cat reinsurance tower.
Speaker Change: So the retention is $70 million. We then have traditional reinsurance for $55 million in excess of the 70 and then our cat bond comes down on top of that providing.
Brian Hertzman: And then our CAT bond comes in on top of that, providing coverage for the vast majority of any single event up to $450 million, and that CAT bond is in place through the end of 2024. So, on the cost of that, the cost of reinsurance, those who are buying less coverage, the risk adjusted rate is actually slightly lower for that cost in 2024 than it was in 2023. As far as reinsurance outside of the property CAD cover, our business units look at that year-by-year and business unit-by-business unit to purchase reinsurance where they think that it provides an attractive balance of risk and return for the company.
Speaker Change: Providing a coverage for the vast majority of any single event up to $450 million of Nat Cat bond is in place through the end of 2024 so.
Speaker Change: <unk>.
Speaker Change: So on the.
Speaker Change: And the cost of that the cost of the reinsurance goes we're buying less coverage.
Speaker Change: <unk>.
Speaker Change: The risk adjusted rate is actually slightly lower for that cost in 2024 than it was in 2023 as far as reinsurance outside of property cat cover our business units look at that.
Speaker Change: Year by year on business unit by business unit, two to purchase reinsurance, where they think that it provides an attractive balance of risk and return for the company. So theres no real overall trend there I wouldn't expect a reinsurance retentions will be super different when you look across the company as a whole in 2024 versus 2023.
Brian Hertzman: So there's no real overall trend there. I wouldn't expect our reinsurance retention to be super different when you look across the company as a whole in 2024 versus 2023, but we are careful at each business unit in determining the right coverage each year. All right, perfect. Thank you so much. Thank you, and I'm currently showing no further questions at this time. I'd like to hand the call back over to Diane Weidner for closing remarks. Thank you, Shannon, and thank you all for joining us this morning as we reviewed our fourth quarter and full year results for 2023. We look forward to talking with you all again next quarter. Hope you all have a great day. This concludes today's conference call. Thank you for your participation. You may now disconnect. How's your week been going? Comment below and let us know your thoughts!
Speaker Change: But we are careful at.
Speaker Change: At each business unit and determining the right coverage each year.
Speaker Change: Alright, perfect. Thank you so much.
Speaker Change: Thank you and I'm currently showing no further questions at this time I would like to hand, the call back over to Diane Weidner for closing remarks.
Diane P. Weidner: Thank you Shannon and thank you all for joining US. This morning, as we reviewed our fourth quarter and full year results for 2023, we look forward to talking with you. All again next quarter Hope you all have a great day.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
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