Q4 2023 AXIS Capital Holdings Ltd Earnings Call - Preliminary Results

January 23, 2024

It 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.

Operator: After today's presentation, there 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 note, this event is being recorded. I would now like to turn the conference over to Cliff Gallant of Investor Relations. Please go ahead.

Please note this event is being recorded.

I would now like to turn the conference over to Cliff Gallant of Investor Relations. Please go ahead.

Thank you good afternoon, and welcome to the Axis Capital Conference call I'm Cliff Gallant and I recently started his investor relations here at Axis and excited to be here.

Cliff Gallant: Thank you. Good afternoon, and welcome to the AXIS Capital conference call. I'm Cliff Gallant, and I recently started as Investor Relations here at AXIS, and I'm excited to be here. We've allocated 30 minutes for today's call. When we get to the Q&A portion, I ask that you limit your questions to the reserve actions we've announced. We'll be happy to discuss our underlying financial results in more detail with you when we have our regularly scheduled call next week. If you'd like a copy of the press release issued earlier this afternoon, please visit the Investor Information section of our website at axiscapital.com. Joining me today on today's call are Vince Tizzio, our President and CEO, and Pete Vogt, our CFO.

Cliff Gallant: We have allocated 30 minutes for today's call when we get to the Q&A portion I ask that you limit your questions to the reserve actions, we've announced will.

Cliff Gallant: We will be happy to discuss our underlying financial results in more detail with you. When we have a regularly scheduled call next week.

If you'd like a copy of the press release issued earlier. This afternoon. Please visit the Investor information section of our website at Axis capital Dot Com.

Cliff Gallant: Joining me today on today's call are Vince <unk>, our president and CEO and Pete Vogt our CFO.

Cliff Gallant: In addition, I would like to remind everyone that the statements made during this call, including the question and answer section, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks, uncertainties, and assumptions. Actual events or results may differ materially from those projected in forward-looking statements due to a variety of factors, including the risk factors set forth in the company's most recent report on the Form 10-K or our quarterly report on Form 10-Q and other reports the company files with the SEC. This includes the additional risks identified in the cautionary note regarding forward-looking statements in our press release issued earlier today. We undertake no obligation to publicly update or revise any forward-looking statements. In addition, non-GAAP financial measures may be discussed during this conference call. Reconciliations are included in our press release issued today.

Or our quarterly report on Form 10-Q, and other reports the company files with the SEC. This includes the additional risks identified in the cautionary note regarding forward looking statements in our press release issued earlier today, we undertake no obligation to publicly update or revise any forward looking statements. In addition, non-GAAP financial measures may be discussed during this conference call. Reconciliations are included in our.

Cliff Gallant: Our press release issued today.

Cliff Gallant: With that I'll turn the call over to Vince.

Thanks, Cliff and welcome aboard good afternoon, and thank you for joining US today, our conversation will focus on our loss review and the decisive reserve action that we've taken.

Cliff Gallant: With that, I'll turn the call over to Vince.

Vince Tizzio: Thanks, Cliff, and welcome aboard. Good afternoon, and thank you for joining us. Today, our conversation will focus on our loss review and the decisive reserve action that we have taken. I'll first briefly share with you at the outset that Axis delivered strong underlying performance in 2023, and we believe the company is on a clear trajectory to becoming a specialty underwriter that consistently generates double-digit ROE, combined ratios in the low 90s, consistent profitable growth, and book value per share growth. Indeed, we're operating in attractive markets and have a clear strategy on how to win in the markets where we choose to compete. We are significantly improving our operational backbone and becoming a more integrated and efficient company, and we're making the right investments in people, products, platforms, and processes.

Vince: I'll first briefly share with you at the outset that access delivered strong underlying performance in 2023, and we believe the company is on a clear trajectory to becoming a specialty underwriter that consistently generate double digit Roe.

Vince: Combined ratios in the low nineties, consistent profitable growth and book value per share growth. Indeed, we're operating in attractive markets and have a clear strategy on how to win in the markets, where we choose to compete we are significantly improving our operational backbone and becoming a more integrated and efficient company.

Vince: And we're making the right investments in people products platforms and processes.

Vince: Cross the organization our team is relentlessly committed to further elevating axis as a specialty underwriting leader I'm proud of the progress, we're making and energized for the future.

Vince Tizzio: Across the organization, our team is relentlessly committed to further elevating AXIS as a specialty underwriting leader. I'm proud of the progress we're making and energized for the future. We look forward to having a detailed conversation with you next week about our Q4 and year-end financial performance and the exciting trajectory that we're on. The reserve strengthening that we're taking this quarter enables us to continue this trajectory. As you'll remember, in the Q3, we announced our intention to review our loss reserves in light of development that we have seen in 2019 and earlier, and in recognition of the current economic and social inflation trends impacting the US casualty market. As we promised then, we completed these deep reviews in the Q4, coinciding with our normal internal quarterly review and annual independent review process.

Vince: We look forward to having a detailed conversation with you next week about our fourth quarter and year end financial performance and the exciting trajectory that we're on.

Vince: The reserve strengthening that we're taking this quarter enables us to continue this trajectory.

As you'll remember in the third quarter, we announced our intention to review our loss reserves in light of development that we have seen in 2019 and earlier and in recognition of the current economic and social inflation trends impacting the U S.

Vince: Casualty market as.

Vince: As we promised and we completed these deep reviews in the fourth quarter, coinciding with our normal internal quarterly review and annual independent review process.

Vince: Based on this review and the impact of current conditions, we have strengthened our reserves by $425 million pretax I wanted to provide some color on the relevant principals and ultimate determination that we made first.

Vince Tizzio: Based on this review and the impact of current conditions, we have strengthened our reserves by $425 million pre-tax. I wanted to provide some color on the relevant principles and ultimate determination that we made. First, the reserve addition predominantly relates to the liability class in both our insurance and reinsurance business, primarily from 2019 and older accident years. Second, our review was exhaustive and supplemented our existing processes. As I've previously communicated, Pete and I worked with our chief actuary and new chief claims officer to lead this deep analysis. Among other items, it included an examination of trend assumptions, emerging development patterns, and a rigorous review of open claims since Q3 2019, while reflecting the reality that our US casualty and professional lines have shown sustained adverse development, driven largely by economic and social inflation.

First the Reserve addition, predominantly relates to the liability class in both our insurance and reinsurance business, primarily from 2019 and older accident years.

Vince: Second I will review was exhaustive and supplemented our existing processes as I've previously communicated P&I worked with our chief Actuary and New Chief claims officer to lead this deep analysis.

Vince: Among other items. It included an examination of trend assumptions emerging development patterns and a rigorous review of open claims since the third quarter of 2019, while reflecting the reality that our U S casualty and professional lines have shown sustained <unk>.

Vince: Adverse development, driven largely by economic and social inflation.

Vince: We see the strengthening of reserves as a necessary step to progress forward as a specialty leader.

Vince Tizzio: We see this strengthening of reserves as a necessary step to progress forward as a specialty leader. Pete will detail specifics in his comments. And with that, I'll now turn it over to Pete.

Pete will detail specifics in his comments and with that I'll now turn it over to Pete.

Pete Vogt: Thank you Vince and thank you everyone for joining the call. We felt it would be important to share with you today's news and give you some of the key data points.

Pete Vogt: Thank you, Vince, and thank you everyone for joining the call. We felt it would be important to share with you today's news and give you some of the key data points. As Vince said, Q4 will include a net reserve strengthening of $425 million pre-tax, and $361 million after tax. The $425 million is essentially all IBNR, giving full weight to the longer development patterns and increased severity trends we are seeing emerge post-pandemic. With the work completed, including input from outside legal experts to confirm our view of claims, we feel the reserves are prudent.

Pete Vogt: As Vince said the fourth quarter will include a net reserve strengthening of 425 million pre tax and $361 million after tax.

Pete Vogt: $125 million is essentially all IV and are giving full weight to the longer development patterns and increased severity trends, we're seeing emerge post pandemic.

Pete Vogt: With the work completed including input from outside legal experts to confirm our view of claims we feel the reserves are prudent.

Pete Vogt: For the full year 2023, which we view as the most logical way of analyzing the information as it will be consistent with our global loss triangles.

Pete Vogt: For the full year 2023, which we view as the most logical way of analyzing the information, as it will be consistent with our global loss triangles, the net reserve strengthening is $412 million pre-tax, with the Q4 strengthening being offset by some positive development through the first three quarters. As we break down the 412, the strengthening is $176 million in insurance and $236 million in reinsurance. Furthermore, in both insurance and reinsurance, the strengthening is all related to liability and professional lines. In insurance, these two lines were strengthened by $276 million, with $235 million in liability and $41 million in professional lines. 84% of the total increase was for accident years 2019 and prior.

Pete Vogt: Reserve strengthening is $412 million pre tax.

Pete Vogt: With the fourth quarter strengthening being offset by some positive development through the first three quarters.

As we break down the 412.

Pete Vogt: <unk> is $176 million in insurance and $236 million in reinsurance.

Pete Vogt: Furthermore, in both insurance and reinsurance the strengthening is all related to liability and professional lines.

Pete Vogt: And insurance. These two lines was strengthened by $276 million with $235 million in liability and $41 million in professional lines.

Pete Vogt: 84% of the total increase was for accident years 2019 at Pryor.

Pete Vogt: These increases were partially offset by a $100 million of reserve releases from other lines of business.

Pete Vogt: These increases were partially offset by $100 million of reserve releases from other lines of business. In reinsurance, these lines were strengthened by $354 million, with $262 million in liability and $92 million in professional lines. 90% of the total increase was for accident years 2019 and prior, and these increases were partially offset by $118 million of net reserve releases from the other lines of business. We view these these additions to be prudent and in keeping with our learnings from our in-depth study we conducted with our claims team and extrapolating the implications of current industry trends, the social inflation, and development patterns.

In reinsurance these lines was strengthened by $354 million.

Pete Vogt: With $262 million in liability and $92 million in professional lines.

Pete Vogt: 90% of the total increase was for accident years 2019, and prior and these increases were partially offset by $118 million of net reserve releases from the other lines of business.

Pete Vogt: We view these these additions to be prudent and in keeping with our learnings from our in depth study, we conducted with our claims team and extrapolating the implications of current industry trends, social inflation and development patterns.

Pete Vogt: As you are aware, we have an outside actuarial firm to an independent bottoms up review of our reserves.

Pete Vogt: As you are aware, we have an outside actuarial firm do an independent, bottoms-up review of our reserves, and our booked reserves are within their reasonable range and above their central estimate. Taking a moment to review the full year 2023 highlights, I note that we have ended the year in a strong capital position. Book value has grown by over 15% during the year, and diluted book value per share at year-end was $54.06. Additionally, our underlying operating earnings were $847 million, or $9.85 per share, driven by a current accident year combined ratio of 91.8% and strong investment income. We're proud of the underlying 2023 results, which we expect to build upon in 2024 and beyond, with a determined focus on growing book value per share.

Pete Vogt: Our booked reserves are within their reasonable range and above their central estimate.

Pete Vogt: Taking a moment to review the full year 2023 highlights I note that we have ended the year in a strong capital position.

Pete Vogt: Book value has grown by over 15% during the year and.

Pete Vogt: And diluted book value per share at year end was $54 six.

Pete Vogt: Additionally, our underwriting our underlying operating earnings were $847 million or $9 85 per share driven by our current accident year combined ratio of 91, 8% and strong investment income.

Pete Vogt: We're proud of the underlying 2023 results, which we expect to build upon in 2024.

And beyond with a determined focus on growing book value per share.

Speaker Change: Thank you operator, now, let's open the call for questions.

Pete Vogt: Thank you, operator. Now let's open the call for questions.

Speaker Change: We will now begin the question and answer session to.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are 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 roster. Our first question today comes from Carol Chamil with Citizens JMP. Please go ahead.

To ask a question you May press Star then one on your telephone keypad.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Our first question today comes from Carol Chmiel with citizens JMP. Please go ahead.

Yeah, Hi, Thanks, just one.

One question really.

Carol Chamil: Yeah. Hi, thanks. Just one question really is, how do you feel about your current capital position following this charge? And if anything, what it might mean from the rating agencies and in particular, the S&P rating agency? Thank you.

Karol Chmiel: Yeah. Hi, thanks. Just one question really is, how do you feel about your current capital position following this charge? And if anything, what it might mean from the rating agencies and in particular, the S&P rating agency? Thank you.

Carol Chmiel: How do you feel about your current capital position following this charge and if anything what.

Carol Chmiel: It might mean from the rating agencies and in particular, the S&P rating agency. Thank you.

Carol Chmiel: Hi, This is Pete. Thank you for the question even after taking the reserve charge, we feel very confident and comfortable in our strong capital position I will note that at year end are our financial leverage is actually reduced to $28. Three so it's comfortably below 30, now and we actually have.

Pete Vogt: Hi, this is Pete. Thank you for the question. Even after taking the reserve charge, we feel very confident and comfortable in our strong capital position. I'll note that at year-end, our financial leverage is actually reduced to 28.3, so it's comfortably below 30 now, and we actually have really solid in excess of requirements for the rating agencies when we compare ourselves to their capital models. So we feel very good about where we are. I would just remind you, as you know, S&P is currently going through their new model change. They currently have our holding company in debt on a negative watch, due to the fact that it may get actually downgraded by a notch because of their view of what the BMA will become and what they think of that regulatory scheme.

Carol Chmiel: Really solid in excess of requirements for the rating agencies, when we compare ourselves to their capital models. So we feel very good about where we are I would just remind you as you know S&P is currently going through their new model change. They currently have our holding company and debt on a negative watch due to the fact that it may get actually Dow.

Carol Chmiel: Graded by a notch because of their view of what the BMA will become and what they think of that regulatory scheme, but we're not worried about that we also have now really good insights into what our capital position is with S&P and we feel very comfortable with that as we sit here today, it's a strong position.

Pete Vogt: But we're not worried about that. We also have now really good insights into what our capital position is with S&P, and we feel very comfortable with that as we sit here today. It's a strong position.

Speaker Change: Great. Thank you.

Speaker Change: The next question is from Josh Shanker with Bank of America. Please go ahead.

Carol Chamil: Great. Thank you.

Karol Chmiel: Great. Thank you.

Operator: The next question is from Josh Shanker with Bank of America. Please go ahead.

Yes. Thank you a question about the methodology here if I go back in time to 2020 and work on the current reserves.

Josh Shanker: Yes, thank you. A question about the methodology here. If I go back in time to 2020 and work on the current reserves, were the reserves using the methodology using the adequate in 2020, or is all the change that you are taking the charge for today the development in the inflationary trends that we've seen in the past few years?

Josh Shanker: Where are the reserves using the methodologies and the <unk>.

Adequate in 2020 or all the change that you are taking the charge for today.

Speaker Change: The development in the inflationary trends that we've seen in the past few years.

Speaker Change: Josh This is Vince I'll start certainly as part of our examination of all of our methods and assumptions were reassessed.

Vince Tizzio: Josh, this is Vince. I'll start. Certainly, as part of our examination, all of our methods and assumptions were reassessed. Clearly, as a result of the strengthening, we have updated those assumptions with new information insights, really resulting in part from our claims deep dives, supplemented with our own challenge of our own methods and assumptions.

Speaker Change: And clearly as a result of the strengthening we have updated those assumptions with new information insights really resulting in part from.

Vince: Our claims deep dive supplemented with our own challenge of our own methods and assumptions.

Josh Shanker: Yes, the only thing I would build on that business as we've seen since 2020, we've seen increase in litigation funding, we've seen longer development patterns, meaning that cases take longer to get through the court system and we've actually seen severity increases so as we've actually continued to see that and we've actually been.

Pete Vogt: Yeah. The only thing I would build on that, Vince, is, as we've seen since 2020, we've seen increase in litigation funding. We've seen longer development patterns, meaning that cases take longer to get through the court system, and we've actually seen severity increases. So as we've actually continued to see that, and we've actually been at strengthening these reserves since that time, Josh, I think you're-- you know that and you're aware of that. I think as we did this deep dive, you can really now see those patterns coming post-pandemic, and we took the full weight of what we saw in our studies and applied them to our reserves for year-end 2023.

Josh Shanker: Strength of these reserves that time, Josh I think you know that Youre aware of that I think as we did this deep dive you can really now see those patterns coming post pandemic.

Josh Shanker: And we took the full weight of what we saw in our studies and apply them to our reserves for year end 2023.

Josh Shanker: When we look at the.

Josh Shanker: Triangles or the sort of background information on the chart in the 10-K in your global trials. When it comes out later, what proportion of the current charge relates to accident years prior to the pandemic.

Josh Shanker: When we look at the triangles or the sort of background information on the charge in the 10-K and your global triangles when it comes out later, what proportion of the current charge relates to accident years prior to the pandemic, and what percentage is during and post-pandemic?

Josh Shanker: And what percentage is during and post pandemic.

Speaker Change: That's a great question, Josh most of it if not more than 100% of it is due to prior to the pandemic. So when I think about the $412 million that I referenced that is our full year increase in reserves. So that will relate to the triangles 452 million is related to 2000.

Pete Vogt: That's a great question, Josh. Most of it, if not more than 100% of it, is due to prior to the pandemic. So when I think about the $412 million that I referenced, that is our full year increase in reserves, so that will relate to the triangles. $452 million is related to 2019 and prior. And actually, when we look at the 2020 to 2022 years, we've got a slight release of $40 million. So more than 100% is due to 2019 and prior.

Speaker Change: 19 in Pryor and actually when we look at the 2020 to 2022 years, we've got a slight release of $40 million. So more than a 100% is due to 2019 and prior.

Josh Shanker: Thanks for the answers.

Yeah.

Josh Shanker: Thank you for the answers.

Josh Shanker: The next question is from Brian Meredith with UBS. Please go ahead.

Operator: The next question is from Brian Meredith with UBS. Please go ahead.

Yes, two questions here for you I'm just curious did you all take a look at Lpt's and was that a possibility of kind of handling the situation and putting some finality to it instead.

Brian Meredith: Yes, two questions here for you, Pete. I'm just curious, did you all take a look at LPTs, and was that a possibility of kind of handling this situation and putting some finality to it instead?

Speaker Change: Thanks, Brian Thanks for the question and as you are aware we've done.

Pete Vogt: Thanks, Brian. Thanks for the question. And as you're aware, we've done LPT transactions in the past, and we really do look at them, as I've said, as a tool to manage both reserve risk and capital management. In this case, we reviewed a number of options that were available to us, and we view that the road we're taking as the best economic outcome for the company. And at this moment, we believe our reserves are prudent, and we believe that we're in a very strong capital position.

Brian Meredith: Transactions in the past and we really do look at them as I've said as a tool to manage both reserve risk and capital management.

Speaker Change: In this case, we reviewed a number of options that were available to us and we view that the road, we're taking as the best economic outcome for the company and at this moment, we believe our reserves are prudent and we believe that we're in a very strong capital position.

Speaker Change: Great and then my next question Pete I think you said that 90% of the liability development reinsurance rucell weighted to 2019 and prior.

Brian Meredith: Great. And then my next question. Pete, I think you said that 90% of the liability development reinsurance was related to 2019 and prior. The 10% that was not, what years was that in? And I guess my question is, if you're changing these methodologies, why wouldn't that have an impact on kind of your picks from 2020, 2021, and 2022?

Speaker Change: 10% that was not what years was that in and I guess my question is you've you're changing these methodologies.

Speaker Change: Why wouldnt that have an impact on kind of your picks from 2020, 2021 and 2022.

Pete Vogt: Yes, so youre absolutely right, Brian I mentioned that of the $3 50, 490% of it was 2019 and prior when we look at the post or the 'twenty to 'twenty two years, there was about 10% in there.

Pete Vogt: Yeah. So, you're absolutely right, Brian. I mentioned that of the $354, 90% of it was 2019 and prior. When we look at the post or the 2020 to 2022 years, there was about 10% in there. A major, not a majority. A big portion of that was our US multi-line book, which we actually increased the reserves on by a bit. Now, that book's been totally rewritten in the last 18 months, so while it was in the 2020 to 2022 years, we believe that book's very different on a go-forward. That was our multi-regional regional book that got changed once we exited property. So that was the big driver, I'll call it, in the 10% increase that we took, post 2019. With regard to why such a difference, one is we were strengthening...

Pete Vogt: Not a majority of.

Big portion of that was our U S. Multiline book, which we actually increased the reserves on by a bit now that books been totally rewritten in the last 18 months. So while it was in the 20 to 22 years, we believe that looks very different on a go forward that was a multi regional regional book that got changed once we exited property so that was.

Pete Vogt: The big driver I'll call. It in the 10% increase that we took.

Pete Vogt: Post 2019.

With regard to why such a difference one as we were strengthening we've talked about this we've strengthened our trend assumptions since 2019, and our trend is searches have moved up from mid single digit to high single digits over the last three years and Thats really helped US get ahead of it a bit when you look at the years 'twenty to 'twenty two.

Pete Vogt: We talked about this. We've strengthened our trend assumptions since 2019, and our trend assumptions have moved up from mid-single digits to high single digits over the last 3 years, and that's really helped us get ahead of it a bit when you look at the years 2020 to 2022. Which is why we also feel really good about the 91.8 Current Accident Year Combined Ratio we have in 2023.

Pete Vogt: Which is why we also feel feel really good about the 91 eight current accident year combined ratio we have in 2023.

Speaker Change: Great. Thank you.

Speaker Change: Welcome.

Brian Meredith: Great. Thank you.

Speaker Change: The next question is from Alex Scott with Goldman Sachs. Please go ahead.

Pete Vogt: You're welcome.

Operator: The next question is from Alex Scott with Goldman Sachs. Please go ahead.

Hey, good afternoon first one I had is on the the releases it sounded like they were an offset I think it was somewhere around $200 million could you could you help us think through.

Alex Scott: Hey, good afternoon. First one I had is on the releases. It sounded like they were an offset. You know, I think it was somewhere around $200 million. Could you help us think through, like, you know, more specifics around, you know, what businesses, you know, saw those releases, from what years, and, you know, the trends that were driving that?

Alex Scott: More specifics around.

Alex Scott: What businesses.

Alex Scott: Those releases and from what yours, and the trends that were driving that.

Alex Scott: Yes. This is Steve I'll take that Alex the releases came across just about every other line. We have probably the largest release came from our reinsurance runoff business that was about $67 million, but that was our property engineering and cat book.

Pete Vogt: Yeah, this is Pete. I'll take that, Alex. The releases came across just about every other line we have. Probably the largest release came from our reinsurance runoff business. That was about $67 million, but that was our property engineering and cat book. You know, after that, again, these are all more short-tail type lines, so they're our specialty short-tail type lines. So most of these releases are gonna be in the 20 to 22 years. But we did see releases in our cyber book, in credit and political risk, our reinsurance, A&H, as well as marine and aviation in both insurance and reinsurance. So there wasn't one huge driver. The biggest one was the $67 million in the runoff lines. The rest were anywhere from $10 to 30 million in releases.

Steve: After that again these are all more short tail pipelines. So there are specialty short tail pipelines. So most of these releases are going to be in the 'twenty to 'twenty to 'twenty to 'twenty two years, but we did see releases or in our cyber book in credit and political risk a reinsurance A&H as well as marine and aviation.

Steve: <unk> in both insurance and reinsurance so there wasn't one huge driver. The biggest one was the $67 million in the runoff lines. The rest were anywhere from $10 million to $30 million and releases.

Got it that's helpful.

Steve: Next one I have two just thinking a little bit more holistically about this I think you guys called out like how we work strategy that you had and part of it was fine tuning some of these estimates.

Alex Scott: Got it. That's helpful. Next one I had for you is just, you know, thinking a little bit more holistically about this. I think you guys called it like the how we work, you know, strategy that you had, and part of it was, you know, fine-tuning some of these estimates. You know, do we need to think about any changes in the way you're underwriting business going forward in response to, you know, this review and that program more broadly? And, you know, I know you've reiterated some of your combined ratio targets, but, I mean, do we need to think about, you know, trajectory and, like, you know, how quickly you get there?

Is should.

Steve: Should we do we need to think about any changes in the way your underwriting business going forward in response to this review in that program more broadly.

Steve: And I know you reiterated some of your combined ratio targets, but I mean, do we do we need to think about trajectory and how quickly you get there and maybe just.

Alex Scott: You know, maybe, you know, just, you know, at a high level, what's being done with sort of the loss estimates on current accident years to sort of ensure that this never happens again, kind of thing?

Steve: At a high level whats being done with sort of the loss estimates on current accident years to sort of ensure that this never happens again kind of thing.

Vince: Alex This is Vince.

Vince: Clearly through how we where we've set ourselves on a path aiming at.

Pete Vogt: Alex, this is Vince. Clearly, through how we work, we've set ourselves on a path aiming at strengthened underwriting acumen through our process, through our inclusion of data and analytics. Second, we've certainly put pressure on ourselves relative to our cost structure and are enabling efficiencies to be gained through this effort. And as you know, in the specialty world-

Vince: Strengthened underwriting acumen through our process through our inclusion of data and analytics.

Vince: We've certainly put pressure on ourselves relative to our cost structure and our enabling efficiencies to be gained through this effort and as you know in the specialty world.

Vince: The markets move and we have to be responsive and have an appetite and underwriting acumen that matches, where we see growth profitable growth opportunities and so we are organizing ourselves through these bodies of effort through how we work to work with pace and to seize those opportunities with respect to our law.

Vince Tizzio: ... The markets move, and we have to be responsive and have an appetite and underwriting acumen that matches where we see growth, profitable growth opportunities. And so we are organizing ourselves through these bodies of effort, through how we work, to work with pace and to seize those opportunities. With respect to our loss picks, they're certainly better informed and more informed by the work that we've done in this examination. And I think that we feel great confidence in where we're starting from, and we'll talk more about the 2023 year next week.

Vince: <unk>, that's certainly better informed and more informed by the work that we've done in this.

Vince: Examination and I think that we feel great confidence in where we're starting from and we will talk more about the 23 year next week.

Speaker Change: Okay. Thank you.

Speaker Change: Sure.

Pete Vogt: Okay, thank you.

Speaker Change: The next question is from Christian gets off with Wells Fargo Securities. Please go ahead.

Vince Tizzio: Thank you.

Operator: The next question is from Christian Getsov with Wells Fargo Securities. Please go ahead.

Christian: Hi, Good afternoon, I was hoping you could provide a little bit more color on why an LPTA ADC was not economically feasible, particularly around the terms you are offered and if there was any disagreement on with the reinsurer on the size of the hole.

Christian Getsov: Hi, good afternoon. I was hoping you could provide a little bit more color on why an LPT ADC was not economically feasible, particularly around the terms you were offered, and if there was any disagreement with the reinsurer on the size of the whole?

Hristian Getsov: Hi, good afternoon. I was hoping you could provide a little bit more color on why an LPT ADC was not economically feasible, particularly around the terms you were offered, and if there was any disagreement with the reinsurer on the size of the whole?

Christian: Yes. This is Pete I'll take that I'm, not going to get into specifics on anything that we actually talked to some folks about but.

Pete Vogt: Yeah, this is Pete. I'll take that. I'm not gonna get into specifics on anything that we actually talked to some folks about, but I would say that given where interest rates are now, given where we felt our capital position is today, which is strong, and given what we thought the initial discussions with outside folks were gonna actually bear fruit to, we felt that actually doing this ourselves and keeping the reserves on our books was the best course of action.

Pete Vogt: Would say that given where interest rates are now given where we felt our capital position is today, which is strong and given what we thought.

Pete Vogt: The initial discussions with outside folks, we're going to we're going to actually bear fruit to we felt that actually doing this ourselves and keeping the reserves on our books was the best course of action.

Speaker Change: Got you and then for my second question. So the reserve charge does it kind of impacts your loss picks in the current accident year, and maybe how you're booking the new book of business moving forward, particularly around like your expectations for social inflation.

Christian Getsov: Gotcha. And then for my second question, so the reserve charge, does it kind of impact your loss pick in the current accident year and maybe how you're booking the new book of business moving forward, particularly around, like, your expectations for social inflation?

Hristian Getsov: Gotcha. And then for my second question, so the reserve charge, does it kind of impact your loss pick in the current accident year and maybe how you're booking the new book of business moving forward, particularly around, like, your expectations for social inflation?

Speaker Change: Yeah. So this is Pete again, yes, as I said earlier, it really didn't impact our current book of business, because we had materially moved up our loss picks and our thinking on inflation. Prior to this as I mentioned over the last few years, we've had especially in the liability lines. We've moved our thinking for mid single digit to high single digits and that's what we've been booking to in 2020.

Pete Vogt: Yeah. So this is, Pete again. Yeah, as I said earlier, it really didn't impact our current book of business because we had materially moved up our loss pick and our thinking on, on inflation prior to this. As I mentioned, over the last few years, we've, especially in the liability lines, we've moved our thinking from mid-single digit to high single digits, and that's what we've been booking to in 2023. As we continue to look at rate, at least getting us a trend, and next week when we have our earnings call, we'll tell you what we saw in Q4. But so far, we do not expect it to. We actually feel really good about the loss pick for 2023.

Speaker Change: Three.

Speaker Change: As we continue to look at rate at least getting us at trend and next week. When we have our earnings call. We'll tell you what we saw in the fourth quarter, but so far we do not expect it to we actually feel really good about the loss picks for 2023 and as we look forward into 2024, we will continue to think it will talk to you next week about what we're seeing on the rate front.

Pete Vogt: As we look forward into 2024, you know, we'll continue to think, and we'll talk to you next week about what we're seeing on the rate front. But right now, on the liability lines, especially, on the casualty side, we are getting rate at least equal to trend.

Speaker Change: But right now on the liability lines, especially on the casualty side, we are getting rate at least equal to trend.

Speaker Change: Okay. Thank you.

Christian Getsov: Okay, thank you.

Hristian Getsov: Okay, thank you.

Qunar: The next question is from your on Qunar with Jefferies. Please go ahead.

Operator: The next question is from Yoran Canar with Jefferies. Please go ahead.

Qunar: Thank you. Good afternoon. My first question just goes back to the review of the methodology and the process and are taking a more conservative view on inflationary trends.

Yaron Kinar: Thank you. Good afternoon. My first question just goes back to the review of the methodology and then the process, and then kind of taking a more conservative view on inflationary trends in professional lines and in liability. Is there any reason to see that maybe impact other lines of business as well? And if not, why not?

Qunar: Professional lines and liability is there any reason to see that maybe impact to other lines of business as well.

Speaker Change: And if not why not.

Speaker Change: Hi, Ron This is Pete as we look at other lines of business. There are some impacts of social inflation, but not as much as you have in these in these casualty lines, especially the liability line, even the professional lines. It does get hit a little bit by social inflation, but we see there more as class action Securities class action law.

Pete Vogt: Hi, Yoran, this is Pete. You know, as we look at other lines of business, there are some impacts of social inflation, but not as much as you have in these casualty lines, especially the liability line. Even the professional lines, it does get hit a little bit by social inflation, but what we see there more is class action, securities class action lawsuits that'll drive that. Might see a severity trend there, but there it's gonna be more of a frequency-based issue that we look at. But overall, I'll ask Vince to pile on here. But for the most part, I think we're looking at it across our book, and we feel that we've priced for it well in areas like property, and marine liability, and other areas.

Speaker Change: Suits that will drive that might see a severity trend there, but there is going to be more of a frequency based issue that we look at but overall I'll ask Vince to pile on here, but for the most part I think we're looking at it across our book and we feel that we've priced FERC well in areas like property and marine liability and other areas you are on it.

Speaker Change: Vince I would just add to Pete's good answer a couple of things first we examined all of our classes, both in insurance and reinsurance and.

Vince Tizzio: Yoran, it's Vince. I would just add to Pete's good answer a couple of things. First, we examined all of our classes both in insurance and reinsurance and certainly validated our assumptions and methods. And we have already, in our historical past, accounted for inflation in our A&H portfolio, our property portfolio, our marine portfolio. We tested those assumptions and we made minor adjustments in certain of those lines. But the key and the thrust of this effort and story is really it's a liability strengthening action that our company is taking.

Vince: And certainly validated our assumptions and methods and we have already in our historical past accounted for inflation in our A&H portfolio, our property portfolio, our marine portfolio, we tested those assumptions and we made minor adjustments in certain of those lines, which are key.

Vince: The thrust of this effort.

Vince: <unk> story is really it's a liability.

Vince: Strengthening action that our company is taking.

Speaker Change: Got it.

Speaker Change: And then my second question. So I think you've got a couple of questions on the LPT job.

Yaron Kinar: Got it. And then my second question. So I think you got a couple of questions on LPTs. I'm actually going a little further back in history. So I think you put on an LPT back at the end of 2022. You had an ADC cover for Novae that was put on, I think, for accident years 15 and prior. Is this charge of the $425 net allo- of all of these?

Speaker Change: I'm actually going a little further back in history. So I think you've put on an LPT back at the end of 'twenty. Two you had an EDC cover for Nevada was predominantly cracked in years prior.

Speaker Change: As this charge of 425 net of all of these.

Speaker Change: Yes, yes.

Speaker Change: Those two transactions did.

Pete Vogt: Yes. Yeah. Those two transactions did not actually impact the $425, so we're fine. Actually, one thing I would just clarify, the deal we did with the Novae transaction back in 2017, Yoran, was actually a Reinsurance to Close transaction, not an LPT, because it was all within the Lloyd's world. So when we moved those reserves off, unlike an ADC, which actually has a limit to it, those reserves don't come back to us, unless they actually have to go through the Lloyd's Central Fund to come back to us. That was a Reinsurance to Close transaction. So that transaction is very, very safe.

Speaker Change: Did not.

Speaker Change: <unk> did not actually impact of 425, so we're fine actually one thing I would I would just clarify the deal we did with the <unk> transaction back in 2017 your own was actually a reinsurance to close transaction not an LPT because it was all within the Lloyds World. So we move those reserves off.

Speaker Change: Unlike.

Speaker Change: And ADC, which actually has a limit to it those reserves don't come back to us unless they actually have to go through the void Central fund to come back to us that was a reinsurance to close transactions. So that transaction is very very safe and then the $400 million LPT, we did last year.

Pete Vogt: Then the $400 million LPT we did last year, actually, those reserves are still solid, and we did not actually use any of the limit that we have available to us for those $400 million of reserves.

Actually those reserves are still solid and we did not actually use any of the limit that we have available to us for those $400 million of reserves.

Speaker Change: Got it so if I look about 425, what does it come through as a percentage of professional lines and liability reserves for accident years 19 Empire.

Yaron Kinar: Got it. So if I look at that 425, what does it come to as a percentage of professional lines and liability reserves for accident years 2019 and prior?

Speaker Change: When I look at that I have got that here actually I will give you a good stat I've got here when I look at as a percentage of reserves for for those classes actually the most impactful years Euro will be 2015 to 2019 that five year cohort.

Pete Vogt: When I look at that, I have got that here. Actually, I'll give you a good stat I've got here. When I look at as a percentage of reserves for those classes, actually, the most impactful years, year-on, will be 2015 to 2019, that five-year cohort. In the insurance liability book, we increased the reserves in that five-year period from year-end 2022 by 58%. In insurance professional lines, we increased the year-end 2022 reserves in that five-year period by 20%. Reinsurance liability, again, that same five-year period, we increased the reserves by 36%. And in reinsurance professional, again, that five-year period, we increased the reserves by 20%.

Speaker Change: In the insurance liability book, we increase the reserves in that five year period from year end 2022 by 58%.

Speaker Change: In insurance professional lines, we increased the year end 2022 reserves in that in that five year period by 20%.

Speaker Change: Reinsurance liability again that same five year period, we increased reserves by 36% and in reinsurance professional again that five year period, we increased the reserves by 20%.

Speaker Change: Thanks, so much.

Speaker Change: The next question is a follow up from Josh Shanker with Bank of America. Please go ahead.

Josh Shanker: Thanks so much.

Yaron Kinar: Thanks so much.

Operator: The next question is a follower from Josh Shanker with Bank of America. Please go ahead.

Josh Shanker: Yes. Thank you for taking another question for me in past quarters, you've said that the.

Josh Shanker: Yes, thank you for taking another question from me. In past quarters, you've said that the review might be an overhang considering capital return and share repurchases, as a common practice at the company. We're now past that gauntlet, so to speak. What is the outlook and the possibility of being more open-minded to a capital return plan at this point?

Josh Shanker: You might be in overhangs, considering capital return share repurchases.

Josh Shanker: As a common practice that the company, we're now past that.

Josh Shanker: So to speak.

Josh Shanker: What is the outlook, there and the possibility of being more open minded to our capital return plan at this point.

Josh Shanker: Thanks, Josh This is Pete I'll take that question I guess, what I'd say is that we did put out press release in December our board has authorized us to have a $100 million share repurchase program, we will look to use that opportunistically we.

Pete Vogt: Thanks, Josh. This is Pete. I'll take that question. I guess what I'd say is that we did put out a press release in December. Our board has authorized us to have a $100 million share repurchase program. We will look to use that opportunistically, and we do think today that our, that our shares are undervalued. So that's, that's about all I can say right now.

Pete Vogt: And we do think today that our that our shares are undervalued.

Speaker Change: So that's that's about all I can say right now.

Speaker Change: Okay. Thank you.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Vince <unk> for any closing remarks.

Josh Shanker: Okay, thank you.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Vincent Tizzio for any closing remarks.

Vince: I'd like to thank you for taking time with US. This afternoon to address our press release, we look forward to speaking with you next week and addressing the 2023 year I would say in closing we're very excited about where we are as an organization. We're very excited about what we have to report concern.

Vince Tizzio: I'd like to thank you for taking time with us this afternoon to address our press release. We look forward to speaking with you next week and addressing the 2023 year. I would say in closing, we're very excited about where we are as an organization. We're very excited about what we have to report concerning the 2023 year. And I'd like to thank my colleagues that have been working very hard on behalf of our organization throughout all of our various functions. So thank you very much.

Vince: The 2023 year and I'd like to thank my colleagues that have been working very hard on behalf of our organization throughout all of our various functions. So thank you very much.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Q4 2023 AXIS Capital Holdings Ltd Earnings Call - Preliminary Results

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