Q1 2025 Everest Group Ltd Earnings Call
Good morning, and welcome to the Everest Group limited first quarter of 'twenty twenty-five earnings conference call.
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Speaker Change: Please note. This event is being recorded I would now like to turn the conference over to Matthew Bornemann head of Investor Relations. Please go ahead.
Matthew Bornemann: Thank you Jason Good morning, everyone and welcome to the Everest Group Limited first quarter of 2025 earnings Conference call do you ever see executive leading today's call are Jim Williamson, President and CEO, Mark <unk> Executive Vice President and CFO. We're also joined by the members of the management team before we begin I'll preface my comments by noting that today's call will include forward looking statements.
Matthew Bornemann: Actual results may differ materially and we undertake no obligation to publicly update forward looking statements management comments regarding estimates projections and similar are subject to the risks uncertainties and assumptions.
Matthew Bornemann: <unk> SEC filings management May also refer to certain non-GAAP financial measures.
Matthew Bornemann: Explanations and reconciliations to GAAP can be found in our earnings release Investor presentation, and financial supplement on our website with that I'll turn the call over to Jim.
Jim Williamson: Thanks, Matt and good morning, everyone. Let me first acknowledge the significant catastrophic events from the first quarter beyond their financial impact Everest recognizes the human toll.
Jim Williamson: My team and I are proud to work in an industry and for a company that exists to support communities and businesses in their time of need.
Jim Williamson: As expected given the California, wildfire and aviation losses in the quarter, our combined ratio was elevated at 102.7.
Jim Williamson: Our actual losses from these various events are within our expected ranges.
Jim Williamson: In the case of California, particularly our share of loss given ever a size and scale in the U S market demonstrates superior underwriting and risk selection.
Jim Williamson: Total group written premium was $4 4 billion similar to Q1 'twenty 'twenty four.
Jim Williamson: You will hear a consistent theme across our divisions were growing at healthy rates, where risk adjusted returns meet or exceed our thresholds where pricing is weak relative to risk. We are intentionally shrinking in some cases rapidly.
Jim Williamson: Excluding the cat and aviation losses, or Attritional loss ratios are on track, reflecting disciplined underwriting with conservative risk margins layered on top of our loss picks in both businesses.
Jim Williamson: Moving on to reinsurance totaled.
Jim Williamson: Total premiums increased from prior year, driven by approximately 16% growth in property lines or 8%, excluding reinstatement premiums offset by ongoing actions in our casualty book.
Jim Williamson: As I mentioned in the Q4 call at the January one 'twenty twenty-five renewal, our overall book shrank marginally, reflecting 6% property growth offset by cutbacks in casualty at.
Jim Williamson: At the April renewal book grew by 5% again led by property growth of 15%.
Jim Williamson: Of note given our strong value proposition, we continue to grow with our valued Japanese clients at attractive margins. Despite many programs being oversubscribed.
Jim Williamson: We expect moderate cat pricing pressure for the remainder of 2025, but anticipate ample opportunities to deploy capital at attractive expected returns, we said it before and it bears repeating right. Our price change is important but expected returns determined our willingness to deploy capital in property cat.
Jim Williamson: Expected returns are excellent.
Jim Williamson: Moving on to casualty Pro rata written premium was down almost 22% in the quarter driven by the portfolio actions. We've taken since the January one 2024 renewal.
Jim Williamson: Capacity in the casualty quota share market is abundant with many markets taking up risks we view as unprofitable we.
Jim Williamson: We believe seeding commissions had been unjustifiably sticky.
Jim Williamson: During a change in the environment or book will continue shrinking.
Jim Williamson: Our aviation losses in the quarter were consistent with our expectations.
Jim Williamson: Out of Prudence, we added 2.4 points to our overall reinsurance division loss ratio in the quarter to account for our full expected loss.
Jim Williamson: Excluding that our Attritional loss ratio would be 57, 4% in line year over year. This reflects improvement as our book shifts towards property offset by the conservative risk margin assumptions I noted earlier.
Jim Williamson: Cat losses, net of recoveries and reinstatement for $461 million, driven by 440 million from the California wildfire.
Jim Williamson: This is consistent with our original expectations and does not account for potential subrogation recoveries.
Jim Williamson: Moving onto insurance written premium in the quarter was down 1.3% from prior year property lines grew 19%, while our specialty businesses grew 16%.
Jim Williamson: This was offset by a 15% decline in our third party book driven by the remediation of our U S casualty portfolio.
Jim Williamson: That remediation is proceeding according to plan and as I laid out on prior calls.
Jim Williamson: In Q1 50 per cent of casualty written premium with renewal dates in the quarter was not renewed.
Jim Williamson: This is more than prior quarters, but we are not budging on the changes needed to reach target profitability in one renewal cycle.
Jim Williamson: Casualty rate increases averaged approximately 20 per cent across commercial auto GL and excess umbrella consistently above our conservative assumption for loss trend.
Jim Williamson: For 2024 through Q2, 'twenty twenty-five are what I would consider peak remediation.
Jim Williamson: As I've said on prior calls this process will be completed by Q4.
Jim Williamson: Property pricing in the U S is declining from previous highs. Despite this we believe market pricing is adequate and will continue to be for the foreseeable future.
Jim Williamson: Our international insurance business is developing in line with our expectations with strong growth in key markets at attractive loss ratios.
Jim Williamson: The international business turned to modest profit in the quarter. Despite continued meaningful investment in people and technology.
Jim Williamson: Excluding the aviation loss, our Attritional loss ratio in the insurance business was 67.9 in the quarter similar to our Q4 results.
Jim Williamson: This was driven by an improving underlying loss ratio due to mix offset by the ongoing prudent risk margin, we apply to our picks.
Jim Williamson: Moving on to reserves.
Jim Williamson: Everest overall reserve position improved since the end of 'twenty 'twenty four it's.
Jim Williamson: It's still early days in insurance, but our international business shows clear signs of strength driven by excellent underwriting and prudent loss picks.
Jim Williamson: In North America, our loss experience is in line with our actuarial central estimate.
Jim Williamson: As I said earlier, our 2025 loss picks will include significant risk margin above the actuarial central estimates, which should yield additional reserve strength over time.
Jim Williamson: In reinsurance our analysis suggests robust favorable loss development in property lines and.
Jim Williamson: Casualty loss activity remains in line with expectations.
Jim Williamson: As I've said before we will not take credit in our loss picks for underwriting actions until we know those actions are having the intended result.
Jim Williamson: Respecting group capital management, we repurchased $200 million of shares in the quarter at an average price just over $348 per share.
This is consistent with the comments, we made on the fourth quarter call and with ever its commitment to delivering value to shareholders.
Jim Williamson: Given our excess capital position growth rate and valuation share buybacks are a priority and we will continue to be if those conditions persist.
Jim Williamson: I'll end with a brief word on the external environment.
Jim Williamson: Everest has completed a thorough assessment of our exposure to the new tariff regime, and we believe prolong tariffs at current levels with modest upward pressure on loss cost trend.
Jim Williamson: Our frequent analysis of trend assumptions will allow us to respond quickly should inflation creep upward.
Mark: And with that I'll turn it over to Mark.
Mark: Thank you Jim and good morning, everyone efforts delivered 276 million of operating income despite significant industry catastrophe loss activity in the first quarter.
Mark: Our reinsurance franchise continues to perform strongly with successful January 1st in April 1st renewals.
Mark: As expected returns remain very attractive we continue to progress on our one year.
Mark: One renewable strategy in U S casualty lines within our insurance Division and we remain on track to complete this strategy later this year.
Mark: Starting with the group results Everest reported gross written premiums of $4 4 billion, representing a 2% decrease in constant dollars and excluding reinstatement premiums. The combined ratio was 102.7% for the quarter catastrophe losses contributed $13 nine points.
Mark: To the combined ratio largely driven by the California wildfires.
Mark: I would note the prior your quarter had a much lower level of cat activity.
Mark: The group Attritional loss ratio was 62.2% or 330 basis point increase over the prior year's quarter.
Mark: The increase was largely driven by aviation losses of $70 million.
Mark: Net of recoveries and reinstatement premiums, which contributed two points to the attritional loss ratio as.
Mark: As well as our conservative approach to setting initial loss picks in U S casualty lines, primarily within our insurance segment.
Mark: The group's commission ratio was 21.4% 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 reinsurance gross premiums decreased 1.1% in constant dollars when adjusting for reinstatement premiums during the quarter.
Mark: Consistent with prior quarters double digit increases in property lines were offset by continued discipline and growing casualty lines.
Mark: Combined ratio was 103, 3% in the first quarter of 2025 and included 18 points of catastrophe losses.
Mark: Prior year first quarter combined ratio of 87.3% included 2.9 points of catastrophe losses.
Mark: This quarter's cat losses were largely driven by 442 million of losses from the California, wildfires net of recoveries and reinstatement premiums reinstatement.
Mark: Reinstatement premiums were 62 million in the quarter, while the prior your first quarter was not impacted by reinstatement premiums.
Mark: The Attritional loss ratio increased 260 basis points to 59.8%, which includes aviation losses of 61 million net of recoveries and reinstatement premiums contributing 2.4 points to the increase the attritional combined ratio increased 270 basis points to.
Mark: 87, 1%.
Mark: The commission ratio and underwriting related expense ratio, each improved slightly to 24, 3% and two 4% respectively.
Mark: Moving to insurance gross premiums written were relatively flat in constant dollars at 1.1 billion as we continue to improve the balance of the portfolio and shed underperforming U S casualty business.
We made meaningful progress this quarter with property and specialty lines each growing in the high teens and this growth was offset by the aggressive underwriting action. We are taking in specialty casualty lines centered around U S. G. All commercial auto and excess liability.
Mark: As a result specialty casualty gross premiums written represent 25.1% of the insurance segment mix.
Mark: Decrease of nearly five points from the prior year quarter.
Mark: The attritional loss ratio increased to 68.8% this quarter.
Mark: Aviation losses of $6 million contributed 0.9 points to the segment's attritional loss ratio.
Mark: As we discussed last quarter, we were being very disciplined in setting and sustaining prudent loss picks.
Mark: Just on underlying loss trends in our view of the U S casualty risk profile.
Mark: In U S casualty lines rate increases of nearly 20% on average remain well in excess of trend.
Mark: Our Q1 U S casualty loss experience is consistent with our actuarial central estimate, which as a reminder is meaningfully below management's best estimate overall, we remain comfortable with the reserve position of our insurance Division.
Mark: And we're on track to publish our global loss triangles in June of this year.
Mark: The combined ratio also included 1.1 points of catastrophe losses, primarily driven by the California wildfires. The prior year fourth quarter benefited from a relatively benign level of cat losses.
Mark: The commission ratio increased 40 basis points, largely driven by business mix.
Mark: The underwriting related expense ratio was 18, 1%.
Mark: With the increase largely driven by the continued investment in our global platform and slower earned premium growth as we rationalize our U S casualty portfolio.
Mark: Our recently formed other segment is performing in line with our expectations. The segment's gross written premiums reflect the limited number of renewed and new policies written on Everest paper.
Mark: By the acquirer of the sports and leisure business, which will continue for a finite period post closing.
Mark: We booked this business very conservatively and expect this segment's contribution to the group's results to be de Minimis.
Mark: Moving on net investment income increased to 491 million for the quarter.
Mark: Driven primarily by higher assets under management.
Mark: Turning to dive assets generated $55 million not investment income a decrease versus the strong returns from the prior year quarter.
Mark: Overall, our book yield was roughly stable at 4.7% and our reinvestment rate remains north of 5%. We continue to have a short asset duration of approximately 3.3 years and the fixed income portfolio.
Mark: Benefits from an average credit rating of double a minus.
Mark: As economic uncertainty has increased globally are high quality conservative portfolio remains well positioned for the current environment with a relatively small exposure to investments that are meaningfully impacted by tariffs.
For the first quarter of 2025 are operating income tax rate was 16.1%, which was slightly lower than our working assumption of 17% to 18% for the year driven by the jurisdictional mix of our profits in the quarter.
Mark: Shareholders equity ended the quarter at 14.1 billion or 14.7 billion, excluding 561 million of net unrealized depreciation on available for sale fixed income securities.
Mark: The unrealized change was a decrease of $288 million as compared to the end of the prior year fourth quarter and this was driven by interest rate decreases.
Mark: Cash flow from operations was 928 million during the quarter book value per share ended the quarter at $332.39 an improvement of 3.5% from year end 'twenty 'twenty four when adjusted for dividends of $2 per share year to date.
Mark: Book value per share, excluding net unrealized depreciation on available for sale fixed income securities stood at $345.57 versus $3 40 to 74 per share at year end 'twenty 'twenty four.
Mark: Representing an increase of approximately 80 basis points, our annualized total shareholder return was 5.6% now.
Mark: That debt leverage at quarter end stood at 15.4% slightly lower from year end 2024.
Mark: Ever a strong capital position and earnings power continue to provide us the ability to pursue profitable growth and opportunistically repurchase shares.
Mark: We repurchased 574000 shares in the quarter amounting to 200 million or an average of $348.43 per share.
Mark: Assuming normal catastrophe activity, we expect to continue meaningfully repurchasing shares throughout 2025, and with that I'll turn the call back over to Matt.
Speaker Change: Thanks, Mark Jason we're not ready to open the line for questions would you ask that you. Please limit your questions to one question plus one fault and rejoin the queue. If you have additional questions Jason over to you.
Mark: Thank you.
Mark: We will now begin the question and answer session and to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And our first question comes from Andrew Anderson from Jefferies. Please go ahead.
Andrew Anderson: Hey, Good morning, you mentioned, some modest cat pressure for the rest of the year could you maybe just talk about the opportunity within Florida at midyear and how youre thinking about growth from either Florida domestics are more nationwide carriers.
Andrew Anderson: Sure Andrew it's Jim Thanks for the question, Yeah, I mean, our expectation is that the six one renewal should be pretty attractive.
Andrew Anderson: Obviously, we'll have to see what terms and conditions look like but I wouldn't be surprised if we take the opportunity to grow.
Andrew Anderson: And I think that would cut across both the you know the demo tech companies, where we had really terrific results and we have great relationships as well as a as a more nationwide partners.
Andrew Anderson: We are seeing I will I will note some pretty meaningful increase.
The increase in demand and so a number of our clients are talking to us about buying more limit, which I think should be a favorable move around price and obviously, that's offset by the fact that people have done incredibly well in property cat and people you don't want to keep growing into the market. So.
Andrew Anderson: I think it'll be overall quite attractive.
Speaker Change: Thank you and then you also mentioned still attractive risk adjusted returns on specialty lines I think that was specific to reinsurance and could you maybe just talk about the competitive market there because it seems like it is getting increasingly competitive within Lloyd's.
Speaker Change: Yeah, well, so on the reinsurance side, Oh and by the way I think specialty lines are attractive across both of our divisions are both in reinsurance and insurance for reinsurance you did see just such a strong correction to most of the specialty lines. After the beginning of the war and the Ukraine.
Speaker Change: Some of that's definitely come off and you've seen people who have earned outsized profits are now looking to write more of that business. So it's becoming incrementally more competitive but the bottom line is we still see tremendous opportunity across a number of our specialty underwriting areas and you know and I would say you know areas like engineering, our parametric business look terrific.
Speaker Change: Marine and aviation still look pretty good. So I think we have incremental growth opportunities there at really attractive margins and then I think the same thing applies to insurance and certainly both in North America and in our international markets, we've seen strong growth in our specialty lines businesses.
Speaker Change: And it looks like although there's a little bit of pricing get back in a few areas overall, our rates are still well above what we would consider adequate which as you know our trigger point for deciding to continue to grow.
Speaker Change: Thank you.
Speaker Change: Got it.
Speaker Change: The next question comes from Alex Scott from Barclays. Please go ahead.
Alex Scott: Hey, good morning.
Speaker Change:
Speaker Change: You talked a bit about growth just there and you know, but you also mentioned the buyback and it being a bit of a you know priority and maybe meaningful are for the rest of the year and I. Just wanted to understand you know at a high level like how do you think about your capital capacity you have available you know to what degree can you.
Speaker Change: Do what you want in terms of growth in the mid year, but also you know repurchase it.
Speaker Change: You know the the level you did this quarter or should we think about that escalating upwards maybe.
Speaker Change: Alex It's Mark I think we have the capacity to do both when you take a look at how we're growing in the company where pretty much unconstrained with what we'd like to do and.
Speaker Change: Operating plan for 2025, you've seen us grow meaningfully and and property in particular on the reinsurance side pulling.
Speaker Change: Pulling back in Treaty casualty and are growing in certain spots of our insurance division and obviously shutting on on the casualty side. So no no issues, there and supporting the growth or any of the opportunities that we see.
Speaker Change: We also view the share price is quite attractive in terms of share buybacks. So Q1, we printed a 200 million of buyback and we think that's a meaningful number for the quarter and I continue to see opportunities to deploy you know meaningful amounts of share buyback.
Speaker Change: For the remainder of the year.
Speaker Change: That's helpful a.
Speaker Change: The second one I had is on the casualty reinsurance business in and the question is more about the underlying primaries are are they in your view taking enough action in terms of pricing that you're going to see that flow through on what you're retaining and you know it'll be adequate.
Speaker Change: I I just as an outside observer looking at some of the indices out there I mean, it's it's remained up well you know a lot of other lines are down but it hasn't you know kind of sped up or two or something like that so I. Just was interested in that perspective from the standpoint of you know will you potentially have to take more action than you were originally.
Speaker Change: Cidra and if there's not you know.
Speaker Change: If price coming through the primaries.
Jim Williamson: Yeah sure Alex it's Jim it's a it's a good question I mean look if if you look at what's happening in the underlying market.
Jim Williamson: <unk> is obviously strong I I don't really see anybody.
Jim Williamson: The slowing down in terms of price achievement, but it's but it's way more than price right. It's portfolio management. Its claims handling its distribution strategy I mean, all of those all of those things contribute mightily.
Jim Williamson: Two expected results and so when we're evaluating a the books of our quarter quota share partners, we're looking across all those dimensions and.
Jim Williamson: Where we feel like are you now.
Jim Williamson: Stars aren't aligning and where we think expected loss ratio exceeds the available economics in a deal. That's when we're walking away now I think we've done a lot of the heavy lifting I mean this processes I I've indicated a couple of times started back in January of 'twenty four.
Jim Williamson: We've moved away from about $800 million in casualty premiums.
Jim Williamson: That are exposed to North America are.
Jim Williamson: We've also by the way growing in some areas, where we see people doing a really terrific job and so.
Jim Williamson: My expectation for the outlook is probably more of the same.
Jim Williamson: With continued underlying discipline.
Jim Williamson: Rate achievement I think we'll stay at elevated levels as long as people are concerned about social inflation.
Jim Williamson: And for US. It's really then about how do you pick the best Seedings too.
Jim Williamson: To ensure that your loss picks hold and hopefully reveal margin overtime.
Jim Williamson: Got it thank you.
Jim Williamson: The next question comes from Gregory Peters from Raymond James. Please go ahead.
Gregory Peters: Good morning, everyone.
Jim Williamson:
Jim Williamson: I'm going to go back to your comments on moderate.
Jim Williamson: The moderate pricing pressure you're seeing in cat.
Jim Williamson: Versus your comment about expected returns.
Jim Williamson: Yeah, I guess I'm too.
Jim Williamson: Trying to reconcile your.
Jim Williamson: Are your targets with what.
Jim Williamson: We're hearing in the marketplace, especially like on the larger property schedules, what we're hearing a lot of the larger property schedules excuse me, what we're hearing about pretty substantial rate rollbacks maybe.
Jim Williamson: Maybe it maybe it's better than what's going on in the facultative market versus excess of loss market, but.
Jim Williamson: Just trying to reconcile the pricing pressure were hearing about versus your desire to growth. So I know you've already provided some answers to it but maybe some additional clarity would be helpful.
Jim Williamson: Yeah sure. Greg This is Jim I before I answer your question I, just want to clarify because it it feels a little bit like you're talking reinsurance, but also insurance. So we which one are you focused on in your question I actually both but.
Jim Williamson: Merrily reinsurance.
Speaker Change: Okay. So on the look on the reinsurance side.
Speaker Change: Starting at the 123 renewal, we saw a sharp upward correction in pricing I mean, we achieved a 50% rate increase at one 123 in our U S Treaty property book and so the fact that rates are now coming off and you would've seen you know the four one renewal in Japan, maybe that was down 10 125 was down a bit.
Speaker Change: Yes, it's it's it's coming off a little bit there's a lot of a lot of interest I think among a number of carriers to grow in that business because rates corrected to such a point that expected returns are still very very healthy and so as long as that's true those return expectation sustain themselves I'm willing to continue to deploy.
Speaker Change: Capacity in capital to our best clients and we've done very well with that strategy and I expect that to sustain itself through 2025, I mean theres no sign in my mind that property cat in the reinsurance business is decreasing at a rate that would make it less attractive it's still the roe's are still well in excess of my threats.
Speaker Change: Hold for wanting to continue to deploy capital there.
Speaker Change: In the insurance market, so I would say sort of a similar strategy a similar set of facts in so far as we're coming off multiple years of rate on rate increases.
Speaker Change: In our property.
Speaker Change: So when you start to see decreases you could still have situations and I think we were there now where yeah rates are down, but it's still very attractive. So you want to continue to grow the only other thing I would add if you look at our growth in the insurance business in the first quarter. We grew in both North America and international but our growth is weighted toward international and wild.
Speaker Change: Pretty there's some property pricing pressure internationally. It is not to the same extent as what you're seeing in some of the some of the U S market. So.
Speaker Change: Bottomline everywhere, we're growing all the points that I made in my prepared remarks around you know growing short tail. We're doing it because expected returns are exceptional and that's really the only decision factor that is in our mind when we make those choices.
Speaker Change: Okay.
Speaker Change: I guess all I.
Speaker Change: I have a follow up on that but I'll just delay in just a pivot to the wildfire losses reported.
Speaker Change: The Edison International has pretty much knowledge out there that they're going to have.
Speaker Change: Some couple ability and the effects of the fire. So I'm just curious how reimbursements from the California Wildfire fund might flow through and ultimately come through Everest financials. If it if it were to happen.
Speaker Change: Sure I mean, our the vast majority of our wildfire loss I mean, almost all of that is in reinsurance and so to the extent that our clients receive recoveries.
Speaker Change: Subrogation recoveries, what have you that would flow back to that would inure to our benefit.
Speaker Change: You'll note in my prepared remarks, I was very clear that we're taking no credit for that.
Speaker Change: These processes tend to take a long time and subrogation is often a will take you know and in some cases and many years to unfold. So you know, we're taking a wait and see approach, even though we do see some opportunities or some avenues, where you could see subrogation recoveries over time.
Speaker Change: Just to clarify you would never cellular subrogation rights correct.
Speaker Change: I wouldn't say, we would never do it I'm not really thinking about it for for this particular situation we have in the past it really depends on the circumstances.
Speaker Change: Great. Thanks for the detail.
Speaker Change: You got it.
Josh Shanker: The next question comes from Josh Shanker from Bank of America. Please go ahead.
Josh Shanker: Oh, Yeah. My first question in the insurance segment.
Josh Shanker: Flat premium year over year, Oxford, you're doing the one renewal plan to correct. The book a lot of that was price offset by some policy losses, but what about new business are there are there areas, where you haven't had a.
Josh Shanker: Big role before that you're taking share in right now.
Josh Shanker: Yeah Josh.
Jim Williamson: Josh. This is Jim are you talking specifically about casualty or the whole panoply timeframes.
Jim Williamson: But I'm talking about the I mean, the insurance growth flat given your you're one renewal strategy is a very good outcome I think and so I'm wondering what the mix of businesses, that's allowing you to maintain flat premium yeah.
Jim Williamson: Yeah got you I know, it's a fair point. So a couple of things one just just focusing on U S. Casualty as I indicated half of the premium that came up for renewal in the quarter wasn't renewed I mean, that's a that's you know call it $150 million of premium so very meaningful that's going to get offset by both significant rate and.
Jim Williamson: I I cited a number of around 20% and then we did write some new business new business in U S. Casualty, it's definitely lower than it was a year ago and I think that's okay. Because we're writing.
Jim Williamson: Really excellent accounts their law sensitive they are in the right industries, they're well priced with great clients, who we're usually selling multiple lines of business too. So that's a good outcome.
Jim Williamson: And then if you look at the rest of North America, you know specialty lines are growing really well over 20% in the quarter property growth was strong.
Jim Williamson: I see longer term you know, our our accident and health business is performing really well and so that's been a great story.
Jim Williamson: And then our international business really across all dimensions were getting incredible traction, particularly in the U K Europe, and Asia, where we're writing a best in class accounts, and that's property accident and health specialty lines and casualty.
Jim Williamson: So it's really I mean, when you look at the area of the book that's really shrinking. It's it's all about U S casualty.
Jim Williamson: A little bit you know and you know there are pockets workers' comp is sort of a push financial lines, you know coming off a bit.
Jim Williamson: But pretty much everything else, we're seeing great opportunities, we're getting support from our.
Jim Williamson: Broker client our broker partners to continue to write new business. Despite the remediation and you know.
Jim Williamson: Feeling good about the quality of the business that we're putting on the portfolio and maybe most importantly, so so lots and lots of good things happening in insurance.
Speaker Change: And then on the repurchase there's nothing wrong with $200 million, but it's only about 2% of the daily volume in your shares over the past quarter, you could be doing more it looks like you've made a hard stop at 200, and you talk about the math and the and given where the shares trade right now about well how you came to that number and what you're thinking.
Jim Williamson: Uh Huh, Josh its mark.
Speaker Change: So a couple of things I think when we when we look at the share buybacks.
Jim Williamson:
Obviously in January we were under you know we have the reserve charge. So we had material nonpublic information. So we were dealing with a shorter.
Jim Williamson: Period of time within the quarter to perform the buybacks.
Jim Williamson: That's something that impacts the the level, but overall I'd say you know the 200 was a figure we were comfortable with in the first quarter I think that's a start a starting point.
Jim Williamson: For the remainder of the year as I indicated before the growth rate of the company has subsided largely because of different reasons on casualty reinsurance and insurance, but it's it's something that should allow us to generate.
Jim Williamson: Additional retained earnings that can free up for for buybacks.
Jim Williamson: Still enjoy a very good capital position, but where we're also wary of you know the cat season, the hurricane season, that's a forthcoming so I still see us being.
Jim Williamson: Quite proactive on on buybacks for the year and you know taking a look at where we are with the growth rate in overall payout ratio for the company and taking into account any potential volatility we might get from hurricane season. So I can see us continuing with the the buybacks maybe pausing somewhat in Q3, but still.
Jim Williamson: A very meaningful amount for a 2025.
Jim Williamson: Okay. Thank you for the candor.
Speaker Change: The next question comes from Meyer from Meyer Shields from Keefe, Bruyette and Woods. Please go ahead.
Jim Williamson: Great. Thanks, so much and good morning.
Jim Williamson: I wanted to ask a quick quick question about tariffs because I think you mentioned the ability to respond and they just want to understand the mechanics of responding in time like if tariffs kick in on day X.
Speaker Change: You're still exposed to policies that were written in the contracts that were written before that so is there. Another piece of that that are missing just in terms of the timing I understand that it can be resolved overtimes.
Speaker Change: Yes Mayor it's Jim Good question, you know during the last bout of inflationary pressure that we saw and this is both a social inflation and material inflation. During the last administration. You know, we obviously saw an uptick in that and one of the things that we did do enhance our disciplines in response to that was we increased the <unk>.
Speaker Change: Quincy with which we assess our loss trend assumptions.
Speaker Change: And so now it's it's very much quarterly and in some cases, where testing within the quarters to make sure that if there's any sign that youre seeing an uptick in in expectations you respond immediately to it I mean, that's that's what I'm really talking about when I when I talk about.
Speaker Change: You know response now to your point you know.
Speaker Change: Obviously inflation can affect really any open claim including prior year open claim and that's one of the reasons why we've been so focused on you know when we talk about how we book our loss picks are how we made reserve decisions for 2024 and prior years, how we're thinking about the go forward business with respect to layering on a.
Speaker Change: Very robust risk margin.
Speaker Change: Two our picks all of that is in service of the idea that you know you can see some inflationary pressure, whether it's because of tariffs or any other factor and you're in and you need to be able to absorb that so I feel pretty good everything that I've seen relative to.
Speaker Change: What's been announced so far what what expectations are I think we're in a really good spot relative to both the back book as well as how we manage that go forward.
Speaker Change: Okay Fantastic that's very helpful. And then shifting to the midyear renewals you talked about anticipating an uptick in demand and.
Speaker Change: And between the two populations and maybe existing companies that are growing.
Speaker Change: Is there any way of sort of ballpark king how much of the increase in demand is that the lower layers, where I guess pricing is holding up better and higher layers, where returns are still good but we're not seeing the same pricing dynamics.
Speaker Change: Yeah, Matt It's Jim again, I mean, it's a good question. It's I think it's difficult to answer that question with any degree of certainty because it's dynamic so how much people want to buy at any particular level will be heavily influenced by how much it costs and so all things being equal I think a lot of our seasons, whether its in Florida or.
Speaker Change: And in the Midwest or our other parts of the country would love to buy a lower level, but the required pricing to get those deals done is more than most people are willing to pay. So you usually don't see that incremental demand get fulfilled there based on all of that I would suspect as we've seen in prior renewals that more of the demand will be in the top.
Speaker Change: And.
Speaker Change: Where people want to guard against coming out the top side of their programs.
Speaker Change: But obviously time will tell.
Speaker Change: Okay, great. Thank you so much.
Speaker Change: Got it.
Speaker Change: The next question comes from Elyse Greenspan from Wells Fargo. Please go ahead.
Elyse Greenspan: Hi, Thanks. Good morning, My first question, let's just on the aviation loss in the quarter I was hoping.
Elyse Greenspan: To get to get a sense of the industry loss and then what kind of premium you know did you guys write associated with that loss.
Jim Williamson: Sure Elyse, it's Jim most of the industry loss estimates that I've seen are sort of in the neighborhood of $1 billion.
Jim Williamson: You know there's not obviously, it's not like a major hurricane where you had multiple companies modeling it et cetera, that's more of a ground up analysis, so I would kind of calibrate to that.
Speaker Change: Our our portfolio in our reinsurance book, where we took the vast majority of that loss is a you know it's a few hundred million dollars.
Speaker Change: And as I indicated in my prepared remarks, it's performed extremely well for us.
Speaker Change: Over the last several years post the Boeing losses, which is really when we started growing as the market corrected sharply and I'm knocking wood here I think we still have a path to turning a profit for that portfolio in 2025.
Speaker Change: Despite the fact that we had this pretty meaningful loss at the beginning of the year.
Speaker Change: And then thanks and then my follow up question is I guess on both insurance and reinsurance what do your Attritional loss ratios and I guess, you know X X aviation losses I. Those are the levels that we should think about.
Speaker Change: You know in terms of modeling for.
Speaker Change: For the rest of the year in both insurance and reinsurance.
Speaker Change: Just given you know your view of price as well as loss trend.
Mark Jason: So elyse, it's it's mark we obviously, we're not providing guidance.
Speaker Change: Guidance on a on a go forward basis.
Speaker Change: What I, what I will say is that as you know, we we are putting in a meaningful a risk margin on the U S casualty.
Speaker Change: Lines in our insurance division and in particular.
Speaker Change: One one phenomenon, but I would just highlight for everyone is and it doesn't come clearly in the financials.
Speaker Change: You can see a meaningful reduction in casualty premium in the on the reinsurance side for example.
Speaker Change: So it's quite a significant drop of gross written however, the gross or the net earned on the casualty pro rata.
Speaker Change: Is trailing so while you see something approaching 25, 26% reduction of top line premium.
Speaker Change: Net earned reduction is much slower. So it is a larger component we have something approaching 11% a reduction of the net earned from from casualty Pro rata. So what that does is it mitigates the impact of the mix relative to the written over time, so that's going to be something that just slow.
Speaker Change: Does the mix of business improvement.
Speaker Change: That we foresee based on the gross writings of the company.
Speaker Change: That's helpful and if I can just squeeze one more in because they did have a follow up on the aviation. So you guys I think that the math comes to like a 7% to 8% sure is that typical of what you guys. Obviously, it's like a little bit of an extreme of that when you guys, just maybe a little bit overexposed there.
Speaker Change: Yeah at least Jim again, I I don't I would first of all I wouldn't say, we were overexposed I mean, I think we have the best aviation underwriters are they're both based in London on both the reinsurance and the insurance side are these guys are really good. The book we write in reinsurance we've been very careful to build mainly.
Speaker Change: And excess of loss book, and we really focus on that part of the equation and we are a.
Speaker Change: We are a relatively leading reinsurer in a market that is heavily reinsured.
Speaker Change: So when you have a catastrophic aviation loss like a major you know an airline you know.
Speaker Change: Crash with 60 plus passengers killed.
Speaker Change: That is gonna be a reinsurance event and it's going to be in excess of loss event.
Speaker Change: So as I had indicated in my prepared remarks.
Speaker Change: You know, we there's nothing about our loss that surprises us and you know barring any major changes in the market. There's nothing about our loss that would have us rewrite.
Speaker Change: Rewrite our book or approach things differently. This is what you would expect from a from an event like this.
Speaker Change: Thanks, I appreciate the color.
Speaker Change: Got it.
Speaker Change: The next question comes from David Mode to maiden from Evercore ISI. Please go ahead.
David Mode: Good morning I.
David Mode: I had a question Mark maybe just following up on the reinsurance attritional loss ratio. So I hear your point.
David Mode: On the written lagging.
David Mode: Or are leading the earned a bit but yeah I think on the margin still the mix to short tail should have accelerated this quarter and the attritional loss ratio has been improving and that sort of stalled out excluding the aviation law. So I'm wondering if you just unpack a what.
David Mode: Else is going on in that our reinsurance attritional or is it just conservatism on the casualty side.
Yeah, that's the lion's share of the issue there there's really no other meaningful losses, we highlighted the aviation. That's obviously you know when you normalize for that you get to the 57 and change.
David Mode: Additional but it's really the risk margin on the casualty side, that's that's driving any difference.
Speaker Change: Got it understood and and then Jim I I heard you loud and clear that.
Speaker Change: You know the the property cat business, even though the pricing is moderating it's not monitoring it moderating at a rate that would make it less attractive I guess I don't I don't even know if I'm thinking about this right but.
Speaker Change: What what sort of reduction do you think the market can bear while still generating attractive returns on the property cat side.
Speaker Change: Yeah, David look I I.
Speaker Change: I don't think I want to answer that question, because I don't want to give anybody any ideas I mean, we I there there's really excellent return.
Speaker Change: Profiles on offer here.
Speaker Change: And I think the reinsurance market has learned.
Speaker Change: Over the last several years from really the end of 'twenty two until today that you know if we want to earn a reasonable overall return over the cycle with the volatility that we have to accept and you need no look no further than the California wildfire I mean, that's a.
Speaker Change: You know that's a major loss right at the beginning of the year, we need to sustain prices in order for our market to work the way it needs to we need discipline.
Speaker Change: And my message to you know all my peers in the industry would be at at current pricing levels. I think we do reasonably well and I think our clients are well served and its sustainable it can deal with you know the.
Speaker Change: The economic development it can deal with climate change.
Speaker Change: Etcetera so.
Speaker Change: My My hope is that we don't have to test the limits of the underlying fundamentals of your question, but instead, we sustained pricing it at levels that are reasonable and.
Speaker Change: And sustain the industry.
Speaker Change: Okay, great. Thank you.
Speaker Change: The next question comes from Michael Zaremski from BMO capital markets. Please go ahead.
Michael Zaremski: Hey, good morning. Thanks.
Speaker Change: A follow up I think Jimmy in response to a question earlier you talked about.
Michael Zaremski: Doing reserve reviews.
Michael Zaremski: I thought I heard a different cadence than than ever. She has done historically I thought historically you do a ground up on each line of business once per year I wasn't sure. If you are in your response earlier Ted Meyer's question do you.
Michael Zaremski: You kind of were talking about changing that for certain lines of business or am I am I thinking about that incorrectly.
Michael Zaremski: Well I think you are you may have just misheard, where may have started with this question. He was asking about updates to our loss trend assumptions.
Michael Zaremski: In response to tariffs and you know what gave us confidence et cetera, and we had indicated that we've increased the frequency of reviewing loss trend assumptions or reserve deep dives or still conducted on an annual basis with obviously, our quarterly process are still in place and I don't know Mark if there's anything you would add on.
Michael Zaremski: Reserve process, but that's where we began.
Michael Zaremski: There's there's no difference in the cadence of the reserve reviews are I would just say, there's a heightened awareness and alertness on U S. Casualty lines in particular for all sources of data that can go into helping us on a quarterly basis of establishing.
Michael Zaremski: Our best estimate liabilities, so feel comfortable with that and as I mentioned in my prepared remarks in the first quarter, where we're quite comfortable with our insurance reserves considering the issues we had in 'twenty 'twenty four.
Speaker Change: Okay. Thanks for that clarification and my follow up is Hum you know on the higher than expected share repurchases is that is that being funded at all with the.
Speaker Change: Federal home home loan bank borrowings, which has increased a bit over the past year and maybe if you can what are the S. H L b borrowings being being used for thanks.
Speaker Change: Yeah. So no that's the funding for the buybacks is strictly out of excess capital that that's just yesterday.
Speaker Change: The spread trade. So we established a pretty much after I started back in <unk> 2021.
Speaker Change: Our 'twenty 'twenty actually the fourth quarter and so that's essentially our borrowing for a fixed rate term investing at a higher set of yielding securities posting of collateral and earning a spread and that's something that we've been doing for several years. It's a modest amount of the affiliate shall be for.
Speaker Change: City that we have and the two are mutually exclusive nothing to do with with each other the buyback or the the spread trade.
Speaker Change: Oh, Okay, yeah. So that's running through an investment income correct yeah.
Speaker Change: Yeah, that's right yeah.
Speaker Change: Thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: And our next question comes from Katy sake is from Autonomous research. Please go ahead.
Katy Sake: Hi, Good morning, I want to circle back on the property Cat portfolio I think last quarter. You folks mentioned that you were seeing you know that they need to.
Katy Sake: Are you a little bit more for the European Cat exposures and you increase your average amount of locked off that by about 10% just kind of curious you know realizing that we're only a quarter and how that's holding up and if you could perhaps extrapolate that shift in loss trend assumption that the global property cat poor.
Katy Sake: Fully on.
Jim Williamson: Sure Katy it's Jim it's.
Speaker Change: You know for well first of all our view on European Cat Ah was specific to Europe, and it's really just a phenomenon of put put insured and reinsured losses aside actual frequency and severity of the underlying weather pattern has changed dramatically and consistently over the last several years and so our view was.
Speaker Change: That you know, whether it's the available models or market pricing hadn't responded to that correctly.
Speaker Change: We are not going to take risk, we're not getting paid for and so we raised the bar on what we wanted to get paid for European Cat.
Speaker Change: And the net result of that is our European Cat business got smaller and that's okay.
Speaker Change: And so that that was a European phenomenon I don't think that necessarily applies to other parts of the world other than to say that it's just so important in our business.
Speaker Change: And that we stay on the forefront of any developments in the underlying whether it's weather or development patterns.
Speaker Change: Which is why we maintain and invest in such a robust internal and proprietary modeling capability and so so we're we're making sure that we always have the latest view of loss costs expected losses, so that we can price our business appropriately.
Speaker Change: Okay. So just to clarify like no significant changes you guys are seeing to modeled loss expectations going into mid year renewals.
Speaker Change: No not nothing dramatic I mean, we're always I mean, it's always moving reality I mean, we're always adjusting our models based on the latest data, but you know in terms of a dramatic move like what I described in European Cat. There's nothing that comes to mind are in other parts of the world.
Speaker Change: Okay. Thank you and then and then to follow up on the question about sort of the timing of reserve reviews.
Speaker Change: I appreciate that Q1 isn't necessarily a significant time for reserve studies, but anecdotally you know is there any additional color that you guys can give us as to how you think the charges from last year's Reserve review are holding in.
Speaker Change: Yeah, Katy it's mark so I think the the.
Speaker Change: The bookings that we made are holding well I made the point in my prepared remarks that we're performing well versus the actuarial.
Speaker Change: Central estimate so the risk margin that's on top of that is is extra.
Speaker Change: At the current time and we're seeing.
Speaker Change: The performance of other lines are property for example, in particular or or some of the other shorter tail lines building. Some nice margin within the portfolio. So at the present time, you know one quarter later, I'd say, where we're quite very comfortable with with how we've progressed.
Speaker Change: Three months later after the charge.
Speaker Change: Got it thank you.
Speaker Change: Yeah.
Speaker Change: Next question is a follow up from Brian Meredith from UBS. Please go ahead.
Brian Meredith: Hey, Jim It just quick question here.
Brian Meredith: Looking at the midyear renewals and maybe not any changes you're anticipating seeing with terms and conditions on any of the property reinsurance you know maybe you know.
Brian Meredith: Castro point slowing down or anything.
Speaker Change: No I don't expect I don't expect any changes that way, Brian one of the things that I've been gratified to see you know I referred earlier to the need for discipline and may be the area, where we've seen the absolute most discipline has been on terms and conditions that that's been a major contributor to I think creating a more sustainable mark.
Brian Meredith: And people are not giving up on whether it's hours clauses attachment points other.
Speaker Change: Contractual terms and I don't expect any at the mid year renewal.
Speaker Change: Great. That's helpful. And then just one follow up I know theres been a lot of questions about declining property rates and then bunched up a lot of moving pieces right now.
Speaker Change: And I have rushed him if I think about you know your book of business as you look at it factoring in all of what's going on would you say that the returns on capital in your business are getting better getting worse or staying the same just thinking about the whole picture as we kind of look out here.
Speaker Change: Yeah, I mean look I would say if you if you look at the economic fundamentals put aside the risk margin for a minute because obviously that's going to affect the printed financials.
Speaker Change: I would say that the return on capital of both of our businesses is improving.
Speaker Change: And I think that's a very good thing and that's driven both by really attractive things that we can do in the market as well as just the fundamentals around mix, which is sort of where you started your question.
Speaker Change: Yeah, absolutely. Thank you.
Speaker Change: Great. Thank you.
Speaker Change: There are no more questions in the queue. This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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