Q4 2024 Everest Group Ltd Earnings and Business Update Call
this interview is short and short
I'll begin my comments by noting that today's call will include forward looking statements actual results may differ materially and we take no obligation to publicly update forward looking statements management comments regarding estimates projections and similar are subject to risks uncertainties and assumptions as noted ever since your SEC filings management may also refer to certain non-GAAP financial measures like sanctions the reconciliations to GAAP.
It can be found in our earnings release and financial supplement on our website with that I'll turn the call over to Jim.
Jim: Thanks, Matt and good morning, everyone. Let me begin by addressing two recent tragedies wildfires in California in a plane crash in Washington D. C last Wednesday.
Jim: The human toll of both events is devastating our thoughts and prayers are with the people families and communities affected we are particularly grateful to the first responders, who worked tirelessly during and in the aftermath of these events ever.
Jim: Everest stands ready to put its financial resources to work and fulfill its societal mission of aiding recovery.
Jim: Both of these events remain ongoing from a loss assessment perspective regarding the L. A wildfires I would expect that risk to take a pretax net loss for the group.
Jim: Between 350, and $450 million equating to a 1% market share.
Jim: Obviously this loss will impact our reinsurance division.
Jim: We are confident in the underwriting of this exposure by both our insurance and reinsurance teams and our share of loss reflects careful client selection.
Jim: Most seasons are unable to provide expected loss ranges, except in those cases, where a total loss of their reinsurance program is nearly certain.
Jim: As a result this loss estimate remains a broad range based on the most widely used industry loss figures.
Jim: Specific to the aviation tragedy, it's too early to provide a loss estimate for the event, but we expect it to be well managed in our Q1 results.
Jim: Moving on to our fourth quarter results.
Jim: As we discussed last week at risk decisive reserve action added $1 $7 billion to net reserves, including over $200 million of additions to our 2024 loss picks.
Jim: It's worth emphasizing that despite the impact of a reserve strengthening Everest earned $1.3 billion in operating income for the year and achieved a 9% operating return on equity.
Jim: While these results are not consistent with the goals for our company.
Jim: Thanks to the resilience of our business is strong and income streams in reinsurance and investments more than offset needed reserve strengthening predominantly in U S casualty lines.
Jim: Putting aside the reserving action for a moment, let me unpack our current period business performance, starting with reinsurance where results were once again excellent.
Jim: Quite an elevated cat year, including a major hurricane in the fourth quarter, we earned $286 million and $1 $2 billion of underwriting income for the quarter and year respectively.
Jim: Fourth quarter, all in combined ratio, excluding the impact of prior year favorable cat development and profit commissions due to reserve releases in our mortgage book is 91, 5%.
Jim: This result, clearly demonstrates <unk> ability to absorb significant cat activity and still deliver.
Jim: Premium growth in the quarter, excluding the impact of reinstatement premiums was 12, 6%.
Jim: This is a result of strong execution with our core clients, particularly in property lines as well as selected expansion in some of our specialty underwriting areas and international business.
Jim: This growth was offset by the effects of the discipline, we're exercising and U S exposed treaty casualty.
Jim: Our casualty pro rata book was down more than 7% in the quarter, which really understates the extent of our disciplined actions, which were offset by growth in non U S casualty.
Jim: Everest has been an early and consistent voice regarding the changes needed in the U S casualty quota share market.
Jim: Ceding commissions are too high and capacity is generally available regardless of the quality of the ceded.
Jim: Faced with those conditions, we've maintained our singular focus on underwriting discipline and she didn't selection.
Jim: Highlight the point since the January one 2020 for renewal.
Jim: You've walked away from nearly $750 million in North American casualty quota share business.
Jim: Our approach in this line is simple we conduct a thorough roundup underwriting and loss cost review of each treaty and we cut back anything that doesn't meet our return expectations period.
Jim: Moving on to the January one 2025 renewal, where our team again executed at the highest levels overall.
Jim: Overall, our total reinsurance division bound premium was down by about 3% during the renewal.
Jim: And mostly by the aforementioned casualty discipline, which was offset by growth on the very best deals in the market, mostly in property and specialty lines.
Jim: Although property cat prices were down generally between five and 15% for loss free programs overall rate levels remained above what we need to be willing to deploy capacity in most markets.
Jim: An exception to my view on the property Cat market is continental Europe Euro.
Jim: European Cat activity in the form of severe conductive storm hail and flooding is clearly a rising trend.
Jim: Events drove significant annual losses.
<unk>, Germany, Italy, and eastern Europe have all been particularly affected over the last several years.
Jim: After a thorough review of our modeling and analytics for these perils, we reached the conclusion that we needed to charge more for European cat exposure.
Jim: Some cases significantly more.
Jim: As a result, our average modeled loss cost increase by about 10%.
Jim: We fully exited over 20 deals significantly cutback on many others, while increasing moderately on the most profitable layers and programs.
Jim: Going forward, we expect the California wildfires to serve as a reminder, as if one was needed to all property reinsurance underwriters of the need to maintain pricing discipline and achieve adequate rate.
Jim: Global property Cat reinsurance market overall remains attractive for Everest capacity as I have said our customers per berth prefer to do more business with Everest when they can which means we will continue to enjoy the option of choosing where to put our capacity to work.
Jim: Moving to insurance overall gross written premium was down marginally due to our casualty remediation offset by growth in short tail specialty lines of course, the published combined ratios for the quarter and year are unacceptable.
But if you look at it purely on a current period basis, our 2024 combined ratio is 100.7%.
Jim: It is certainly not good but it gives us a launching point for our portfolio remediation that we can work with.
Jim: Our international operations continues to grow with a strong overall written premium increase in key short tail specialty lines.
Jim: Despite substantial investments in people and infrastructure the international insurance business earned an underwriting profit in 2024.
Jim: Our loss ratio in that business is excellent and consistent actual versus expected data in what is largely a short tail portfolio gives us confidence in our loss picks.
Jim: 2025, we're focused on increasing scale in 12 markets. We're operating in we do not expect to enter additional markets. This year, which will result in greater premium leverage against expenses as we move forward.
Jim: Finally, our North American insurance business is making.
Jim: And remediate our casualty portfolio.
Jim: Consistent with our actions in Q3, 40% of our casualty premiums in the fourth quarter were not renewed including actions in our ever sports portfolio now captured in our other segment.
Jim: In our ongoing insurance business. This results in a premium reduction in our U S specialty casualty business of approximately 23%.
This is despite accelerated rate achievement in GL auto liability and umbrella excess ranging from 14% to 27%.
Loss cost inflation remained steady at an elevated level and as we discussed last week, we will be assuming 12 plus points of average trend across those lines.
Jim: Also the last quarter affected by the run off of our medical stop loss business impact in the quarter was $75 million.
Our team in the field has done a good job pipelining and underwriting a number of large risk management accounts. These are well structured with sophisticated clients, who understand the need to manage exposure and a heavy social inflation environment.
Jim: Recent wins in this business include a multi line solution for a leading global industrial firm property cross sell to an existing casualty account in the public advocacy arena and a large deductible casualty program for a consumer products company.
Jim: Set ourselves apart from the competition on these deals through the quality of our relationships breadth of our offering and specialized services.
Jim: Results of our portfolio remediation coupled with the targeted growth are already being reflected in our data.
Jim: Our specialty casualty business made up 25% of our global insurance premiums in Q4.
Jim: Down from over 30%, one year ago, and the quality of the accounts has improved dramatically.
Jim: As I said on our prerelease call, we will take no credit in our loss picks for this but I certainly expect it to yield increasing margin over time.
Jim: And now I'll turn it over to Mark to discuss the financials in more detail.
Mark: Thank you Jim and good morning, everyone. As we discussed last week 2024 was a pivotal year of transformation for Everest.
Mark: We took decisive action to fortify our U S casualty reserves following a comprehensive reserve review and it's reflected in our fourth quarter 2024 results looked.
Mark: Looking at the group results Everest reported gross written premiums of $4 7 billion.
Presenting seven 2% growth in constant dollars and excluding <unk>.
Mark: <unk> premiums.
Mark: The combined ratio was 135, 5% for the quarter. This includes.
Mark: So unfavorable development of prior year loss reserves of 1.5 billion or 37.6 points on the combined ratio.
Mark: We also strengthened current accident year losses by $229 million.
Mark: Total strengthening of one 7 billion for the full year and fourth quarter 2024.
Mark: Cat losses in the quarter contributed five three points to the combined ratio largely driven by hurricane Milton.
Mark: We also had releases on prior to your events largely driven by hurricane in which partially offset cat losses this quarter.
Mark: Just a reminder run through the catastrophe line in the segment P&L I.
Mark: I would also note that the prior year quarter, but much lower than average average.
Mark: Parts of it.
Mark: The group's Attritional loss ratio was 63, 9%, a 490 basis point increase over the prior year's quarter. This reflects the current accident year strengthening.
Mark: I mentioned, a few moments ago, primarily within our insurance segment.
Mark: Group's commission ratio was 21, 2% when excluding the impact of one eight points from the profit commissions associated with favorable reserve development in the reinsurance segment related to the mortgage business.
Mark: Consistent with the prior year.
Mark: The group expense ratio was six 2% in the quarter as we continue to invest in talent and systems within both franchises.
Mark: Moving to the segment results and starting with reinsurance.
Mark: Reinsurance gross premiums grew 12, 6% in constant dollars when adjusting for reinstatement premiums during the quarter.
Mark: The strong growth was primarily driven by strong double digit increases in property pro rata and property cat so well.
Mark: Partially offset by continued discipline in casualty lines.
Mark: For the full year of 2024 property tax or well grew approximately 26, 2% versus the prior year.
Mark: Find ratio was 94% in the fourth quarter.
Mark: The prior year fourth quarter combined ratio of 78.9% included 15 three points of favorable prior year Reserve development.
As you saw in our press release last week.
Mark: Bold development in property and mortgage lines fully offset reserve strengthening in U S casualty lines.
Mark: Constructs losses contributed five four points to the combined ratio in the quarter consistent with the prior year.
Mark: This quarter's cat losses were largely driven by $275 million of losses from Hurricane Milton and were partially offset by a $125 million of releases on prior year events, namely hurricane in them.
Attritional loss ratio improved 90 basis points to 56, 9%, which was primarily driven by mix as we continue to grow strongly and property tax so well and reduce our casualty pro rata business.
Mark: Attritional combined ratio improved 140 basis points.
Mark: 83.7%.
Mark: When excluding the impact of $68 million in profit commissions associated with favorable mortgage reserve development this quarter.
Prior year quarter included $94 million of profit Commission related to loss reserve releases in mortgage lines.
Mark: Normalized Commission ratio was 24% when you exclude the 2.3 points attributed to the profit commissions associated with favorable development in reinsurance.
The underwriting related expense ratio was 2.5% consistent with the prior year.
Mark: Moving to insurance gross premiums written decreased one 6% in constant dollars to $1 4 billion driven by our decisive actions to shed underperforming U S casualty business.
Mark: We're targeting growth in the most accretive lines to improve the portfolio quality and further diversify the book.
Mark: We made meaningful progress this quarter with property and specialty lines, each growing above 30% in the quarter.
Mark: This growth was offset by the aggressive underwriting action, we are taking in specialty casualty lines centered around U S casualty lines as well as the run off of our A&H medical stop loss business.
Mark: Which was completed in Q4.
Mark: As you saw in our press release last week, we strengthened U S casualty prior year reserves.
Mark: Recently redefined insurance segment by approximately $1 1 billion and the poor.
<unk>.
Mark: We also strengthened current accident year losses by $206 million, which was reflected in the increase the attritional loss ratio of 84% this quarter at 68, 1% for the full year 2024.
Mark: Combined ratio also included five three points of catastrophe losses, primarily driven by losses from Hurricane Milton while the prior year fourth quarter benefited from a relatively benign level of cat losses.
Mark: Commission ratio increased to 100 basis points, largely driven by business mix.
Mark: The underwriting related expense ratio was 17, 9% with the increase largely driven by the continued investment in our global platform.
Mark: Slower earned premium growth as we rationalize our U S casualty portfolio.
Mark: We recently formed our other segment to enhance disclosure around noncore lines of business.
Mark: <unk> reserves by $425 million in the quarter, which includes an increase of $22 million through current accident year losses.
Mark: Other segment includes $1 1 billion of net reserves.
Mark: Moving on net investment income increased to 473 million for the quarter, driven primarily by higher assets under management.
Mark: Turning to dive assets generated 41 million of net investment income, which was in line with the prior year overall, our book yield was stable at four 7% and our reinvestment rate is just north of 5%.
Mark: Cause you to have a short asset duration of approximately three one years and the fixed income portfolio benefits from an average credit rating of double a minus our investment.
Mark: Our portfolio remains well positioned for the current environment.
Mark: For the fourth quarter of 2024, our operating income tax rate was minus 16, 6%.
Mark: Which was lower than our working assumption of 11% to 12% for the year due to the net operating loss this quarter. However.
Mark: Full year operating effective tax rate was 9%, which is closer to our expected range.
Mark: Shareholders equity ended the quarter at $13 9 billion or 14.7 billion, excluding net unrealized depreciation on available for sale fixed income securities.
Mark: At the end of the quarter net after tax unrealized losses on the available for sale fixed income portfolio equates to approximately $849 million.
Mark: An increase of 629 million as compared to the end of the third quarter.
Mark: This was driven by increases in the treasury yield curve.
Mark: Cash flow from operations was $780 million during the quarter.
Mark: Approximately 5 billion for the full year.
Mark: Book value per share ended the quarter at $322 97, an improvement of eight 7% from year end 2023, when adjusted for dividends of $7 75 per share year to date.
Mark: Book value per share, excluding net unrealized depreciation on available for sale fixed income securities stood at $342.74.
Mark: Versus $320 95 per share at year end 2023.
Mark: Representing an increase of approximately six 8%.
Mark: Our full year 2020 for total shareholder return was nine 2%.
Mark: Net leverage at quarter end stood at 15, 6% modestly lower from year end 2023.
Mark: Everest continues to have a strong financial position, we are focused on achieving our mid teens total shareholder returns over the cycle.
Mark: We are well positioned to execute our strategic initiatives and we will look to continue to opportunistically repurchase shares this year.
Mark: This quarter specifically.
Mark: With that I'll turn the call back over to Matt.
Speaker Change: Thanks, Mark Dave we're now ready to open the lines for questions. We ask you. Please limit your questions to one question plus one path and then rejoin the queue for any additional questions.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the key.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question.
Speaker Change: Please press Star and then Sue.
Gregory: Our first question comes from Gregory <unk> with Raymond James. Please go ahead.
Gregory: Good morning, everyone.
Gregory: For my first question I'm going to focus on the insurance segment.
Gregory: And.
I'm wondering if you could give us some additional detail.
Gregory: And how you plan to manage volatility considering that your.
Gregory: John we're doing all this casualty business, you'll have larger exposures property short tail business in the international segment.
Gregory: Yeah, Greg This is Jim Thanks for the question.
Gregory: Look it's pretty straightforward I mean, we're very diligent around P&L management in each of our divisions.
Gregory: And we're very careful about how we plan for the coming year for example, and where we're going to deploy capital and at what terms and conditions. We also very strategically as you can imagine in our insurance business.
Gregory: Average the use of outbound reinsurance demand.
Gregory: To manage our per risk as well as overall volatility and so while the short tail book in the insurance Division is growing very nicely as you would've seen in this quarter.
Gregory: We're happy about it we're happy about the pricing levels and the quality of the accounts are writing in terms of moving our overall.
Gregory: Group group risk profile, it's it's really not moving the needle at this point and as it continues to grow we'll just manage it within our general P&L frameworks, so not something that is.
Gregory: It's outside of our ability to very thoughtfully approach.
Gregory: Yeah.
Gregory: Okay.
Gregory: My follow up question.
Gregory: On the capital management comments Mark you.
Gregory: Well in the press release, you acknowledged that you didn't buy any stock back during the quarter I assume that's because of the.
Gregory: That's a review issue.
Gregory: Can you give us sort of some framework about what your your budget looks like for capital management activities should we think about it in terms of a payout ratio.
Gregory: So with dividends share repurchase our total income for the year or perhaps just give us some framework on how we should be thinking about that.
Greg: Greg It's mark Thanks.
Thanks for the question I think there's a lot of factors that go into it. So if you start with obviously.
Greg: Obviously, the fact, we have a I think still are strong.
Greg: Financial position coming out of year end 2024, despite the significant reserve charge and we've got a very good earnings engine in the company.
Greg: Last week, we gave the guidance of mid teens total shareholder return over the cycle, we feel confident about that.
Greg: Objective and something Thats set for 2025.
Greg: A few other points I think are.
Greg: The growth rate of the company is one factor that goes into the equation being able to execute our organic plan, that's something we feel confident.
Greg: You're seeing us be cautious with our casualty on the reinsurance side.
Greg: Disciplined in particular on the insurance side and property remains very attractive to other specialty lines, so, but I do think youll see less overall growth than in some prior years and that will free up resources I think for more capital management.
Greg: Type actions and then lastly, I think when you when you get into the equation, obviously, the attractiveness of our share price at the present time creates a very compelling.
Greg: Sensitive to to buy back so.
Greg: Mentioned in my prepared remarks, I fully expect us to be active this quarter.
Greg: Thank you for the answers.
Heath: The next question comes from their shields with Heath.
Greg: Through yet.
Woods: Woods. Please go ahead.
Jim: Thanks, and good morning, Jim I want to drill down a little bit in terms of I.
Jim: I guess what on the outside we can expect in terms of insurance segment loss ratio progress.
Jim: In other words I understand the phase, 12% plus locked in casualty lines.
Jim: But should we expect things like the run off of the weaker portfolios or other business issues is that going to show up in 2025.
Jim: Yes mayor it's a it.
Jim: Thanks for the question so.
Jim: We are we definitely provided a little bit of insight around this during the prerelease call.
Jim: And I think there are two key points number one the proof.
Jim: <unk> that we apply.
Jim: In the construction of the reserve actions that we took as well as the topping off of the 2024 loss picks.
Jim: The level of Prudence that we plan on continuing in 2025 and you'll see that.
Jim: And how we select our casualty loss picks.
Jim: During this year.
Jim: But we also indicated I think it is very important that mechanically.
Jim: Mix is moving quite quickly and of course, you know that as I indicated in my prepared remarks that aspect of it in terms of the shift of mix is already showing up in our.
Jim: Dana and so yeah, there's mix as mix improves the total.
Jim: Loss ratio, obviously, that's a very positive tailwind for us to think about it as we move through 2025.
Jim: Okay.
Jim: Just one point students remarks, so well.
Jim: If you look at our financial supplement on the insurance segment Youll see our current year loss ratio Attritional loss ratio.
Jim: It was 68, 3% and that obviously takes into account the current euro strengthening for 2024.
Jim: And that's with a remediation underway in the casualty segment and a mix of business that is moving towards a more balanced portfolio as we should have some of the casualty number. So I think that's kind of the starting point for.
Jim: The portfolio was now to your point.
Jim: Obviously there.
There are still.
Jim: Unearned premium that is earning out into 2025 with some of the older casualty business that we likely will not renew.
Jim: And that will be a bit of a drag in.
Speaker Change: In 2025, but that's something we would have expected we forecasted and we clearly have two other pieces that I would say are favorable. So one is the mix of business aspect that Jim mentioned and then the second is really the approach we're taking to the casualty account renewals.
Speaker Change: And new business in general in terms of rate, so I see those as favorable to favorable impacts that'll help that loss ratio development improve.
Speaker Change: Year over year and still respect.
Speaker Change: Loss trend assumption, we gave last week plus the prudent actions that we indicated but are going to be taking place in U S liability in particular.
Speaker Change: Okay perfect. Thank you that's very helpful.
Speaker Change: Second question it sounds like some casualty lines are improving rapidly.
Speaker Change: When you look at that there may be a business you don't want to write in 2025, but maybe by 2020, what's good enough. So are you maintaining I guess full run rate expenses in anticipation of eventual profitability I'm not sure how that.
Speaker Change: Management playbook.
Well yeah. So so if your question is are we continuing to invest in our business.
Speaker Change: Very thoughtfully the answer's, yes.
Speaker Change: We're also very prudent expense managers as you can clearly see in the overall group expense ratio in our reinsurance business.
Speaker Change: Obviously insurance expense ratios elevated slightly because of the investments, we're making as well as the impact of remediation has on earned premium.
Speaker Change: But as we go forward I would expect that that phenomenon to sort of persist for a while because there are great opportunities for us to make prudent investments in the business and the remediation.
Speaker Change: It puts a little bit of a lid on some earned premium but.
Speaker Change: We're going to manage it very carefully meyer and on a quarter by quarter basis to ensure that the level of investments, we're making is consistent with our ability to generate the margins we need.
Speaker Change: Perfect. Thanks, so much.
And the next question comes from Josh Shanker with Bank of America. Please go ahead.
Josh Shanker: Yeah. Thank you for taking my question.
Josh Shanker: In the prepared remarks and whatnot in addition to the sports book.
Josh Shanker: Soldier also exiting the medical stop loss business, why or why not is medical stop loss business a business that.
Josh Shanker: I can't be taken care of in a one renewal type methodology like the rest of the business. That's why can't you just raise the price in the business that stick stick them what leaves leaves.
Josh Shanker: Yes, Josh it's Jim Thanks for the question, we were essentially non renewed a major block.
Josh Shanker: <unk> block that was causing us difficulties in our medical stop loss business.
Josh Shanker: At the beginning of 2024.
And it is a block, but it has renewal dates that occur throughout the year. So.
Josh Shanker: It wasn't a matter of getting increased price, we didn't want to be on the business. We nonrenewed it and it just takes a year for the full impact to the financials to run through which is now done. So we won't be talking about the run off of medical stop loss in 2025.
Josh Shanker: Alright, and another quick one obviously I think it's very clear your thoughts about the wildfire as it regards we're booked.
Speaker Change: It is and as a general rule should we think about adverse as being a 1% market share loss of major global events or is there more ground up sort of.
Speaker Change: Analysis in how you're thinking about your exposure to California wildfires.
Speaker Change: Sure Josh It's Jim again. Good question look this is a this 1% market share that we've indicated for this event is the result of exceptional underwriting.
Speaker Change: The simple fact is there are a number of large contributors to what will be an industry loss of pick.
Speaker Change: Pick whatever number you like where we're kind of in the 35 to 45 range.
Speaker Change: Others like different numbers, that's fine but.
Speaker Change: But a number of the major contributors to that industry loss are not clients of Everest.
Speaker Change: And the reason, they're not clients that Everest is because we assessed the programs on offer and did not believe they offered us.
Speaker Change: An adequate risk adjusted return for the exposure involved so we said no and others said, yes.
Speaker Change: And so youll see different market shares et cetera, which is a ground up result of the underwriting actions that could take it.
Speaker Change: There could be an entirely different loss in an entirely different market, where we get different opportunities and it'll result in a different market share of the loss is not about trying to create you know peanut butter and outcome is pursuing the best quality deals for all of the perils, we take in all the different geographies. We compete in all day every day and that's what we do here.
Speaker Change: Then you've got the clear answers.
Speaker Change: Uh huh.
Speaker Change: And the next question comes from Alex Scott with Barclays. Please go ahead.
Alex Scott: Hey, good morning.
Speaker Change: I thought I'd ask you.
Speaker Change: Or your view is of the impact of the wildfires just on reinsurance pricing and as you kind of head into mid year, what do you anticipate I mean.
Speaker Change: Maybe also any comments you have on how it affects your aggregate treaties headed into wind season.
Sure.
Yeah, Alex it's Jim So look I think obviously this is a pretty this is a big event and whether you like the 35 billion number 45 billion number you prefer a number bigger than that as this is a major event.
Speaker Change: That's certainly what you would expect it to have.
Speaker Change: A positive impact on prices, but what I tend to hear from people is that if there was a move to decrease rates you know in a.
Speaker Change: [laughter] fashion at one one which I indicated we've seen 5% to 15% off last three programs.
That's probably ameliorated.
Speaker Change: Obviously, it will take time for that to play out.
Speaker Change: But look I think you add that with the fact that a lot of our clients are looking to buy more overall cover there's a lot of increased demand in the market.
Speaker Change: And then you further look at the fact that those clients if they have their choice would rather do more of that cover with Everest I think that means there's a terrific opportunity for us to continue to be very very selective in the deals, we're writing and to get terrific economics.
Speaker Change: Which I think is a very favorable thing.
Speaker Change: You mentioned aggregate deals I don't I don't know if you mentioned, our total exposure or you met aggregate specifically, we're not a writer of.
Speaker Change: Aggregate covers for the most part in terms of our total deployed capacity.
Speaker Change: Pricing is very attractive.
Speaker Change: Willing able to do more for sure.
Speaker Change: Our pricing is not as attractive we do less I mean, that's again, that's how we manage our renewal cycles as they as they come.
Speaker Change: That's really helpful. Thank you second one I wanted to ask was just around you know.
Speaker Change: As we approach.
Speaker Change: The schedule P type disclosures that you provided in your 10-K.
Speaker Change: And also just thinking through some of the conversations you've probably had with your investor base I'm coming away from the initial pre announcement of the reserve actions I mean is there anything that you would.
Speaker Change: Point to us that we should focus on.
Speaker Change: Just some of the basics are I'm paid to encourage and I'm trying to understand some of those things as we as we go in and we're comparing and contrast, and all of that what what do you think.
Speaker Change: It is the key to focus on and sort of.
Speaker Change: I guess proof points around the actions that have been taking being enough.
Speaker Change: Alex It's Mark So look I think there are several factors to take into account, we tried to outline a bunch of them last week and our pre call presentation.
Speaker Change: <unk>.
Speaker Change: So.
Speaker Change: Several metrics on IV in our ultimate loss ratios ultimately the global loss triangles I think supply.
Speaker Change: Best granular data.
Speaker Change: But you can use to compare so for me I mean, that's that's the best place to start you'll get probably.
Speaker Change: A bit more out of the out of the cave.
Speaker Change: That part is going to give you I think what you ultimately will need.
Speaker Change: The second thing is really the commentary we've given on highlighting.
Speaker Change:
Speaker Change: How the how that book is developed so specific classes of business that were problematic, how we've gone about shaping the portfolio.
Speaker Change: Going forwards.
Speaker Change: And I think that that discipline in the commentary, we're giving on a quarterly basis.
Speaker Change: Reinforces the execution of our plan here on the remediation is critical to getting the confidence and then when you get these quarterly measurements.
Speaker Change: Such as the K or the Q or the G. L. T is on an annual basis, you'll be able to see more clearly how the IV than ours. So standing stock how do you. All ours are looking just the overall business performance and so I think that will give you a combination will give you the conflict.
Speaker Change: This level youre going to need over time.
Thank you.
Speaker Change: And the next question comes from David <unk> with Evercore ISI. Please go ahead.
David: Thanks, Good morning, I had a question Oh it sounds like.
Speaker Change: Yeah, we've we've heard as well from some of your peers just the conditions in the casualty re market.
David: That's caused you guys to step back.
David: Which makes sense I I guess I'm wondering.
David: It sounds like you guys Nonrenewed 750 million throughout the course of 'twenty four.
David: It sounds like that's continued here at one one I'm wondering if you can help us think through just holistically, what sort of cat load, we should be thinking about forever. It's now that there's been a more a bigger shift towards a property and short tail lines from casualty.
David: So.
David: David It's Marc our cat load is still broadly consistent and the the multiyear approach we've taken since 2020.
Speaker Change: Well, what we have done and we started a couple of years ago is really trying to make more of our gross exposure net and so we had a fairly large.
Speaker Change: Alliance or impact from our our cat bond issuance over the last several years prior to 2020.
Speaker Change: And so we've reduced our reliance on dose and we're taking.
Speaker Change: More of the growth on a net basis now so youre seeing youre seeing that appetite expand naturally because we believe the expected returns are still very attractive.
Speaker Change: Thank the gross is growing very much its really more of a.
Speaker Change: Net that is expanding primarily because of the the cat bonds.
Speaker Change: Yeah, David This is Jim.
Jim: I think that's spot on let me just step back for a moment, though and approach it a little bit in terms of how we think about the cat book itself.
Because the way we do this was really straightforward I mean, we're trying to build a cat book that is a high margin and also very resilient to loss.
Jim: So that.
Jim: In the event that there is an outsized cat loss somewhere in the world or you.
Jim: Have a pretty big cat like a California wildfire.
Jim: Not necessarily expect a wildfire to be $40 billion $50 billion et cetera, you can still have a book that can that can earn a profit.
Jim: And and in my mind, Yes, the fact that theres less casualty in the denominator.
Jim: Can move the percentage of how you think about the cat load, but the fact is what we're trying to do is build a cat book that can manage its own losses, and still turn a profit and we've had multiple years now where they're really outsized industry losses in the year of Ian is a good example, where you.
Jim: We essentially in that year, which was big.
Jim: Big year for Cat losses.
Jim: We got to a breakeven piece in our Cat book and that's that's at the core of what we're doing here. So I get the modeling aspects in the earned premium aspects.
Jim: But it's about cat management to get to the outcomes we want.
Speaker Change: Got it understood I appreciate that color my follow up question.
Speaker Change: But also just on the casualty reinsurance book and it sounds like some of your peers have made an effort to enhance the flow of information and data capture with their seat and have you guys been doing something similar.
Speaker Change: And stepped up your engagement with with your <unk>, yeah, how if so how far along in that process are you any findings you can share with what would be helpful.
Speaker Change: Yeah, I mean, absolutely that's something that that's been a discipline of ours.
Speaker Change: Consistently over and over the last several years on.
Speaker Change: Ensuring best quality data from all of our customers and look I think it goes well beyond just making sure that the sudden renewal submissions are complete.
Speaker Change: For us, it's about having direct to actuary to actuary discussions with incremental data sharing so that we can really understand the trends that are affecting our scenes books.
Speaker Change: Claims to claims conversations during the course of the year.
Speaker Change: So that we understand how they're managing their claims volumes what they are seeing in that underlying data. We obviously study all publicly available data very carefully. So it's multifaceted it's been a consistent discipline of ours, obviously, we welcome.
Speaker Change: You know our competitors joining in that approach because it just will further enhance the data available to everyone, but I think fundamentally if we really want to move the needle on data quality.
Speaker Change: And availability further it's going to be about making sure that we are only deploying capacity to those clients who can.
Speaker Change: Demonstrate in their data that they are doing a good job managing their portfolios, where we don't see that we're.
Speaker Change: We're moving away whether that's the data itself doesn't look good or the data doesn't exist.
Speaker Change: That's not for us and so that's very fundamental to the discipline we're exercising.
Speaker Change: Thank you.
Speaker Change: The next question comes from Brian Meredith with UBS. Please go ahead.
Brian Meredith: Yes, thanks, Mark any updates on what you think the tax rate will look like in 2025.
Speaker Change: Yeah.
Speaker Change: So I would estimate a range clearly that's higher than the 11 to 12 as we have a 15% rate coming into from Eudora I would estimate our range working range to be somewhere in the 17% to 18% effective tax rate.
Speaker Change: For the group as a whole and I would assume kind of a normal distribution of geographic income.
Speaker Change: Obviously can't fall or any.
Speaker Change: They're kind of a large loss type of impacts can skew it but I'd say, it's something like that and that that's the overall tax rate.
Speaker Change: I appreciate it that's helpful. And then second question also just any.
Speaker Change: Any thoughts on what cash flow could look like this this this year given some of the actions you're taking with the portfolio, we expect to be below 2024.
Speaker Change: I think we'll be in a similar range are we we have outperformed our expected cash flow forecast for the plant in the last few years I've been pleasantly surprised with that I'd say one of the biggest factors.
Speaker Change: It was really natural catastrophes, I think or a reserve or loss payment patterns are.
Speaker Change: Pretty good in that respect for what we're projecting in 2025.
Speaker Change: It's probably the cat fall that'll determine whether or not we hit something close to the 5 billion. This year.
Speaker Change: Great. Thank you.
Speaker Change: And the next question comes from Elyse Greenspan with Wells Fargo. Please go ahead.
Elyse Greenspan: Hi, Thanks. Good morning. My first question is on the California fire losses right. So you guys came out with.
Speaker Change: <unk>.
Speaker Change: A little bit less right from what we saw from some other reinsurers that have gone as high as $50 billion I'm, just trying to get a sense of what would be like the discrepancy between your insured loss estimate and and others and I thought you know Max.
Speaker Change: I'm, assuming you guys. I think you said you don't have a lot of losses from <unk> right. Now. So can you just clarify that last comment and then just help US reconcile why you were in short range might be a little bit less than what some other reinsurers are seeing.
Speaker Change: Yeah at least hits.
Speaker Change: Jim why don't I don't know how other people get to their numbers. So I can't really reconcile it for you, but what I can see I would say is if you look at the industry loss estimates that are floating around that there's a pretty broad range on it.
Speaker Change: I think we're kind of on the upper end of of the types of numbers I've seen if you like 50 billion better than our loss.
Speaker Change: Expect it to be roughly $500 million.
Speaker Change: The reason why I'm feeling pretty good about the range that I described earlier and I feel great about the performance of our team visa B that market share number is because of the quality of the underwriting that took place and I can't emphasize this enough.
Speaker Change: We are we passed up deliberately for very specific reasons.
Speaker Change: On a number of deals that got completely clobbered in this event and that's how our that that's how you latter upgrade underwriting over time, so very proud of what the.
Speaker Change: The team has done that way and you know look obviously, we're in conversations with our scenes I think the issue is loss loss adjusting an event like this is very challenging there've been public access issues that are pretty well described I think it'll take time for people to home in their own numbers, which is why we're still working with a range and not a point estimate.
Speaker Change: But I'm pretty confident given what we are on and what we are not done.
Speaker Change: The numbers that I shared with you earlier.
Speaker Change: Thanks, and then my follow up is on reserves on.
Speaker Change: At the presentation that you guys provided last week on your reinsurance.
Speaker Change: Reinsurance casualty reserves and then also on your insurance casualty reserves and it does look like the accident year.
Speaker Change: Loss picks for recent years in our casualty reinsurance book are being booked substantially better and casualty insurance.
Speaker Change: Can you just kind of talk through what would be causing the difference of keno is maybe it's business mix just trying to reconcile why you'd be booking U S casualty reinsurance significantly better than insurance and then have you guys said what loss cost you're assuming for here.
Speaker Change: Casualty reinsurance book.
Speaker Change: Yeah at least it's a it's Jim again look I mean, the explanation is pretty straightforward and and I'm gonna be blunt are our clients.
Speaker Change: For our reinsurance portfolio, we've been very selective in our in our seating.
Speaker Change: Selection process. They are top quartile underwriters of casualty and they've demonstrated very consistently that they outperform.
Speaker Change: The average loss ratio in the market by a substantial margin we've seen that in our data.
Speaker Change: We see that in the submissions or renewals and obviously wherever we don't continue to see that we move away, which is why we've moved away from $750 million of business.
Speaker Change: And that's why you get to a loss ratio that looks the way. It does and then you contrast that with our insurance business was not top quartile over concentrated in certain classes et cetera to get you to a much worse outcomes. So theres really not a linkage between the two that you should have in your mind, it's two entirely different portfolios.
Speaker Change: In terms of of expected trend level, I mean, where we are very prudent across both divisions.
Speaker Change: And I would say consistent across both divisions that doesn't mean, the number will always be the same but the approach is very consistent it's based on the data is based on a I think a very conservative view of the development of the casualty market.
Elyse Greenspan: Yeah, Elyse, so just a couple of points on that last piece on the loss trends. So we gave a figure last week and.
Speaker Change: Free call on Tuesday.
Elyse Greenspan: Roughly an average of 12% for <unk>.
Elyse Greenspan: So some broad GL and commercial auto so depending on the mix of business.
Elyse Greenspan: It's something approaching that for both sides of the equation reinsurance and insurance.
Elyse Greenspan: Thank you.
Michael Zaremski: And the next question comes from Michael Zaremski with BMO. Please go ahead.
Speaker Change: Hey, good morning, Thanks, Dan on for Mike, just maybe going back to the insurance loss ratio.
Speaker Change: Yeah, we could see looking at the deck last week. It was running about low to mid Ninety's now I was wondering if you could maybe quantify how much worse have a loss ratio associated with the non renewed business pressures the retained business. Thanks.
Speaker Change: Yeah.
Speaker Change: Mike It's mark it it varies it really varies by line I will say.
Speaker Change: Let me break it down into a few components for you. So I would start with the other segment, which contains that sports and leisure book that.
Speaker Change: We are essentially put into run off.
Speaker Change: For Us I think was the most disappointing and youre looking at a triple digit.
Speaker Change: Type of loss ratio.
Speaker Change: Predominantly our access and NGL lines of business.
Speaker Change: And then when you get into some of the other.
Speaker Change: <unk> is a business having the insurance segment.
Speaker Change: You've got a varying range of ultimate loss ratio so.
Speaker Change: In some cases, you're dealing with the triple digits you know the one 101 10 120 type levels.
Speaker Change: You've clearly got other classes of casualty that are performing much better than that it really varies and clearly where we're focused on our rate adequacy. There. So in terms of the renewal process going forward. We're on this with just the laser focus and making sure that.
Speaker Change: It's either nonrenewed or it's renewed with.
Speaker Change: The rate that's necessary.
Speaker Change: Thanks, and then maybe could you walk through that same dynamic maybe for the $750 million you walked away from in and reinsurance casualty.
Speaker Change: Yeah, Yeah sure Dan it's Jim.
Speaker Change: Okay, it's going to be it's going to vary very much by deal.
Speaker Change: I'm not going to characterize it in terms of a number but I will tell you in some cases, because remember we started with a pretty high quality book of season. So we're not dealing with the types of challenges that Mark described relative to our insurance business. It's more of just when you.
Speaker Change: Right the whole portfolio, there's clearly seen too in our from our perspective.
Speaker Change: Maybe they're not keeping up with trend.
Speaker Change: Or there's something in their claims process that we feel is not fit for purpose at this moment in the casualty cycle and with the challenges of social inflation. It could be that expanded their appetite in a way that we don't think is favorable and it's not always that there's this you know major.
Speaker Change: Distinction or or inferior loss ratio relative to our average portfolio its the underwriting.
Speaker Change: That indicates to us that we're not going to have the confidence we want to have going forward.
Mark Dave: But not nearly the same deltas and performance is what Mark described.
Mark Dave: The next question comes from Wes Carmichael with Autonomous Research. Please go ahead.
Wes Carmichael: Hey, Thanks, Good morning in your commentary on capital management, Mark I think there was a high level comment on less growth overall, which I guess, it's understandable currently but is there any framing you can do on how youre thinking about topline going forward, especially if you're thinking about the potentially nonrenewed business, what's what's the kind of underlying growth you're thinking about going forward.
Speaker Change: So we're not providing guidance I think from a qualitative standpoint, you've seen us.
Speaker Change: The Hum pretty disciplined on the casualty shutting or underwriting in terms of the reinsurance segment. That's going to continue clearly there are pockets of casualty I expect us to add in the normal course of business. It's all it's not all are shutting story.
Speaker Change: Both sides reinsurance insurance and property remains a very attractive I mean, the rate adequacy is clearly there.
Speaker Change: And that's something we would definitely.
Speaker Change: Definitely want to lean into where where it makes sense.
Speaker Change: Just don't see the same level of growth that we had for example, a couple of years ago.
Speaker Change: And both sides last point, our international insurance business.
Speaker Change: It's been growing double digits for quite some time.
Speaker Change: I believe speaking lion's share of it is short tail book and it's been performing very well and I would expect.
Speaker Change: Type of a natural.
Speaker Change: <unk> growth to continue as we're relatively small in the market and starting from a small.
Speaker Change: Base, and so that that's something that I would expect to.
Speaker Change: A positive for us in 2025.
Speaker Change: Thanks, that's helpful and I think there was a release last.
Speaker Change: Forever can you just talk about how strategic it is for us to maintain its current rating.
Speaker Change: Sorry, you cut out for a second west a release, you said Oh, yes.
Speaker Change: Yeah, I think S&P changed its outlook to negative I'm just wondering how.
Speaker Change: Maintaining its.
Speaker Change: Maintaining ratings right now is to ever strategically.
Speaker Change: Well, it's fundamental to offer the eight plus financial strength rating and that's clearly secure not in danger at all.
Speaker Change: <unk> negative outlook, it's something we respect we'll work with them not something that concerns us very much but clearly something we have to manage but the overall financial strength and our solid spot.
Speaker Change: Understood. Thank you.
Speaker Change: This concludes our question and answer session.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.