Operator:

Good day and welcome to Everest Group Limited's Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matthew Rohrmann, Senior Vice President and Head of Investor Relations. Please go ahead, sir.

Juan Andrade:

Thank you, Matt. Good morning, everyone. Thank you for joining us. Everest had another strong quarter and an excellent first half of the year. We delivered solid second quarter underwriting and net investment income, resulting in both an annualized total shareholder return and operating return on equity of 20%. We grew in lines of business and geographies with superior profit trajectories while remaining focused on disciplined risk selection. We continue to build a well-diversified portfolio designed to produce leading financial returns. Our reinsurance business continued to generate strong results and expected risk-adjusted returns remain very attractive. Our preferred lead market position continues to be a differentiator for Everest. This was once again evident through the mid-year renewals as there was strong demand for our participation on treaties from a broad array of top-tier customers. We also made progress expanding our primary insurance franchise with investments in talent and capabilities to scale the platform globally. We opened new operations in Mexico, Colombia and Australia. Both of our underwriting businesses are capitalizing on opportunities where market conditions are most attractive and where we can achieve sustained profitable growth. At the same time, our investment portfolio is delivering strong and consistent earnings. We are executing on our strategy with significant momentum heading into the second half of the year. Most importantly, we are delivering on our primary objective of generating industry-leading financial returns as measured by total shareholder return. Our strategy provides significant operating flexibility with multiple paths to achieving our primary objective in 2024, 2025 and 2026 as outlined at our last Investor Day. With that backdrop, I will now turn to our second quarter financial highlights, beginning at the Group level. Everest second quarter performance resulted in an annualized total shareholder return of 20% and net operating income of $730 million, an increase of more than $100 million year-over-year. We grew gross written premiums by 13% in constant dollars and excluding reinstatement premiums, while remaining disciplined in casualty lines, particularly in North America. We generated $358 million in underwriting profit in the quarter and $767 million year-to-date, an increase of $94 million as compared to the first half of 2023. The Group combined ratio of 90.3% included $135 million of pre-tax catastrophe losses net of recoveries and reinstatement premiums from several mid-sized international and U.S. events. This is a good result, particularly given that the elevated level of global industry catastrophe losses is now estimated at approximately $60 billion year-to-date. In the quarter, we improved our attritional loss ratio by 70 basis points year-over-year, driven primarily by mix contributions from both segments, sustained pricing momentum and disciplined underwriting. Terms and conditions also remained favorable. As I mentioned earlier, our investment portfolio continued to perform well, producing over $0.5 billion of net investment income in the quarter and nearly $1 billion year-to-date. Turning now to our reinsurance business. Second quarter reinsurance results were excellent. The business delivered underwriting profits of more than $300 million. The attritional loss ratio and attritional combined ratio improved to 57% and 84.4%, respectively, as we continue to proactively shape the portfolio. Consistent with our execution at the January and April renewals, Everest had excellent midyear renewals. We expanded our portfolio with top-tier cedents growing across property and specialty lines, including marine, aviation and engineering at excellent expected margins. As the June 1 renewal progressed and overall reinsurance capacity became scarce in the final days, Everest secured a number of shortfall covers at superior terms. On many Florida deals, we successfully negotiated non-concurrent terms, including higher minimum premiums and lower ceding commissions. Our property book grew more than 25% at the June 1 renewal. In addition, cat exposed premium continued with a double-digit growth trajectory at the July renewal with higher expected margins compared to last year. Importantly, across the mid-year renewals, we achieved preferential signings, drove differentiated terms and conditions on a number of property catastrophe deals, and we were signed in-full on virtually every transaction we chose to participate on. Overall, we grew the business by 17% on a constant dollar basis, excluding reinstatement premiums in the second quarter. Growth in our property pro rata book increased significantly, up 31% from last year as we took advantage of the strong underlying property market, particularly in commercial E&S. Property market conditions continue to be favorable. Rates have persisted at attractive levels and terms and conditions and attachment points have not wavered from the significant improvement made over the past two years. In casualty, we remain disciplined in lines that did not meet our underwriting criteria. While casualty pro rata premiums grew in the second-quarter, this was primarily driven by strong rate increases as opposed to exposure growth. We have shed over $300 million in casualty renewal premiums so far this year as a number of programs did not meet our underwriting standards. The quality of our book is excellent and the strength of our franchise continues to set the business apart. We expect risk-adjusted returns to remain very attractive. Our outlook for 2025 remains bullish. Now turning to insurance. We grew the insurance business by 6% in constant dollars, generating $1.5 billion in premiums in the second quarter. As we continue to optimize our mix of business, overall growth was driven by a 31% increase in property short tail and 26% in specialty lines. Our international business continued to gain traction as we were rapidly becoming a go-to market for our distribution partners. The overall growth in the quarter was partially offset by the continued caution around casualty as well as the previously-announced Medical Stop Loss business exit, which started in 2023 and will be completed by the end of this year. Consistent with prior quarters, we were prudent in less attractive lines such as directors and officers liability, workers compensation and other casualty lines exposed to social inflation. We gained additional momentum and achieved rate acceleration in excess of loss trend across a wide array of casualty lines in the quarter as increases in commercial auto liability, general liability and excess casualty lines averaged in the mid-to-high teens. Looking across the portfolio, we achieved an average rate increase of over 10%, excluding workers compensation and financial lines. The combined ratio benefited from a 70 basis point improvement in the attritional loss ratio. This was offset by higher cat losses as last year's quarter was benign and lower-than-expected earned premium resulting from the underwriting actions I have already described. At our Investor Day last November, we set a goal of hitting a 90% to 92% combined ratio for insurance. We are confident in achieving our objective, but the timing for getting to our target combined ratio run rate is now 2025, and we will not be satisfied till we achieve this goal. In order to achieve our target, we must, one, create a more balanced mix of business, including more short-tail premium. Two, continue to increase scale, particularly in our international businesses, And three, continue to prudently navigate the underwriting environment. We are making good progress on all of these. First on mix. As I said, we grew short tail lines in the quarter by over 30% and our specialty business by 26%. These are good results, but there's more work to be done, particularly in North America. There were also some jurisdiction-specific regulatory approval delays in new international markets that have now been granted. Those operations are ramping up in the second half of the year. Second, scale improved in the quarter as we did achieve strong growth with very attractive loss ratios in our international businesses, where we have continued to invest in people, products, technology and infrastructure. Earned premium will start to catch up. Some of this progress was offset by our underwriting discipline actions such as the ongoing runoff of our North America Medical Stop Loss business, which I mentioned earlier. This reduced earned premium in the quarter by approximately $70 million. Finally, regarding our work to navigate the complex risk environment, we are keenly focused on the effect of social inflation on casualty loss costs. We are booking our casualty business at prudent loss picks. And while we are achieving increased rate in excess of observed loss trend, we are reducing writings in certain lines, classes and jurisdictions. As a result, casualty premiums were slightly down in the quarter. We are focused on underwriting margin and we walk away from business that does not meet our standards. We are pulling all of these levers and making progress to reach our target combined ratio for insurance. This is our immediate focus for this segment. And in conclusion, I am proud of what we have accomplished thus far. We have a clear strategy. We are focused on executing our plan and we are delivering above our target total shareholder return. We are focused on making Everest even stronger. Our reinsurance segment continued to exceed expectations. We are strengthening our insurance platform as we position ourselves as a go-to global market and continue to solidify our value proposition. With the market environment setting the stage for continued opportunity, Everest is well positioned to continue building momentum. With that, I'll turn it over to Mark to review the financials in more detail.

Matt Rohrmann:

Thanks, Mark. Operator, we're now ready to open the line for questions. We do ask you please limit your questions to one question plus one follow-up and rejoin the queue if you have additional questions. Thank you.

Yaron Kinar:

Thank you. Good morning. My first question goes to the pushback of the reported combined ratio target in insurance to 2025. Is that mostly driven by the expense ratio? Or is the loss ratio also a bit more elevated than you expected it to be for the year?

Yaron Kinar:

Okay. And so maybe if I try to translate that into expense ratio and loss ratio, it sounds like the mix issue would also drive the loss ratio down over time. But at the same time also maybe lower the expense ratio and then the -- obviously the platform investments with slow revenues ramping up would be an expense ratio and back, right?

Yaron Kinar:

Got it. And then my second question, obviously, there's been a lot of focus this last quarter on liability reserves for 2020 through 2023's accident years as well. And just given the reserve actions that you took at the end of last year, could you maybe give us an update on how you're looking at those reserves today, specifically liability reserves for 2020 through 2023.

Yaron Kinar:

Thank you.

Gregory Peters:

Good morning, everyone. So for my first question, you mentioned in the call, in your prepared remarks about shaping the portfolio and skewing it more towards shorter term or short-tailed businesses, including more cat property exposures. And so I guess what I'm curious is, how does that -- how does that change the cat assumptions that you guys are thinking about as it relates both to the reinsurance and insurance segments?

Jim Williamson:

Yes, sure, Greg. It's Jim Williamson. So the one thing I would emphasize that Juan has already said because I do think it's very important is if you look at our risk metrics, we've talked about earnings and capital at risk, we are well within the stated Group appetite. And so that gives us the flexibility where we see great opportunities to deploy some more capacity. And you certainly saw us do that in the second quarter, driven mostly by reinsurance, but also by insurance. The other thing that I think is a really telling item is the fact that our insurance division, while we have had such strong growth in first party lines, we haven't really had outsized cat losses even though there's been a lot of activity, certainly in the U.S. and around the world. And that's because we've been careful to grow our business, particularly in non-peak zones. And we've also been very thoughtful about where we're participating in large programs, shared and layered programs about selecting our attachment points thoughtfully to get the best economics and it also keeps us away from a lot of the attritional cat activity we've seen. So nothing in our growth trajectory that we see right now would change our assumptions around the cat load, for example, feeling very good about things.

Jim Williamson:

Yes, Greg, it's Jim again. Good question. So a couple of points. One, where you started on net written premium, you'll see obviously, that's a different number than the growth rate you're seeing on gross written. Really two factors there. First is the geography of our gross written premium growth has changed as we've focused on reshaping the portfolio. And so we've been growing more top-line in lines of business with a lower net-to-gross retention. So you will see for the next couple of quarters just a slight drag on net written premium as a result of that. And then lastly, there was just a change related to our hedging strategy in some of our short tail lines in North-America that creates a little bit of a drag on net written premium as well. So we'll work through that on a year-over-year basis over the next couple of quarters and then it won't be a factor as we go forward. In terms of you know, growing from there and driving the scale that we'll need to get to the 90 to 92 combined ratio and all the other things we talked about, it's really continuing the things that we said. So in this quarter, again first party up over 30, specialty over 25, now that's offset by the fact that third-party lines, despite all the rate we're taking were essentially flat. But the growth in those shorter tail lines, the expansion of our international business is really picking up speed. It's becoming a larger part of our overall business across all those dimensions. And so I think it will overcome this cautious approach we have on casualty as we move forward, which is why although we were not at the level of performance that we want to see yet, we remain very confident that we'll get there because all the levers that we need to pull are right in front of us.

Operator:

Thank you. And the next question comes from Elyse Greenspan with Wells Fargo.

Mark Kociancic:

Good morning, Elyse. It's Mark. So yes, I expect this to be 93% to 94% for the remainder of the next two quarters, largely driven by the two features that we've discussed. So one, you've got an elevated expense ratio as we're ramping up and then this mix of business earned premium dynamic will likely persist for a few more quarters. I do see us getting into that 90% to 92% range in the back-half of 2025. So it will be a gradual transition over the coming quarters.

Juan Andrade:

Yes. Elyse, this is Juan. So the loss trend that we're seeing is roughly high single-digits. So the 10% obviously compares well to that. And remember what we said about the long-tail lines about commercial auto liability, general liability in excess that are running into the mid-to-high teens up and that's been accelerating. So we feel pretty good about where we are as far as being rate ahead of loss trend and all of that. If you include sort of where we are, including workers' compensation, it's roughly pretty stable to what we've seen over the last three or four quarters, which is right around 6% or 7%, including workers compensation.

Juan Andrade:

That's all included. So if we include everything together, it's about 6% to 7%.

Juan Andrade:

Sure.

Unidentified Analyst:

Hi, it's actually Dan on for Mike. Thanks. Good morning. First one, just a follow-up on the insurance combined ratio target. Your answer on the mix of business being one of the -- does that imply that your views on the loss ratios worsened versus last quarter since the business mix has been changing or is it a more prudent view on the casualty loss ratio, which would make sense given casualty inflation levels or is it that the mix maybe hasn't shifted as much as you expected? Thanks.

Juan Andrade:

And the other thing. I would add, and this is Juan, it's really going back to Yaron's question and what I said in my prepared remarks that the international business is growing quite well and it's grown with very attractive loss ratios, right? This is something that we've talked about in prior calls. Those loss ratios are well in the 50s. And so as that business continues to be a bigger portion of the overall insurance business you should get a positive mix benefit happening there.

Jim Williamson:

Yes. It's a great question. Frankly, it's one of the reasons why we strategically decided to do this now a few years ago. Look, social inflation is largely a U.S. phenomenon because of the tort system and the way our legal system works in the United States. Outside of the U.S., there's very few jurisdictions that have anywhere near the same level of inflation, legal system and abuse that you have in the United States of America. So from that perspective, growing overseas is one of the reasons why it produces a lower loss ratio overall. In addition to that is most of these markets tend to be more first-party oriented towards property, marine, those kinds of lines, which carry better loss ratios to begin with. So I would highlight that listen, outside of the U.S., you know, there's very few jurisdictions that have similar issues and frankly, nowhere even close to what you see in the United States from a legal system abuse perspective.

Jim Williamson:

Thank you.

Brian Meredith:

Yes, thanks. Two of them here for you. First one, more of a numbers question on the 93 to 94 in insurance for the remainder of the year. I'm assuming and maybe I'm wrong here that you would have a higher cat load in the third quarter than the fourth quarter. So is that kind of an average you're thinking over the remainder of the year or am I wrong there?

Brian Meredith:

Got you. That makes sense. Thank you. And then second question one, I'm just curious, Jim, the expansion internationally, obviously, a lot of -- you've got a little bit of expense coming through. But I guess, is there any contemplation of adverse selection as you kind of move into these newer markets that a lot of them are kind of entrenched with legacy carriers have been there for a long, long, long time. Maybe tell me about how you're going to kind of approaching this and kind of getting into these new markets?

Mark Kociancic:

Yes. Brian.

Juan Andrade:

Sorry, I just wanted to add just two quick things to Jim Williamson, two quick things that I think are also very important there. The first is we have been able to attract really the best people in each of the markets that we've chosen to launch our operations in, which I think gives us a line of sight into risk quality locally that you can't get if you try to run these businesses with expats. And then I would also say that we monitor the results of that business very closely. And as we said, it skews much shorter tail. So we're getting a quick read, an early read on performance of that business and all results so far indicate that we have excellent performance in our risk selection.

Operator:

Thank you. And the next question comes from Dean Criscitiello with KBW.

Mark Kociancic:

So good morning, Dean. It's Mark. So we've had a couple of things. First of all, we set prudent loss picks across the Board. So whether it's property or casualty taking into account market conditions at the beginning of the year from last year's planning cycle and then thoroughly reviewed every quarter, there is a shift in mix generally. So broadly speaking, you heard us talk about a significant growth in property. I think the figures were roughly 31%, specialty line growth north of 20% and then more modest movement on the U.S. casualty side in particular. So what you're seeing in general is, I think the figures are roughly 62% long-tail line composition of our premium mix in Q4 of last year, diminishing to something closer to 55%, 56% at this point. So, you've got a swing in the mix from longer tail to shorter tail. And in conjunction with that, you've got an increase in premium composition coming from the international markets relative to what we're doing in North America. So, that's going to swing some of those, that's going to swing the overall attritional loss ratio mechanically. I think most of the swing year-over-year will be a function of mix and a lesser function of the loss pick selection.

Jim Williamson:

Yes, sure. Dean, it's Jim Williamson. I mean, those are in many ways very, very different businesses, even though they're both casualty. What we've seen in casualty pro rata is just an abundance of capacity in the market. It's been more competitive than we think frankly it makes sense, and one of the key dynamics that we think needs to play out is a reduction in ceding commissions on that line. There has been some progress, but it's been in the neighborhood of about a point on average as we've moved through our renewals. We think more is needed and that's one of the reasons in addition just to some caution around the heightened risk environment that we've shed over $300 million in casualty pro rata renewals this year. And so that it's a pretty competitive market and we pick our spots carefully. We think the book performs well, but we are cautious. Casualty XOL is a very different market. It's a quite a small portion of our portfolio. While we did see a lot of -- we've seen growth at times. In the quarter, we were actually down slightly. The issue that we have there is not so much related to commission levels. It's really just making sure that our cedents are carefully managing social inflation. That is a line where we've seen some of that activity. And that's why we keep it as a relatively small share of our business.

Operator:

Thank you. And the next question comes from [Peter Kennison] with Evercore ISI.

Mark Kociancic:

So Peter, it's Mark here. So in terms of the reinsurance Property Cat XOL growth, we've got 30% growth year-over-year on a quarterly basis, so Q2 this year versus Q2 last year. We talked about the dynamics last quarter about the methodology of booking it on a quarterly basis versus the almost what I would call a cash basis, which was really the deposit premiums on Q1 and Q3. And so that's been working its way through the system. The way I would look at it is if you take a look at the four quarters trailing, you're right in the 20% range or slightly above. So, this will normalize out by the end-of-the year, this accounting phenomenon. So that's really 30% year-over-year on the quarter and a north of 20% run rate on a rolling 12-month basis?

Jim Williamson:

Sure, Peter. This is Jim Williamson. We have enjoyed a really terrific set of circumstances and opportunities in Property Cat. And I would really point to a couple of things. First, we've really achieved a lead market position in this generational hard market and it began really at the end of 2022 where you had a dislocated property cat market post Hurricane Ian. There was a lot of uncertainty in the market and frankly, a lot of bad behavior on the part of a number of reinsurers in terms of how they were treating their customers. I think Everest got high marks for being constructive, for being willing to create price discovery and for putting capacity to work. And the benefit of that and the reputational impact of that, I think will be very long-lived. And because we've been so consistent since that point in terms of how we manage our customers, getting out early ahead of renewals, you know, feeding capacity where it makes sense into their programs, taking up shortfalls, et cetera, we now are really in that lead market position. And what that brings to us is the opportunity to be the first carrier they call when they're looking to fill out new capacity and there's been a lot of new capacity buying. So that's been a boon to us. In many instances, we're able to achieve non-concurrent terms because our customers want us on their programs and that can benefit us in terms of pricing, in terms of terms and conditions. On the pro rata side, it can benefit us in ceding commissions. So you reap all kinds of benefits and that's been a very attractive part of this. And then I would just say it's also yielded benefits outside of property cat. So we get a first look at new programs or attractive non-cat lines of business that we want to write. So those are the things that I think are driving differentiated results for us. Now what we see in the market, whether it was the 6/1 renewal or 7/1 or frankly our expectations for January 1, 2025 is that the expected economics of these deals remain excellent. So as we model these transactions, expected return on our capital is just exceptional and we're continuing to lean into that. Our terms and conditions, which improved strongly at January 1, '23 have stayed strong. There's been no giveback that we've seen, no material give back in terms and conditions, which is significant. And then lastly, attachment points are not moving. And we like that because it takes us out of this attritional cat losses, if you will. So really it's our execution plus a market opportunity that remains excellent that allows us to drive the results you're seeing.

Operator:

Thank you. And the next question comes from Charlie Lederer with Citigroup.

Juan Andrade:

Yes, sure. So I mentioned two things. So I mentioned that in the reinsurance segment, we have shed about $300 million of casualty pro-rata renewals so far in the first six months of the year. And I think Jim did a nice job expanding on that a few minutes ago. Those were basically a pro-rata deals that we didn't like the economics. We're being cautious in casualty, as I stated, and so we moved on, but you still saw the growth of the book in general. And even in the casualty line, you saw growth. But as I said in my remarks, it was all rate-driven as opposed to exposure driven. So, I think that's the first part of that. And then on the insurance side of things, it's a similar story, right, where we are being cautious. And I said that we had rate in excess-of-loss trend for the long-tail lines in excess of mid-to-high teens which is excellent. But you also saw the top-line for the casualty lines be slightly down. And so that gives you a little bit of a sense of the discipline where we're looking at certain classes, jurisdictions, lines of business very carefully. And frankly, we're choosing to grow in areas where there's better margins, more certain margins, which are certainly the specialty lines and the short-tailed property lines right now.

Juan Andrade:

We have one more that we have on tap before the end-of-the year and that's basically Italy in Europe. And I think at that point, we'll pause for a period of time and really starting to dig deeper into each of the geographies that we've already opened.

Juan Andrade:

Sure.

Juan Andrade:

Great. Thank you. Thank you all for the questions and the excellent discussion today. I look forward to meeting again and discussing our third quarter results. Thank you for your support of Everest.

Matthew Rohrmann:

Good morning, everyone, and welcome to the Everest Group Limited First Quarter of 2024 Earnings Conference Call. The Everest executives leading today's call are Juan Andrade, President and CEO; and Mark Kociancic, Executive Vice President and CFO. We are also joined by other members of the Everest Management team.

Juan Carlos Andrade:

Thank you, Matt. Good morning, everyone. Thank you for joining us. We had a strong start to 2024. Our first quarter results included record underwriting profit and significant increases in operating income, net income and investment income. This resulted in a total shareholder return exceeding 18% and an operating return on equity of 20%.

Matthew Rohrmann:

Thanks, Mark. Operator, we are now ready to open the line for questions. We do ask that you please limit your questions to 1 question plus 1 follow up, then rejoin the queue if you have additional questions.

James Williamson:

Sure, David, this is Jim Williamson. Thanks for the question.

David Motemaden:

Got it. Understood. Thanks for that clarification on the property Cat growth. I appreciate it.

Mark Kociancic:

Yes. Juan, just a couple of things to add to the equation. So in addition to the conservatism and the prudence of the lost fix, we feel very good about the margin that we're building in the lines that we're writing. We're obviously tracking loss trend, give you a couple of high-level points on that. Essentially, it's been elevated for a while, for several quarters, but stable, broadly stable, and rate has been meaningfully in excess of trends. So we feel good. No issue on our side to have the extra, what we would call, level of prudence in those loss picks given the loss environment that Juan spoke about and I spoke about during the Investor Day.

Operator:

Our next question comes from Brian Meredith from UBS.

Juan Carlos Andrade:

So sure, Brian. Let me get started, and I'll ask Jim to give you a little bit of extra color on all of this.

Juan Carlos Andrade:

Yes, that would be about a little bit over 7%.

Michael Zaremski:

Follow-up on the primary insurance pricing. I think you might have answered part of this, but so the rates have accelerated in social inflation, I guess, associated lines and the decelerated in property, I think, is how -- what kept the kind of the math flat at 12%.

Juan Carlos Andrade:

Yes, Mike, this is Juan. So let me give you a little bit of perspective, and I think you can break it down sort of into different lines.

Michael Zaremski:

Okay. Got it. An encouraging trend on the liability side, given what we're seeing. I believe my follow-up in the prepared remarks, I think, Jim Williamson said that property Cat grew by 24%, I believe. Is that -- I feel like when we're looking at the disclosure in the earnings release, we see a much lower number for Cat XOL? Am I thinking about something incorrectly?

Joshua Shanker:

A lot of property questions. So on the big pro rata growth, can you talk about what that means for your exposures and how that affects your capital utilization?

James Williamson:

Are you referring in terms of how we put the capital to work?

Mark Kociancic:

No. Josh, it's Mark. The answer is no. Despite the large level of growth, very manageable full degrees of freedom to underwrite as we see in the market going forward. No issue on that side.

James Williamson:

Yes, Josh, it's Jim again. Look, I'm not going to comment on the approach that other companies are taking to lost pick selection. What I would say is -- and this is true of older accident years and more recent accident years. We take a very prudent approach to ultimate loss ratio selection. We certainly did that over the last few years as we've strengthened reserves in reinsurance casualty. You saw us do that. We took a very conservative approach to how we set those ultimate loss ratios and put ourselves in a position to ensure that, that's in the rearview mirror.

Elyse Greenspan:

Sorry to follow up again on the property Cat question, but just going back to the 4% reported growth. And Jim, I know you said that the property Cat XOL book grew 24%, sorry at 1/1. I understand that debt premium earn lags as you write business. I just didn't, I guess, appreciate that there's a lag on a gross or net premiums written basis on business that you would have written in the middle of last year. Can you just, I guess, just kind of explain that just that concept to me, just like the lag on the written that would, I guess, flow through 6 months later?

Elyse Greenspan:

Okay. And then on the -- on the capital side, you guys started to buy back a little bit of your stock this quarter. I think you used the word opportunistic around that. So can you just give us a sense of just kind of capital return thoughts from here just balancing growth? And I guess, obviously, as we get closer to win season?

Operator:

And our next question comes from Gregory Peters from Raymond James.

Mark Kociancic:

So it's -- Greg, it's Mark talking. Let me kind of split this into 2 pieces of PMLs and TSR, ways of getting there. So back in the Investor Day, one of the points that I made during the presentation was that we had lots of different avenues to achieving leading financial returns as measured by total shareholder return.

Juan Carlos Andrade:

Greg, this is Juan. And I would just essentially reinforce 2 points that Mark and Jim have made. So number one, we absolutely see no change to the 17% target. And you see where we started the year at the 18.1%.

Charles Peters:

I guess, my follow-up question, just more specific. Can you talk a little bit about how the facultative market is evolving because sort of hearing mixed messages out of the market and value your perspective on that.

Operator:

And our next question is coming from Bob Jian Huang from Morgan Stanley.

Mark Kociancic:

Bob, it's Mark. So we did do our Q1 quarterly review process. It's quite comprehensive. You're right, no real reserve studies to go through in the first quarter, but plenty of anecdotal data that we're looking at, all kinds of information.

Jian Huang:

Got it. That's very helpful. Second one is more of a modeling question. So I understand that your expense ratio for the Insurance segment was elevated a little bit due to international build-out. How should we think about maybe a near-term run rate on this? Is this something that will persist for next few quarters, next few years? Is there a good way to think about the expense element on the Insurance segment?

Operator:

And next in question is Yaron Kinar from Jefferies.

Mark Kociancic:

Yes, Andrew, it's Mark. The short answer is yes. I think there are several factors that are going towards that. You heard me in the previous question speak to some of the scaling benefits that we expect to get, particularly from the insurance franchise. So there are several factors, tailwinds that we have that I think will help us achieve that range.

Unknown Analyst:

And maybe on Reinsurance, some strong growth within casualty pro rata and casualty XOL. Could you talk about some of the opportunities there this quarter?

James Williamson:

Yes, I think that's right. It is on the pro rata side, it is largely timing of recognition. As we had indicated after the January 1, 2023 renewal, we earn casualty pro rata or I should say, recognized written premium over 8 quarters. And it's really in the middle of that period that you see the largest recognition of premium. And so we're in that period. We had really strong printed numbers last quarter on Cat's pro rata, same this quarter, et cetera. And there have been incremental opportunities, as Juan indicated. And in particular, when those are taking place outside the U.S. and in a very balanced way, we're more than happy to lean in to those opportunities.

Operator:

And next, we have a question from Meyer Shields from KBW.

James Williamson:

Yes, it's Jim Williamson. Thanks for the question. Actually, for the most part, the acceleration you would have seen some of the growth in professional lines for the quarter in our Insurance business was really related to one large fronting arrangement in our Canadian operation. So it's not really a general trend that you can apply to the rest of our business.

Unknown Analyst:

Got you. So we don't expect that to continue for the rest of the year?

Unknown Analyst:

Okay. Got it. Just one more question, just a board question on Reinsurance. Just curious, can you share any plans for buying reinsurance for the Insurance segment?

Juan Carlos Andrade:

Great. Thank you for all the questions and the excellent discussion. And I'll end really where I started, which is we're off to a very good start in 2024, with an 88% combined ratio for the quarter and a 20% ROE. And from the prepared remarks and the commentary that we found over the past hour, you see that we are still in a market with strong trading conditions, generating that 17% growth that you saw overall for the first quarter. And then you certainly heard about the opportunities we see in both Reinsurance and Insurance for the remaining part of the year.

Operator:

Good day, and welcome to the Everest Group Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Matt Rohrmann, Senior Vice President and Head of Investor Relations. Please go ahead, sir.

Juan Andrade:

Thank you, Matt. Good morning, everyone. Thank you for joining us. 2023 was the most profitable year in our history. We delivered exceptional full year results. We achieved record underwriting income, record net investment income, record operating income, record net income and record operating cash flow. We executed on our objectives and delivered a 2023 operating ROE of over 23% and a total shareholder return of over 26%. The strength and quality of our franchise was evident as we achieved these results in another elevated catastrophe year, while also taking prudent actions to further strengthen our balance sheet, Everest capitalized on the hard market to grow in attractive lines across our businesses. Our precise execution at the 2024 January reinsurance renewal created excellent outcomes. We completed the deployment of our $1.5 billion equity capital raise on schedule and at superb risk adjusted returns. We expanded key client relationships, while improving the scale, quality and profit potential of our portfolio, giving us a strong start to the year. Market conditions remain strong. We are not seeing any meaningful new capacity enter the market and we expect conditions for upcoming renewals to remain excellent. Our capital strength positions us to profitably grow both underwriting businesses. At Everest Investor Day last November, we outlined our progress, strategy and financial objectives for the next three years. As you have seen from our 2023 results, we are on-track to achieve these goals. Our primary objective is to generate industry leading financial returns consistently and across market cycles and we have delivered. We are building on momentum created by our actions to transform Everest over the past four years. Operating as one Everest, we elevated all aspects of our business. Everest is a more diversified and higher margin business with a strong underwriting culture of execution and accountability. This guides our underwriting decisions and our drive to outperform and allows us to deliver on our long-term objectives. Turning to the full year financial highlights beginning with the Group. The Group delivered outstanding results in 2023. As I said, we achieved new company profitability records including annual operating income and net income which both exceeded $2.5 billion for the year. We grew by 21% in constant dollars, ending the year at nearly $17 billion in gross written premium. Our performance was supported by the execution of our strategies and our ability to take advantage of strong market conditions and reinsurance and insurance. We generated $1.2 billion in underwriting profit also a company record and we improved the combined ratio more than five points to 90.9% despite industry catastrophe losses exceeding $120 billion. We achieved a six point year-over-year improvement in the Group loss ratio contributing to our excellent underwriting results. Building the strength and flexibility of Everest balance sheet has been a priority for this management team since we took over this company. This was reflected in the quarter through our modest favorable development as we built additional strength into our already strong reserve position. Mark will provide more detail on these actions. Turning to investments, we achieved another record with annual net investment income of $1.4 billion driven by our actions to capitalize on the rising interest rate environment. Now for the underwriting segments beginning with reinsurance. The reinsurance division had an exceptional year. Our disciplined planning and execution in 2023 allowed us to capitalize on the generational hard property market, delivering outstanding top line growth and bottom line results. For the full year 2023, growth was 26% in constant dollars and excluding reinstatement premiums with $11.5 billion in total gross written premiums. Growth was broad based as we expanded with core seeds, grew in targeted markets and allocated capital to higher return opportunities. We grew our core North America property catastrophe portfolio by over 30% had exceptional risk adjusted returns. Internationally, we grew our total property portfolio by over 40% with strong and targeted growth in Europe and Asia. We also leaned into growth opportunities outside of property catastrophe including in targeted proportional property deals, aviation, marine, and in facultative with strong of returns in these lines. The division delivered $1.3 billion in underwriting profit for the year. The attritional loss ratio improved by 4 point to 57.7%, and the attritional combined ratio was down 110 basis points from 2022 when adjusted for prior year commissions related to the reserve releases. We leveraged deep client and broker relationships and our strong balance sheet to build a more profitable and higher margin book, which culminated in outstanding results at the January 2024 renewal. At 1/1/’24, we grew our total property catastrophe portfolio by over 25% compared to expiring premium. Following the significant increases in 2023, we saw further property catastrophe rate increases at 1/1 broadly across geographies. In North America, the Property Cat XOL risk adjusted rate change was approximately 7%. Internationally, rates on our portfolio were up 14%. This trend also continued in specialty lines particularly marine and aviation. The flight to quality in the reinsurance market continued. Our leading market position allowed Everest to grow market share on oversubscribed deals with leading clients on the best quality Property Cat, cyber and specialty line treaties and in geographies around the world. Our clients signed down other carriers to make more room for Everest. We also played a leading role in several of the increased CAT limit purchases being made by some of the best primary insurance underwriters in the business. This reflects the strength of our franchise and reputation in the market. To illustrate the point, we generated close to $300 million in additional premium growth through increased shares on existing property treaties. The favorable terms and conditions that we achieved during the 2023 renewals held while attachment points which increased significantly last year or maintained. We were also surgical in our approach towards certain casualty lines at 1/1. We non-renewed 16% of our casualty and professional liability pro rata business particularly when ceding commissions did not meet our thresholds. These targeted actions however were partially offset by expanding shares on attractive casualty programs with select top clients. We achieved our objectives at 1/1 executing with the same discipline and focus Everest has consistently applied to shaping and diversifying the portfolio. We do not right the market. We selectively underwrite risks that meet our requirements. Our priority is growing the bottom-line to deliver leading financial returns. Coming out of the 1/1 renewal, the quality of our book is excellent. We are positioned to drive sustainable margin expansion, while continuing to distinguish ourselves as the preferred lead market platform. Now turning to our primary insurance division. 2023 was a pivotal year for Everest Insurance. We advanced our key objectives while establishing strong foundations. We solidified and enhanced the division's global leadership team with top talent in the right places operating through a regionalized structure aligned to customer needs. In 2023, we grew the insurance business by 10% in constant dollars, achieving record annual premium of over $5 billion. Growth was balanced and diversified by product, business line and geography. We saw excellent opportunities in property and specialty lines including marine, aviation, trade credit and political risk. We are disciplined. The modest growth in certain casualty lines was primarily driven by robust rate increases as we remain prudent in our writings and focus on lines of business meeting our return thresholds. We continued to shift to shorter tail lines with favorable pricing and a strong profit trajectory. For both the year and the fourth quarter, we achieved a broad-based 12% rate increase in our core portfolio, excluding workers compensation and financial lines. Beyond property, pricing accelerated and was particularly strong in marine and other specialty lines, commercial auto, general liability and access liability. Overall, rate remains ahead of loss strength. We will only grow where we can do it profitably. We will remain disciplined in less attractive lines including D&O, workers' compensation and commercial auto. The combined ratio increase was driven by our reserve strengthening to address the impacts of social inflation along tail lines in the 2016 to 2019 period. The core underlying performance of the book is strong. We advanced our disciplined international strategy led by a proven entrepreneurial team of industry leaders and local underwriting talent. They accomplished a great deal in 2023, scaling our insurance platform across Latin America, the UK and Ireland, Continental Europe in Asia Pacific where our value proposition is differentiated and eagerly welcome. We made strides implementing systems and capabilities enabling us to operate from common platforms and drive efficiencies. We are on-track for new openings this year in Colombia, in Mexico and Australia. While we have tremendous headroom in lucrative markets, we are focused only on the most accretive opportunities. Since this management team took over in 2020, we have significantly increased prudence around risk selection and deployed a disciplined underwriting strategy. We rebuilt the underwriting engine from top to bottom, investing in top tier underwriting and experienced talent. We significantly strengthened our underwriting guidelines and risk selection parameters. Additionally, we pushed rate in excess of trend, broadly raised our inflation assumptions and initial loss picks. We added more loss sensitive features, raised deductibles, and lowered limits. We exited certain social inflation prone industry classes and invested in additional claims technology. As I said, if business doesn't meet our underwriting criteria, we just won't write it. As we head into 2024, the insurance division is executing from a strong foundation and is well positioned to deliver on the targets we set out for the business at Investor Day. Our financial results led to the most profitable year in Everest's history. We are building on this momentum with standing start to 2024. As favorable market conditions persist, we are leaning into robust tailwinds across our reinsurance and insurance businesses with the full power of Everest behind us, and we will make the most of the opportunities in front of us. We have the right team driving a clear strategy with multiple avenues to deliver on our primary goal of generating consistent leading financial returns. We are confident about delivering on our objectives. With that, I'll turn it over to Mark to review the financials in more detail.

Matt Rohrmann:

Thanks, Mark. Operator, we are now ready to open the line for questions. [Operator Instructions]

Yaron Kinar:

I guess, I wanted to start with the reserve strengthening in insurance, and I appreciate the color that you offered in the prepared comments. But that said, it seems like there may be a little bit of a break with the messaging we heard in prior quarters, namely that the company was already -- had already started reserves considerably back in 2021, has cut loss picks conservatively high since then. So what's changed from that perspective now? And how can investors gain comfort or confidence that we're not going to see some similar pattern emerge in the reinsurance reserves?

Juan Andrade:

Yaron, in addition to that, this is the Juan Andrade. Look, I would say there is no change in the messaging from our perspective. We have been very consistent in the fact that we have a strong overall reserve position. We are confident in the most current years. You're right. We have raised inflation assumptions. We've raised our initial loss picks. We have pushed rate in excess of trend as well as a number of other things that I talked about in my remarks this morning. So we feel very confident about that. And I think as Mark said in his prepared remarks, we believe this closes the book on the 2016 to 2019 years.

Jim Williamson :

Sure. Yaron, it's Jim Williamson. Thanks for the -- thanks for the question. So just to step back a little bit, our approach to establishing our quarterly loss ratios has been very consistent over the last few years. We set conservative loss picks as we enter the year. And then we don't tend to change them unless we see some bad news emerge. And so we do that at a very granular level. And so quarter-to-quarter, the only real effect you're going to see are mix related. And so what we have seen is, particularly on an earned premium basis, casualty is still greater than 50%.

Jim Williamson:

Hold on, please. I'm sorry. Just one moment, let me -- this is Jim Williamson. Let me finish answering Yaron's question. Sorry for the interruption of their folks. So as I was saying, we did not take credit for the 1/1/’23 property rate increases in our 2023 property attritional loss ratio. And we do that out of prudence. We keep that pretty consistent year-to-year. And then the last factor, the only thing that affected our fourth quarter reinsurance attrition loss ratio was we did recognize the effect of 2 large property risk losses in the fourth quarter. And again, out of prudence, we bumped up our loss pick for those losses. That's about -- that's worth about 60 basis points on the total reinsurance loss ratio. So that also masks some of the underlying improvement that you'd be seeing from us, Yaron.

Josh Shanker:

More questions about the insurance reserve charge, of course, $392 million of net adverse development principally related to '16 to '19 in general liability. But of course, those are inflationary CAGRs that are being set correctly, which span into 2020 to 2023. What was the gross amount of the inner impact on the loss reserves, I assume offset by development for frequency-related issues on the short-tail lines from the '20 to '23 period. I guess what I'm getting at is how much will reserve strengthen for inflationary issues on those later years?

Juan Andrade:

Josh, this is Juan. I would also add maybe just a couple of things. Gross is very similar to net and there are no big moves under the covers per se. I think, as Mark basically just said. The other thing that's important to note in context always matters. When we're talking about general liability, for 2016 to 2019 and the actions that we took, they're really isolated to two things. One is a program that's now been put into runoff. The second one is related to a block of business that we have aggressively reunderwritten as well in the past couple of years. This is not endemic to the rest of the GL book in insurance. That also gives us confidence on the go-forward numbers. And hence, what you hear Mark saying that we have closed the door on the 2016 to 2019 years with this action.

Mark Kociancic:

No, you can look at it that way for sure.

Mark Kociancic:

Well, first of all, I go back to my other remarks that I was making. So you've got payment patterns for 2016 to 2019, well developed. And so we're showing ultimate loss ratios in the '16 to '19 period, which are markedly elevated from the initial loss picks. So that's one part. When we switch over to 2020, 2023 time frame, out of an abundance of prudence, we started with elevated loss ratios to begin with. So over and above what we would have expected. Then you're getting the rate in addition to that, and you've got the portfolio management, which is eliminating some of the root cause of the '16 to '19 development. So it's not just applying a raw number, a social inflation factor. There are other things that go to mitigate the development that could happen from 2020 to 2023 and probably more importantly, how do we get comfortable with those years. So GL for us from 2020 to 2023 still looks very good, good to us. There's -- we don't have an issue there. From 2016 to 2019, it was the lion's share of the problem that we're solving with this reserve charge today in insurance.

Josh Shanker:

Okay. I know it's a complicated issue. I'll take anything else have offline. Appreciate it.

Elyse Greenspan:

Following up on the reserves as well. I was hoping can you give us a sense on where you're working your reserves overall and in each of the segments, insurance and reinsurance relative to the actuarial midpoint and where was it before?

Juan Andrade:

Elyse, this is Juan. And just to add to what Mark is saying. To think about what we have been saying and said in this call today about the quality of the underwriting really over the last four years, the pricing environment that we've been in ahead of loss trend the portfolio management actions that we have done and how we have crafted both books to be higher quality. What that basically means is that there's more in the tank and there are lots of good news in the future that we just haven't touched for the reasons that Mark just articulated. They're just not well seasoned yet.

Mark Kociancic:

Yes. It was marginal. You're looking at a very small percentage of the total reserves, low single-digit for those exposed years. I think there's a couple of things that you can look at, and I would start with the reserve charge we took in 2020 that was fairly meaningful at $400 million, and most of that was going into the casualty years from 2016 to '19. So I think we took a good chunk of that apple. Over the last few years, both sides, Insurance and Reinsurance, there has been some minor adjustments for those years throughout the time. So we have been nibbling away at the data that we've been seeing. 2023, I think, was more pronounced in terms of industry loss data for those years. But we were in a -- we were just in a much stronger position from a reinsurance point of view, on those years. I don't see any problem going forward on either side for '16 to '19 in either segment.

Mark Kociancic:

Percentage, percentage, yes.

David Motemaden:

Just following up on the reserves. So Mark and Juan, you guys spoke about specific programs that are driving the insurance charge mainly on GL, but I guess I would have thought that the trends impacting those lines are the same trends that are impacting the rest of your book. So I'm just wondering, as you guys take a look at it, how do you make the conclusion that it's isolated to these books in these accident years and not other programs across GL, but other lines in general?

Juan Andrade:

Yes, David. And what I would add is those two items that both Mark and I have mentioned, those are niche type businesses, not sort of standard type of GL. And essentially, we have closed that book for all intended purposes.

Mark Kociancic:

I think there's several points. First of all, you've got very well-developed reporting patterns for the '16 and '19 years. So again, anywhere from 70% to 90% development, completion of development for 2016 to '19. So that gives us a lot of confidence that we're dealing with actual data. We also have assumptions that I think are very prudent in terms of the social inflation impact. And so when you combine that altogether, we're able to capture with a high level of confidence what we think the ultimate loss ratios are going to be for really '17, '18 and '19, '16 is pretty much I think, done and really didn't move that much for us. The larger point is 2020 onwards, and I think this is what we've been trying to emphasize is we're benefiting from several factors, you can see with the process that we've embedded not only on the reserving side, but how we act upon information inside the company. And so you're seeing the claims data, what we're getting on the reserving side and embedding it within management pricing and underwriting. So which classes of business, which programs are causing issues or at risk? Are we getting adequate pricing for it? And so we're far more disciplined, I would say, 2020 onwards with respect to that. Second part, there's been a significant amount of rate that's accumulated on a quarterly basis beginning in Q4 of 2019. And that's clearly helping and it's supported by the industry loss data that's been developing since that point in time. And then you've got the prudent loss picks. Clearly, we've elevated our loss pick selection, taking into account social inflation factors, other risk factors, just trying to be more prudent as a management team. Nobody wants to go through this exercise. And so we recognize that when we started. And hence, the constant effort on portfolio management. I mean, that is ultimately the key understanding at a granular basis, your portfolio by line, by client, by policy what is driving your profitability? What is driving underwhelming results? What is driving good results? The risk selection aspect, and that's something that I think we've been able to do a pretty good job of since 2020.

Operator:

And our next question today comes from Gregory Peters with Raymond James.

Jim Williamson:

Everest did have another excellent Jan 1 renewals you heard Juan say we were able to deploy our incremental capital at really exceptional economics. We did grow the cat book, including leading or participating in many of the new top-off programs that you would have heard about as well as executing on a number of non-CAT opportunities in engineering and cyber, aviation and marine. So it's really excellent all around. In terms of the dynamics of the sustainability of the market on the Property Cat side, which is, I think, where the core of the question lies, I would really point to three critical factors in terms of what is driving or what drove the market correction that started in the back half of 2022, and then obviously reached a peak and sustained itself through 2023. The first is there's been this persistent gap between supply and demand in terms of available capital. And clearly, some of that ameliorates as the industry earns good returns in 2023. But there's really fundamentally been no formation of new capital in the industry other than our equity raise. And so I think there's still that element. There's also a rising demand from our cedents to buy more limit, which we saw again in some of those new deals that came out. The second key factor, which I think is critical is underwriting psychology. The fact is the industry has been affected by multiple years of elevated loss activity that's hurt underwriters across the business. And they understand, I think, where you need to sustain rate momentum to earn good returns. And then the last thing is, if you look at the underlying loss trends, climate change, the impact of development patterns we're in an elevated CAT world. It's the new normal, and we saw it again this year. We had an elevated 2023 CAT year. So our view is that puts legs on this market, and our expectation remains that these terrific conditions will persist past the January 1/’25 renewal. In terms of risk remote layers, yes, I mean, look, there's interest there because I think people are trying to get away from all of the factors that I just described. We did see some cap on formation up in the towers that caps price increases. But as you saw in our portfolio, there's plenty of areas of these programs where we can continue to do exceptionally well. And so we see just tons of opportunity for us as we go forward.

Jim Williamson:

Sure. Greg, Jim again. Yes, so a couple of things, and you would have heard us opine on this in prior calls, a couple of things moving there. First of all, the way we shaped our portfolio definitely has an impact on the shape of the curve and the shape of the PMLs. And so, one of the things that we did, for example, throughout 2023 was move up in programs and really get more remote in terms of our average attachment level. And I've talked about an average attachment that might have been in the 1 in 4 or 1 in 5 year range is now more like a 1 in 7, and that's very meaningful in terms of managing total risk profile. And so that's been very important. The other thing I would indicate, obviously, is we are growing our portfolio across the world. We see really terrific opportunities in markets in Europe, in Asia, in Latin America. So we don't have to over-lever ourselves to our existing peak zones. We can be diversified and get exceptional returns. And then the last thing I would note, obviously, is the company is growing. And so the capital base, the denominator of those 1:100 calculations that you're referencing is getting larger as well, which gives us obviously capacity to prudently grow our portfolio. So if you were to look at on a dollar basis, our reported PMLs, you'll see growth. I think that growth is appropriate given the environment. I'd say gross PML growth is lower than net PML growth. As we've hedge last as Mark indicated in his comments, which means more retained profit for us. So we're really moving all of these dials to ensure superior returns as we move forward.

Operator:

And our next question comes from Brian Meredith with UBS.

Mark Kociancic:

Yes. We're definitely, I think, ahead of the curve on that. That's something that we've had in our vision for quite some time. And we're prudently reserved clearly in '23, have been proving out. So we feel very good about our casualty reserve positioning in the reinsurance segment for those years and recent years.

Brian Meredith:

And then second question, just curious, capital management. I mean, obviously, you've had a lot of fantastic organic growth opportunities here, you're really growing. But as I look at your stock right now, it's kind of come down and getting closer to some pretty attractive valuations. And what are thoughts on kind of using some of the capital that you're generating for share buyback?

Juan Andrade:

Yes, Brian, this is Juan. And I would echo what Mark said, look, from our perspective, buybacks are always there right after organic growth and something that we consider on a regular basis.

Ryan Tunis:

Just one for me. If we think about your 2024, 2025, 2026 objectives, let's say, social inflation continues to kind of nag. So there's -- in this area where there's a little bit of underlying loss ratio pressure at the group level. Are those objectives still achievable in your mind? And I guess, if not, you mentioned capital management, but are there other levers that you can pull to stay within that ROE range?

Operator:

And our next question today comes from Michael Zaremski with BMO Capital Markets.

Juan Andrade:

Yes, Mike, I'll start and then I'll have Mark add some commentary as well. Look, we don't disclose our loss picks, obviously, for competitive reasons. But I can tell you that, again, as I've said before, since I arrived here in the fall of 2019 and for the first plan that we did for 2020, we significantly increased our loss picks in both insurance and reinsurance, particularly on long-tail lines of business. And that is something that we look at every quarter. and we true up every quarter, and you have not been seeing us really take loss big staff, at least not since I've been here as CEO of this company. And the reason for that is everything that we have been talking about right now, right? Number one is the fact that we recognize that there is loss inflation in the environment. So that's one of the key reasons for increasing the loss picks and not taking them down. We also have been truing up our loss trend assumptions and we've been doing that on a very regular basis starting in 2020. So before inflation, economic inflation really started to happen, we started doing that really in 2020. So I think those two things really come back to what Mark and I were saying earlier in the conversation, which also gives us comfort as to where we are right now. In addition to that, and very importantly, it's all the risk management and portfolio management actions that we have taken across the book. You heard Mike Karmilowicz, for example, talk about the fact that in lines like ex liability, where we might have had $25 million limits exposed back in 2018, 2019, they're down to $10 million now, and it's actually a net of $5 million for us in the company. So significantly lower. And that's across every single line of business that's out there. So when you take into account the increased loss picks, the increased rate, the additional loss trend is put up, the rate and the portfolio management actions, the risk selection, et cetera, all of this comes together. And essentially, the conclusion that we're giving you today on how we feel about that go-forward business and the fact that we have dealt with the 2016 to 2019 years.

Mark Kociancic:

Mike, it's Mark. The first point that I would make is we have ample capital. There's a lot of capital that we have at our disposal -- the capital raise that we did last year, fully deployed, we've generated an additional $1.5 billion in the second half of 2023. I think we've also got very favorable margin expectations for 2024 and beyond. And so the ability to generate income and retained earnings going forward, we feel very bullish about. And then you've got process that we have internally where there's the -- and I think this is really important, there's a discipline of what I call threshold pricing where we are able to move into the most accretive opportunities. We are not forced to simply underwrite certain lines or classes of business to keep volume or whatever it is. It's very much a profit focus. And so the attractiveness of what we see in this environment for underwriting expansion is driving everything. Capital management, I think that's a secondary tool. There's nothing that would restrict it. It's simply not as privileged given these opportunities that we have now. And the main point here is that with all this ample capital and capital generation ability. If we're not able to remunerate that satisfactorily to our TSR objectives. Yes, then I think you'll see more to management levers being pulled, but there's nothing stopping that conceptually. It's simply the opportunity set that we have in front of us that we want to pursue and capture.

Jing Li :

The first question on that you mentioned in the block on the return on the casualty book. Just wondering like how big was and what's left on these books? Are they in majority GL book?

Mike Karmilowicz:

Yes. It's basically a couple of $100 million. And these were actually dealt with over the last 18 to 24 months. So we proactively got in front of it. And again, I think that gets back to the point you made around active and portfolio management.

Jim Williamson:

Yes. This is Jim Williamson. Thanks for the question. Our stance has been pretty consistent in that. We thought the government of Florida, the legislator did a very good job in the structuring of those reforms. Early indications in terms of communication with our clients in Florida and other stakeholders in the state would suggest that the reforms are doing what they were intended to do. But we also said that we would be waiting for the results of those reforms to show up in our data before determining what that means for our underwriting position. So our approach to Florida has been quite consistent over the last couple of years. We are a meaningful provider capacity to the state -- and as long as our expectation for risk-adjusted returns are met, which would mean at least as good or improved from last year, meaning excellent, we'll continue to provide that capacity. Obviously, if that isn't the case, we would do less. And if conditions get even better, we might do a little bit more. But I don't expect a major change at the upcoming June 1 renewal.

Juan Andrade:

So thank you for the great dialogue and all the questions on the actions that we took in the quarter. I do think it's important to zoom out and keep things in context, right? If you look at the 2023 results for the company, they were simply outstanding. 23% operating ROE, total shareholder return over 26%. And if you exclude the Bermuda DTA action, you're still generating an operating ROE of 19% and a TSR of 21%. So simply world-class results. You also heard a commentary on the 1/1 renewals, which were excellent. That gives us pretty significant tailwind going into 2024. Not a great discussion on the reserves. And I think hopefully, the takeaway that you have here is we have a strong reserve position. We feel confident about where we are. And then lastly, as Mark and I both said, we are confident in achieving our Investor Day targets. We have lots of levers to achieve our objectives. So with that, I look forward talking to you after our Q1 results. Thank you.

Operator:

Welcome to the Everest Group Ltd. Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Matthew Rohrmann, Senior Vice President, Head of Investor Relations. Please go ahead.

Juan Andrade:

Thank you, Matt. Good morning, everyone. Thank you for joining us. Everest's third quarter performance was excellent. We delivered outstanding returns, including a near 20% operating return on equity and an annualized total shareholder return of 25%. We are leaning into the hard reinsurance market, where favorable conditions and a flight to quality persist. As a lead reinsurance market and preferred partner, we are taking advantage of strong pricing while deepening our client relationships and expanding our global portfolio at significantly improved risk-adjusted returns. We are positioned for success as we head into the January renewals. We also remain on track for January 2024 for the full deployment of the equity capital raised in May. Our primary insurance business delivered strong underwriting income with a significant year-over-year improvement in the third quarter. And our high-quality investment portfolio continues to support our underwriting performance with outstanding returns. We achieved these results despite another active catastrophe quarter. We tracked over 80 material events globally this quarter, resulting in a 9-month year-to-date industry loss estimated at roughly $93 billion. The industry is on course for another $100 billion loss this year. This reinforces the need for continued underwriting discipline and for additional pricing increases across all lines. As the world becomes increasingly complex, Everest value proposition, it's in greater demand. As you have heard me say before, we are on offense with strong tailwinds across all of our earnings streams, a strong balance sheet and top-tier global talent powering it all. With that, I'll turn to our third quarter financial highlights, beginning at the Group level. In addition to delivering exceptional returns, we drove substantial improvements across our Group key financial metrics, underwriting income, net investment income, operating income and net income and we delivered record increases in operating cash flow and book value per share. We grew the business at significantly expanded margins. Gross written premiums increased by 23% year-over-year in constant dollars, led by record quarterly reinsurance growth. We generated $613 million in net operating income, a significant year-over-year increase, and we have generated $1.7 billion year-to-date. The Group combined ratio of 91.4% also improved year-over-year by 21 points, which translates to an underwriting profit of over $300 million for the quarter and nearly $1 billion in underwriting profit year-to-date. Our attritional loss and combined ratios both improved by more than a point year-over-year to 59% and 86.5%, respectively. We generated more than $400 million in net investment income in the third quarter and we delivered over $1 billion of net investment income year-to-date. In addition to the improved interest rate environment, this year-over-year improvement was driven by strong returns from both our fixed income and our alternative investments. Turning now to our reinsurance business. The reinsurance division delivered an exceptional quarter with outstanding top and bottom line results and superb execution by our team. Leading into the strength of the market, we maintained our strategy of targeted and nimble capital deployment with core clients, resulting in significant growth across virtually all business lines and geographies at materially improved risk-adjusted returns. We grew gross written premiums on a constant dollar basis and excluding reinstatements, by 33% to $3.2 billion for the quarter. This is a new record for the division. In property catastrophe, where the market remains outstanding, premiums, excluding reinstatements, were up 41% from last year. Property pro rata premiums increased 44%. Casualty pro rata premiums were up as well at 20%, while we carefully manage the casualty market cycle and target best-in-class clients. Internationally, we expanded in key target growth markets across Europe, Asia and Latin America. We also grew in specialty lines with strong margins, including aviation, marine and mortgage. Despite the active catastrophe quarter, we improved our catastrophe loss ratio significantly year-over-year, reflecting our deliberate and consistent actions to manage volatility. The attritional loss and combined ratios were down year-over-year by 1.6 and almost two points, respectively, with the overall combined ratio improving to 91%. This helped us achieve an underwriting profit of $234 million. Looking ahead, our outlook for the January 1, 2024 renewal remains strong. We fully expect the robust pricing and favorable conditions to continue. And as a lead market, we stand to benefit. Our nimble, creative and collaborative approach allows us to simultaneously improve our economics and strengthen client relationships. This tremendous relationship equity will serve us well. Expectations for pricing and terms and conditions in the global property market are now well understood, which should make future renewals more orderly. At recent industry events, including Monte Carlo and CIAB, our clients told us that they want more of our capacity and want to further broaden their partnership with us. Our confidence in our strategy and in the strength and durability of the market is high. I am excited by the magnitude of the opportunity we have created for the business. We are extremely well-positioned with the expertise, global capabilities and financial strength to seize this generational market opportunity and to optimize the portfolio for the long-term. Now turning to our Insurance division. In our primary business, rate continues to exceed loss trend with improvements across multiple lines. We achieved an 11% increase in our core portfolio, excluding workers' compensation and financial lines. In addition to property, improved pricing was particularly strong in marine and other specialty lines. We grew the business approximately 4% and generated more than $1 billion in gross written premiums. Growth in the quarter was diversified and particularly strong across property, where we see excellent opportunities and specialty lines such as marine, aviation, trade credit and political risk. The growth was offset by reductions in workers' compensation and financial lines where the market is less attractive. Additionally, we are gaining traction internationally, where we are methodically scaling our capabilities and our platform. Our focus remains on driving bottom line growth. We continue our disciplined underwriting to take advantage of high margin opportunities and reduce exposure in pockets of business that do not meet our profitability objectives. The attritional loss ratio improved year-over-year to 63%. Our pre-tax catastrophe losses at $10 million, net of estimated recoveries and reinstatement premiums were modest, leading to an improvement in the reported combined ratio to 92.6%. We achieved an underwriting profit of $66 million in the quarter and a record profit of $196 million year-to-date. We continue to attract and develop best-in-class talent. We share our vision for the company and our commitment to world-class customer service. I am bullish about the momentum we have created for our business and Everest's position in the market. We have every advantage at our disposal, a world-class team, strong and diversified reinsurance and insurance platforms and market tailwinds at our back to accelerate our progress and build even greater value for our shareholders. With that, I'll turn it over to Mark to review the financials in more detail.

Matthew Rohrmann:

Thanks, Mark. Operator, we are now ready to open the line for questions . We do ask that you please limit your questions to one question plus one follow-up, then rejoin the queue if you have additional questions.

Alex Scott:

Hi. Thanks. Good morning. First question I had for you is on the demand for Property Cat reinsurance headed into this next year. And I'd just be interested if there's any color you can provide from early discussions and indications around that piece of things in terms of just thinking through last year, the retentions brought up a bit, I think limits in certain cases, weren't taking up as much as insured values were going up, that kind of thing. Are you seeing some willingness to reverse some of those actions? Do you think you'll see that kind of growth in the Property Cat reinsurance market this next year?

Alex Scott:

Got it. And in terms of a follow-up, I wanted to ask you about Casualty Reinsurance and just your comfort with the price adequacy of the quota-share commissions and so forth. We heard that there was some negativity coming out of Monte Carlo from some of the European reinsurers. What's your perspective on some of the social inflation concerns and how well that's being captured in price and willingness to grow in some of those areas?

Alex Scott:

Thanks for all the details.

Operator:

The next question comes from the line of Josh Shanker with Bank of America. Please go ahead.

James Williamson:

Sure, Josh, this is Jim. Well, one point I would start with, I know you've made a point that it was a moderate Cat quarter and I think we feel very good about our Cat loss. But this quarter, from an industry perspective was anything but moderate. I mean we tracked over 80 events around the world. You had significant hurricane activity, which fortunately because of landing points, et cetera, did not do significant damage. But the comment I would make, and as you say, it's sort of an unanswerable question, but you've seen our year-to-date performance in terms of our reported Cat losses. And that's happening against the backdrop of a year that's likely going to be another $100 billion plus industry loss a year, which is incredible, right? And our expectation is that if you repeated the losses of 2022, for example, our loss this year against those same events would have been meaningfully lower, and that's because of attachment points. It's because of portfolio management, it's because of aggregation, it's our underwriting discipline, it's all those things laddering up. So we have clearly changed and improved the risk profile of the book, particularly when you're talking about a large number of mid to large sized Cat losses.

James Williamson:

Yes. Sure, Josh. Jim again. Well, look, so just to kind of go back to what we said after the capital raise, our expectation was that we would begin the deployment meaningfully with the 7/1 renewal that there would be incremental opportunities through the back half of 2023, and then we would complete the deployment at the January 1 renewal. So, we have done exactly that. We've begun the process of deployment. We had a really strong 7/1. The back half of the year after 7/1 gets quieter, but there's been some nice deal activity both at the renewal periods as well as on a private placement basis. And based on the conversations we've had with our cedents, we see a very strong path to completing the deployment. We really have no concerns around that. So I'm not going to speculate on, well, what if I just sort of deploy all the capital at 7/1. But what I can say is the path to completing that process, as we described, is incredibly clear.

Juan Andrade:

Josh, and this is Juan. Just maybe to put a fine point on it. Rates are still improving in property. And we also got paid a lot more for the risk that we took, and so that's part of the confidence that we have in being able to deploy this fully by the 1/1 renewal.

James Williamson:

Yes, Josh, it's Jim. I mean my expectation is we are going to grow our Property Cat writings with our core clients very nicely. Again, we see significant demand. Our expectation is that risk-adjusted rates will increase at the 1/1 renewal. So lots of opportunity in the environment.

Juan Andrade:

Right.

Yaron Kinar:

Thank you and good morning. My first question piggybacks on your thoughts on 1/1 renewals in the property reinsurance market. So certainly, you sound very constructive. You're also talking about demand being up. What about the supply side? Because I would have thought that with relatively benign reinsurance losses this year and certainly in hurricane season, you're going to see an uptick in capital. So how are you thinking about that and the kind of supply-demand dynamic, especially for maybe more remote risk, which seems to be where the insurers are more interested in playing right now into 1/1, is the constructive view really driven by supply/demand? Or is it more about sentiment and discipline considering maybe a more balanced equation this year?

James Williamson:

Yes. Sure, Yaron. A couple of other points I'd add to what Juan said. I mean there is -- I think you've referred to it as a sentiment, but there's an underwriting discipline that underlies all of this, irrespective of how much capital is available to underwriters. In our industry, every underwriter I've talked to, they want to get paid more for the risk they've been taking, and that's a reflection of the last several years of elevated Cat losses and even what we've seen this year and in this quarter. And I don't see any sign that's dissipating. And then to your -- the other point you made around more remote layers and that seems like an area where more people want to participate. You've seen some Cat bond activity up there, et cetera. I mean that how much rate gets added to the effects of 2023 and at which levels will remain to be seen. But in our view, it doesn't really matter. If there's more supply at the remote level, that means that just below that there'll be great opportunities. We are very flexible and nimble in where we deploy our capital. And so those kinds of impacts don't really reflect our -- or change our opportunity.

Mark Kociancic:

Okay, Yaron. It's Mark. I'm going to start, and then I'll ask Karm to finish and add some color to it. Look, first of all, I think the attritional loss ratio is pretty much right where it should be. We are still setting conservative loss picks for casualty lines in particular. We are in an elevated risk environment. We want to be prudent on that. We are obviously getting rate, and we are getting the kind of business we want to write in terms of cycle managing this particular marketplace. So you've seen some increases in writings and decreases in different lines, and that gives you a sense of our discipline in the marketplace. And so that mix in the attritional loss ratio is coming out too broadly stable with last year. We don't see any problem with that. We've got an embedded margin in there that we are quite comfortable with, quite confident in, and we think it takes into account the risk environment that's out there for the different lines we've underwritten.

Yaron Kinar:

Thanks so much.

Michael Zaremski:

Hey, good morning. Thank you. Maybe just looking at the paid to incurred ratio ex catastrophes and reserves. It's been, I think, not just you all, but it's been ticking up a bit year-over-year and quarter-over-quarter. Anything worth calling out or talking about in terms of trend there?

Michael Zaremski:

Okay. That's helpful. I guess switching gears a bit back to the discussion on ceding commissions. The business mix has changed a lot over time. And I know you used to -- I think the wording it could improve considerably. Any perspective on kind of like if ceding commissions are still -- many points different than they were many years ago, right? But I know your business mix has changed a lot, too. So is there any context about what considerably could mean if things do go -- continue to move in favor of reinsurers into '24?

Michael Zaremski:

Okay. Got it. And maybe lastly, just wanted to make sure on Everest historical Cat load guidance, is it correct that your last Cat load guidance was less than 6%. And I'm -- I clearly heard -- but we clearly heard what you said about if Cat losses last year happened this year, what would happen, but then also you're probably leaning into the marketplace as well and business mix has changed. So just is less than 6% the most recent update?

Michael Zaremski:

Okay. Thank you.

Michael Ward:

Thanks, guys. Good morning. I was just wondering if you had any preliminary view on maybe the industry exposure for Hurricane Otis in Acapulco?

Michael Ward:

Thanks. That's helpful. Maybe on the expense ratio front, the internal investments seem a little weighted to insurance. I guess as you look to 2024, do you expect that to set up softer comps in that segment or for the group overall?

Michael Ward:

I was just -- looking into '24, I was wondering if you expect the expense ratio weighted towards insurance to set up softer comps, whether it's insurance or just for the group overall?

Michael Ward:

Thanks, guys.

Operator:

The next question comes from the line of Ryan Tunis with Autonomous Research. Please go ahead.

Mark Kociancic:

Ryan, it's Mark. So let me take a shot at this. I think whenever we talk about our capital shield, we always start with the gross risk that we are underwriting. We essentially want to be gross underwriters. It's not a flow-through or anything else in terms of the use of retrocession cat bonds, et cetera. So that's kind of the starting point. So we have a substantial laddering of Cat bonds, typically over a 4- or 5-year type of duration. There are different layers at which they attach and our book changes as well on the growth side from time to time. So we take the gross portfolio that we are underwriting into account. We take our overall cat position into our account, and then we start to modify. And there's a couple of other factors that would go into it. So let me just start with the easy stuff. So we always -- we have the ability to use and we prefer to use Mt. Logan, our third-party sidecar vehicle as much as we can in terms of hedging and aligning it with the kind of risk we are taking in property cat. Tactical use of ILWs on a periodic basis is another tool that we use, and we use this proactively, depending on where the efficiency of the pricing and the placements are for cat bonds and ILWs and then Logan, of course. So we also take into account the capital position. You referenced the capital raise in May as an additional source of capital base for the company. So that definitely enters the equation. And lastly, I would throw into the mix the economic capital at risk graph that we talk about frequently in our investor deck. And essentially, that space that we are comfortable playing in shows that we have a lot of room to expand risk appetite within our tolerances for tail risk, earnings at risk. And we tend to do that, especially when we see superior margin on the types of risks that we are underwriting, particularly property cat. And so we take all of these factors that I've mentioned to plan out our capital shield going forward. And so obviously, we had a conscious decision to not renew the -- I think we had two bonds in the spring. We did add another one at a different layer, but net-net, there was a reduction. We've got significant capacity that's up for maturity in -- I believe it's November, December. And that's something that we are taking into account now, but I've given you the framework of how we look at it. So I can assure you that given our ambition as a gross underwriter and pursuing superior risk adjusted returns, we are going to look at the options on the capital shield side relative to our gross book as we make those decisions.

Operator:

The next question comes from the line of Gregory Peters with Raymond James. Please go ahead.

James Williamson:

Yes, Greg, this is Jim Williamson. It's clearly an important topic. We have a very robust risk management process at Everest that spans both our reinsurance and our insurance business across really all aspects of the risk we are taking, whether it's property cat, it's credit risk, casualty, et cetera. And there are robust processes underneath that framework where underwriters in the respective divisions are analyzing our aggregation, assessing risk reward. We have a companywide risk reward scorecard that shows us where we are getting best paid for capital deployment. And we leverage that process to ensure that we are moving capacity to the areas of the business that drive the best returns. And so what you would have seen, for example, earlier this year, if we rewind the clock in those discussions, Mike Karm and I were staying very close on what was happening in the reinsurance market. And so reinsurance started consuming more of the available capacity because that's where the opportunities lie. That started to balance out a little bit more now as the opportunity in insurance has strengthened so much. So that's the process we use. If you look at our PMLs by peak zone, we are still in really good shape in all of our peak zones. We do monitor it very carefully. But as Mark indicated, on an earnings and capital at risk, or if you look at our stated risk tolerances in our ORSA filings, et cetera, we are all well within risk tolerances, which gives us room to grow both reinsurance and insurance as these opportunities emerge.

Mark Kociancic:

Yes. Sorry, I guess you're going to get all four of us, Greg, it's Mark here, and then I'll let Mike finish it off. I just want to add two points. So number one, we have very clearly defined risk tolerances inside the company for how much risk we are willing to take. Those are not going to be breached. Those are governed at the Board level, respected by management, and we have a clear process to manage that stuff, a lot of flexibility there as well. And number two, we are fairly diversified and broad based with our exposures as well on a geographic and line basis, which also helps. You're not seeing single concentrations that are onerous in the different zones. Mike?

Gregory Peters:

Well, that's good detail. Juan, I think you mentioned the durability of the market in your prepared remarks and I know very well, many of us are focused on wind in North America wind and which has not been an issue this year, at least in a sort of material way. But there hasn't been many losses in fire at DIC in North America either. And I'm just curious, I know it's rather a specific question, but do you see any change in pricing or terms in fire or DIC going into 1/1 considering the lack of any loss there?

Gregory Peters:

Fair enough. Thank you for the answers.

Operator:

The next question comes from the line of Meyer Shields with Keefe, Bruyette, & Woods. Please go ahead.

Mark Kociancic:

Well, one-time expenses. So let me break it down into kind of two components on the insurance expansion. So I would say roughly maybe a little less than two-thirds of our expense is compensation related to human capital. So we are expanding that's going to provide future bandwidth to underwrite and current bandwidth. It's clearly actionable. The second piece is you are dealing with technology spends as well to improve systems and middle office process type stuff. So that stuff is making its way through. It's very manageable. It's a relatively modest amount, and it's something that comes first and the growth is trailing somewhat. But we definitely see this paying for itself and again, manageable within the combined ratio assumptions that we have for the plan.

Juan Andrade:

Well, look, I mean, you always want to be in a place where your customers, your cedents and the brokers sort of understand the situation and understand what you are, essentially putting forth the storms, conditions, et cetera, et cetera. And I think that was a more challenging renewal last year because the market changed so quickly. I think what we see now is basically what I articulated earlier, where, at this point in time, I think we all recognize the world that we are living in, we all recognize the environment. Discussions have begun much earlier than they did last year. And so from that perspective, I think that's actually a pretty good thing. So we feel pretty good about it. I think, frankly, the only benefit that I would have seen last year is the fact that Everest was one of the first, if not the first, to get out and offer constructive terms and conditions and pricing, whereas a lot of our competitors were still looking to essentially fill the retro buckets to know how much capacity they had. So I think for us, that was a good guy last year. But ultimately, I think having an orderly market is good for the industry.

Juan Andrade:

Thanks, Meyer.

Brian Meredith:

Yes, thanks. Just one quick one here. Mt. Logan, I'm just curious kind of plans are for 1/1. Do you think you're going to be able to increase capital there and maybe investor demand for those types of facilities?

Brian Meredith:

Great. Thank you. I appreciate it.

Operator:

The last question for today is a follow-up from Mike Ward with Citi. Please go ahead.

Juan Andrade:

No, Mike, this is Juan. I think it's so early. I mean, this thing just made landfall really yesterday at this point in time. And for us, as I said, this is a modest exposure based on how we have managed the portfolio to reduce the volatility. But I think it's way too early. We haven't seen anything yet from any of the modeling agencies at this point in time.

Juan Andrade:

Thanks, Mike.

Juan Andrade:

Okay. Well, thank you all for your questions and for the excellent discussion. We had an excellent quarter, and I look forward to discussing the company's strategic plan at our Investor Day on November 14. I hope to see you all then. Thank you.

Operator:

Good morning, everyone, and welcome to the Everest Group Limited Second Quarter of 2023 Earnings Conference Call. The Everest executives leading today’s call are Juan Andrade, President and CEO; and Mark Kociancic, Executive Vice President and CFO. We are also joined by other members of the Everest management team. Before we begin, I will preface the comments on today’s call by noting that Everest SEC filings include extensive disclosures with respect to forward-looking statements. Management comments regarding estimates, projections and similar are subject to the risks, uncertainties and assumptions as noted in these filings. Management may also refer to certain non-GAAP financial measures. These items are reconciled in our earnings release and financial supplements. With that, I’ll now hand the call over to Matthew Rohrmann.

Juan Andrade:

Thank you, Matt. Good morning, everyone. Thank you for joining us. Everest second quarter performance was outstanding. We grew the business at significantly expanded margins, taking full advantage of the hard reinsurance market and delivered industry-leading returns, including a near 22% operating return on equity and a record annualized 25% total shareholder return. We have strong momentum across the board. Capitalizing on the hard market opportunity in reinsurance, which continues globally, and both underwriting businesses continue to benefit from the global flight to quality amidst excellent and persistent market conditions. In addition, our superb execution drove strong results in the June and July reinsurance renewals. We continue to invest in our primary insurance business, which is also benefiting from similar tailwinds with favorable pricing across a number of business lines. In May, we completed our successful $1.5 billion equity base. The response from the market was excellent and validates the opportunity we see before us. We remain proactive and nimble with our capital deployment, and we are on track to fully deploy the capital raised by the January 1, 2024 renewal. We changed our official company name and stock ticker symbol during the quarter. This was another key milestone. Our updated Everest Group name with our newly branded ticker symbol, EG, is a testament about our hybrid strategy and steadfast commitment to global reinsurance and insurance. As we approach the back half of the year, our talent, underwriting discipline, and capital position give us significant firepower to achieve our objectives and drive superior returns. With that, I’ll turn to our second quarter financial highlights, beginning at the group level. All of our group key financial metrics improved and included quarterly records for both operating income and total shareholder return. Growth was broad and diversified. We continue to see excellent opportunities for further expansion across our portfolio. We grew gross written premiums by 22% year-over-year in constant dollars, led by exceptional reinsurance growth, which hit a new written premium record. Net operating income increased to an all-time high of $627 million, up more than 62% year-over-year. This was supported by underwriting profits in excess of $400 million. The group combined ratio improved 410 basis points year-over-year to 87.7%. This is an excellent result, especially considering this is projected to be the worst second quarter for U.S. catastrophe losses since 2011. Everest net catastrophe loss was just $27.2 million. Additionally, our investment portfolio performed well, producing $357 million in net investment income, a significant improvement from the prior year. Turning now to our reinsurance business. Second quarter reinsurance results were also excellent. They are a product of our lead market position, breadth of offering and outstanding execution by our team. We grew our portfolio and we expanded margins. The Property Cat pricing remained strong, and the 2023 hard market has now surpassed the post-hurricane Andrew market. This provided the backdrop for excellent mid-year renewals. June 1 renewal, centered on the Florida market, was very strong with prospective returns exceeding the January 1st renewal. This momentum persisted into the July 1 renewals. Pricing was up sharply in key markets around the world. For example, the Australian market underwent a complete restructuring, moving away from frequency covers to true catastrophe structures. Everest is the preferred market by many of our customers. And as I noted earlier, we continue to benefit from a flight to quality around the globe. We were able to deploy additional capacity to many of our core clients at attractive returns. Gross premiums for the quarter were up 27% over the second quarter of 2022 on a constant dollar basis, $2.8 billion. As I noted earlier, this is a record for the division. Growth was widespread across business lines and geographies. Property Cat premiums were up 30% from last year. Along with casualty and property pro rata premiums at 16% and 35%, respectively. We also grew in specialty lines, including marine and aviation. International growth was strong, particularly in Asia, where we nimbly took share in dislocated markets like South Korea. Pretax catastrophe losses were modest despite the active cap order for the industry. Our deliberate initiatives to shape the portfolio and manage volatility continue to improve our results. We nearly doubled our underwriting profit to $337 million, equating to a combined ratio of 85.9%, a 5.9% improvement year-over-year. Approximately 90% of our portfolio now renewed in 2023 at significantly improved rates and terms, we enter the second half of the year well positioned and our outlook for the January 1, 2024 renewal is positive. Turning to insurance. We made strong progress in advancing our global insurance business. We grew the segment more than 14% in constant dollars, generating a record $1.4 billion in premiums. Growth was broad and diversified, both geographically and by product line, particularly strong in property, both domestically and international as well as in specialty lines like marine, aviation and energy. We maintained our disciplined approach to managing and diversifying the portfolio, reducing our exposure in lines where the market is not well priced, like monoline workers’ compensation and public company D&O. While it’s still early days, we are also gaining traction in international markets where we are methodically expanding our capabilities and local expertise. Market response has been excellent. Reinforcing the abundant global opportunity that we see. In aggregate, rate continues to exceed trend across our core portfolio. We achieved a double-digit rate increase, excluding workers’ compensation and financial lines. Group pricing was particularly noteworthy in property, marine and other specialty lines. The heart of reinsurance market contributed to positive pricing in the primary market. This, coupled with persistent industry cat losses and a heightened risk environment supports continued favorable pricing in insurance. Despite severe weather in the U.S., our cat losses were de minimis and reflect our consistent proactive portfolio management and our focus on superior risk-adjusted returns. The enhancements we have made to augment our technology and streamline our infrastructure are yielding greater efficiencies and connectivity across our platform. Everything from claims to distribution is being scaled methodically around client needs, allowing us to remain agile and responsive as we grow. I’m proud of Everest’s performance in the second quarter, and our team’s consistent ability to adapt and serve the needs of our clients and deliver leading returns to our shareholders. We have built a long and durable runway to profitably grow our hybrid platform, we’re approaching the market opportunity with full force. With that, I’ll turn it over to Mark to review the financials in more detail.

Matthew Rohrmann:

Thanks, Mark. Operator, we are now ready to open the line for questions. We do ask that you please limit your questions to one question plus one follow up, then rejoin the queue for any additional questions.

Elyse Greenspan:

Hi, thanks. Good morning. My first question, I was hoping you could just walk us through your plans on putting the $1.5 billion of equity you guys raised to work. I know, Mark, you said you guys are on schedule deployment of the capital. Can you just give us a sense, expand upon that and give us a sense of the split that you see between property and casualty reinsurance writings as well as the expected ROE on the deployed capital.

James Williamson:

Sure. Thanks for the question, Elyse. And I’m going to be a little expansive here because I do think this is connected to a number of critical trends within the business. I mean, first, to take you back to a little bit of what we said on the last quarter’s call around how we expected this to play out, we sort of laid out, look, this capital deployment really begins with the 7/1 renewal, which is for us about $1 billion of expiring premium. It would continue through the end of 2023, where you’ve got about another $1 billion of premium. And then it would complete at the Jan 1 renewal, which, at this point, our expiring book will be somewhere on the order of $6 billion. And that proportionality would account for the capital deployment. And that’s playing out as we expected. In fact, I would add to that, that we did have some opportunities in a very targeted way outside of Florida, but at the 6/1 renewal to take meaningfully increased lines with some of our core cedents, which were very attractive. That continued into 7/1. We grew strongly at that renewal and we did it at excellent rate. In fact, if you look at the rate we printed for North America in the second quarter of [‘47], we actually exceeded that in many cases for the June and July renewals. So we feel really good about that. And then as Juan had indicated, we participated on a number of private or closely brokered placements, and there’s a variety of things in there, whether it’s a large layer on top of the Cat program for a global cedent down to fact placements to deal with sort of dislocated single risks and everything in between. And so we’re on our front feet that way and taking advantage of those opportunities as they come to us. And I would also add, obviously, I’m focusing here on property Cat, but we’ve also taken advantage of trends in casualty where we continue to grow in some of the specialty lines. And one example I would cite in the second quarter is our aviation book, which on the back of really incredible rate change was up over 50% year-over-year at again, terrific economics. And so as we’ve executed this, we’ve been focused on a number of key priorities. And before you even really talk about growth, it’s portfolio quality. And so all the things that we’ve mentioned in our last call continue to play out. Attachment points are going up. Our average attachment point is moving further out in the curve. And certainly, you saw proof of that in our second quarter Cat print, which was simply outstanding. You saw us adjust our portfolio in Florida. A number of the Demotech rated Florida specialists, frankly, did not pass our financial underwriting standards, and we moved away from them and redeploy the capital elsewhere. So we are nimble that way, and we’re as focused on portfolio quality as we are on top line, even more so. And the other thing I would say in terms of priorities is over 90% of the incremental capacity that we’ve deployed has been with our existing clients. These are people we know well and people who we play with across a wide variety of lines. And so that incremental Cat capacity not only is a tremendous opportunity in itself, it also further strengthens our core relationships. And so as you play all that forward to Jan 1, our expectation is that we’ll be confronted with just excellent prospective returns at the renewal. Why do we believe that? Pretty fundamental stuff. The first is that the supply-demand imbalance that’s been playing out in the reinsurance market hasn’t fundamentally changed. And we’ve certainly seen analysis that suggests there’s still a very meaningful gap between supply and demand. And I would posit to you that demand is pent-up and growing rapidly. And that’s because I think many scenes weren’t able to complete their queue. There are 1/1 placements the way they wanted to. They’re facing a risk environment that’s not getting any easier, climate change being at the front of that line, but also inflation, geopolitics and other factors. And then obviously, while we had a terrific second quarter in Cats, many primary underwriters did not. In fact, it’s a record level or near record level of second quarter Cat activity, particularly in the United States, but also in other markets around the world. So a really tough spot to be in as a primary underwriter and that’s increasing their demand for reinsurance. We’ve also seen no capital formation of any meaningful extent, obviously, putting our capital raise aside and I’ve heard of nothing meaningful in the pipeline that’s going to really change that. The other factor that I think is important is if you go back to 1/1, many of the panels that got put in place particularly for the global cedents, included a number of reinsurers that frankly, I think they’d rather not be trading with very extensively. And as Juan had mentioned in his opening remarks, there is a global flight to quality happening, and we think we’ll continue to benefit from that at 1/1, where we’ll have an opportunity to help our clients clean up those panels with a much higher quality underwriter. And then the last piece that I’ll cite, and I think it’s important, it’s a little harder to quantify or maybe impossible, but there’s an underwriter psychology component at play, which is there’s a reason this market hardened and it’s because underwriters have taken a number of years of Cat losses. And I haven’t met anybody in this industry who because they may have some additional capital coming into 1/1 wants to trade down or auction down pricing in property Cat. That’s just – that is not the mentality that exists in our industry. So our expectation going into 1/1 is that we’re going to push hard for increased rates. We think the industry should be pushing hard for more given the experience we’ve had in all those external factors we talked about. We’re going to be looking to grow not just property Cat, which we will grow meaningfully, but casualty, specialty and a number of other areas. We are globally diversified, so we can drive growth in multiple regions. We’re also diversified by line, so we can grow Cat, non-Cat property specialty, you name it. And we fully expect that we will complete the deployment of the incremental capital at the 1/1 renewal at outstanding terms. So hopefully, that gives you the color you’re looking for.

Elyse Greenspan:

That’s helpful, and thanks for the all the color. My follow-up, we’ve been – there’s been headlines on surrounding collateralized casualty reinsurance. And I was wondering if you guys are seeing cedents looking to replace covers with high-quality reinsurers like yourselves? Or if this is something that you’re expecting we could start to see play out in the market?

Elyse Greenspan:

Thank you.

Operator:

Thank you. Your next question comes from Yaron Kinar with Jefferies. Please go ahead.

Juan Andrade:

Yes, Yaron, this is Juan. So let me go ahead and get started with that. Look, I think from our perspective, we obviously like the returns that we’re getting in property Cat but in general as well. And I fundamentally agree with what Jim said. We will keep pushing for rate terms and structure as we really haven’t seen any fundamental changes in the external environment. I think you’ve seen some of the headline news this morning with one of our competitors reporting that in the first half of the year, Cats were over the 10-year average at over $40 billion. So there’s still an active Cat environment. That hasn’t changed. We also see the general risk environment continue to be very elevated. You’ve got geopolitical issues, you’ve got social inflation, you’ve got all these other things that are out there, that hasn’t changed. And then you also have inflation that comes into the equation, right? There’s an impact on cost of materials, et cetera. So this is why from our perspective, we don’t see a change in the market. And therefore, we’re going to continue to push price, rate, terms and structure. So from my perspective, that is how we think about it. To your second question on insurance and reinsurance and property Cat deployment, we do like the property Cat environment right now in reinsurance. But as you saw in our insurance numbers, we also grew property and insurance by 37% as we reported in the supplement. So we’re leaning into it as well. And frankly, that’s one of the advantages that we have in our hybrid models. We can take advantage of the best risk-adjusted opportunities and move capital pretty nimbly to that. But let me have Jim also add some color on this.

Michael Karmilowicz:

And Yaron, this is Mike Karmilowicz. I would just add on the insurance side to the point that Juan made earlier, take into consideration the last couple of years, what we’ve done to really basically go through our portfolio strategy, not just on volatility of muting that, but actually looking specifically at how we can actually take our concentration, derisk that across not just the U.S. but also the opportunity across the globe. So we basically have lowered our gross limits over the last two years by over 41%. In addition to that, lowered our PMLs, premium to PML ratio is dramatically the 1 in 100 to take that into consideration of what’s given us the opportunity and the capacity to the point Jim just said, we’re leaning in very heavy seeing very meaningful returns with average rate increases of over 30% when you add an exposure change you’re talking premium change of over 40%. So we think the market is really robust. We see really good opportunity not just domestically, but internationally with a really good strategy to derisk and keep our concentration limited in a lot of pockets in both peak and non-peak areas, which I think just bodes well for us going into ‘23 and ‘24.

Mark Kociancic:

Yaron, it’s Mark. Maybe I can start. So a couple of components. Like I said in my scripted remarks, the premium adjustments were – they were a reasonable size. You’re talking $5 million, $6 million lion’s share coming out of the Lloyd’s syndicate. So that’s flowing through earned premium and altering the ratios mechanically, unfortunate situation, but definitely, we would consider it to be one-off in nature. And then you’ve got a mix of business component. We do see property becoming a much more substantial portion of the earned premium moving forward, so that’s going to help to change the composition of the attritional loss ratio within the combined ratio and you’ll also see, I think, A&H subside in terms of the size of its contribution to the combined ratio and the dynamics it brings in terms of expected loss ratio and expense within there. So this is something that should mechanically move towards a lower attritional loss ratio moving forward.

Yaron Kinar:

Thank you.

Michael Ward:

Thanks, guys. Good morning. Maybe a somewhat similar question, but for reinsurance. Just curious if you could talk about the pace of underlying margin improvement from here?

Michael Ward:

Thanks. Really helpful. And then so I guess, net investment income was pretty strong, including ops for the quarter. Just wondering if you have any outlook for the second half of the year.

Michael Ward:

Thanks, guys.

Gregory Peters:

Hey. Good morning, everyone. I guess I had one macro question and then one more detailed question. On a macro basis, can you just speak and I know you’ve spoken, talked about the hard property market. Can you talk about your perspectives on the facultative portion of the market versus the treaty portion of the market. I really don’t hear a lot of commentary, but I believe you’re pretty active in the facultative side, too.

James Williamson:

Yes, Greg, thanks for the question. I think it’s an astute one because as we mentioned, it’s a tough environment for our cedents and they’re looking to manage risk. And if their treaty attachments have gone up, they’re looking at their pre-risk exposures and their concerns. So they turn to the fac market. We grew our fac portfolio in the second quarter by almost 40%. Based on those trends, with a real emphasis on property as well as some segments of casualty and specialty lines. What I would add to that is very similar to what you’ll hear us say about our insurance property business. The same factors are playing out in facultative in terms of our approach to underwriting. We’re controlling limits deployed, so keeping limits very tight, focused on quality risk selection and ensuring that we’re getting paid extremely well for the risks we’re taking. And I would say, similar again to primary insurance market. The fac rate taking has really accelerated steeply, particularly as our competitors are dealing with their own reinsurance costs. So we view it as a nice opportunity.

Mark Kociancic:

Yes. So Greg, it’s Mark here. A few points to make. Look, the social inflation and the pressure that you’re seeing in the industry from ‘16 to ‘19 is real. That’s something that comes through in the reserve studies. A few points about our portfolio. Last year, we had pluses and minuses in our insurance reserves. We had very modest movements, I’d say, in those specific years for longer tail lines, the casualty lines. And we also had positive offsets coming from some shorter tail lines, workers’ comp as well, et cetera. And so one of the points to make here is that we do have a broad-based portfolio that allows for pluses and minuses over the course of time. We also benefit from a couple of things. I think we’ve – since 2020 when Juan started, I’d say the prudency of our loss picks has been quite good. We try to be conservative, particularly on the longer tail lines, and we want to hold those picks until we have quite a bit of certainty. And so that conservatism, I think, is helpful when you’ve got this level of uncertainty in the marketplace. And then I think the proportion of the business that we wrote in 2020, 2021 and onwards, particularly in insurance, is significantly larger than the set of reserves that we have for, say, ‘16 to ‘19. So the kind of relative scale is really quite meaningful. And one of the reasons that’s important is you really saw rate take off pretty much, I would say, it probably started more Q4 2019 and has been compounding throughout those quarters since that time. And so that, I think, helps the equation. And then overall, we’re obviously vigilant in how we track rate versus loss trends and the margin there in over time, and we make adjustments as needed in the ELRs, in the reserves and so forth. And so that’s what gets us comfortable with where we are.

Juan Andrade:

Thanks, Greg.

Michael Zaremski:

Hey, guys, good morning. Thanks. Maybe touching on that subject. We see, I think, in your numbers on the paid to incurred levels ex Cat and PYD that they’re creeping up a bit, but still well below I guess, pre-pandemic ratios. So are you kind of broadly seeing? I know there’s – it might be tough to paint a broad brush. But are you seeing a bit of a inching up in loss cost inflation, maybe ex property Cat again that’s a different discussion.

Juan Andrade:

Yes. Let me jump in there, Mike. This is Juan because I think that’s a very interesting point. And to build on what I said in my prepared remarks at the beginning of this call, we are ahead of trend in a very comfortable way, right? So for instance, our insurance rate level when you take out comp and financial lines, which are really not core to us right now, we increased rate by over 12%. And loss trend for us in insurance on an aggregate basis is significantly lower than that. And then you can leverage on exposure on top of that. And that gives you a pretty good level of comfort on how far ahead of that we are, which basically means you’re building margins. So obviously, we look at loss trends on a very frequent basis, as I’ve mentioned on other calls in the past. We keep very close track of it. But we are comfortably ahead of trend right now with rate and then you add exposure on that, that gives you another buffer.

Juan Andrade:

Let me start, Mike, this is Juan, and then I’ll have Jim and Mike Karmilowicz to add a little bit of color. If I’m not mistaken, I think the Marsh numbers are global numbers. And so you are going to have variations in those numbers from Latin America, Asia, Europe, et cetera, et cetera. The rate environment that we continue to see is actually quite good. And as I just said a couple of minutes ago, we have seen sequential improvement in pricing in primary insurance and certainly on the reinsurance side of things. So that is the environment that we’re living in right now and that we’re seeing as we trade on a daily basis. But Jim can give you some color on the pro rata’s and then Karm can give you some more color on the primary side.

Michael Karmilowicz:

Yes. And as far from the primary insurance group, I focus on a couple of things. We always stress the importance of cycle management. So when you talk about D&O, which we’ve been talking about for the last year as well as workers’ comp. You’ve seen that as an example, workers’ comp go from what was 27% years ago, now down to on the monoline guaranteed cost down to 4%. And then when you see opportunity where we’re really leaning in besides the property side, the first party, aviation, marine, things that really actually we know we can drive rate to terms and really take advantage of the marketplace. So I think based on Juan’s comments about what we’re seeing not just with rate in itself and the exposure change, I think we see the benefit and we see opportunity, particularly in the foreseeable future.

Operator:

Thank you. Your next question comes from Brian Meredith with UBS. Please go ahead.

Juan Andrade:

Sure thing, Brian. Jim?

Juan Andrade:

Right. I would – this is Juan. I would amplify that last point that Jim made because this is exactly what we have been saying all along, right? What this really illustrates is the fact that the fundamental macro environment that we’re all operating in has not changed, right? You still have high Cat activity. You have a heightened risk environment and our cedents are looking to also manage earnings volatility. And so therefore, they’re still coming to market to try to figure out a way to do that, while at the same time, they’re also trying to attack the property market on the primary side at the same side. So look, all of these are signs, and I think Jim is exactly right that the demand is still absolutely there and they want to trade with carriers like us, right, highly rated, great quality, et cetera.

Juan Andrade:

Yes. Thank you, Brian. Look, I think for us, it’s still early days. We really began a very methodical build-out of this strategy really at the beginning of last year. We are now essentially in France, in Germany, in Spain, in Chile, in Singapore and in Australia at this point in time with a couple of other markets coming online later this year. We’re really very excited about the opportunities that we see. And frankly, the market reaction has been phenomenal. I’ve traveled the world over the last two years, as I normally do, meeting with our brokers, our people, our clients, et cetera. And frankly, the reception has been terrific. They love the fact that we have the A+ paper. They like the name of the company. They like the people that they’re trading with because they know us. And so from that perspective, the opportunity set has been there. Part of that methodical build-out has been the systems, the target operating model, the people, the underwriters, et cetera, et cetera. And so all of this is really, frankly, within our expectations. When we think about particularly the expense comment that you’re making. But we do see that beginning to trend down over time, I think as Mark had indicated in last quarter’s call. And we’re doing this in a very disciplined way. We’re managing the expenses. We’re managing the build-out in a very careful way, but we’re very excited about what we’re seeing. And frankly, the reaction that we’ve had in each of these markets.

Juan Andrade:

Thanks, Brian.

Meyer Shields:

Great. Thanks. One introductory question, I guess, Jim, you talked about being more cautious on some of the cedents in Florida. I was hoping you could update us on how you’re thinking about the reforms themselves holding up? In other words, how comfortable you are with the Florida market as long as the individual companies are okay.

Meyer Shields:

Okay, perfect. That’s very helpful. Second question, and we talked a little bit about sort of broad concern about casualty loss trends. I was hoping you could update us on your appetite for loss portfolio – writing loss portfolio transfers and how you see demand there evolving?

Meyer Shields:

Okay. Fantastic. Thanks so much.

Elyse Greenspan:

Hi, thanks. I just had one follow-up on the insurance segment, right? You guys have laid out that 91% to 93% combined ratio target, right, with that financial plan a couple of years ago, obviously, the market is much better today. And I know there were some one-offs this quarter in the Q1 that impacted the reported results. But do you have a sense when given the market dynamics, when we could perhaps see that margin come in towards the lower end of the guided range?

Elyse Greenspan:

Thank you.

Juan Andrade:

Great. Thank you for all the questions and the excellent discussion. And I’ll close this call by reiterating the confidence in our strategy and our team, frankly, the exceptional talent that’s driving our execution. We remain no offense and we remain disciplined and opportunistic in this hard market. We have an unwavering focus on creating sustained value for our stakeholders, and that is top of mind. I look forward to seeing all of you again to discuss our third quarter results. Thank you.

Operator:

Good day and welcome to the Everest Re Group First Quarter 2023 Earnings Conference Call. Please note today’s event is being recorded. I would now like to turn the conference over to Matt Rohrmann, Senior Vice President and Head of Investor Relations. Please go ahead.

Juan Andrade:

Thank you, Matt. Good morning, everyone. Thank you for joining us. Everest started off strong in 2023, with significant growth, increased underwriting profits and operating ROE over 17% and total shareholder return in excess of 14%. We continue to diversify and expand our plan with both of our underwriting businesses delivering profitable broad-based growth. In reinsurance, our leadership position was abundantly clear in the ongoing hard market flight to quality. Our team’s consistent execution resulted in record gross written premiums and expanded margins. We continue to invest in scaling our primary business while remaining disciplined. We capitalized on the diversification of our portfolio and strong pricing environment. This led to stronger underwriting profits over last year. Everest is uniquely positioned to succeed in this market. We are bringing the full power of the Everest global franchise, together with underwriting discipline and the best talent in the business to drive sustainable returns. With that, I will turn to our first quarter financial highlights beginning at the group level. Group underwriting profit, net investment income, operating income and net income all increased meaningfully in the quarter. Growth was excellent and we continue to see great opportunities for continued expansion. We grew gross written premiums by almost 20% in constant dollars year-over-year, led by the reinsurance division, which achieved record quarterly premiums. Continued rate increases, exposure growth and strong underwriting discipline create margin expansion and keep us ahead of loss trend. We delivered $443 million in net operating income, up over 9% from prior year. The group combined ratio was 91.2%, a 40 basis point improvement from last year. It includes 3.7 points of catastrophe losses from the Turkey earthquake and the New Zealand floods and typhoon. We have no meaningful loss activity from the spring storms in the U.S. as our derisking efforts continue to manifest themselves in both our reinsurance and insurance results. We improved our attritional loss ratio 30 basis points year-over-year, reflecting pricing momentum and improving terms. Underwriting profits were $273 million, which are among the company’s highest orderly results over the past 5 years. Turning to investments, our high-quality portfolio produced net investment income of $260 million, a 7% improvement from prior year, driven by higher new money yields. Now turning to our reinsurance business. Reinsurance delivered an outstanding first quarter performance, with significant top and bottom line growth. We capitalized on our well-positioned and scalable reinsurance franchise, our leadership position, the heart of property cat market and our deep client and broker relationships, resulting in excellent outcomes for the portfolio at the January 1 and April 1 renewals. The precise and disciplined execution by our reinsurance team positioned Everest to succeed in this dynamic market. We targeted attractive opportunities to grow with trusted partners and materially improved risk-adjusted returns. Our practice of setting clear and consistent expectations early with clients and brokers led to significant improvements in pricing and terms and conditions across our portfolio, while building long-term relationship equity. That excess of loss pricing is excellent with risk-adjusted rate changes at January 1 of plus 50% in North America, and over 40% international. Casualty lines, average rate increases continue to exceed trend. Importantly, our team was distinguished as the preferred reinsurance market by being proactive and constructive with our customers. The value we created with our partners gives us a competitive advantage, helps us deepen our relationships and creates new opportunities. Our momentum continued at the April redo, where pricing remained strong, up 44% in North America and 26% in international. This builds on prior rate increases in 2022 with expected returns consistent with the levels we saw at January 1. We grew strategically, most notably in specialty lines, such as marine and aviation, with strong risk-adjusted returns. We expect to benefit from improvements in ceding commissions for the remainder of the year. We expect the strong market conditions to continue through 2023 and into 2024, and we remain on offense in this robust market. Reinsurance top line results were excellent, up 23% on a constant dollar basis, with $2.6 billion in gross written premiums. As I mentioned earlier, this is a quarterly record. Growth was broad-based by line and geography, up double digits across every business unit. Property cat premiums were up 28% from last year, along with casualty and property pro rata premiums at 22% and 19%, respectively. We delivered a 17% increase in underwriting profit to $207 million on a 90.8% combined ratio, a 60 basis point improvement from 2022. This included pre-tax catastrophe losses of $108 million, net of estimated recoveries and restatement premiums for the Turkey earthquakes and New Zealand floods and typhoon. Our deliberate efforts to optimize our portfolio and reduce cat volatility continue to improve our portfolio economics. Both the attritional loss ratio at 58% and the attritional combined ratio at 85.9% improved down 90 basis points and 30 basis points, respectively. Remember, many of the rate and margin improvements made at January 1 and April 1, will take several quarters to earn into our financial results. This should be a meaningful benefit for earned premium throughout the year. As we head into the upcoming renewals, our value proposition and relationships in the market have never been stronger. We will continue to bolster our global leadership position and maximize our portfolio’s performance. Now turning to insurance, where we delivered another solid performance in the first quarter. We achieved a 92.4% combined ratio in line with our previous assumption, resulting in an underwriting profit of $66 million, up 12% year-over-year. We continue to grow and develop our world-class talent, capabilities and value proposition to enhance our portfolio and increase average share of the global insurance market. We grew the insurance segment by nearly 12% in constant dollars, and generated over $1 billion in premiums for the eighth consecutive quarter. Growth was broad geographically driven by a diversified mix across property and specialty lines, particularly strong in marine, energy and construction. We remain cautious in certain lines, including monolines worker compensation and public company D&O. We also benefited from pricing improvements in the first quarter. We achieved an 8% rate increase, excluding workers’ compensation across the portfolio, led by property and excess liability with continued strong rate across other lines. This is the second sequential quarter with an increase in the overall level of rate changes achieved. We expect the hard market in reinsurance to put upward pressure on primary insurance pricing. This dynamic should extend the favorable pricing environment and insurance for the foreseeable future and will also benefit our pro rata business in the reinsurance segment. Despite severe weather in the U.S. in the quarter, our cat losses were immaterial at $2 million. The overall cat result reflects our disciplined portfolio management actions to reduce volatility over the last several years across the company. The attritional loss ratio was 64.2 up modestly year-over-year, primarily due to a current accident year adjustment to a single medical stop-loss program, which we non-renewed. Mark will provide more detail on this in a few minutes. Throughout the first quarter, we continued to prudently manage the business, balancing investments in our people and infrastructure as we build the company for the future. We are streamlining and scaling our operations to serve the market with greater efficiency, connectivity and agility as we grow. We are well positioned to seize attractive opportunities in this environment. We are expanding our breadth of innovative products and advancing our leadership across the global P&C market anchored by our underwriting discipline. Our sites are set firmly on shareholders, clients and colleagues as we take full advantage of the robust opportunities in this market. With that, I will turn it over to Mark to review the financials in more detail.

Matt Rohrmann:

Thanks Mark. Operator, we are now ready to open the line for questions.

Elyse Greenspan:

Hi, thanks. Good morning. My first question, starting with reinsurance. I appreciate the comments on the call, pointing to it taking time for some of these rate increases to earn in. Just hoping to get a little bit more color on just the cadence of this and how you expect like the strong rates you talked about at 1/1 as well as at 4/1 to earn into your margin, right? So how should that 58% underlying loss ratio that you saw within reinsurance trend over the balance of the year?

Jim Williamson:

Yes. Thanks for the question, Elyse. And I think to add some color to what Juan laid out, just want to give you a little more perspective on what we’re actually seeing under the covers, particularly starting with the Jan 1 renewal and then continuing. And a little bit of a view, if you don’t mind, on where we see this market going. As Juan indicated, we had excellent operating performance in Q1, the Jan renewal and really in the lead up to the January renewal which really translated into us having a broad set of opportunities. And when I say broad, I really mean just about every class of business starting clearly with prop cat, but also including casualty, specialty lines, financial lines really in every market around the world. And our growth was very broad-based that way, including our North America treaty business, our international treaty business as well as facultative. And so when you think about us attacking that, clearly, Jan 1 renewal we talked about a plus 50% in North America, plus 40% international on property cat. That continued into the April renewal where we were over 40% in North America, mid to upper 20s internationally, which included markets that started taking rate in 2022. So that was exceptional. At the same time and very important and Mark had touched on this in his opening remarks, we also saw terrific opportunities in both casualty and property pro rata. And so we took those opportunities. And I think our ability to constructively engage our clients and cedents gave us preferred positioning around those opportunities. And what are we seeing? Well, on the casualty side, rate continues to stay ahead of trend. That’s what our clients are experiencing. Ceding commissions are also starting to come down. And so those were terrific opportunities. We leaned into that. On the property side, our view is we’re at the very beginning stages of a major correction in the primary property market. And we will get an opportunity to participate with our clients alongside them on a pro rata basis. And again, a very attractive ceding commission. So that was a meaningful part of our Q1 growth was in pro rata. And then as we go forward, the 4/1 renewal was outstanding, 5/1 renewal a little bit smaller, but also excellent results. And we’re seeing a very consistent theme where property renewals as we go through the renewal period are achieving or exceeding the expected return levels we saw at January 1. And then I’ll end at 6/1 because it is relatively imminent. But our view is that it will be very consistent with that. We think the market will continue to dislocate, we will have incredible opportunities to grow with our best-in-class clients and really allocate our capacity to superior returns. And again, I would expect that to be at or above what we saw at January 1. So all a tremendous amount of really high-quality opportunity that we’re capturing. But to Juan’s point, it is going to take time for that to earn into our portfolio. And you started to see it a little bit in the first quarter. Obviously, the effect of Jan 1 begins to earn in. An important point I would make on that earning is we are also at the same time that we’re attacking this incredible opportunity. We’re also being very prudent on our loss picks. Remember that cat XOL does not get booked at least at Everest with a 0% attritional loss ratio. We are booking a very prudent attritional loss ratio. And our hope, obviously, is that we don’t need those dollars, but we want them to be there in the event that there are attritional cat losses that don’t meet our cat threshold. And so over the next quarter, two quarters, three quarters, you will start to see that become a bigger and bigger part of our portfolio. And that will exert downward pressure on our loss ratio and our combined ratio.

Mark Kociancic:

Elyse, it’s Mark. Good morning. So look, we have the one bump in the medical stop loss this quarter. It’s roughly $15 million charge. We are confirming, and I mentioned it in my script in the prepared remarks, 91% to 93% combined. So we feel very good about the margin that we’re adding, the growth that we’re adding both domestically and globally. So I think the attritional loss ratio is showing good improvement, definitely sustainable with the margins that we have, and we feel confident about remaining in that 91% to 93%.

Juan Andrade:

Thanks, Elyse.

Yaron Kinar:

Good morning, everybody. My first question goes to the loss picks. And I’m just curious if you saw any increases in liability or financial lines loss picks, both in insurance and reinsurance?

Yaron Kinar:

Actually, I do have a second one, if I could. And just on premium growth, if I may. One, the XOL premium growth was clearly a bit lower than the pricing you saw in property cat. And I just want to confirm if that’s a function of moving to higher layers? Or is it a function of shrinking limits? Or what’s behind that?

Yaron Kinar:

Thanks so much.

Mike Zaremski:

Great. Ceding commissions improving. I believe on the reinsurance side, we mentioned a couple of times in your prepared remarks. Can you provide any updated color and let us know if one impacting the financial statements and if you expect that to continue into the midyear renewals?

Mike Zaremski:

Okay. That’s helpful. Also another follow-up on the – in the prepared remarks, the optimism about the property side about beginning stages of a major correction, maybe you can kind of elaborate there, why we’re in the beginning stages. Is this simply because some of the primaries are seeing their reinsurance rates go up a lot, and there is clearly a lot of replacement cost inflation. So the primaries are getting ahead of – trying to get ahead of an issue or – what are you seeing there? And why do you see that growth being so attractive if some of your primary partners see themselves as kind of being a bit behind the inflation curve?

Mike Karmilowicz:

Sure. No, I think that’s well said, Juan. I guess I would just add a couple of other comments, Mike, to that. One, we continue to push out on the retail side. At the same time, given the market conditions, we’ve been able to continue to deemphasize the concentration of risk, particularly in the peak zones, the cat prone zones, particularly in the wholesale market. In addition to that, we’ve actually now basically helping out with our foundational work we do with our international expansion. We’re now spreading that out and diversifying our portfolio across the globe, giving us a lot better balance and overall more risk-adjusted returns that are more consistent and sustainable over the long haul.

Juan Andrade:

Thanks, Mike.

Brian Meredith:

Hi. First question, just looking at Florida renewals with the legislation that went through on what are your expectations or what that means for potential capital moving in? And how do you think Everest still position itself for that 6/1 renewal, meaning quota share versus excess of loss?

Brian Meredith:

Great. Thanks. And then my second question. I’m just curious, of the cat loss, how big was Turkey. And then on that, I’m just curious, given that those are types of programs that have fairly low rate on lines and I’m not sure what the return dynamics are there. Why would you be running that type of business now given just the strength of pricing and the attractive returns in areas like the U.S. and Europe and in other areas of the world?

Brian Meredith:

That makes sense. Thank you.

Meyer Shields:

I think Juan, you touched upon this a little bit with reinsurance, but I was wondering if you could talk about how, I guess from the conditions our expected returns are evolving in the international insurance market?

Meyer Shields:

I am trying to get a sense of – look, I think that has a great sense of what’s going on in property, but for other lines in insurance, I am not sure I have a great handle on the opportunity that you are seeing there in terms of how expected returns are evolving.

Mike Karmilowicz:

Yes. And I think, Meyer, I would just add a comment on the short tail piece. Not only are we seeing the opportunity within property, but also within marine and aviation businesses as well, given our nature of some of these lines, which we don’t have legacy issue too, particularly for marine and for specifically aviation. We have tremendous upside. We have hired great talent. We have got good teams that have great people and capabilities to Juan’s point. And given what’s happening in the reinsurance market, you think on the short-tail lines, you are just now starting to begin to see that rate environment starting to play through with just giving us ample opportunity to be able to capitalize on the marketplace right now.

Mark Kociancic:

Yes. Meyer, it’s Mark. Good morning. So look, on the reinsurance side, we have got a great rate environment right now. And I think Jim articulated a lot of the points that are behind that. We have clearly got loss experience, supply-demand factors impacting capacity, and our Q1 results are really demonstrating some solid growth. And our reinsurance franchise is very scalable, so we are able to take advantage of that. I think the rate is well established. We define that quite a bit in our press release and in our opening remarks. And you are going to see property I think, become a larger component of our combined ratio over time, we are still using prudent loss picks no matter what, because you do have the loss experience of the past cannot go down to the bottom line that quickly, but it is shorter sale business on the property side. So, we would expect to realize margin notwithstanding the loss experience of the current year over time. So, I think what we have got is fairly meaningful strength underpinning our combined ratio going forward. So, as you see the net earnings earning out with the increase of 2023 premiums, whether it’s the pro rata side or the excess of loss with this strong rate environment, the shift towards more property versus casualty and the combined ratio. I think you will see improvements in the combined ratio within reinsurance specifically. And we definitely see the margin expansion through the renewals, and we know that’s going to filter down through the combined ratio over time. So, I see this combined ratio question kind of solving itself through actual results in the coming quarters on an improved basis.

Meyer Shields:

Okay. Fantastic. Thank you so much.

Yaron Kinar:

Thank you. I just want to ask a follow-up on the earning of the pro rata premiums and reinsurance over a 2-year period. I thought it would be 1 year. Is there a multi-year treaty component there, or is that just how pro rata is earned? I guess it’s a bit new to me.

Yaron Kinar:

Got it. That’s helpful. And then one other follow-up, if I may. I think you called out some timing issues with expenses. When do you expect that to normalize?

Yaron Kinar:

Thanks for taking my additional question and for the comprehensive color.

Elyse Greenspan:

Hi. Good morning again. So, I want to go back also to the reinsurance discussion. I appreciate right that you guys are saying some of these contracts are going to take a couple of years to earn in. But maybe asking it in a different way, you guys printed a 58% underlying loss ratio in the first quarter. When this business is fully earned in, and we see the full impact of the rate increases in your financials, what can that 58%, what can that number drop to?

Elyse Greenspan:

Thanks. And then my – one other for me, your PMLs, given your expectations for what you expect could transpire at midyear, it sounds like you guys are still pretty positive about the reinsurance pricing environment, where would you expect your PMLs to trend once we get through the June and July 1, catastrophe reinsurance renewals?

Elyse Greenspan:

Thank you.

Mike Zaremski:

Great. Just one quick one. Just kind of thinking through the bullish outlook, generational hard market that term was used dislocation. Just curious, is there – would there be a scenario in the cards where Everest would want to opportunistically raise capital? The debt capital was – levels were increased last year, which looks like a great move, just curious if there is any scenarios in which equity capital need to be raised as well.

Mike Zaremski:

Thank you.

Juan Andrade:

Thank you, and thank you all for being with us today. I think as you can see, our operating performance was excellent in the first quarter. We are off to a strong start, and we are on offense. You have heard some of our commentary here regarding the market and regarding the bullishness. The momentum is strong and our ambitions were high. We are building on our first quarter momentum to continue delivering exceptional value for all of our stakeholders. So, with that, I thank you for your questions, for your time and for the support of the company, and we will see you soon at our second quarter results. Thank you.

Operator:

Good day, and welcome to the Everest Re Group, Ltd. Fourth Quarter of 2022 Earnings Conference Call. Please note today's event is being recorded. I would now like to turn the conference over to Matt Rohrmann, Senior Vice President and Head of Investor Relations. Please go ahead.

Juan Andrade:

Thank you, Matt. Good morning, everyone. Thank you for joining us. Everest's excellent fourth quarter performance capped another strong year of consistent execution of our strategy and continued positive momentum. We advanced our objective of creating sustainable value for our shareholders with disciplined underwriting and targeted growth driving margin expansion in both businesses. We increased diversification in each of our segments both geographically and by product line. When you combine all of this with healthy and consistent rate increases and improved terms, our risk adjusted return profile improved across the Board. Both franchises delivered solid top and bottom line performance. We profitably grew our primary insurance division and executed an outstanding January 1 reinsurance renewal. This further reinforced our global market leadership and positions Everest well for the future. Our actions resulted in solid underwriting profit for the year, over $1 billion in operating income and a double-digit operating return on equity for both the quarter and the year, an excellent result. We achieved these results despite market volatility, economic and geopolitical uncertainty and industry catastrophe losses totaling over $140 billion in the fifth costliest CAT year in history. In short, we accomplished a great deal in 2022 and built a wide runway for future opportunity. We are uniquely positioned with accelerating momentum and top tier talent driving this business. Everest is more agile and well-equipped than ever and we have the ability and the drive to seize attractive opportunities and deliver on our commitments in 2023. Now, I will briefly recap our financial highlights focused on the full year beginning at the Group level. In 2022, we grew the company by 9% in constant dollars ending the year at approximately $14 billion in gross written premium. We generated $477 million in underwriting profit with a 96 combined ratio. This is a near 2 points improvement year-over-year despite an active CAT year. The attritional combined ratio of 87.4% also improved from the end of 2021 and we achieved a 70 basis point improvement year-over-year in the group loss ratio. The operating expense ratio remains best-in-class at 5.8%. Finally, our high quality investment portfolio generated $830 million in net investment income. Our actions to optimize the investment portfolio over the past three years and position it for a rising rate environment have paid significant dividends. Now turning to our underwriting segments, beginning with reinsurance. Our reinsurance division's focused execution in 2022 further enhanced our global market leadership and preferred partner position. We continue to optimize our portfolio while achieving solid top and bottom-line growth. For the full year, reinsurance growth was 5% on a constant dollar basis with $9.3 billion in total gross written premiums. This growth was driven by broadened opportunities with our core cedents and our nimble allocation of capital to achieve the highest returns. We took deliberate actions during 2022 to shed underperforming business. This also positioned us well to take advantage of the strong trading conditions at January 1. These actions resulted in over $300 million in underwriting profit for the year and a combined ratio of 96.4%, there's a 1.7 point improvement from '21. For the full year, both the attritional loss ratio at 58.7% and the attritional combined ratio at 86.2% improved down 90 basis points and 10 basis points, respectively. Our deliberate underwriting actions significantly reduced our CAT losses, demonstrated by our less than 1% market share from Hurricane Ian in the third quarter, the second largest hurricane in U.S. history. Our focused Reinsurance strategy continues to pay dividends. Throughout 2022, we leveraged our market position, deep client and broker relationships and strong balance sheet to building more profitable and higher margin book, which culminated in an outstanding January 1 renewal. I'll provide more color on 1/1 in a few minutes. Now turning to our primary insurance division. In 2022, we've made tremendous strides expanding our reach, capabilities, product set and breadth of global talent while hitting important financial milestones. We finished the year with insurance growth of 18% in constant dollars and $4.6 billion in premiums. This is supported by new quarterly gross written premium record in the fourth quarter. Growth was balanced and diversified across the business by product line and by geography. After four years of significant and cumulative rate increases, we achieved high-single digit average increases excluding workers' compensation throughout the year. In addition to rate, exposure growth driven by revenue and payroll increases created additional margin against loss trend, pricing increases in the quarter were led by commercial auto, general liability and property. Our proactive cycle management actions contributed to our continued improved underwriting profitability, our ability to pivot quickly is a key advantage. Everest continues to benefit from an influx of top talent with the market expertise, track-record, underwriting acumen and relationships to execute our strategy. We achieved the milestone full year underwriting profit of $164 million, which is a new annual record for the Insurance Division with a full year combined ratio of 94.8%, down 2.3 points year-over-year. Our attritional combined ratio also improved 80 basis points year-over-year to 90.4%. We are enhancing our operations to become even more connected and efficient on a global scale. It's an exciting time for our primary business. We continue to see significant opportunities and I look forward to even greater momentum ahead. 2022 was a year of multiple wins, we've reduced volatility, diversified the portfolio, expanded margins and enhanced our risk adjusted return. We got there with consistent and precise execution. We deployed our capital in areas where we could get the best risk-adjusted returns. We also reshaped our property portfolio through continued diversification via growth internationally. All this accomplished while increasing our top and bottom-lines and we improved net exposure to our balance sheet. As I mentioned before, we remain risk-on for property CAT as pricing, terms and conditions provide attractive returns within our defined trading range. Turning to 2023, the January 1 reinsurance renewals were executed by our global reinsurance team with equal precision, and as a result, we have a significantly stronger portfolio heading into 2023 and beyond. We approached the January 1 renewals from a position of strength. With a superior value proposition, well-prepared to support our clients and taking advantage of excellent market conditions around the world. We set clear goals for our portfolio and we achieved every one of them by leveraging Everest global market leadership and setting early expectations with clients and brokers which drove significant pricing improvements. In addition to rate, we also substantially improved terms and conditions. We targeted attractive property opportunities both domestically and internationally at materially improved risk-adjusted returns. We drove higher attachment points and reduced exposure to named and secondary payrolls. Significant property CAT rate increases were evident across all geographies. In North America, the property CAT XOL risk-adjusted rate change was up approximately 50%. The average attachment point for our global property CAT business also increased meaningfully, resulting in significantly reduced risk exposure. At the same time, the expected return for our CAT portfolio increased materially. In casualty and professional lines pricing and terms and conditions continue to improve overall. And we leveraged our property market to strengthen and further diversify the portfolio. Internationally, the 1/1 renewal exceeded our expectations throughout Europe and Asia. We grew our regional portfolios through increased participations and by expanding our base of new clients. We also saw significant rate movement in specialty lines exposed to the Russia, Ukraine war particularly in marine, aviation and political violence. I am very pleased with the performance of our outstanding reinsurance team. Everest distinguished itself in this renewal by our early and consistent communication with our brokers and clients. We set expectations heading into 1/1 and constructively work with them to find solutions. As a result, we improved our portfolio and expanded margins while deepening our relationships with brokers and clients. Looking forward to future 2023 renewals, we expect reinsurance pricing momentum to continue. We see abundant opportunity to continue growing and diversifying our portfolio in all markets, focused on further growth in Asia and Europe, while capitalizing on the continuing market dislocation in property. Given significant firming of the reinsurance market on January 1 and the heightened risk environment, primary insurers should also see firming prices in 2023, and they will need to maintain underwriting discipline. I am proud of what Everest achieved in '22. We delivered on our strategic objectives, while laying the groundwork for sustained profitable growth. I attribute Everest success to our outstanding team under consistent and relentless execution in every aspect of the business. The outlook for 2023 is bright, and I look forward to taking this company to the next level. Now I will turn the call over to Mark to take us through the numbers in more detail.

Matthew Rohrmann:

Thanks, Mark. Operator, we are now ready to open the line for questions.

Yaron Kinar:

Thank you. Good morning. Two questions, if I may. The first one, just listening to your commentary on 1/1 renewals and expectations that the reinsurance market remains hard, at least into midyear. I guess as I look at the PMLs that we saw in -- for 1/1, they still seem to be down quite a bit relative to mid '22 levels. Is that the right comparison or should we think about kind of what the PML will look like in midyear '23 relative to midyear '22? And could you give us some maybe thoughts on how we should see those develop?

Yaron Kinar:

Thanks Jim, that's very helpful. And my follow-up to that then would be, if I were to try and take that commentary and color and translate that into the combined ratio, so I think you've stated that you expected 91, 93 reported combined. Would you be surprised to see that come in well below that 91 to 93 range in a "normal CAT" year in '23? And would you expect to give us an updated number at some point this year?

Yaron Kinar:

And would you expect to give us an update at some point and a hard number?

Yaron Kinar:

Thank you very much. And good luck in the year ahead.

Operator:

Our next question today comes from Brian Meredith, UBS. Please go ahead.

Juan Andrade:

Yes. Look, I think by then, we're going to have a pretty good idea of how the environment is shaping. But I think, Brian, if you go back to, again, in my prepared remarks, we just renewed 53% of the reinsurance book at very attractive terms. And as I said in my comments, we also expect that 4/1, 6/1 and 7/1 will continue to be very favorable for the reinsurance industry. So I think that also gives us a pretty good idea as to where that might be shaping. In addition to that, I would also say on the primary side, we also would expect pricing to continue to improve, as I mentioned in my remarks, and frankly, we already saw some of that in the fourth quarter, right, where we saw commercial auto, property and general liability make some significant improvements quarter-over-quarter on the pricing. We're in a heightened risk environment. You've got pressure from the reinsurance hard market. And so I would expect that all of these things will lead to a very good trajectory on the growth. But yes, we will be providing additional guidance later in the year when we do our Investor Day.

Juan Andrade:

Yes. No, that's a great question, Brian. One of the terms that we like to use inside our company is that we do quite a bit of dynamic capital allocation. So this is, frankly, a fundamental discipline that we have with our enterprise risk management framework. On a very regular basis, we're essentially looking at by line of business, where we're coming in against expected returns, et cetera. And so that's how we start deciding who gets the capital. What we do not do is peanut butter this around the company, right? So we will look at the market opportunity. We look at where we think we can get the best economics, the best risk adjust good returns, and that's essentially how we deploy the capital. And it's an important point because I think you heard both me and Jim Williamson talk about the precision with which 1/1 was executed. And I think it's important to step back to understand that in order to get to the heart of your question. And it's the fact that we have pretty good control of our business around the world. So we are able to decide whether we're going to deploy more capital in the U.S. versus in the Continental Europe versus in Asia versus Latin America, depending on the market conditions. And we apply that same rigor across the segments, whether it's in primary insurance or whether it's on the reinsurance side of things. And that's ultimately how we make those decisions. But I would invite either Jim or Mark to maybe provide some additional comments on that as well.

Brian Meredith:

Great. Thank you.

Meyer Shields:

Great. Thanks, and good morning. First question is, I know this is only one piece of the changes at 1/1, but I'm trying to get a sense of the significance of higher reinsurance attachment points. Is there any way of maybe recasting 2022 losses in this new framework, just to give us a sense of how much difference that particular step make?

Meyer Shields:

Okay. That is very helpful. The second question is there -- and I apologize if I missed this. I'm just looking for any thoughts on ceding commission changes, both as a reinsurer and on the insurance book?

Michael Karmilowicz:

Sure. Thanks, Jim. For us, it's rod striking the right balance about retaining harder and earning profit while managing our volatility and really actually, as we continue to scale up our businesses. With given the reinsurance market and what's happening, we're certainly not immune to what is going on. But I would say we're also not reliant on reinsurance like others. And given our financial strength and our capital -- strong capital base, we will continue to be -- have all the flexibility in the world here to drive what we need to do as an organization. And for us, again, it's about being thoughtful as we retain more premium for our risk. There'll be more accretive to our portfolio and whatever economics nor to our benefit will continue to drive. So I think given where we are in the position of how we scale up our businesses, we feel we're in a good position, and I don't think there'll be anything material that we're concerned about driving our overall strategy.

Meyer Shields:

Okay. Fantastic. That was very thorough. Very helpful.

Operator:

Thank you. Our next question today comes from Elyse Greenspan with Wells Fargo. Please go ahead.

James Williamson:

Sure. Yes. Elyse, this is Jim Williamson, and I'll provide you some of that color. And maybe at the risk of repeating some of what I said, but I do think it's really critical. If you think about our objectives coming into renewal were pretty straightforward, and they're very similar to what we focused on last year. Continue to optimize the portfolio and move away from underperforming programs; control volatility, particularly around how we structure deals and for that -- for us, that means mainly avoiding aggregate structures and minimizing the amount of capacity we have deployed at really high return probability layers like the 1 in 3 type of player, that's not really where we want to be playing. And then ensuring that we're moving capacity to the best-in-class programs. And that same phenomenon that we've consistently executed through 2022 played out in January 1. And so we were able to take capacity from, let's say, the bottom tier of our programs and reallocate it to the best opportunities in the market. We did it with significant rate increases as Juan and I have mentioned 50% in the U.S., 40% in international markets. As you mentioned, there was also significant movement in terms and conditions. In particular, in the U.S., a significant portion of our deals are on -- now on a named peril only basis. We've also eliminated write-backs of exclusions on a number of areas that will over time result in better economics. And so the heart of your question of what does that mean for the portfolio in practical terms? Obviously, every year will present us with a different set of actual catastrophes. And so as opposed to looking back, what I would tell you, how I would expect the portfolio to perform is that frequency pass, which have really been deviled the reinsurance industry, will increasingly be retained by our customers. So we're getting a lot more rate to now focus on the types of losses that reinsurance was designed to cover in the first place. We would also expect for major losses that similar to what happened with Hurricane Ian, and we're very thoughtful about how much of a share of the major losses that we want to be taking, and I would expect that to look quite good as well. And then lastly, what I would say for all of this, we have a meaningful increase in the amount of cat premium available to pay these losses and still make a strong return. So hopefully, that gives you the color that would help you to triangulate what is an excellent expected return position as we move through 2023.

Elyse Greenspan:

Thanks. And then the equity portfolio went down from $1.3 billion to like $281 million in the quarter. Why did you guys take that portfolio down in the fourth quarter?

Elyse Greenspan:

Thank you.

Charles Peters:

Well, good morning, everyone. I'd like to go back to, I think, in your comments, you talked about the annual ground-up reserve review that you do every year. And especially on the primary side, obviously, inflation is been a big issue in the statistics that came out in '22 couldn't have been anticipated in fiscal year '20 and '19. So can you talk to us about the process? What were the puts and takes for you to come out where you did? Some perspective there would be helpful.

Charles Peters:

Got it. I guess -- so my follow-up question, well, sticking with the specialty insurance platform. We look at your primary growth 18% for the year, I think, 19% for the quarter. I think after we get through earnings season, that's going to be a pretty outstanding result relative to some of your peer groups. So could you spend a minute and talk to us about where you're seeing growth? I guess, not only looking back to '22, but when we think about '23?

Juan Andrade:

Yes, Greg, this is Juan Andrade. I would add a couple of thoughts because I think that was well said by Mike. Look, I think at the end of the day, there's a couple of key factors. One, we're highly diversified within the Primary Insurance division. And so that means that we can find opportunities in the market where they exist. And as Mike pointed out, it's always about profitability. So for instance, is you're not seeing a good environment for financial lines right now, but you're seeing a very good environment for things like property, casualty still and other lines of business. So that allows us to essentially pick our spots and be able to do that. The other point that I don't think can be underestimated is really the agility of our company. And I mentioned that in our prepared remarks, our ability to be able to pivot. We're pretty lean, we're pretty entrepreneurial, we have great relationships with our distribution, and we have a lot of good talent in this company. And all of these things are basically what enable us to continue the momentum that you have seen from us really over the last number of years.

Juan Andrade:

Thanks Greg.

Michael Zaremski:

Hi, good morning. Maybe first question, thinking about capital management and capital uses. Should we expect a bit more kind of operating leverage? So when we look at the premiums to equity ratio, is there room for that to inch up given kind of better economics you're attaining? And also just thinking about capital uses in '23, should we be still thinking that the growth will kind of eat up most of the capital versus buybacks?

Michael Zaremski:

That's helpful. My follow-up is on the alternative reinsurance, maybe ILS marketplace, given Mt. Logan is one of the leaders in that space. Is there -- are you seeing dislocation in that marketplace? And do you see that kind of persisting? I know there's some puts and takes on how that impacts someone like Everest. But what's going on in the ILS marketplace that you're seeing? And does that -- is that part of the reason you feel that the discipline within the overall reinsurance marketplace will continue?

Michael Zaremski:

Thank you.

Ryan Tunis:

Good morning, guys. Just a few, hopefully, quick ones for Jim. First question, just, I guess, following up on Mayer and Elyse's line questioning on how the changes in the portfolio might map to the actual CAT numbers. So you mentioned that you're shying away from kind of like the 1-in-3 type of risk, but -- what I'm struggling with is that like in the supplement, the 1 in 20 looked like it grew about as much as the 1 in 250. So from the PML disclosures alone, it's difficult for me to really see what's going on. So I don't know the right way to ask it, maybe -- could you give us some idea over the past few years, like how much of your CAT losses have come from sort of those frequency layers that were even more frequent than 1 in 20? I'm not really sure, but just any numbers would be helpful.

Ryan Tunis:

Yes, that's helpful. And then just lastly, can you give us an update on kind of how you're thinking about your original Hurricane Ian impact?

Ryan Tunis:

Appreciate it. Thanks.

Juan Andrade:

Great. Thank you all for your questions and the excellent discussion this morning. This is Juan Andrade. I am very optimistic about the opportunities ahead and our ability to continue driving a world-class platform. Our strategy is clear. Our businesses are growing with strong resilient portfolios, and we have an attractive risk-return profile. This is all underpinned by our strong culture, which is an increasingly significant competitive advantage. We will expand on this foundation to accelerate our progress and create increased value for our investors, colleagues and clients around the world. Thank you for your time with us today and for your continued support of our company. I look forward to speaking with all of you again when we discuss our first quarter 2023 results. Thank you.

Operator:

Welcome to the Everest Re Group Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. . Please note this event is being recorded. I would now like to turn the conference over to Mr. Matt Rohrmann, Senior Vice President, Head of Finance and Investor Relations. Please go ahead, sir.

Juan Andrade:

Thank you, Matt, and good morning, everyone. Thank you for joining us today. The current heightened and complex risk environment underscores the value of Everest's balance sheet and our commitment to support our customers with solutions vital to navigating this turbulent period. Everest's diversification strategy and underwriting discipline mitigated our exposure to one of the largest hurricane losses in U.S. history. With our well-defined strategy, we are poised to take advantage of the hardening market, focused on segments with the best risk-adjusted returns. Both underwriting businesses delivered sub-90 attritional combined ratios, and we are profitable on a year-to-date basis. Led by top talent, we continued to grow and diversify globally by business and product line. We are focused on executing our strategic plan as we build the company for the long term. Our purpose is to provide protection and stability in the face of uncertainty. And as someone with roots and family in Florida, the devastation caused by Ian is heartbreaking and our thoughts are with all those affected. I am grateful to our colleagues around the world who are supporting our customers and communities as they rebuild. We have improved the company's risk profile across both Reinsurance and Insurance, reducing our cat exposure with a more durable, resilient portfolio capable of absorbing a historic industry loss like Ian and containing it to an earnings event at just 1% of our estimated industry loss and with our Reinsurance segment being below 1%. We apply the same consistency and discipline to how we develop the overall portfolio, manage expenses, invest our capital and expand operational efficiencies. In short, we're managing what is in our control and building flexibility into the business. Everest value proposition has never been more important to our clients and partners, and we are committed as both insurers and reinsurers to being where we are needed. Now I'll turn to the company's financial results, first from the group and then for each of the underwriting businesses. In the third quarter, we grew gross written premiums by over 6% in constant dollars. Growth was broadly diversified, led by continued double-digit growth in Insurance. We continued to benefit from positive rate and increased exposure growth. We are ahead of loss trend, and that is before the effect of all the deliberate portfolio management actions we are taking to improve margin. The combined ratio for the group was 112%, including the previously announced pretax catastrophe losses net of recoveries and reinstatement premiums of $730 million, primarily from Hurricane Ian. It is important to note Everest has additional hedging protection in place in the form of cat bonds. We did not include a cat bond recovery in our net loss estimate. However, recovery start if the PCS industry event for Ian exceeds $48 billion. Mark will provide additional details. Again, the actions we took in both our businesses to reduce cat exposure have meaningfully benefited us. In Reinsurance, we significantly scaled back our retro, reduced participation in aggregate programs, shed cat exposed pro rata and exposure to lower layers of cat programs and achieved significant rate increases, higher attachment points and improved terms and conditions in the past several years. Reinsurance gross and net PMLs have reduced significantly across the entire curve. And in Insurance, we decreased gross PMLs for Southeast wind by over 40% since last year. Gross exposed limits in our U.S. property portfolio are down more than 35% year-over-year. Put this in concrete terms, our share of the industry loss for Ian is lower than any other major land falling hurricanes in more than 15 years. And we will continue to optimize our portfolio. Turning to our underlying performance in the third quarter. The group attritional combined ratio improved to 87.6% year-over-year with improvements in both segments and a new historic low for Insurance. The group attritional loss ratio was strong in the quarter at 60.2% with a 70 basis point improvement from last year. This includes an outstanding 110 basis point improvement year-over-year in Reinsurance. The group expense ratio in the quarter was stable at 5.5% and remains a competitive advantage. An elevated level of catastrophes during the third quarter resulted in a pretax underwriting loss of $367 million. Net investment income was $151 million, driven by stronger fixed income returns as new money yields continued to improve. As expected, this was partially offset by volatility in the equity markets. On a year-to-date basis, we generated net investment income of $620 million despite severe turbulence in all markets. Finally, operating cash flow for the quarter was strong at $1. 1 billion. We continued to execute our strategy despite the challenging environment, evidenced by our year-to-date profitability. Now turning to our Reinsurance business. Reinsurance gross written premiums increased 3.4% over last year on a constant dollar basis, excluding the impact of reinstatement premiums. Growth was broadly diversified, led by 16% growth in our global casualty and professional lines book, where we are focused on key seasons or achieving strong underlying profit improvement with pricing outpacing loss trend. This was offset by targeted reductions in our property book, which was down 8% over prior year as part of our strategy to improve the diversification and economics of our overall portfolio. We continued to benefit from a flight to quality, and we grew with our core clients. We're affording those new and expanded opportunities across their portfolios. This strategy serves us well. We bring clients a strong balance sheet, flexibility and expertise allowing us to target higher-margin opportunities in all lines of business and geographies. This is a key advantage of broad diversification. Fine ratio of 115% was driven by the previously announced pretax catastrophe loss net of recoveries and reinstatement premiums of $620 million from Hurricane Ian as well as the European hail storms Hurricane Fiona and Typhoon Nanmadol. Year-to-date, Reinsurance generated $14 million in underwriting profit. Our attritional combined ratio of 86.8 improved 30 basis points from the prior year, including a year-over-year attritional loss ratio improvement of 110 basis points to 59. 1%. Our attritional loss picks reflect our deliberate actions to improve the portfolio's risk-adjusted profitability. We continue to see improving loss ratios, while the pressure for increased commissions is easing. Everest is well positioned to benefit from the underlying rate increases and improving terms and conditions in the market post Ian. Events from the year will affect the January 1 renewal in a variety of ways. In North America, we expect the property market to be dislocated, particularly in property cat due to recent losses, combined with economic inflation, increasing demand and a meaningful contraction of capacity. Underlying casualty pricing should remain strong. Internationally, there are nuances depending on class and region, and we will flex accordingly. We are well positioned with the balance sheet capabilities and relationships to capitalize on the momentum fueling improved economics across property and casualty in a targeted and disciplined manner. Because of the balance between property and casualty in our book, we have the ability to dynamically deploy capital both across line and geography and can remain nimble and opportunistic as market conditions warrant, always within our defined risk appetite framework. Jim Williamson is available to provide additional details during the Q& A. Turning to our Insurance business. where we continue to achieve double-digit growth with sustained margin expansion. Growth in Insurance was strong. We achieved a new third quarter premium record for this segment with over $1.1 billion of gross written premium, up 13% in constant dollars. Growth was broad and diversified across most lines and regions and was especially strong in U. S. casualty. Excluding D&O and transactional liability where the macro environment, a slowdown in M&A activity, IPOs, et cetera, has had an impact on deal flow, our growth was 20%. This is a testament to our underwriting discipline as we focus on trades meeting our underwriting return objectives. We are benefiting from additional premium on many inflation-sensitive lines, particularly in property, general liability and workers' compensation. We continue to exceed loss trends. Renewal rate and exposure ranged from high single digits to double digits for the quarter depending on line and geography, excluding workers' compensation, which is now a small part of our portfolio. In addition, both earned and new business rates meaningfully exceed renewal rate changes. The new business rate level bodes well for continued margin expansion as these policies renew and lost to more normalized levels in the future. Increasing rates are important, but risk selection, improving terms and conditions limits management and growth in inflation-sensitive exposures also contribute meaningfully to sustaining and increasing margins. Insurance growth was partially offset by continued actions to optimize the portfolio, including reductions in U.S. property catastrophe exposure. The impact of natural catastrophes, primarily Hurricane Ian, led to a $110 million pretax catastrophe loss net of recoveries and reinstatement premiums in the quarter and resulted in a combined ratio of 103.5%. As I mentioned earlier, underwriting actions to diversify our property portfolio made a significant difference in our results. We will continue to hold our portfolio to manage volatility. This discipline is reflected in our year-to-date underwriting profit of $95 million, and it is indicative of our progress in portfolio composition. The Insurance division's third quarter attritional combined ratio of 89.8% is the best in its history and a 50 basis point improvement from the third quarter last year. The attritional loss ratio for the quarter was 63. 2%, up slightly compared to Q3 2021, driven predominantly by business mix relative to last year. The year-to-date attritional loss ratio, which is less affected by timing and business mix, improved by almost a full point over last year. We continued to diversify internationally with progress in Europe, Latin America and Asia. We recently opened two new Everest Insurance operations in France and in Germany in addition to our operations in the Netherlands, Chile and Singapore. Our success continues to be powered by investments in great talent, and we continue to fuel our growth with sophisticated data, analytics and systems that support streamlined and best-in-class service across the organization. Michael Karmilowicz is on the call to provide more detail during the Q&A. Our discipline and seamless execution are essential to performing in today's environment. We are targeted in our approach. We're highly diversified by geography, business lines, product and in our people. We have a cultural advantage in how we manage the company. We view this as essential to cultivating excellence in our business, and we are proud to have been recently recognized as an industry leader in this area. I am very optimistic about Everest's ability to deliver superior value to our shareholders, clients and colleagues. Now I will turn the call over to Mark to take us through the financials in more detail. Mark?

Matthew Rohrmann:

Thanks, Mark. Operator, we are now ready to open the line for questions. We do ask you to please limit your questions to one question plus one follow-up, and to join queue, if you have any additional questions.

Michael Phillips:

First question, Juan, is sitting around the dislocated property cat market. And I kind of want to get on to, I guess, both your willingness and ability to take part of that. You've been talking a lot about reducing volatility and kind of shy away from that business, but now things have changed. And I would ask on your willingness, how much do you want to grow in that business, but I think the answer is probably going to be what the function of how rates move at the beginning of the year. So maybe you could share with us, is there some kind of threshold you have in mind where you would like to participate pretty aggressively to be willing to grow in that property cap market? And then assume that you do want to, how much is your ability to do so inhibited by the markdowns in book value and AOCI impacts, especially with what we're seeing from S&P recently. Thanks.

James Williamson :

Sure. Thanks for the question, Mike. It's Jim. Yes, I would reiterate some of what Juan said to start by just really conveying how tremendous we think this market opportunity is. And I think in the U.S., that is really a complete dislocation of the property cat market, and it's going to allow us to do a number of things. Juan describe the categories, let me give you a little bit more detail because I think it's critical. On the first part, in terms of hardening our portfolio, even while the market has been taking rate over the last couple of years, I think we've still been living, for the most part, with soft market terms, conditions and contracts. So that's a key priority. We're making progress on that front. I think you'll see us continue to trade away from some of the areas of the market, which really makes us susceptible to climate change, things like aggregate programs, cat exposed pro rata, some of the peak risks that comes along with the retro book. And then on the second piece, which is really about getting paid more, to put some context around that, I would say the expectation that the market had for pricing going into Monte Carlo in terms of average rate increase is now the minimum for programs that really haven't been affected by loss and it will go up from there. And while I expect clients to try to mitigate some of those rate increases by taking higher attachment points, which we're in favor of, my sense at this point is that rate change will be top line accretive for us even if we are making changes to the portfolio. And then the last piece around growth with target cedants, that's a very real opportunity for us. We're -- in front of us. We're already having discussions with our core trading partners around the world. There is an intense demand for capacity in general and Everest's capacity specifically, and we are being very thoughtful about picking up high-quality opportunities. So I think all of that nets up to a higher margin portfolio, a portfolio that's, I would guess, more likely to be bigger after 1/1 than it is today, but also one, as Juan indicated, that's well within the defined trading range that we set out in 2021.

Michael Phillips:

Okay. It's pretty comprehensive. Second question then. You talked about the cap on recovery -- potential recovery, given where PCS might have. Are there other potential recoveries that might come that might be more likely for Ian relative to other prior hurricanes that you've experienced? I'm thinking maybe takes that you have more LAE versus loss mix this time that could come back if litigation doesn't take off or things like that. So other possible recoveries like that, that might happen more so for this storm than prior storms.

James Williamson:

Yes. Sure, Mike, it's Jim Williamson again. Just to add a little bit of flavor to what Juan has already described. On LAE loading in particular, I think we've obviously leveraged a lot of the data we have to come up with a loading for LAE that we think is extremely prudent. And so if there is better-than-expected activity on that front, which I think is possible, that would definitely enure to our benefit. The other thing I would sort of say to put this in some concrete terms, I mean I think our view would be if the loss ends up being smaller than we've indicated in terms of total industry loss, our view is that our share would remain relatively stable over a reasonable range. So that means our net loss would ultimately come in smaller. And then to Juan's earlier point, there's also upside protection in the form of cap bonds if PCS calls an industry loss that ends up being larger, which sort of caps our upside dollar value of net loss. So I think it puts us in a really confident position relative to the net loss that we had indicated.

Operator:

The next question comes from Elyse Greenspan from Wells Fargo. Please go ahead.

James Williamson:

Yes, Elyse, this is Jim Williamson. Yes, first of all, to reiterate some of what I said earlier. I mean, I think this is a fantastic market opportunity. And what that translates into is an ability for us to really set terms and conditions in a way that are obviously going to be highly favorable. And I think that'll include an ability for us to manage our total exposures, Juan had indicated while still driving higher revenue. And more importantly, much better margins, much better contracts, terms, conditions, attachment points, etc. And so I would say, my sense is we're not going to have to stretch our total risk load, whether you measure it in PML, or the cat load, in order to drive the types of outcomes we're describing, which again, could include some really nice growth, as well as margin expansion.

Elyse Greenspan :

Thanks. And then my second question, you guys pointed out mix impacting the insurance underlying loss ratio. How should we think about the underlying loss ratio trending from here as you're getting price above trend, and we're also thinking about mix shift. Would you expect improvement in that number? I'm not just talking about the Q4. I'm also thinking about 2023 as well.

Michael Karmilowicz :

Yeah, I would just add a couple things. One, this is a long term game. We continue to focus on this business that drives the right margins. And the other piece too, is we focus heavily on the combined ratio as well. So it's the entire package. And yes, you've seen over the last from a rolling perspective in the last 24 months, we've actually brought our combined ratio down 24 point -- I'm sorry, 5 points alone. So our goal is to continue to drive the ultimate loss ratio, and the overall results of the organization. Exactly what Juan said.

Juan Andrade :

Thanks, Elyse.

Brian Meredith :

Yes, thank you. A couple questions here. Just first I'm just curious, how does Mt Logan going to fare in this event? And I'm just curious on that topic, how does that kind of interplay with Everest's willingness to write kind of gross cat exposure in the marketplace?

Brian Meredith :

Great, thank you. That's helpful. And then Juan, I'm just curious, you may have kind of alluded this to your comments. But what are your thoughts on the casualty reinsurance market here? Are these events going to have a favorable impact on pricing? And in terms of conditions in the casualty reinsurance market, and it sounds like you're well-positioned to take advantage of that, if that's the case?

James Williamson :

Sure. Thanks, Juan. Yeah, Brian, I think what our expectation is, and what we're starting to see, even in the 11/1renewals, for example, it's relatively light, but we are seeing some indications is that we've really started to see the leveling of ceding commissions play itself out, we expected that to begin to occur. That is in fact occurring. In fact, we're starting to see some examples of ceding commission's receding a little bit, which we think is quite healthy. And I do think to a degree that's tied to what's happening in the property cap market. And when we engage our cedants, you know, we really try to come up with constructive solutions across lines for those customers. And in many cases they're absolutely willing to discuss ceding commission reduction on core casualty programs, in some cases related to an increase in available cat capacity or a restructuring of another program. And so all the cards are on the table that way. And I do think that, combined with the ongoing strength in the underlying market that Juan talked about, means that casualty will be a great opportunity for us in 2023.

Juan Andrade :

Thanks, Brian.

Josh Shanker :

Yeah, thank you. I wanted to hear a little bit about your outwards reinsurance purchasing. What might happen to that next year, to the extent to which you're reliant on the ILS markets and as the next few years go by, and perhaps investors in those markets pull capital out? What it means for the degree to which you protect yourself in retro and reinsurance line?

Michael Karmilowicz :

Yeah. Thanks, Juan. Thanks, Josh, for the question. I think specific to the reinsurance business, the reality is just like Juan said, we're not relying on third party coverage, even though we do purchase and manage our portfolio that way. It doesn't help it or doesn't -- is not necessary for us to execute our business plan. So we see that market having impact and I think we'll see some things -- I don't think it'll be material. But for us, having the wherewithal, the financial strength of Everest, and having all the different scale that we've created over the last couple of years gives us the availability to be able to execute our plans, with not being reliant on it. I do will tell you, I do think it'll have impact and behavior on a lot of peers who are relying on reinsurance.

Mark Kociancic:

Josh, it's Mark. So we have that opportunity set. But we do have a few other considerations in that kind of decision tree. So one, you've got the strength of the operating cash flow coming in and the maturing portfolio. So that's feeding quite a bit of cash into the current reinvestment structure that we have in money yields. The second point is, where are we with rates in general, I think the FOMC caught the market off guard in late September with their rate rise. And you have a question here is, are they done? We've seen them kind of undershoot throughout the year. And so it's also a question of when you go in. Having said that, I would say that we are looking to lengthen duration a bit on the fixed income side. And we do have the significant allocation to floating rate securities, the '22 points which rises in that environment. So I think we're quite comfortable with both the pace and the direction that we're moving in. But your first option is definitely something that's on the table if we want it.

Juan Andrade :

Thanks, Josh.

Michael Zelensky :

Hey, good morning. Follow up to the last question on the investment portfolio. I'm curious, what's the duration of the floating rate portfolio or maybe the yield to that we should think about in the floating rate portfolio.

Michael Zelensky :

Okay, interesting. Thank you. Moving to outside the investment portfolio, clear in the commentary that you feel rates are in excess of loss trends, which bodes well for margins. You know, I heard your commentary on ceding commissions from the reinsurance side. Kind of just curious, have rates and maybe I just need to read that -- reread the transcript. There's a lot of good stuff in the prepared remarks, have rates on the primary side decelerated a bit 3Q versus kind of the first half of the year or are they holding kind of that.

Michael Zelensky :

Okay, okay. Interesting. And just, it sounds like you guys don't want to quantify what the dollar amount of recoveries would be between like the $48.9 billion if it hits it, versus your $55 billion peg on the industry losses? Is my thinking about that correctly? Will it just be significant?

Michael Zelensky :

Okay, understood. Thank you for the color.

Operator:

The next question comes from Meyer Shields from KBW. Please go ahead.

Mark Kociancic:

Hey, it's Mark Meyer. So there's definitely, I think a lot of emphasis on sophisticated investors who have been in the asset space for quite some time. We have, I would say, a pretty good pipeline, a high degree of interest, particularly given the opportunities they have with Everest. The fact that we have such a strong alignment with the underwriting of our cat book in reinsurance division. So from that standpoint, like I said, nice pipeline and sophisticated investors and lots of money to deploy. Tactically, at different layers, and we're fortunate that we can meet those different types of appetite, because of our scale.

James Williamson :

Yeah, Meyer, it's Jim Williamson, I think you might be referring to, primarily on the reinsurance side, in terms of what our condition ratio would be in a quarter where we have a significant cat event and reinstatement premiums. And look reinstatement premiums do come with acquisition costs. They tend to be significantly lower than our average. And so on balance they would tend to bring down the average acquisition cost of the division. So I think that's the question you're asking, if it's not, though, please let me know.

James Williamson :

Pardon me. Meyer, say it one more time.

James Williamson :

Yeah, okay. I see your point, Meyer. On a reinsurance basis. I think that's a relatively minor issue. And so that would not be the factor transcribing. And so there's that component. I would say, I don't know, Mike, if there's anything that you would add on the insurance side.

James Williamson :

Yeah, I think it's a relatively minor thing.

Operator:

The next question comes from Yaron Kinar from Jefferies. Please go ahead.

James Williamson :

Sure, Yaron, it's Williamson. Thanks for the question. It's going to, I think, take a couple of key points to unpack the question, because it's an important one. And I'll start with a little bit of a description on how we arrived at the 6% to give you some perspective on that. And so we leveraged both external cat modeling capabilities is the same ones that are used across the industry, as well as our own internal analytics to perform a ground up assessment of our in-force portfolio, which gives us an average view over an extended period of time of what we expect our net cat losses to look like. So it's important to remember, it's an average. And in any given year, obviously, actual results will vary from that average. In terms of the alignment of that load to total industry losses, or the idea that we're in a period where industry losses are going to range, whether it's -- you think it's $100 billion or $120 billion a year, how does that comport to our cat load? It's very consistent. Our view is that that is a relatively normal year. But what you have to keep in mind is what events make up the $100 billion or $120 billion, is incredibly important. And I'll share some specific examples just from this third quarter. We're tracking around the world 74 events that occurred during the quarter that are considered cat by the industry. Only three of them resulted in losses to at-risk for the quarter. And we've talked about those. And so what that means is that there are a lot of events that occur in the industry that will drive loss for primary insurers, or some reinsurers that don't result in losses to at-risk. And that's because we have a -- we have a definition of a cat. It has to be over $10 million involving multiple seasons. Obviously, our book, in various parts of the world is structured to avoid more attritional type of cat losses. So that gives you a sense of that. And in a year, where you have a cat or nearly Cat 5, Florida landfall hurricane, that's obviously going to be much more of a reinsurance event, and drive more loss into the reinsurance market, which is what's resulting in our cat, actual cat loss being in excess of our cat load. So hopefully, that allows you to square the circle. And there's no question that there you could have a year with $120 billion of cat losses, where our cat load is less than 6%. It really is that dependent on what events are driving it. And then the last piece, as you do mention, we're not including any cap on recovery in our estimate of net losses. And my view would be if PCS continues to develop upward, and those trigger our cat loss, remember, we called in at $55 billion. So my gross loss wouldn't move just because PCS gets to $49 billion, which gives us I think, a good degree of prudence. And then again, above our 55 level, I think that's when the cat recovery really holds our dollar value net losses at the level that we've indicated. So we feel very good about that number, and there's a lot of prudence built into it.

James Williamson :

Yeah, Yaron, it's Jim again. I mean, I think the first thing, I would just remind everybody out that, that was an assumption that we made, that was built into our strategy for getting to a total shareholder return. We have a lot of levers to drive those returns outside of reinsurance growth rate. So that would be one key point. The next is we have driven significant growth. If you think about when we made that call, we were really beginning at the -- launching off point was the end of 2020. So we have driven, very significant growth. It was very front loaded, because we saw that market opportunity, particularly in casualty. So that's very relevant. But to your broader point is do I believe that our prospects for growth in 2023 are greater now than I would have believed the last time we talked about it? Absolutely. I think the market opportunity that we all know is in front of us, will give us the opportunity to drive more top line at better margins, probably with less total exposure on the property side. And then as Juan and others as indicated on the casualty side we think there's a renewed opportunity to continue our growth rate. In the specialty lines, there's a tremendous amount of dislocation that's occurred, due to the war in the Ukraine and other factors. We think that will present some very interesting opportunities. And then we continue to invest in our business, which gives us new capabilities to deliver value to our customers, drive top line growth. So I think, yeah, a quarter does make a huge difference on that front.

Yaron Kinar:

Thanks so much, and best of luck.

Operator:

The next question comes from Ryan Tunis from Autonomous Research. Please go ahead.

James Williamson :

Yeah, sure, Ryan, it's Jim Williamson. The first thing to indicate, just when we think about our view of the industry loss, we do think this is primarily going to be a residential driven loss, with obviously a very large component of home. But probably a bit of an outsized auto loss as well. For our particular portfolio, we will definitely be concentrated in the Florida specialist. For the most part, this is a general comment, but for the most part, our large national clients won't see significant attachment in their programs. Obviously there'll be some loss, but not that significant. They manage their exposure in Florida very carefully. So there is that factor. And as Mark had indicated, in his comments, I think that's actually quite a good thing for us. Because potential creep around the loss related to things like auto, for example, or commercial flooding, are not going to be a factor for us. So if that -- if those two factors were to drive uplift in the ultimate industry loss, that really shouldn't have an impact on our net loss. So I think I think about that as a very good thing.

James Williamson :

Yeah, Ryan's well one, just with respect to where you ended that question, we use the models for a number of things. But underwriting judgment, expertise, and a whole lot of common sense go into how we manage risk, how we set our risk thresholds, how we price our business, how we decide whether or not to participate in programs, etc. But in terms of your point, look, I think what Ian shows, if you look at our current loss estimate, and $55 billion, and our net P&L statistics, it's showing more like a 1 in 41 than 50. Which I don't think the return period on a storm like this is that remote. I think it's more like a 1 in 20 loss range. And the delta between those two figures is really our prudence around the cap on recovery, because again, we're publishing that PML. Our expectation, you know, as Mark has indicated, to give you that number is if PCS catches up to our view of the ultimate industry loss, there's going to be a meaningful cap on recovery, which would lower our net loss, which would square with our P&L our published P&L. So that's why you're seeing a little bit of a headache. It's not anywhere near 1 in 100.

James Williamson :

And to Mark's point, right, we have $350 million of cap on limit that will begin attaching just under $49 billion of PCS event and will exhaust just around $64 million. So that is a meaningful number. And my view would be, remember, we've tagged industry loss at 55. So if PCS begins to catch up to us and development in their numbers is not unprecedented, they can travel upward a long way without having any impact on our view of our gross loss. But we would begin to recover, lowering our net loss. And so I think it tracks to my view of what a 1 in 20-ish type of event would look like.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Juan Andrade for any closing remarks.

Operator:

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

Operator:

Welcome to the Everest Re Group Second Quarter 2022 Results Conference Call. . Please note, this event is being recorded. I'd now like to turn the conference over to Matt Rohrmann, Senior Vice President, Head of Investor Relations. Please go ahead.

Juan Andrade:

Thank you, Matt, and welcome to Everest. We're excited to have you on board. And good morning, everyone. Thank you for joining us today. Everest delivered strong results in the second quarter with positive momentum across our key objectives. We expanded margins in both of our underwriting businesses, and our insurance segment delivered another standout performance. We further scale our platform with strong overall and underlying results, continuing the positive trajectory for this business. In reinsurance, we seized opportunities to improve the diversification and profitability of our book, while reducing volatility. In a complex environment, Everest's global talent, disciplined underwriting and market leadership provide strength and stability to our customers. Our relevance and impact have never been more important. Improvements in underwriting profitability and operational efficiency, supported by our investment portfolio, delivered $386 million in net operating income and a 15.3% annualized operating ROE. We achieved these results through consistent and relentless execution of the strategy that was articulated at our Investor Day last June. Our strategy is to profitably scale our insurance platform and capitalize on our reinsurance leadership position to continue building a broadly diversified and consistently profitable company that provides leading returns in the sector. Our results quarter after quarter demonstrate we're accomplishing what we set out to do. Operational excellence is also a core component of our strategy. Efficiencies resulting from investments in our systems and technology make us more resilient, so we can respond nimbly to changing market conditions and cease emerging opportunities. Coupled with our ability to attract and retain great talent, this gives Everest a competitive advantage. This is increasingly important against the backdrop of macro volatility, achieving ambitious growth in profit today requires companies to operate with both the strong offense and defense. Our second quarter financial results demonstrates ever stability to strategically do both in a complex environment. I'll share some highlights now, first from the group and then for each of the underwriting businesses. Second quarter results for the group were strong and underscore the earnings power of our company. We grew gross written premiums by just over 10% in constant dollars. The growth was broadly diversified in both divisions and is supported by continued momentum in insurance as well as underlying margin improvement in both businesses. We continue to benefit from positive rate, exposure growth and deliberate portfolio management actions, keeping us ahead of loss trend. The combined ratio for the group is 91.8% and includes $85 million of weather-related natural catastrophe losses, primarily in South Africa, Canada, Europe and the United States. Overall, our catastrophe losses for the second quarter and year-to-date remained well below our cat loss ratio target for the year, despite an estimated $39 billion of insured industry losses in the first half of 2022. According to Aon, this level of natural catastrophe activity is 18% above the average for the 21st century. We also recognized a $45 million IBNR accrual for the Russia-Ukraine war. We have limited direct exposure to the Ukraine and expect any potential losses to be a manageable earnings event. Mark will provide additional details in a moment. The group attritional combined ratio was 87.2%, a 40 basis point improvement from the prior year. This includes a 1.9 point year-over-year improvement in insurance. The group attritional loss ratio also remained strong in the quarter at 59.8%, with continued improvement in both segments. The $240 million in underwriting profit for the quarter is a direct result of continuous portfolio management. Net investment income for the group was $226 million, balanced between fixed income and alternative investments. Now turning to our reinsurance business. Reinsurance gross written premiums were up in the second quarter by over 5% in constant dollars. Our growth is broadly diversified, which allows us to target higher margin opportunities in each region and line of business. We are not reliant on one market or one product to drive our growth and profitability. For example, second quarter growth is driven by our international operations, particularly our casualty book, where we're focused on key seasons for achieving strong underlying profit improvement and results ahead of loss trend. We also grew our global facultative business and our mortgage reinsurance business, where there has been a significant pickup in deal flow. This growth is partially offset by a reduction in property pro rata as we continue to optimize that portfolio. I talked about the advantage of flexibility. This is where our ability to manage market dynamics makes a meaningful difference in the quality of our portfolio. The reinsurance attritional combined ratio was 86%, including an attritional loss ratio improvement of 30 basis points year-over-year to 58.8%. This contributed to a strong underwriting profit of $175 million, supported by successful midyear renewals. With respect to these renewals, market conditions have steadily improved over the course of 2022. We are seeing improved economics for property cat. Everest's position as a preferred market has allowed us to reposition our participation in key programs, further away from frequency losses and achieve better expected profit or reduced cat exposure. Our underwriting teams deploy capacity with discipline. Casualty market remained stable with some tightening of terms driven by market concerns over social inflation and emerging risks. The market is showing signs of discipline, especially in pro rata, where cedes appear to be stabilizing. Our underwriting teams are data-driven, carefully tracking and analyzing trends to ensure we manage the underwriting cycle. In summary, we are positioned to capitalize on opportunities as we maintain our strong underwriting discipline. We are well placed going into the January renewal, and we expect further improvements in the market. Now for our insurance results. During the quarter, we continued to deliver on our strategic objectives, generating record underwriting profit and continued growth, while investing in our talent, technology and analytics. We achieved strong gross written premium of $1.2 billion, a quarterly record for our insurance division, up over 20% in constant dollars. This growth was broad and diversified across our target product lines, channels and regions. We had strong growth in our U.S. casualty, specialty lines and in our international business. We also continue to see significant opportunity in the E&S space where we are well positioned. Growth was driven by several factors, increases in underlying exposures across many lines of business, including general liability, property and workers' compensation, strong renewal retention and positive rate in excess of loss trend across the portfolio. In the quarter, we achieved a rate increase of 7.3%, excluding workers' compensation, and a total of 6% with high single-digit increases in property, professional lines, umbrella and commercial auto. These rates remain well above pre-pandemic levels. It's also important to note that in addition to renewal rate change, there are other levers we deploy to ensure that margins continue to expand, such as coverage terms and conditions, limits management and attachment points, risk selection, new business pricing, which continues to be higher than renewal pricing, and the benefit of additional premium from inflation-sensitive exposure basis. Insurance growth was partially offset by continued portfolio management, including our reductions in U.S. property catastrophe, where we achieved an approximately 36% reduction in our gross 1 in 100 U.S. Southeast Wind PML over the last 12 months. In addition to robust growth, insurance continued its strong profitability trend. We achieved a record low attritional combined ratio of 90.2%, approximately 2 points lower than second quarter 2021 and with a 1.5 point improvement in the attritional loss ratio. These results are aligned with our financial targets and build on our continually improving attritional combined ratio trajectory since the end of 2019, where we have gained over 6 points of underlying margin expansion in the combined ratio. This is a direct result of the consistent and cumulative actions I just spoke about. These improvements resulted in $66 million in underwriting profit, the second best quarterly profit in our insurance division's history. We also made solid progress in the quarter with important milestones that advance our international expansion strategy. Everest insurance received regulatory approvals to operate in Singapore and Chile, where we are officially open for business. Asia and Latin America are both significant opportunities. We are well positioned with the talent, customer-first platform and proven track record to cease this opportunity in new markets. I have personally witnessed the excellent reception of our presence by local brokers. We will continue to bridge gaps in regions around the world, where we are uniquely positioned to serve clients and brokers with our strong balance sheet and broad suite of insurance products and capabilities. Our leadership team is driving the strategy forward and Everest continues to be a net acquirer of talent. During the quarter and since the beginning of the year, we welcomed a significant number of new colleagues, all of whom are accretive to our organization and inclusive culture. From underwriting to pricing and claims, we are innovating across the entire organization to deliver a world-class experience and value to our stakeholders. Our second quarter results demonstrate that Everest is nimble and strategic, diversified and well positioned to perform in any environment. We entered the second half of the year with momentum. We are leveraging our talent and the full breadth of our enterprise to strengthen every area of the business and bring our partnership to more people and businesses around the globe. Now I will turn the call over to Mark to take us through the financials. Mark?

Matt Rohrmann:

Thanks, Mark. Operator, we're now ready to open the line for questions. .

Yaron Kinar:

First question, just looking at the reported combined ratio in the first half. I think it's tracking a little below the midpoint of the 91% and 93% guidance range. That said, I do think that the second half of the year tends to have a little more catastrophe losses in it. So how confident are you in achieving that 91% to 93% target?

Mark Kociancic:

Yes. So in addition -- Yaron, in addition to the PML reductions that we've seen on the cat side, I think we're making some solid progress on the attritional loss ratios as well. And you can see that evidenced over the last several years, 5 years in particular when you look at insurance on a stand-alone basis. And so we don't see that changing. We feel like we've got a lot of momentum, good process, a lot of opportunity in the market, and we feel good about it.

Mark Kociancic:

Yes. They're not targets. They are assumptions rather that we had in place for the 3-year plan. So in other words, to achieve the plan itself, it's not like we have to grow at that level. We're very much focused on total shareholder return profitability target for the group. To your point, when you look at the assumptions that we had 8% to 12% for reinsurance and 18% to 22% on insurance, last year, we exceeded those by a significant margin, pretty close to 25 points of growth last year for both divisions. This year, insurance is, within its 18% to 22%, I think we'll get there. The reinsurance side is a little bit lower, but that's not a problem for us. We've done a lot of things there, which I'm sure Jim will articulate as we go on through the call, but we can certainly achieve our objectives even if premium growth is somewhat muted because we're very much focused on profitability.

Mark Kociancic:

Well, yes, those would be constant currency.

Elyse Greenspan:

My question is on the capital side of things. You guys mentioned that you have ample capital. We didn't see any buybacks in the quarter. So just hoping to just get an update on how you guys are balancing using your capital for organic, inorganic growth as well as capital return from here?

Elyse Greenspan:

And then my follow-up is a margin question, but a little bit of a different way, right? You guys laid out a 91% to 93% combined ratio target at your Investor Day. That included right around at the midpoint, right, a 6.5 point cat load. So I back that out, right, that would be an underlying of 84.5% to 86.5%. You guys were 87.3% ex-Russia, Ukraine through the first half of this year. And you did mention some things like mix, right? If you're shifting away from property, right, that would perhaps lift your underlying, and we're also dealing with higher inflation trends and when you put this guidance in effect. So can you just walk through the drivers of kind of hitting the mid-80s from an underlying combined ratio perspective that's included within that 3-year plan?

Operator:

The next question comes from Meyer Shields from KBW.

Juan Andrade:

Yes. Thanks, Meyer. And that comment was specifically related to the Reinsurance segment of our business, where we continue to see pretty significant opportunity. And as I said in my prepared remarks, what we're doing is very consistent with our prior strategy of partnering with specific seasons that we understand, that we know and that we also see getting rate in excess of loss trend. So from that perspective, we're pretty confident about that book of business. With regard to the social inflation question, I think that's more of a U.S. litigation issue than it is outside of the U.S., even in developed markets of Europe. So when we think about that particular driver of loss in the book, we tend to think about it more from a North America standpoint that we tend to think about it from an international standpoint.

Juan Andrade:

Yes. So maybe a broad comment on that, and then I'll ask my colleagues to jump in as well. So I think on the comment about the market appearing to settle down on cedes. I think that is right. And I think that is what we saw during the quarter, primarily as our cedents are thinking about the same things that we're all thinking about, the risk environment, inflation, et cetera, et cetera. So from that perspective, we see the discipline that's going on with the primary companies, and we definitely see less of an uptick, if you will, on cede commissions. With regard to the insurance, I think that's largely a function of mix and where we saw the growth come in, in the quarter. I think you will see some fluctuations quarter-to-quarter, but we happen to see some very good growth in particular lines of business where we do get decent cede commissions from that, and that's really where you saw the offset. That's also been a little bit of a trend. If you look at the last 2 or 3 quarters, we've also been benefiting from that essentially. And that's part of our portfolio management to essentially drive our lines of business within the primary insurance business to areas where we think we can get better profitability. But let me ask maybe Jim Williamson to add a little bit of color on what he's seeing in the market from a cede commission standpoint.

Operator:

The next question comes from Josh Shanker from Bank of America.

Juan Andrade:

Yes. Thanks, Josh. And I think you broke up a little bit, so let me make sure that I answered the question that you're asking, if I -- this is one, by the way. Look, I think if you go back to the strategy that we have been articulating, a big part of that is really sustainability of earnings going forward. And a big component for us to be able to accomplish that is really to reduce the volatility in our earnings, which basically has come from property cat and the impacts of climate change and the storms that have been out there basically since 2017. And as you heard from my prepared remarks this morning, they certainly haven't abated, right? I mean whether you believe Munich Re's number of $34 billion or Aon's at $39 billion, it's still been a pretty active first half of the year. And then if you look at our cat losses for the first half of the year, and they're certainly underweight based on our market share and what we've been able to accomplish. So that part of it, we feel pretty good about the execution of the strategy. The other thing that I said in my prepared remarks is that we're basically getting much better pricing, much better risk-adjusted returns for total exposure -- for less exposure in total, right? And I think that becomes pretty relevant to us. The other point that I would make, Josh, is we have articulated a trading range that we feel very good about for property cat, thinking about earnings at risk and capital at risk. And our objective is to trade within that range. As we trade within that range, we're also looking at the environment that's out there for us, and we're positioning our book to be further away from lost higher layers. Given the shortage of capacity that's out there in the market, we're actually getting a pretty good rate online on those layers that are further away from loss. So for us, that's been a very good economic trade. But let me ask Jim Williamson to add a little bit more color on that for you.

Josh Shanker:

And this is going to be a bit of a question, I guess. But I mean 2006 is too much to ask for. But if pricing were at where it was in 2010, 2011, does that kind of market give you any incentives to reembrace volatility?

Juan Andrade:

And I would build on that a little bit, Josh, by saying that if you go back and look at the trading range that we've put out there, there's flexibility in there, right, to the comments that both Jim and I just made. We have capacity, we have the dry powder. And it's just a question of the trade, right? If it's attractive for us on a deal-by-deal basis, we can deploy capacity. And as Jim said, we have for specific risks, but we will stay within that trading range. The key strategy for us is a broadly diversified company that can deliver sustainable earnings, right? And I think we got to keep that in mind and that's really what we're executing against.

Brian Meredith:

A couple of me for you. First, one, I'm just curious, maybe get some updates on you with respect to your loss trend assumptions, obviously, a company that you're pretty familiar with increased your loss trend assumptions. And on that topic, too, if you've got a 7.1% rate, I know you said there are some other things that are happening here. What's your cushion right now rate versus where you think trend is running right now or could potentially be here soon?

Brian Meredith:

Great. And then Mark, I'm just curious, looking at the investment portfolio, obviously, a big increase in fixed income investment income this quarter. How much of that kind of increase that we saw in the yield, do you think is directly related to the ? And can we expect a continued kind of big increases in your investment yields here?

Brian Meredith:

Makes sense. One, I'm just curious, going back to my last question I was going to ask you. Are you willing to give us what you think trend is running right now?

Operator:

The next question comes from Mike ops from Morgan Stanley.

James Williamson:

Yes, Mike, this is Jim Williamson. I'll really break that down into 2 things. The first is what our cedents are doing. And then the second is maybe a little repetitive around our loss pick process. But one of the things to keep in mind is most of the casualty growth we've been experiencing is through quota share participation alongside of our cedents. And so you really need to examine strategies that they're employing to stay ahead of loss trend and to ensure that current accident year picks can be sustained, particularly as you get into an environment where there's material inflation happening. And so what I would emphasize for you and some of what we've already discussed is, we've seen obviously a significant and extended period of time where rates have been going up meaningfully. We're years, 3.5 years into a rate on rate on rate environment, and that is very meaningful. We've also seen really significant reunderwriting actions by many of our cedents. That's risk selection, that's attachment points, that's limits, that's terms and conditions. And that builds a significant amount of underlying margin into the treaties that we're writing. And then obviously, in our own underwriting process, we're very thoughtful about which cedents we partner with. We're choosing them very carefully, and we price all of our deals from the ground up to ensure that there is strong margin in those deals. And that margin calculation that we're performing includes our forecast around what's going to happen with inflation, whether it's social or material. And as we indicated earlier, we were very quick to react to changing trends around inflation and all of that gets factored into our pricing. So I think that's really critical. And then the second part of it obviously gets back to what Juan was discussing earlier, which is our loss pick process. We've been very, very prudent about strengthening loss picks early on in this cycle. We've obviously performed better than expected against those picks from a pricing perspective. And again, that's not reflecting all the underwriting I described as pricing has outperformed assumptions, but we haven't reacted too quickly to that price improvement by lowering our pick. So we're kind of going in with some very prudent loss picks. And it's really the combination of those 2 factors in our view, gives us the confidence we need to continue to sustain that casualty book.

Michael Karmilowicz:

Sure. Thanks for the question. This is Mike Karmilowicz. Yes, within specialty, casualty segment, it includes mainly GL, the driver, umbrella, excess and commercial auto are the main factors that drive most of that business. And again, similar to the comments you made on the primary side, we're seeing a lot of the investment and so forth and just the rate and return in a lot of areas around that. As you've seen with the overall rate we've gotten in the last 3.5 years, we continue to see a lot of upside and opportunity across that, again, being very selective and very cautious about managing limits and how we approach the market.

Michael Karmilowicz:

I think the one key thing for us ultimately is having a really well balanced and diversified portfolio across multiple segments and multiple geographies. And given the market share opportunity of a $900 billion market and where we stand today, we see considerable upside, and we're in a position of strength. So we are very optimistic about opportunity.

Ryan Tunis:

Could you just talk a little bit on the IBNR provision for Ukraine, the assumptions that went into that, the type of range of outcomes around that? Is that a contemplation of a small number of potential claims or, I guess, a larger number of smaller ones? Just give us some feel for how that could potentially evolve.

James Williamson:

Yes. Sure, Ryan, it's Jim. And I think Juan hit on something very important, which is the comparison with the process we used during COVID, where we review each and every treaty that could be affected by what's happening in the Ukraine. We are in communication with our cedents, obviously, studying all other industry data as it becomes available. It's -- obviously, there's not a lot of information at this point, and there's a great deal of uncertainty. But for -- in particular, the marine line, the political violence line and trade credit. We had enough information to make what we thought was a good estimate around potential loss exposure and that's where we made our selection for the second quarter. Obviously, as Juan indicated, we only have a small number of actual submitted losses. Those are all advisory losses. They don't include actual loss numbers. And so we'll continue to monitor and make adjustments if it becomes necessary.

James Williamson:

Yes. Sure, Ryan. This is Jim again. The way I would describe it is, and it goes back to some comments that we've made a number of times around cedent selection. But that is one of the most fundamental aspects of how we conduct reinsurance underwriting is picking the right cedents to partner with, particularly when you're talking about a quota share structure. And so as the casualty market began to dislocate, pricing improved, terms and conditions were changing, et cetera. We worked with what our view are the best underwriters in the industry, and we took meaningful positions on their treaties. And so a lot of that unfolded in 2020 and certainly in 2021. And so as you achieve that, obviously, you now have a really, really strong position with an individual cedent, and you may choose to sustain that position versus necessarily increasing it year-over-year. And so some of the increase you'll get going forward on that particular cedent might be more in the form of just the growth of their own business, the growth of exposures, et cetera. So that is a major factor. However, even in addition to that, we continue to see some really nice opportunities in casualty on -- typically on a pro rata structure, and we're pursuing those opportunities, and we'll continue to do that.

Operator:

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Juan Andrade for any closing remarks.

Operator:

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning and welcome to the Everest Earnings Conference Call. I would now like to turn the call over to Jon Levenson. Please go ahead.

Juan Andrade:

Good morning everyone. Thank you for joining us today. Everest is off to a strong start in 2022 with first quarter results to reflect our relentless focus on profitability and margin expansion. Excellent performance across our underwriting businesses and investments contributed to a $406 million in net operating income and a 16.2% annualized operating ROE. Our discipline and resilience standout in a challenging and complex environment. We are a source of strength and stability in unprecedented times. The world is facing distorted volatility with the effects of the pandemic compounded by a web of macroeconomic, geopolitical and societal issues. Adding to this are climate-driven industry catastrophe losses. The first three months of 2022 were active, with estimated economic losses over $30 billion and insured losses over $14 billion. Significant events occurred in the quarter in Western and Central Europe, Australia, Japan, and the United States. The historically quiet first quarter, has not been quiet for the past six years. According to the National Oceanic and Atmospheric Administration, January, February, and March of 2022 were each in the Top 10 warmest months in the official observed record dating back to 1880. Amplifying these challenges is the brutal Russian invasion of Ukraine, and the upheaval, death and destruction facing the Ukrainian people. It is heartbreaking to witness the inhumanity and the cruelty that is unfolding in Europe. This war destabilizes global economic systems and financial markets and threatens democracy, peace and decades long efforts towards share prosperity, ever stands in solidarity with the Ukrainian people. As underwriters, the protection and stability we provide has never been more important. This turbulent time is when our unwavering focus on consistent disciplined execution is most important. Our focus was evident across our underwriting businesses in the first quarter. Both performed well and continue to lead with expanding margins and highly relevant, diverse risk solutions across lines and geographies. In the insurance business, our focus on delivering profitable growth, expanding margins, and best-in-class products and services, advanced our mission to be the markets global diversified insurer of choice. In reinsurance, we strengthen our global leadership position and maintain a laser-focus on diversification, reducing volatility and maximizing profit. This deliberate cloning of our portfolio is an ongoing strategy; we successfully applied to the April 1st renewal. We brought the same discipline to our investments which continued to perform well in the quarter. Our portfolio is diversified and well positioned for the current rising interest rate environment. During the quarter, we continue to embed technology in our underwriting processes, and to increase our capabilities, productivity and efficiency. Our momentum is powered by the extraordinary efforts of our people. They are the bedrock of our inclusive culture, and they drive our success. As we announced last week, we lost a very special colleague, with the passing of Don Mango, our Chief Risk Officer and Chief Actuary. Don was a legend in our industry and at Everest. I had the privilege of working with him to evolve our enterprise risk management framework to what it is today. He's going to be greatly missed by all of us. To carry Don's vision forward, we have appointed Ari Moskowitz, as Everest Group Chief Risk Officer. Ari is an accomplished leader with deep actuarial expertise. In his former role as our Reinsurance Chief Operations Officer and Chief Pricing Actuary, Ari played a key role in integrating risk discipline across the business and embedding it into everything we do. He has also helped to advance our culture of diversity, equity and inclusion as a founding member of our DEI Council. I look forward to working with Ari to continue advancing our risk management agenda. Let's turn to our financial results for the first quarter of 2022, beginning with our Group results. In the first quarter, we delivered $406 million in operating income with a 16.2% annualized operating ROE. This includes over $235 million in underwriting income, a significant improvement over prior year and $243 million in net investment income. Our combined ratio of 91.6% is a six-and-a-half point improvement over last year. The attritional combined ratio was 87.4% and our attritional loss ratio was 60%, a 70 basis point improvement over prior year. We also posted a competitive operating expense ratio of 5.8%. Rate continued to outpace expected loss trends in the first quarter, and our margins continue to expand. In addition to rate, we are also benefiting from additional premium on lines of business with inflation sensitive exposure bases, such as general liability, property, and workers compensation. And we also continue to benefit from intentional underwriting actions, to manage limits, and granular segmentation of our portfolio to ensure we are writing the most profitable business. Our focus on profitability and expanding margins is clear. We grew gross written premiums by 9%, 15% in our insurance division, and 6% in reinsurance. This growth was solid and broadly diversified in both of our underwriting divisions. Diversification allows us to target higher margin opportunities in each geography and line of business. We are not reliant on one geography or line to drive our growth and profitability. With regards to the Russian invasion of the Ukraine, the war is an ongoing and evolving event. There are significant uncertainties regarding actual and potential losses and on whether health coverage would apply. We have completed a detailed coverage review of our businesses, and we have limited exposure to this work. To-date, we have received only one loss notice for a de minimis amount. Based on what we know at this point in time, we expect that any potential financial loss to Everest, as a result of these events, would be a manageable earnings item. But due to the high degree of uncertainty around both exposure and coverage, a reasonable estimation of potential loss is not credible at this time. We are continuing to work with our brokers and seasoned partners to assess any potential exposure. To sum, our Group results in the first quarter were strong and created meaningful momentum for the year ahead. The combination of our financial strength, capital position, outstanding market reputation, global offering, and deep relationships, uniquely positions Everest to capitalize on market opportunities. Let's turn now to our reinsurance results. In the first quarter, we grew gross written premiums by 6%. Growth was strong in casualty and financial lines globally, particularly casualty pro rata, which continues to be supported by strong underlying rate and underwriting and increased Everest participation on treaties. This is offset by deliberate and targeted reductions in our property/catastrophe exposed business as we further reduce the volatility in our portfolio. These actions resulted in significantly improved economics. The combined ratio was 91.4%, a 6.1 point improvement from last year and includes 110 million of pre-tax catastrophe losses net of reinsurance and reinstatement premiums from Australia floods, European storms, and tornadoes in the U.S. Our attritional combined ratio was 86.2%, including an attritional loss ratio of 58.9%, which is a 60 basis point improvement over last year's first quarter. Additionally, our expense ratio was 2.4% during the quarter. This continues to be a strategic advantage for Everest. We achieved excellent underwriting profit of $177 million. Driving this result is our priority on maximizing profits, while managing volatility. We successfully executed on this strategy during the January 1 renewal season, and continue to make meaningful progress throughout the first quarter. Specifically, we continue to grow our targeted classes of business and geographies. Our international treaty business grew by over 22% in the quarter. We expect this to become a bigger share of our business over time. Global facultative grew by 10%. We are making targeted investments to expand our facultative capabilities around the world, including industry-leading talent to our team. Those investments are already paying off. Casualty grew globally with our pro rata book up 48% year-over-year, and our casualty XOL book was up 8%. We continue to be measured and selective in our property and specifically in cat-exposed property. In the quarter, those lines decreased year-over-year. And we further owned our portfolio to maximize expected profit, while reducing volatility. We continued this strategy during the 401 review in property, total written premium, limits exposed, AAL, and our PMLs were all reduced and expected profit and dollars increase. This resulted in more profit for less exposure by any account that's an outstanding trade. We also achieved growth in our casualty book with higher participation alongside some of the industry's best primary underwriters. We expect conditions for upcoming reinsurance renewals to offer targeted opportunities for Everest to deploy capacity at superior margins. We move forward with the underwriting discipline and expertise to write profitable margins and we have the tools, talent and capital solutions to build continued profitability. Now let's to our Insurance division. We continued our thoughtful intentional long-term build with the insurance franchise with an absolute focus on underwriting profitability. Our combined ratio of 91.9% was excellent representing an eight point improvement from last year. The attritional combined ratio of 90.9% improved 130 basis points from a year-ago and including attritional loss ratio of 63.1%, a 120 basis point improvement from prior year. These improvements resulted in strong underwriting profitability of $59 million in the first quarter, a new record for the quarter. Our focus on profitability and margin expansion is clear. We have improved the attritional combined ratio by over five points since the end of 2019. We also have delivered robust and diversified growth in the quarter, up 15%, with gross written premiums once again over $1 billion. It's important to note that excluding strategic and intentional underwriting actions taken this quarter to reduce volatility and optimize the portfolio; our growth rate is higher at 25%. As we have said, Everest Insurance remains long-term growth mode. But we will reduce exposure where it makes sense as we continually reshape the portfolio to maximize profitability. Growth in the first quarter reflects our relevance in the commercial insurance market, and was driven by exposure increases, rate, strong renewal retention, and new business across our core segments, lines and geographies, most notably across our long tail lines. In the quarter, we achieved a rate increase of 9% excluding workers compensation and a total increase of 6% in our core P&C portfolio, notably, financial lines were up 15%, Umbrella Excess was up 10% and Commercial Auto was up 9%. Rate continues to exceed expected loss trends across all lines, with the exception of monoline guaranteed cost workers compensation, which now represents only 7% of our portfolio in the quarter. We made excellent progress against our objectives for the insurance business and we remain vigilant in driving and improving margins as we scale this business. There's a significant runway ahead of us to grow profitably in the global P&C market, and we're capitalizing on it. As we strategically expand our offerings, we continue to build out our global platform from underwriting to claims. This includes leveraging key technology and analytics to improve productivity, speed and accuracy and enhance the customer experience. We are finding new ways to innovate with improved structures and new offerings directly addressing gaps in the market. We continue to diversify and deepen our relationships with distribution partners globally. We are infusing analytics to take a more quantitative and metrics based approach to sales that brings the entirety of adverse to customers where, how and when they need us. As our first quarter performance shows, we've built the runway to advance our objectives, supported by our profitable underwriting operations, investments, market relevance, strong balance sheet, and our values based culture, all powered by a world-class global team. I am fully confident that Everest's ability to create exceptional value and deliver returns for our shareholders. As I said at the top of the call, more than ever, the world needs a partner it can depend on with the breadth of experience, capabilities, and dedication Everest brings to the market. In times of uncertainty, we are a source of strength and stability for our customers, shareholders, colleagues and the global community. Now I will turn the call over to Mark Kociancic to take us through the financials in more detail. Mark?

Jon Levenson:

Thanks Mark. Operator, we are now ready to open the line for questions. We do ask that you please limit your questions to two or one question plus one follow-up and then rejoin the queue if you have any remaining questions.

Yaron Kinar:

Thank you. Good morning. Mark, maybe going back to your comments on the investment portfolio. So you gave us the new money rate, where do you see the current fixed maturity yield and what -- how much of the portfolio turns over in the given year?

Yaron Kinar:

Thank you. That's very helpful. And then my second question maybe for Juan, in your prepared remarks, you talked a little bit about the cat loss this quarter. Can you maybe help us think about where, how you see catastrophes in this particular first quarter relative to expectations for the first quarter? Were they above normal, in line?

Operator:

Your next question comes from Joshua Shanker from Bank of America. Please go ahead.

Jim Williamson:

Yes, Josh. This is Jim Williamson. Thanks for the question. And it's a good one. Look, what we've seen and what we've been reporting is two factors that you described. There's a tremendous amount of margin creation happening in the primary casualty market driven by rates, but also by changes to limit re-underwriting, et cetera. And that's definitely playing through. And we're seeing that in our data. At the same time, cedings are looking to recapture some of that margin creation, the increased ceding commissions, and we've seen that dynamic play out. And what I would tell you broadly speaking, really only to Everest portfolio, our view is that trade is resulting in improving economics for us, meaning the improvement in the underlying market is exceeding growth rates and ceding commissions. Now, that's not true on every deal across the market, which is why the thoughtfulness and the selectivity of our underwriting is so important. And we measure each and every deal. And what we're looking for in this environment is margin expansion. And in those situations, where we see ceding commissions running ahead, and deteriorating margins, we're choosing not to participate. I would say broadly at this point, overall it's still a pretty rationale market out there that way. And so we see some real good growth opportunities continuing.

Jim Williamson:

Yes, Josh, it's Jim again. Look we have a very robust capital modeling and risk management process that we operate at the Group level and we are really evaluating capital deployment across all of our lines at a very granular level between both reinsurance insurance and our investment portfolio. And we certainly take into account, total capital usage and optimization when we're making those decisions. So when we talk about deploying relatively more capital to casualty versus property, we're accounting for the fact that you do get diversification benefits, and you do get opportunities to deploy capital, in some cases, multiple areas. And so we're not seeing any area in the portfolio where we're failing to deploy capital at the most efficient level, when you look at the growth.

Operator:

Your next question comes from Ryan Tunis from Autonomous Research. Please go ahead.

Juan Andrade:

Yes, Ryan, it's Juan Andrade. And let me start. And then I'll ask Mike Karmilowicz to join. Look, I think the first point is, we still feel very bullish about the growth opportunities in insurance, as I said in my opening remarks. I think in some ways, we're only scratching the surface of the potential that's out there. And it's one of the reasons why we now have international expansion underway and frankly, while we continue to gain traction in the U.S. market. We're good underwriters. And what you saw us do this quarter is what any good underwriter does. You're looking at your portfolio, you analyze it. In some cases, there's going to be things that you like, and then have a good economic return and there's things that we don't like. And so therefore, you exit them, because we see better opportunities to deploy capital and move in that direction. So if you think back at that 15% growth rate for the quarter, some of that was impacted by the fact that we did reduce volatility as well in the insurance side similar to our strategy in reinsurance. And the other part of it was driven by one specific account that we decided to non-renew and move away from it. But that's the general theory. But we do feel very bullish about the growth rates in insurance. And I would ask Mike to maybe jump in and add some additional color.

Ryan Tunis:

Got it. Then on the reinsurance side, obviously a good margin quarter there. Just maybe a little more insight into, what specifically drove that. Was it a lower loss pick, as you're recognizing for portfolio's less volatile and better underwritten, or was there anything one-time in nature that helped?

Ryan Tunis:

Thanks. I really appreciate that level of detail, Jim. Congrats.

Operator:

Your next question comes from Elyse Greenspan from Wells Fargo. Please go ahead.

Mark Kociancic:

So Elyse it's Mark. A few points that you asked there. So first of all, let me just start with the CAT and then we'll get into the acquisition ratios. On the CAT, I made this point last quarter that our expectations for 2022 with the CAT ratio for the Group of less than 6%. And so that's, I think, a meaningful reduced expectation versus last year, and definitely on a historical basis. So there is some reduction that that's expected there. On the acquisition ratio, I would say, a couple of points. We have, if I start with reinsurance. I would say it's broadly in line with last year, probably a little bit higher, you're seeing us trend at 24.9% here. Last year, I think we were in the low 24. That's principally because of mix of business. I did mention some of the one-offs we had in Q1 last year that would drive it. On the insurance side, we still see a declining net acquisition ratio. And that's a combination of things. You've got both ceding commissions coming in on certain lines of business, depending on the mix. And then just lower broker commissions versus our expectations on some of -- some other lines as well. But I'd say there's probably downward pressure in general on the primary side for acquisition ratio.

Jim Williamson:

Yes, Elyse this is Jim Williamson. We would definitely reiterate our commitment to that target, and we're very confident in it. And it's a combination of factors. One, while casualty does carry a higher attritional loss ratio, and a slightly higher attritional combined ratio. Those numbers are coming down year-over-year, you see the improvements that we were talking about earlier flow through the book, and we began to reflect that in our loss picks. And while I cited a 140 basis point improvement year-over-year to our pick based on improved loss picks. It's higher than that for casualty. And so we're seeing that happen. And so that's critical. And then the other part, when you think about the total combined ratio to what Mark just said, which is for the Group, our targeted CAT loss ratio went down and that's also true of reinsurance. And so, when you ladder all that up, our expectation is, certainly that those won't be headwinds to achieving our goals. We're very confident on that. The other thing I would just say, and this is particularly important, I think, as we roll through the summer. We're still very much a leader in the property CAT market. And we take meaningful lines. We've been doing that in improved economics that 401 as Juan indicated in his opening remarks. We were able to take less risk by any measure, whether it's PML, AAL, et cetera. But we're going to getting paid more profit dollars, more expected profit dollars will flow to the bottom-line. And that will certainly have an impact on our traditional and ultimate combined ratio. And we see good opportunities through the rest of the year to continue to execute that strategy. So I think all of that comes together to give us a lot of confidence in the targets we set out.

MikePhillips:

Thanks. Good morning everybody. Juan, given the pretty positive comments and kind of trajectory of insurance segment, margins expanding and rates still at a loss cost trends. What's your appetite for kind of keeping more of the gross business over the next couple of years in the Insurance segment it's been pretty consistent for quite a while. Any thoughts on kind of moving that up over the next couple of years?

Mike Karmilowicz:

Sure, thanks. Yes, I would only add to that, that we continue as we continue to scale up a lot of our existing businesses and get more critical mass. To Juan's point you'll see his take on that we've done that already in a few different pockets. And I see that continuing as we continue to grow and gain scale.

Juan Andrade:

Yes, thanks Mike. Good question. Look, we feel pretty good about where we are, as I said that, I would actually say that rate is outpacing expected loss strength comfortably for us across the board. Right, so you're right, excluding comp, it's a 9% increase in rate that we saw in the quarter. And it's hundreds of basis points lower on that, where the trend would be basically. I would tell you that we have consistently updated our loss trends assumptions, really since 2019, 2020, 2021 upward reflecting higher loss trends in our pricing models and exit year loss trends. So we monitor that pretty closely. But I can tell you, we're comfortably above loss trend right now really, across all lines of business, with the exception of workers comp, which is the only one that I flagged earlier.

Juan Andrade:

Yes, so look if you're running at a 9% increase in rate, our loss trend is lower than that by several 100 basis points, basically.

Brian Meredith:

Hey, thank you. Juan, I was just curious, I appreciate the color you gave on Russia, Ukraine exposure. And there's a lot of uncertainty, I know right now and your exposure gets diminished. But I'm just wondering, as you think about your portfolio business, where are you kind of looking at where you're focused at? Where could there potentially be some exposure?

Jim Williamson:

Yes, sure, Brian, this is Jim. And I'll repeat a little bit of what Juan said and give you a little bit more detail. Because obviously, these topics have been heavily covered, there's a lot of speculation happening in the media around potential losses. On an aviation basis as Juan mentioned a relatively small, there's one small part of our book. There is significant uncertainty around the extent of potential loss, in terms of actual units of aircraft exposed and that numbers been changing. The application of coverage notwithstanding some of the posturing that you've seen, I think there are real questions related to which coverage will apply, and to what amount. We've also taken very significant actions in our own aviation book over the last two years, to position it to withstand shock losses in a much better way. And so that gives us a lot of confidence. On a marine basis, particularly given when you look at haul, we do have, and we know that there are trapped vessels in the Black Sea, for example, there's a lot of uncertainty about -- around the size of those vessels, whether they'll ultimately losses on those vessels, or on land cover, cold war et cetera, can also be in the marine area. There are properties in the Ukraine, obviously, that could potentially be exposed. As we've evaluated our book though, we don't really have concentrations of property in the area where the conflict is ongoing. And so it's both uncertain, but also at this point appears very manageable. On a trade credit and political risk basis I think our teams have done an outstanding job of managing that exposure. On the terms of those contracts, as you likely know give primary insurers a lot of options when there's dislocation in the market, there's been a lot of cancellation activity and so that exposure, that potential exposure has been shrinking by the day. We've also seen a lot of payment activity continuing in those contracts that haven't been canceled. So that's a good sign. And then, lastly, on political violence, again, that'll probably apply primarily to property exposures. In the Ukraine, there's a time limit on those covers. And again, as we've evaluated potential exposures, we don't have heavy concentrations in the major cities that have been subjected to the conflict in a meaningful way. We haven't had any reported losses other than one, which was less than $300,000, of potential loss from a political violence perspective. So you know, looking very, very manageable at this point, and tremendously uncertain. And so we're just continuing to have dialogue with our team. We're assessing it and we'll keep a very close eye on it.

Juan Andrade:

Yes, Brian. So let me start and then I'll ask Mark to add. So the short answer to your question is, yes, we absolutely have the capability to go in and do buybacks. As you saw us do last year as well. Frankly, our stock was trading at a pretty good level. During the first quarter, there certainly had a bit of a dip as the war started sudden and you saw us come in, and we did have some buying activity, even though it was relatively small. But when you think about how we think about capital management, that philosophy hasn't changed in from what we have been articulating. Frankly, since I've been the CEO of this company. And we reiterated on our Investor Day last year, which is our number one priority, really is to privilege our underwriting businesses, as we see accretive growth opportunities and everything that we have been sharing with you this quarter and in past quarters, is that journey that we have to continue to expand margins improve the underlying profitability of this company, and you've seen us do that. So from our perspective that really is sort of priority number one. Beyond that absolutely we will consider share buybacks. We will consider other things at the same time. But let me ask Mark here to jump in.

Operator:

And your last question comes from Meyer Shields from KBW. Please go ahead.

Jim Williamson:

Sure, Meyer, it's Jim Williamson. Wanted to step back, just to reiterate our reserving process, which is very robust and has been strengthened meaningfully over the last few years. We're taking a very disciplined approach to reviewing all of our carried reserve positions every quarter. We've implemented a number of automated tools to allow us to do that. We are closely monitoring IBNR consumption at a very granular level across both reinsurance and insurance, by line, by accident year, et cetera. And then, of course, we have our ground-up reserve studies that were conducted, none were actually completed in the first quarter, but we will start getting completed reserve studies in Q2, and that's on an accelerated schedule, accelerated over last year, which was also accelerated from the prior year. So a lot of eyes on our carrier position. Now, when you look at you start slicing our IBNR, and our very reserved position in the all those pieces I described. You're clearly going to see movement on redundancies in some areas, deficiencies in some others, et cetera. But overall, I would reiterate what we've said in prior calls, which is we're very confident in the strength of our carrier reserve position. And we have seen no information, really, since the end of 2020. That would cause us to take any action, any meaning material action one where the other from a reserve change perspective. And so and that's certainly through this quarter. And so again, we'll continue to monitor it. And if that changes we'll certainly, you'll be the first to know.

Meyer Shields:

Okay, that's very helpful. A second unrelated question, we're in an environment of at least, I think probably expected continued interest rate increases and your liability duration, have you set the mix towards casualty and also extending, when is the right time to really significantly increase your investment portfolio duration? Do you do it now; do you wait for further interest rate increases?

Operator:

And there are no further questions. At this time, I will turn the call back over to management for any closing comments.

Operator:

This concludes today's conference call. You may now disconnect.

Operator:

Good day and thank you for standing by. Welcome to the Everest Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call off to Jon Levenson with Everest.

Juan Andrade:

Thank you Jon. Good morning everyone. And thank you for joining us today. 2021 was a pivotal year of profitable growth and continued momentum for Everest. We finished the year with a strong quarter and achieved record growth in both our franchises, drove expanding margins and solid underwriting profitability and generated exceptional investment income. This led to a $1.4 billion in net income for the year and a milestone 14.7% total shareholder return against the 13% target. These results reflect the strong earnings power of our diversified businesses to create value for our shareholders, even in years of elevated natural catastrophes. With a more profitable book of business coming out of a well-executed January 1 reinsurance renewal season, and expanding global value proposition, a strong balance sheet and exceptional talent, we entered 2022 well positioned to deliver on our strategic objectives. Before I provide details about our results, I want to acknowledge the contributions of my global colleagues this year. 2021 was challenging for our industry. Despite the continued global pandemic and significant climate driven catastrophes, we advanced our strategic priorities with disciplined execution and delivered first class products and solutions to our customers. In 2021, we accelerated many of our strategic priorities, building on a discipline foundation that drives greater profitability and less volatility in our business. We make key investments in the people, technology, and infrastructure that are optimizing all three of our core earnings drivers, reinsurance, insurance, and investments for superior performance. First, our underwriting franchises. We continue to build on our market leading position in global P&C reinsurance. As a preferred provider with diverse product offerings and relevant client driven solutions, our insurance franchise is scaling and diversifying, increasing margins, and driving relevance in more markets through a focus underwriting and distribution strategy and an expanding footprint. And the market is responding with increased demand for our products, evidenced by strong growth in both franchises, and consecutive quarterly top line records in insurance this year. Focused execution in 2021 led to a solid underwriting outcome that is particularly meaningful in the context of a $130 billion catastrophe year. Our continued diversification, volatility reduction, and disciplined underwriting are yielding profitable returns. A recent example is our success executing a clearly defined and measured strategy into January 1 renewal average this year to a focus plan. This resulted in our current portfolio being stronger, more diversified, and more profitable. Our commitment to operational excellence and an entrepreneurial model that keeps us agile and responsive to our clients ready to pivot with rapidly changing market conditions is a big part of how we accomplish this. To this end, we made material inroads in 2021 on our path to becoming a digitally enabled organization through superior data, analytics and technology that are bringing more depth and dimension to how we manage segment and model risk with greater speed and precision. With regard to investments, performance was excellent in 2021 driven by a prudent approach to optimizing a well-balanced, high credit quality investment portfolio that supports our franchises and helps to drive meaningful returns. Reflecting on Everest accomplishments in the past year, I am proud of the diverse, inclusive and purpose driven culture that supports everything we do. Our continued emphasis of ESG as a core pillar of our long term strategy was most recently reflected by our decision to become a signatory to the UN principles for sustainable insurance. Finally, talent drives our performance. Everest is proud to be an employer of choice in our industry and throughout the year we attracted and events exceptional talents across the global organization who will help us to drive this next chapter of profitable growth and bring our offering to more customers around the globe. Let’s turn to our financial results for the fourth quarter and the full year 2021. Beginning with our group results. In the quarter, we grew gross written premiums by 25%. Growth was broad and diversified across both segments. In the fourth quarter, we generated $228 million in underwriting profit with a combined ratio of 91.1 and an attritional combined ratio of 87.4 reflecting continued margin expansion in our insurance division. Turning to the full year 2021, average grew gross written premiums 25% setting a new record for our company of over $13 billion. Net written premiums grew 26% year-over-year The group combined ratio was 97.8% including 1.1 billion in catastrophe losses which is less than 1% of the industry’s estimated $130 billion loss in 2021, reflecting our disciplined underwriting and reduced volatility. The group attritional combined ratio was 87.6 for the year. These results demonstrate the progress against our strategic priorities to continue to optimize the portfolio to drive margin. Prudently manage expenses and enhance operational efficiencies. Let’s turn to our reinsurance results. Our reinsurance division had a strong fourth quarter and finished the year solidly with gross written premium exceeding 9 billion a 25% increase over 2020. Gross written premium growth in the fourth quarter was excellent up 26%. This growth was broad based and supported by underlying rate increases and the economic growth, increased opportunities with our core trading partners, targeted growth on profitable property and casualty programs. The division generated a 176 million of underwriting profit in the fourth quarter with a combined ratio of 91.5. The attritional combined ratio for the quarter was 86.4 reflecting the continued performance of our portfolio, the successful execution of our strategy to participate in growth and margin improvement in the casualty market and on-going expense discipline. We ended 2021 with a 98.1 combined ratio and an attritional combined ratio of 86.3. These results reflect our progress in reshaping our risk profile to achieve superior returns. We continue to actively diversify our reinsurance portfolio with an improved balance of property and casualty exposures. We are disciplined and focused about getting appropriately for risk. We made meaningful progress advancing these priorities to the January 1, 2022 renewal period that started with a cleared and focussed strategy with three key objectives. One, continue reducing volatility in our overall book by decreasing cat exposure and growing less volatile non-catastrophe loss. Two, optimize our property portfolio to maximized returns. And three focussed capacity with top underwriters. The breadth of average preferred market position built over decades and strong trading relationships combined with our size and capital gave us a distinct advantage. Our team was precise above where we deployed capital and focused on improving the economics in our property book. We maintain discipline where pricing did not meet our returned vessels. Rate increases were favorable across most property and casualty lines, with financial lines and loss effective property lines seeing the highest uptake. For example, loss effective programs in Europe particularly in Germany. Many catastrophe programs were restructured to ensure participation on higher layers. Despite how late the property renewals came together, there was ample capacity available for most seasons outside of retro and loss impacted aggregate covers. While the casualty market was competitive with upward pressure on ceding commissions, continued underlying rate improvements helped drive better overall economics, notably in casualty quota share. We successfully achieved targeted growth in our Retail Continental European portfolio across P&C lines, as well as our U.K. excessive loss portfolio. Within property, we reduced our exposure to property retro, lower margin property, pro rata business and working catastrophe layers, while at the same time growing targeted clients at excellent terms. Overall, we meaningfully reduce catastrophe loss potential in our book and achieve gross premium [ph] reductions in key peak zones. We have a more profitable and higher margin book. I'm proud of the team's discipline during a dynamic renewable season. Now a few comments about Mt. Logan. Mt. Logan plays an important role in our long term growth aspirations, and is uniquely positioned given its excellent alignment with the average property portfolio. We have a strong pipeline of prospective investors. We remain optimistic about the prospects for Logan and we continue investing in the platform with new products customized to meet investor’s objectives. During the year, we also strengthened our leadership bench and key promotions and hires, in North America, Latin America and elsewhere internationally. And in Mt. Logan. These talents, positions and promotions were part of a successful effort to optimize and streamline our structure, which is already benefiting the organization. In summary, our reinsurance business is better positioned today to support strong underwriting income results, capitalize on market opportunities, and further expand our market leadership. Now let's turn to the insurance division. Insurance had an excellent fourth quarter, delivering both top line growth and bottom line profitability, supported by continued strong underlying performance and progress in the long term targets outlined in our strategic plan. Insurance growth in the fourth quarter was 21%. We achieved over 1 billion in gross written premium for the third consecutive quarter. This resulted in a record 4 billion in gross written premiums for the year, or up 24% over 2020. The growth in the fourth quarter was influenced by a few factors. First, we continue to benefit from increasing exposures as the economy rebounds. Second, strong renewal retention, favorable market conditions and double digit rate increases across all of our target classes, excluding workers compensation, where rates are slightly down. Third, sales execution, we deepened and diversified our distribution network. And we sharpened our execution with a quantitative and metrics based approach to sales. As a result, we improve our hit ratios by 24% and 32% year-over-year in our retail and wholesale channels respectively. Four, strong new business growth in both retail and wholesale channels, primarily in casualty, professional, and transactional liability, along with accidents and health, partially offsetting the growth was targeted portfolio repositioning in our U.S. property and catastrophe exposed business where we continue to reduce overall volatility and improve margins. This includes on-going portfolio management related to modeling [ph] workers compensation, which is now only about 7% of global gross written premiums. We delivered another strong underwriting result with a quarterly combined ratio of 92.8 and an underwriting profit of 52 million. Our underlying performance was also outstanding. The 90.4 attritional combined ratio is a 3.4 point improvement, compared to the fourth quarter of 2020 and an almost eight point improvement since 2019. Our loss ratio, commission ratio and operating expense ratios all improved, including a 3.8 point loss ratio improvement for the fourth quarter. We are committed to sustaining this positive momentum and we are sharpening our focus in two key areas to achieve it. First, is proactive cycle management. We are building a diversified business. As I mentioned, we continue to see growth in a number of our specialty lines, and we will grow more profitable crop classes of business over time. Our diversified product offering and relevance in both the E&S and Retail channels allow us to seize new opportunities in the evolving market. Second is increased efficiency and scale. For instance we are increasing efficiency by enhancing our claims process to improve productivity, speed and accuracy, resulting in better claims outcomes and higher customer satisfaction. An important part of this our continued investment in advanced tools, such as robotic process automation, artificial intelligence, and natural language processing, which creates greater operational efficiencies, and delivers better insights, enabling fact based decisions and best-in-class customer experiences. As to scale, we also expanded our footprint in Latin America, Asia, and Europe, where we see opportunity to profitably grow across the 800 billion plus global commercial P&C industry. We have a thoughtful expansion plan outside of North America that brings together existing capabilities, expertise and knowledge to a broader and more global customer base in places where we can grow profitably. Building our company for the future is a marathon, it’s not a sprint. I'm very encouraged by the ambition, the tenacity, and the hard work this team consistently demonstrates. I'm proud of our results, but we remain hyper focused on daily execution as we position our company for the future. An agile global company focused on providing exceptional service and risk solutions to our clients, a company that is respected for its influence and impact in the marketplace. That follows a strong risk management framework that delivers consistent and leading returns with a world class global team united by the passion to win. Now I will turn it over to Mark Kociancic to take us through the numbers in more details.

Jon Levenson:

Thanks Mark. Operator, we are now ready to open the line for questions. We do ask that you please limit your questions to two or one question plus one follow up and then re-join the queue if you have any remaining questions.

Joshua Shanker:

Thank you very much. Good quarter and great outlook and I’m thinking 25 million in shares repurchases in 4Q and I'm trying to figure out what the ROI on incremental capital use is for insurance, versus reinsurance versus ploughing [ph] into your stock at this price.

Joshua Shanker:

Are all options almost equal at these prices? Or like, is there a difference in where you'd prefer to put capital if you can only make one choice?

Joshua Shanker:

And in that regard, and reinsurance renewals and trending, what's happening with ceding commissions? How is it impacting the returns in that business? And do you have an outlook for where that's going to impact numbers in the future?

Joshua Shanker:

Thank you very much for the precise answers.

Operator:

And your next question comes from the line of Michael Phillips with Morgan Stanley.

Jim Williamson:

Yes, sure, Mike, this is Jim again. To provide a little bit of perspective in terms of the fourth quarter growth rate for casualty, both on a pro rata and XOL basis, we achieved record levels of written premium, at what we view is very attractive margins. Those lines were essentially our fastest growing lines in the quarter. So I think that's an important fact. And look, at the end of the day, there are definitely cedings who think about how much of their own business they want to see to their reinsurers, particularly in the pro rata lines. And we did see around the margin, some movement away from pro rata structures, people shifting into XOL. However, one area that we focus very closely on is ceding selection. And what we're looking for when we choose to partner with a ceding with one of our core ceding in particular, are folks that consistently manage their reinsurance placements. And so we're trying to avoid cedings who are shifting quarter-to-quarter in terms of their participation. And we saw a lot of consistency among our cedings. I think the other piece that we've benefit from, given the strength of our franchise and our local trading relationships is in even in areas where maybe the total value of the session came down, there were areas where we were able to increase, share and sustain our revenue stream from our core clients. So all-in-all, I think a very successful fourth quarter and a very successful one, one from that perspective.

Juan Andrade:

Yes, Mike. So this is Juan Andrade, and I'll start. Look, I think certainly what, what you saw take place in the industry in one one, and really, in the latter part of the fourth quarter was, frankly a lot of companies catching up on what we've been doing really over the last couple of years, which is looking at volatility and their book of business and making trade-offs and decisions on that. And again, this is something that we're ahead of the curve, as you've seen in our numbers, as you've seen in our calls and the dialogue that we've had. Look, the reality is that pricing in property cat has improved some, but it hasn't improved meaningfully enough to be able to justify and pay for the catastrophe exposure that we'll see that is really being driven by climate change. And so that has proven underwriters to be I think, a lot more prudent particularly in an environment like Florida and southeast wind in general. So I think the issue there becomes more of a public policy issue going forward, about capacity, the ability to ensure there's public policy questions with regard to zoning, with regard to construction, to essentially how we deal with a problem that we all have as a society that is related to the warming of the seas, rising sea levels, etcetera. But I would invite, I would invite Jim also to add maybe some commentary on that.

Michael Phillips:

Thank you guys for the detail, appreciate it. Congrats on the quarter.

Operator:

Your next question comes from Elyse Greenspan with Wells Fargo.

Juan Andrade:

Yes, Elyse, this is Juan in. Thank you for the question. So let me break it up in a couple of points. And then I'll ask Mark Kociancic to jump in as well. With regard to the guidance that Mark gave on the cat loss ratio, he said less than 6%. And that's basically related to a lot of the de-risking actions that I spoke to, in my prepared remarks earlier in this call. The reality is we have meaningfully reduced catastrophe loss potential in our book. We've achieved PML reductions in key peaks zones, and we've improved their overall portfolio economics. Catastrophe limits to COVID has been reduced, with a favorable reduction in expected average annual loss. So that is the key driver of the cat loss ratio coming down from our perspective. The other part of that is the fact that we are diversifying the book into non-cat lines of business. But as far as we're concerned, the margin that we expect to generate from the reinsurance division, if anything will improve in 2022, because of the actions that we have taken, but I'll invite Mark to up to add some additional color.

Elyse Greenspan:

Thanks. And then my follow up question on S&P is in the process of collecting comments on it's a revised capital model that it's looking to put out there. We're just hoping to get some comments on how this could impact Everest. I know since you guys are have the U.S. based, I think that that would impact you less than some of the Bermuda peers. But if you could just give us a sense of how you're thinking through the impact of the capital model on Everest? Thank you.

Elyse Greenspan:

Thank you.

Operator:

Your next question comes from Brian Meredith with UBS.

Mark Kociancic:

Well, we're in an access capital position; you know that we have the two debt raises. And I think we gave you pretty good guidance on the investor day in terms of our growth ambitions. And so for able to execute the strategic plan, I think we're going to be in good shape in terms of funding it. But we do have flexibility to grow more rapidly, as you saw last year, particularly in reinsurance where you saw approximately a 25% growth rate print, and we gave per annum guidance of 8 to 12. So there are times where we can really see what the market gives us. And then similarly on insurance, I think we're getting very strong growth there. Last year well over 20% and I think we've got a very good trajectory this year. I think that level of growth is probably the primary factor on how the excess capital develops in conjunction with the overall profitability of the group. So now we're in a, I think, a very good situation with excess capital, so no constraints on growing the group. And then we look at how the profitability evolves as we take into account future capital management actions, whether we're talking about buybacks or funding, more organic growth. I did mention last year, I’d say it might have even been Q4 in 2020. But I did see a lot of potential to improve the efficiency of the capital allocation in the group and you're getting to this point on operating leverage, there's probably some more that we can achieve and still be very capital efficient. And that's really kind of an all three buckets investments and the two divisions as well. So there is a bit more efficiency on that aspect that I would expect us to achieve in 2022. Thereafter, you're really talking about optimizing, but I like our position as it stands right now.

Mark Kociancic:

When we set up the plan last year, we took the base forecast for forward curves on interest rates. And that served as the underlying assumption primarily in the investment portfolio. And so I reaffirmed, for example, the investment returns. It's a factor that we have to manage in the execution of a plan. So whether it's underwriting or investments, and we're fine, with whatever direction that goes. Obviously if rates are rising, it's I think we got some more tailwind behind us. But it's one of the reasons when we went through the definition of the TSR that we excluded, the volatility that comes from unrealized gains and losses on the fixed income portfolio. And so that is where we expect not to be, we're creating real economic value, despite some of the macroeconomic volatility that can come from rates. And so that's why we set the TSR up the way, the way it is.

Operator:

Your next question comes from the line of Ryan Tunis with Autonomous Research.

Juan Andrade:

Yes Ryan, thank you. Thanks for the question. Thank you for recognizing the accomplishments too, by the way. Look, what we said at Investor Day back in June, is that 13%, essentially was the floor and what we actually said it's greater than 13%. Now obviously we can't predict the future. But what we are very much focused on are the drivers and aligning those drivers to be able to drive that 13% or better from that standpoint. We had a good start in 2021. We've been able to do that. And we're very focused with the actions that we've been talking about on this call on the underwriting of the cap portfolio, some of the actions that we continue to take on the insurance side to improve the profitability of the book to seek profitable growth. And all of that is aimed for leading returns. Right? That's, that's really the focus on here. And so again, I go back to what we said, if we'd like to achieve at least the 13% TSR over that period of time, and we're off to a good start.

Juan Andrade:

Yes. So let me start, and then I'll ask Jim Williamson to add more color. So look, I think we have been prudent in setting our loss fix. I think we have been prudent in how we analyze the reserves, the process that we put in place, we got a lot more insight, and more granularity into the data into the numbers to allow us to react. So I feel pretty good about that. When you look at the external environment, there's obviously things that as an industry, we all keep an eye on, right? You definitely keep an eye on social inflation. In the 2020, 2021 period, we definitely saw a drop in frequency and a slowdown in the courts. I'm not sure we have seen the courts completely open back up to full efficiency at this point in time. So you do keep an eye on some of the social inflation factors that are there, particularly as you're writing loss, long tail line. So that's an important component of that. The other component that you keep an eye on is real inflation, right? Material inflation, supply chain disruptions, all of these types of things, and the impact that that could have on trend. So from our perspective, what we have done is we certainly have adapted our loss trend selects for 2021, 2022 to make sure that we are continuing to select prudent loss picks given all those macroeconomic factors that are there. But in addition to that, we have continued to do a number of actions on the portfolio to ensure that the business that we're putting on the books meets our margin standards and it's very profitable, right. So you have heard from me, you have heard from Jim earlier in the discussion, some of the approach that we took throughout 2021 that we took to the one one renewal season that Mike Karmilowicz and his team has done also on the insurance side so that on-going portfolio management, that is just good underwriting is a key hallmark of all of this to ensure that we can meet the targets that we've set out. But with that, let me ask Jim to talk specifically about the loss ratio and reinsurance.

Ryan Tunis:

Thank you.

Operator:

And your next question comes from Yaron Kinar with Jeffries.

Juan Andrade:

Well, let me start with that. I don't think we see any specific headwinds other than what we've already discussed, sort of in the macro environment, right. And we are essentially working our book of business, working our underwriting, working sensibly all the levers that we have to be able to meet and exceed on all those targets. And you clearly saw that in 2021, with the 14.7%, on the total shareholder return. But we are doing, I think, a very good job in shaping this book of business to drive very sustainable results over time. And a key component of that is what we've done on the catastrophes portfolio over the last few years. You saw the benefit of that in 2021. You saw the actions that we have been describing that we took at one, one 22. And I think all of that is a positive. So I'm not necessarily seeing any headwinds per se, other than just the macroeconomic environment being able to react to that. But what we control I feel pretty good about.

Juan Andrade:

Yes Yaron, let me give you maybe a broader perspective and then I'll bring it down to reinsurance and I'll ask Jim to jump in as well to give you a few thoughts on growth and how we're looking at 2022. Number one, I would start by saying that we do remain very comfortable with the growth targets that we set out on investor day, last June. And as you pointed out, we're well on our way to achieving them, given the growth that we had in 2021. The second thing I would say is you've also seen us respond to opportunities in the market in both our underwriting divisions to grow our company and expand margins. So if the opportunity is there, we're able to take it. And the reason for that is pretty straightforward, right? We're nimble, we're agile, we have the relationships, the products, the platform, the capital, and the people to continue to be able to do that. So that gives us I think, a pretty good competitive advantage in a pretty dynamic environment to be able to do that. A third point I'll give you is that, and this goes back to the capital allocation discussion we were having earlier. We do have a diversified franchise that really works to our advantage. And the way we think about allocating capital is really who can give us the best economic return, as Mark said, is it insurance, reinsurance, or investments within the company. But keep in mind that our focus is always the same one. It’s underwriting results. That's the core focus. That's what we really are driving. And it goes to also Ryan's question earlier about the margin. And so that brings us to the specific landscape of 2022. And so as I look at the landscape, I continue to see excellent opportunities for growth in primary insurance, both in the U.S., as well as internationally. And when we think about reinsurance, I've seen more selective, more targeted opportunities in that area. And we're going to pick our spots. Frankly, that's the bottom line. But I think what you're hearing from us is, look, we have traction in 2021 going into 2022. We have dry powder, as Jim mentioned earlier, and we intend to capitalize on the opportunities that we see. But at the end of the day, it's about underwriting income and underwriting results. But Jim, I don’t know if you'd like to add anything?

Yaron Kinar:

Thanks for the helpful answers.

Mike Zaremski:

Hey, great. Good Morning. Juan, first question on the prepared remarks Juan you talked about in the primary insurance segment. I believe you've talked about improving your analytics and improve your hit ratios on sales by a meaningful mark. Maybe you can kind of elaborate it seemed like a meaningful increase and the hit ratio thriving sales and is that new business since you're tweaking the underwriting [Indiscernible] is it the booking guys maybe more conservatively to on the onset?

Mike Karmilowicz:

Sure. This is Mike Karmilowicz, thank you for the question. I would just add a couple of things to that. Besides in distribution, we've been adding talent in addition, and changing the culture from more of a sales focus and customer mind set. So with that, the data analytics that Juan was talking about, we've been very much focused on simplifying our structure. So we can be a lot more efficient how we go to market in our offering is so we can bring it together and coordinate it more effectively, as an example. And what that's doing is we've developed sales pipelines. And we're being much more tactical with our distribution partners, which is allowing us to increase our hit ratio, and actually continue to improve, again, our success with our trading partners. So I think you'll see that as a continuation. So this is early days, but we're making a lot of progress in 2021 was an example of that.

Juan Andrade:

Yes Mike, it's Juan. And again, thanks for the question on that. Look, I'm pretty consistent on this theme. And you've heard me say this before, which is our strategy is organic, right. That's what we can plan for. That's what we're executing. And that is an insurance that is and reinsurance at this point in time. Now, that being said, as Mark pointed out, we do have access capital. And if we do see an opportunity along the way, that's interesting. Obviously, it's something that we will consider, but I'm not considering or looking at sort of transformative type things, etcetera. This would be more a full time does it help us in a particular geography, a particular product line, etcetera, etcetera. But the strategy remains an organic focus strategy.

Juan Andrade:

Thanks, Mike.

Meyer Shields:

Thanks. Good morning. I appreciate you putting me in. Juan, in your comments you talked about a specific growth strategy for outside of North America. And I thought if we can get a little bit more color about the I guess regions lines, and specifically like the sort of risks that could hinder underwriting profitability in that new article as you penetrate those markets.

Meyer Shields:

Okay, thank you. That's very helpful. One quick question, if I can. We're seeing across the industry a lot of growth in I guess what people would term financial lines. And usually that means cyber gross, reinsurance communities actually went down for the quarter in the year. Juan, something that you could talk about maybe a strategy for cyber or other factors that are driving that decrease.

Mike Karmilowicz:

Sure, thanks for the question. This is Mike Karmilowicz here. But cyber for us is a portfolio we entered about a couple of years ago. It's a very small portfolio. But we've been very diligent on our focus. It's more middle market driven. And the opportunity that we've been able to accomplish is really focusing on two key things from our perspective. One is really making sure the requirements, whether it's MSA or whether the risk profiles have all the hygiene and things that are necessary to make sure it's a required suitable risk is one thing we've been very sure to sell. So the market itself, with all the different rate increases, we've seen, has allowed us to sit there and really focus on just the things that we want to go after. So it's a very small portfolio. We're not -- we're just picking the rate and looking for opportunities. But I don't see that market is slowing down anytime soon. And we continue to look for the right risk profile with the right requirements around cyber hygiene. And if they don't meet that, will continue to kind of just move forward and manage it effectively.

Operator:

I would now like to turn the conference over back to management for closing comments.

Operator:

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

Operator:

Welcome to the Everest Re Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Jon Levenson, Head of Investor Relations. Please go ahead, sir.

Juan Andrade:

Thank you, John and good morning, everyone. Thank you for joining us today. During the third quarter, Everest continued to make progress towards the strategic plan objectives detailed in the June Investor Day presentation. We achieved outstanding top line growth across both our insurance and reinsurance businesses, continued to improve underlying profitability for our insurance segment, continued diversification of our reinsurance franchise, demonstrated strong expense discipline, delivered excellent investment income results, opportunistically reduced our cost of capital, and returned capital to our shareholders. We continue to execute our plans, regardless of the external environment. Before I get into the results, I want to first acknowledge the human cost of the catastrophes in the quarter. For those people whose lives have been affected around the world, by the wind, fire, floods and earthquakes experienced in the quarter, these are life changing events and this is always top of mind for us at Everest. As insurers and reinsurers, we are here, as these communities work to rebuild, recover, and hopefully emerge even stronger, and for Everest, this is when our ability to execute really matters. Turning to the results for the third quarter, the strength and resilience of our fundamentals continues to prove our strategy is working, and our execution is on pace. As we shared there in the June Investor Day, we measure our success against the three year strategic plan with a simple goal; create value and drive meaningful shareholder returns over time. This starts by ensuring that our reinsurance and insurance businesses supported by our investment portfolio are doing exactly what we said they would do, drive forward momentum to fuel profitable growth. On our core, Everest is a growth company focused on sustained profitability with a well-diversified earnings stream. Beginning with our insurance division, which delivered record high quarterly top line growth, marking the second consecutive quarter of over $1 billion in gross written premium and the lowest attritional combined ratio to date, we continue to prove our relevance in the market and our ability to execute. There's significant runway ahead of us to grow profitably and we're capitalizing on it. We're well on our way to growing into the world-class specialty global insurer we've set out to be. Reinsurance delivered double-digit growth and we continue to further diversify our book across lines and geographies around the world, a key part of our discipline strategy to reduce volatility. This discipline was evident in the previously announced third quarter pre-tax net catastrophe losses of 635 million from Hurricane Ida and the July European floods, events totaling over 40 billion in industry insured losses. Everest is not immune to cat losses but the cumulative, deliberate and purposeful actions we have taken to reduce volatility have changed our company's risk profile. We have taken a disciplined approach to diversifying our book and reducing reliance on a single peak cap zone. For example, we have reduced our PMLs for southeast wind to almost half of what they were in 2017 from 11% to 5.9% of equity. We have scaled back our total property cat XOL premium, which comprises 17% of our total reinsurance premium today versus 26% at the end of 2017. Our book is better positioned and less volatile today than it was two years ago. We will continue to thoughtfully manage our risk profile to maximize returns. Turning to investments. Performance here was excellent. We continue to optimize our portfolio, and its earnings power as a key diversifier of our earnings. Prudent capital management is another important part of our strategy. Just after quarter end, we completed an opportunistic $1 billion debt raise at a three and an eight coupon. This is very efficient, long-term capital. In addition, we continue to opportunistically repurchase shares throughout the quarter for a total of $200 million year-to-date. If the engines of our strategy are our core underwriting platforms supported by our investment portfolio, our transformation efforts focused on operational excellence and underwriting discipline are the fuel for those engines. During a quarter when the industry sustained meaningful losses from catastrophes, this discipline made a material difference in our financial outcome. It is about commitment to consistent execution and building a company for the long term. Throughout the third quarter, we saw the benefit of this commitment manifest in several ways. We continue to prove we can play offense in a favorable market to pivot and respond to changing market conditions. We're executing on a value proposition that continues to be well received by our customer and broker partners. We have the talent and capabilities to deepen distribution relationships, and diversify our presence in key markets around the world. We have established our purpose-driven culture as a differentiator. We also see it in the top industry talent who have joined Everest, and who view the company as a great environment for development and opportunity. With that, let's dive into more detail around our results this quarter at the group and segment level. Beginning with our group results, growth in the third quarter continued to be strong and diversified across both of our businesses. We grew gross written premiums by 25%, a barometer of our market relevance. The increase in premiums was a product of our ability to capitalize on improving economic conditions, driving exposure, growth and new business opportunities, the favorable double-digit rate environment and high renewal retention. The combined ratio of 112 include 635 million of pre-tax net catastrophe losses from Hurricane Ida and the European floods during the quarter. The group attritional combined ratio of 87.9 reflects strong underlying profitability in insurance and our continued diversification in reinsurance, coupled with ongoing prudence in loss picks selection. Catastrophe losses during the third quarter resulted in an underwriting loss of 323 million. Net investment income for the quarter was again outstanding, up 25% to 293 million. And the expense ratio also improved this quarter. The meaningful progress this quarter is not a sprint, it's about consistency; day by day, quarter by quarter, being thoughtful and strategic about developing the portfolio, prudently managing expenses and pursuing overall operational excellence; these actions all add up. The cumulative effect is evident in our year to date results, and a few are worth highlighting now. Year-to-date gross written premiums are up 24%. Our business has continued to drive strong growth and momentum. We generated close to $1 billion in net income year-to-date. This is a testament to the earnings power of the company. Net investment income year-to-date has more than doubled from $420 million for the period last year to close to $1 billion today. Our expenses continued to improve and the group attritional combined ratio is also trending better year-to-date. Finally, for the nine months year-to-date, annualized total shareholder return on equity is over 13%. With that, I'd like to turn to the results in our reinsurance business. We had another excellent growth quarter in our reinsurance division with gross written premiums up 19%. We strengthened the franchise through underwriting actions to create a more diversified, resilient, and lower volatility business. The growth was broad and diversified, every geography and targeted line saw continued expansion in the quarter. The combined ratio of 115 includes the impact of third quarter pre-tax net catastrophe losses of 555 million from Hurricane Ida and the European floods. Our focused actions to de-risk our portfolio are reflected in these results. The share of our book exposed to Cat losses has declined. Diversification is key because the severity and frequency of these events are a reality. We see the impact of climate change in our data and we take a proactive and scientific approach to how we model and underwrite for it. Our dedicated team of experts continuously assess the science and integrate its effect on lost costs into our models. This focus will continue to be a key part of our strategy. Our attritional combined ratio for the quarter was 87, including an attritional loss ratio of 60. Our attritional loss pick reflects our deliberate and targeted shaping of our portfolio to maximize results. This includes a higher mix of pro rata structures, and an improved balance of property and casualty exposures. These underwriting actions position Everest to benefit from the underlying rate increases and improving terms and conditions achieved by a core seasons in the primary market. Combined with continued prudent loss picks, this result in a relatively higher attritional loss ratio, but with better long-term risk adjusted returns on capital. As you know, the primary market has benefited from multiple quarters of strong rate improvement, a reduction in limits and the strengthening of terms and conditions. Our strategy of focusing growth on core trading partners means we're benefiting from these effects alongside some of the industry's best underwriters, and we expect strong portfolio economics to emerge. Risk adjusted return expectations are improving in every line, in every geography. At the same time, we remain vigilant regarding market trends, including climate change, supply constraints, and social and material inflation. As a result, we continue to hold prudent loss fix. Finally, Mt. Logan continues to be an important part of our strategy, and we are thrilled to have brought in John Modin as its new leader. Jim Williamson is available to provide additional details during the Q&A. Now for our insurance division. Performance continued to be strong with exceptional growth and expanding underlying margins. In the third quarter, we wrote over 1 billion in gross written premium for the second quarter in a row and achieved the highest quarterly growth rate to date at 43%. The growth in insurance was fueled by a few factors. Number one, we continue to seize opportunities from increasingly favorable economic conditions. Second, we continue to grow through new business and demonstrate our relevance to customers and brokers. Third, we're benefiting from strong retention rates. This, coupled with continued favorable double-digit rate increases is creating the kind of opportunity Everest was built for and that we're poised to capitalize on. We maintain a strong focus on portfolio management as an important part of our strategy and driver of long-term profitability. We continue to proactively position the company to play offense and react nimbly to market conditions by driving our business mix stores product lines with better rate adequacy, and higher long term margins. Renewal rate increases continued to exceed our expectations for loss trend, up 12% in the quarter, excluding workers compensation and up 8% including workers compensation, which now represents 12% of our overall portfolio with model line comp down to only 7%. Rate increases were led by excess casualty, up 17% and financial lines up 14%. I've said it before, those who execute best in this business win and the quality of growth and insurance and our focused discipline comes down to simply excellent execution. During the third quarter, we expanded traditional underwriting margins with improvements in loss and expense ratios. This includes a 2 percentage point improvement in our attritional loss ratio of 62.9 and an improvement to 14 in the operating expense ratio. This resulted in the division's lowest attritional combined ratio to date at 90.3 and almost 4 point improvement over the same period last year. The underwriting loss of 17.2 million in the quarter was a result of the impact of pre-tax net catastrophe losses, including 80 million for hurricane Ida. However, the year-to-date underwriting profitability shows the indicative strength of our portfolio and ability to execute. We have a long runway in front of us, and we're investing in the talent, the systems and our worldwide capabilities to make us better, more efficient and more relevant in the market. Mike Karmilowicz is available to provide additional details during the Q&A. Reflecting on the progress we made against our long-term objectives, it is evident we're working with the right formula for success. Everest management team has the level of focus, deep expertise, and entrepreneurial approach to take us on our path forward and bring us even further. I am proud of the work we're doing building on a strong, inclusive culture that is constantly delivering for our clients and for our partners, pushing the envelope in digital innovation and our commitments as good corporate citizens. The opportunities are there, and Everest is well positioned to seize them. Now I will turn it over to Mark Kociancic to take us through the numbers in more detail. Mark?

Jon Levenson:

Thanks, Mark. Operator, we are now ready to open the line for questions. We do ask that you please limit your questions to two or one question plus one follow up and then rejoin the queue, if you have any remaining questions.

Elyse Greenspan:

Hi, thanks. Good morning. My first question is on capital. So we saw your capital return on the buybacks pick up in the quarter. Can you just give us a sense of how we should think about repurchase is from here and is that dependent upon how market conditions evolve over the course of the next year? And then tying into that answer, can you just give us constant commentary about potential M&A would fit into any capital return decisions that you guys are making?

Juan Andrade:

So let me address that, Elyse and this Juan Andrade. Look, as I've said publicly before, M&A is certainly part of our toolkit. Now we prefer to build our businesses organically and we see great opportunities in the market right now to be able to do that as evidenced by the growth rates that we have posted, not only this quarter, but really on a year-to date-basis. But it is something that we look at and if we find the right opportunity to advance our agenda and advance our business, we will certainly take a look at that, but our strategy remains primarily focused on growing our business organically.

Juan Andrade:

Yeah, Elyse, this is Juan again. So look, I would say that, we continue to see very strong double-digit rate momentum, as we quoted in my remarks, plus 12 for the quarter. And essentially, every line of business right now, with the exception of workers comp, is ahead of trend and it has been for a number of quarters at this point in time, so we expect that to continue. The way we look at our reserving and again, I think I've been pretty consistent about this, since I started as a CEO here almost two years ago, is we're very disciplined. As I mentioned in my remarks, we are also cognizant of the external environment, whether it's social inflation, climate change, CPI type inflation and everything that's out there right now, so we do prefer to let things season over time before we take action and bring that down. However, you also saw in the insurance numbers this quarter, the improvement that we made in the loss ratio, and again, this is consecutive, to prior quarters as well. And I would point the fact to, again, statements I've made in the past, it's not only about rate, it's about all the management actions, day to day in the portfolio, how we look at individual books of business, how we shape that portfolio, how we manage that, how we focus our attention our execution on lines of business that we believe have a higher potential for long-term margins. So, all of that is built into that and essentially, that is what you see reflected in the improvement than the loss ratio on an underlying basis for the insurance division.

Juan Andrade:

Sure, Elyse. Thank you.

Mike Zaremski:

Great. Good morning. Maybe, on the reinsurance segment first, please. Thanks for the commentary about the change in business mix. So I guess I'm just wanted to be clear if should we be factoring in this kind of changing business mix in our - it's kind of a new baseline in our go forward, in terms of kind of the higher attritional ratio on some of the business you're putting on? It sounds like that that's the read through from the commentary on the call so far.

Jim Williamson:

Yeah, Mike, this is Jim Williamson. The only thing I would add to what Juan had said and really only to add some additional color is, we obviously are very close to our core cedants who are driving the really strong growth that we've had in areas like casualty pro rata. And when you unpack their results in terms of what they're seeing, from a rate change perspective, their ability to reduce limit profiles, to improve terms and conditions, these are not subtle changes, these will have a dramatic impact, obviously, on the quality of the book that we have today and we're very excited about that. And our expectation is that those conditions will persist. And so we want to continue to partner with those core cedants as they move through this market. But the last thing I would add, obviously, is we remain very flexible, and where we see good risk-adjusted returns, we're absolutely willing to shift our mix quarter-to-quarter, year-to-year and we will retain that flexibility as we move forward.

Jim Williamson:

Yeah, sure. Mike, this is Jim again. So look, it is something we keep a very close eye on. We have a very disciplined capital allocation process within the company and for every line, we're continuously referencing back to how various lines of business consume capital and return on those lines. But this is not about trying to maximize top line. It's not a strategy related to that, it's really about pursuing best risk-adjusted returns. And in the market environment that we're moving in, we see a lot of excellent opportunity in the casualty lines and so it's about the pursuit of good bottom line performance, about good consistent results, about achieving our long-term strategic ambitions and about managing the volatility of the group. Those are really the decision factors that are driving the growth that we're seeing in casualty.

Mike Zaremski:

Understood, good color. And one last follow up, given a lot of changes in business mix and some new management team members, I think, historically, there's been more - it looks like true ups on reserves at the end of the year in 4Q. Is that something we should be thinking about? Is there some type of kind of seasonality we should be thinking about, at the back half of the year, the back quarter of the year?

Mike Zaremski:

Thank you.

Operator:

Your next question is from Michael Phillips with Morgan Stanley.

Juan Andrade:

Yeah. Thanks, Mike. Let me start and then I'll ask Mark Kociancic to add his point of view as well. Look, I think definitely, what we're hearing from investors, particularly post Ida and post the floods in Europe, is basically a bit of a concern about the catastrophe activity that's out there in the industry. You have also seen the fact that some of that money has moved more towards the cat bond market and towards very much higher up in structures and there are still appetite there. As a matter of fact, we saw a lot of capacity and attractive pricing, again, at the higher levels and at the higher attachment points, etc. But I think in general terms, I would say you probably are seeing a little bit of concern right now in the ILS market with some of these investors but I would ask Mark to also add his perspective on this.

Juan Andrade:

Mike, and I would finish up by saying, this also creates an opportunity for rated carriers like us. The reality is, there's going to be a lot more demand for companies with the financial strength and the ratings like government to continue to write business going forward. So while there has been maybe more of a muted concern that we're hearing, on the other hand, it also presents an opportunity for us on the front end.

Juan Andrade:

Well, it's typically not something that that we have disclosed publicly but what I can tell you, Mike, is that we review this on a quarterly basis, I think, as Jim was basically talking about, this is really part of the analysis that we do every day or every quarter. And, we drew this up for everything that we're seeing from the perspective of social inflation, that we see from the perspective of what we're seeing in wage inflation out there, etc., etc. and so we try to stay very much on top of that.

Operator:

Your next question is from Ryan Tunis with Autonomous Research.

Mark Kociancic:

Well, so Ryan, it's Mark answering here. So, obviously, our cat budget and our cat planning exercise within the operating plan is modeled out based on expected losses. Clearly, there's been substantial volatility over several of the years, not all of them. Last year was a bit more modest, actually below plan. The 7% is how it works out mechanically between reinsurance and insurance. Having said that, we have taken our cat portfolio and reduced its risk profile over the years since - essentially since Harvey, Irma Maria back in 2017. And so that de-risking that we've taken has been quite conscious. And alternatively, the group and I think you saw this highlighted during the Investor Day, is really expanding in other non-cat lines of business. So I would expect Everest going forward, whether it's reinsurance or insurance to continue to de-emphasize cat as a significant driver of premium and profit but it's still a meaningful and attractive risk, despite the volatility.

Mark Kociancic:

I just want to make sure I understand your question. Are you wondering if our Q3 events that were smaller in size are going to bleed into Q4 or are you questioning what's happening in Q4?

Mark Kociancic:

Yeah, yeah. Okay. So look in Q3, there were several other cat events globally. They were relatively small for us. I highlighted in my opening remarks that our cap threshold is $10 million and so there were a few that fell underneath that and those were easily absorbed into our Q3 attritional loss ratios, so I don't expect any development from there going into Q4.

Jim Williamson:

Yeah, Ryan, this is this is Jim Williamson. I mean, look, what I would say, if you're talking about an event like Ida, you're definitely going to see losses across a large number of cedants, I think that's to be expected. And then, a bit of an obvious statement, but really big cedants who have larger exposures will drive a meaningful portion of the total loss. But this was a pretty broad event, and particularly as it related to a major impact followed by a smaller flooding event. It's going to, I think, carry a fair number of cedants into loss activity.

Ryan Tunis:

Thanks, Juan.

Operator:

Your next question is from Meyer Shields with KBW.

Jim Williamson:

Yeah, Meyer. This is Jim Williamson. No, there were really no material adjustments related to activity that happened earlier in the year, it was really reflective of the third quarter activity.

Juan Andrade:

Yeah, so let me address that Meyer, I think that's a fundamental question. Look, we are in the property cap business but we're also mindful that the external market conditions have changed over time, and they have changed for a number of reasons, right. You clearly have the impact of climate change, as we've discussed, it has manifested. We certainly see the impact of the ILS market that basically I think has muted the size of the rate increases that you see post events like Ida into that market. And so while we see it as an attractive line of business, we also see better returns in other lines of business going forward. And it's part and parcel of the reason why we have been on this de-risking journey that we have continued to talk about, to essentially change the profile of our company. So, all of that is in our minds. We are students of the environment. We are students of the science. We're also very disciplined in how we look at our portfolio and how we allocate capital between lines of business. And this brings us full circle back to the question that Elyse and Mike Zaremski asked earlier in the call, right. It's one of the reasons why you see us basically growing in the in the casualty lines of business at this point in time. So it's definitely part of the equation, it's definitely part of the strategy as we conceive our plan and we drive the company forward.

Mark Kociancic:

Sure, my thank you.

Brian Meredith:

Thanks. A couple quick ones here. First one, I'm just curious, can you talk a little bit about how the current inflationary pressures that we're seeing economically impacted your business and influence your loss picks? And then on top of that, maybe add a little bit in your view toward inflationary rate right now, are you seeing any increase as courts reopened at all?

Mark Kociancic:

Yeah, so Brian, it's Mark. Look, on the asset side, this is something we think about because it's unclear how permanent or transitory the inflationary pressure that we're seeing is going to be going forward. And so we've got our portfolio, the asset portfolio positioned such that we think it can react reasonably well, versus a high inflation environment. And so there's a high degree of liquidity as well, that augments the kind of cash demands that you would have in a high inflation scenario. We benefit from shorter term asset duration and a relatively short duration on the liability portfolio plus a significant amount of assets exposed to equities or floating rate debt, which should be somewhat immunized in a high inflation environment. The other piece that I'll add, maybe before Jim steps in, is we have stressed the liability portfolio for different inflation scenarios and to see how it would perform and our ability to absorb it. And so that's something we do, in addition to the reserving side of the assumptions, etc., is to see how it can perform in different types of environments.

Brian Meredith:

Makes sense. Thanks. And then my second question, when you've talked about growing your insurance business internationally, I'm just curious, do you have the platform right now to actually really see some good growth there or are there some areas that you need to expand? either organically or in organically?

Brian Meredith:

Makes sense? Thank you.

Operator:

Your next question is from Josh Shanker with Bank of America Securities.

Mike Karmilowicz:

Sure, Josh, thanks for the question. This is Mike Karmilowicz. Yeah, the growth in comp, there's a big part of that in the exposure change that's coming from just the payrolls and obviously people going back to work. And then the other piece, keep in mind is, a big part of our business that's been growing has been the loss readable and - loss sense and loss readable business on the risk management side. We continue to do the same thing we talked about as being very disciplined around our motto line, guaranteed cost comp. So again, most of that growth is just coming from specifically the overall exposure change.

Josh Shanker:

Thank you. And this is maybe a bit cheeky. But you raised the debt and you had Ida and you bought back stock. I know, you said that your preference is to grow organically. But can you talk about when you bought the stock in the quarter? I mean, maybe I'm trying to get a little sense of appetite more so. Was it after Ida, was it before Ida, was it after the capital raise? I guess I'm looking for a little color there.

Josh Shanker:

Well, I appreciate all the clarity. Thank you very much.

Operator:

There are no further questions at this time. I will now turn the call back over to management for closing remarks.

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect

Operator:

Welcome to the Everest Re Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Jon Levenson, Head of Investor Relations.

Juan Andrade:

Thank you, John. Good morning everyone, and thank you for joining the call. Everest delivered an outstanding second quarter with strong growth and excellent underwriting and investment performance. We set multiple records for our company on both the top and bottom lines. These results serve as the foundation for our exceptional net income result of over $1 billion through the first half of 2021 and there are another important step towards achieving our three year strategic plan objectives and the delivery of superior results to our shareholders. Everest achieved an annualized total shareholder return of 22.5% through the first half of 2021 while exceeding our three year strategic plan target of 13%. We capitalized on market opportunities to expand our franchises in both reinsurance and insurance driven by relentless execution and the strength of our value proposition to our clients and brokers. Disciplined underwriting drove strong profitability in both reinsurance and insurance in our investment return was a quarterly record for the company. The standout performance this quarter demonstrate the progress we have made in executing our strategy and the quality of Everest diversified earnings. As I discussed at our Investor Day in June, our strategy has three building blocks. First is building our underwriting franchises. We are growing our Specialty P&C Insurance platform while expanding its margins. We are, solidifying our leadership position in global P&C reinsurance while we are growing and diversifying this business. Our investment portfolio is a core tool to generate solid returns and we're optimizing the portfolio while sharpening our strategy. Second, we continuously pursue operational excellence this starts with underwriting discipline, supported by system of management oversight and checks and balances beyond underwriting, we are transforming the operating model of the company to achieve greater scalability over time. We are also optimizing capital within our underwriting and investment portfolios. Capital is valued and respected. We are using the most efficient sources of underwriting capital from the capital markets including the ILS investors. In our industry those who execute best win. We're leveraging our flat agile organization to deliver best in class service and risk solutions to our brokers and customers. They routinely side our responsiveness and capabilities as a key reason why they choose to do more business with Everest. Finally, ESG principles are core of the Everest. This includes focusing on the culture of our company. Culture is one of our key differentiators and it is one of the reasons we can attract and keep top talent. Our culture fuels our success by helping our team be the best it can possibly be. We're investing in the talent of the organization as well as the diversity of our team. At Everest, we have three drivers of earnings. The first driver is about building a high-quality specialty commercial P&C insure the run underwriting excellence and a compelling value proposition. We are embedding data and analytics across the organization, enabling more effective pricing and decision-making, this means we make better underwriting decisions at improved loss ratios. We are improving our claims outcomes while delivering excellent service to our clients. And we're focusing our distribution efforts to be more sales and results oriented. Our second driver of earnings is average leading global P&C reinsurance platform. We enjoyed a leading market position of a fully scaled platform and we are focused on continuing to grow and optimize our reinsurance business. We are executing an underwriting transformation by improving operational oversight, governance and controls. Our Reinsurance Division is entrepreneurial and nimble, we will maintain it within a framework of pricing, reserving and process discipline. We're further diversifying into higher margin opportunities. And finally, we're expanding our risk financing by further partnering with capital markets and ILS investors. The third core driver of earnings is the investment portfolio. We have a high quality portfolio and we're focused on the efficient use of capital. The successful execution of our strategies in all three drivers of earnings is clearly evident in our results. I will now discuss our Group Reinsurance and Insurance First Quarter 2021 results. Starting with the Group results, we grew gross written premiums by 35% and net written premiums by 39%. Our growth was broad and diversified, stemming from one increased exposures and new business opportunities as the US economy recovers. Two, continued double-digit rate increases three expanded shares on attractive renewals and four, strong renewal retention. The combined ratio was 89.3% and eight point improvement year-over-year. The attritional combined ratio was 87.6% almost a full point, better than prior year with both segments expanding margins. We generated $274 million an underwriting profit compared to $51 million in the second quarter last year. Underwriting profitability remains at the core in everything we do. Net investment income was simply outstanding at $407 million compared to $38 million in the prior year second quarter. These strong operating results led to a net income for the quarter of $680 million resulting in an annualized return on equity of over 28%. Gross written premiums and reinsurance were up 40% over the second quarter of 2020, we are pleased with the ongoing execution of our 2021 plan. This growth was broad-based in the areas we discussed during our Investor Day as attractive. We achieved this growth while also coming off or reducing shares are less attractive business. We drove continued targeted growth in property CAT which we achieved while lowering our PMLs in peak zones, thus reducing expected volatility and improving risk adjusted economics. Much of our growth came from our core trading partners that are looking to grow with Everest because of our strong ratings and balance sheet, significant capacity and the ability to right across all lines. The attritional combined ratio ex-COVID 19 pandemic impacts was 86.1 for the quarter, a 60 basis point improvement year-over-year, resulting from our continued focus on loss and expense management. We see risk adjusted returns expanding in almost all treaties and classes of business globally. We're also benefiting from investments in data and analytics. As you can see in our results, our focused actions, improve the quality and profitability of the book. We are writing a more balanced portfolio with improved economics at an appropriate level of risk. We have achieved improved portfolio economics across all of our 2021 property renewal dates. We improved in every dimension, we increased topline, increased margin and achieve higher ROEs. In casualty and professional lines primary rate increases continue to outpace expected loss trends. Jim Williamson is available to provide additional details during the Q&A. Our insurance division continued its strong performance with excellent growth and underwriting results. We continued to expand margins as we execute our strategy. We wrote over $1 billion in gross written premiums for the first time in a quarter. This represents 25 percent growth year-over-year or 30% growth excluding workers' compensation. This growth is driven by disciplined cycle management, new business opportunities, continued double-digit rate increases and strong renewal retention on existing business. We're also starting to see a steady improvement in overall economic activity. The growth was well diversified and target classes of business where market conditions are prime for profitable growth, including specialty casualty, professional liability, property, transactional liability and trade credit and political risk. We are pleased with this diversification as it is a core tenet of our strategy. We also delivered strong underwriting results with a 93.5% combined ratio. A 10 point improvement over the same period last year, which was impacted by COVID. The underlying performance was also excellent with a 92.1 attritional combined ratio, a 1.6% improvement over last year and almost 4 points better than the second quarter of 2019. Renewal rate increases continued to exceed our expectations for loss trend of 14% in the quarter excluding workers' compensation and up 11% including workers' compensation. Rate increases were led by excess casualty up 22%, property up 16%, financial lines up 14% and general liability up 9%. We are building a diversified portfolio, steering our mix towards product lines with better rate adequacy and higher long-term margins. We also continued to manage average limits deployed to mitigate volatility. We are pleased with the progress we have made and the strategic direction and granular portfolio management should continue to possibly impact our results going forward. We continue to thoughtfully manage to workers' compensation line, which now represents 10% of our second quarter premiums, down from 14% year-over-year. While this line remains profitable we have pared back monoline guaranteed cost writings and shifted to more loss sensitive, loss ratable business where we share more risk with our customers with more focus on risk mitigation. Workers' compensation is an area of expertise at Everest and we're monitoring market conditions closely for potential opportunities, but these efforts illustrate our disciplined cycle management. Lastly, our strong position in both the E&S and retail channels continues to give us access to a wide opportunities. Michael Karmilowicz is available to provide additional details during the Q&A. In summary, Everest had an outstanding second quarter with strong growth and exceptional underwriting and investment performance. We have a vibrant and well diversified reinsurance and insurance businesses with experienced leadership and underwriting teams providing industry-leading solutions to our customers. We have significant momentum as we continue to execute our strategic plan. The company has excellent financial strength top talent and a prudent capital management philosophy. We are focused on sustained profitable growth. A more diversified, targeted and deliberate mix of business and superior risk-adjusted returns. We believe the relentless and disciplined execution of our strategy will result in maximizing shareholder returns. I am confident that Everest future and our ability to deliver on our commitments to customers and shareholders. Now, let me turn the call over to Mark Kociancic for additional details on the financials. Mark.

Jon Levenson:

Thanks, Mark. Operator, we are now ready to open the line for questions. We do ask that you please limit your questions to two or one question, plus one follow-up and then rejoin the queue if you have any remaining questions.

Elyse Greenspan:

Hi, thanks, good morning. My first question was on the reinsurance underlying loss ratio. So, you guys mentioned that the increase in the quarter reflects business mix and more prudent and loss picks, I was hoping to just get some more color there. And then how should we think about the loss ratio kind of trending forward from here.

Jim Williamson:

Yes, sure. And thanks for the question. Elyse, I mean the first thing I would say, and this is very consistent with the way we've described our value proposition and our strength in the market and that's that we're very nimble in this market, we have portfolios and markets around the world across many lines of business and we look to trade in into those various areas to maximize our total economic returns and that was certainly the case in the second quarter. And you see it in terms of some of our line of business growth where areas like pro rata casualty, were up 64% just incredible results we saw a lot of great opportunities to expand participation with some of our core partners and we took advantage of that. Conversely property cat XOL, which is a line of business where you have a big appetite for, it's a very, very attractive line grew at 17%. So, an excellent result. But obviously lower growth and that's aligned with a very low attritional loss ratio and so mix is absolutely going to play a factor there and it's going to bounce around from quarter to quarter depending on where we see opportunities emerging in the market. So those trades very successful outcome for our company. And then, the next piece around loss picks and again a lot of consistency from us on this topic is we set very prudent loss picks and in particular, if you think about the environment we're trading in with inflation, social inflation, the reopening from COVID, there's a lot of uncertainty in the market in, particularly in some of the longer-tail lines like casualty pro rata where we're growing, our view is we really need to see the results of rate change and the results of underwriting actions by our seems to play through and mature in our book. And so you will expect, as we see those results come through we'll certainly be sharing those results, but it will take time given the nature of our business for that to prove itself.

Elyse Greenspan:

That's helpful. And then, my second question is on capital at your Investor Day in June you pointed to booking to increase your leverage as you work on your three year financial plan. So as we think about the leverage going up, I just want to get a better sense of timing. As you think about adding to your leverage, and as part of the answer to that question, would you guys consider adding to leverage to support capital return via potential share repurchases or would it just be coinciding with when you thought you needed more capital to support the strong premium growth.

Elyse Greenspan:

Okay, thanks for the color.

Michael Phillips:

Thanks, good morning. I wanted to start with comp Juan, I heard your comments in the opening on how you're making some changes in comp and more loss sensitive accounts. But I guess you know there's been a lot to talk of maybe we're starting to see a change in pricing there. I'm not so sure if that's materializing for you guys. I hope you maybe you can give some color on, specifically on California. If you back out the... the COVID impact of California, it looks like the current, the current accident years are still trending pretty well, pretty good margin there. So when we, guys, just curious what you're seeing there and if that's, if that's the case, should we expect to see a turn in the market, especially for your accounts that others are talking about.

Mike Karmilowicz:

Sure. Thanks, Juan. And thanks for the question. Yes. As Juan mentioned, this is a perfect example for cycle management and actually really fully focusing on where we see opportunity and we are starting to see that stabilize across the country, particularly in California. For the first time we think we're starting to see some pockets in green shoots and with exposure both coming on. we are encouraged by where it's going and ultimately, we think that will be prepared to take advantage of that. You also see our slowing down ultimately in our comp, as far as the first quarter over second quarter. We're starting to see some changes there. So we feel that there is going to be some change in the marketplace, particularly in California. Keep in mind too with California, some of the, some of the reports that just came out from some of the organizations around some underlying cost we've noticed too that some of the overall costs that are associated with, with such as reforms on pharmaceutical and other different things California's performed actually better from a loss cost perspective of some of these things. So, we think that by end of the year and on next year. Mike. We'll see some of the starting to benefit us and you'll see us go after the business if that opportunity presents itself.

Mike Karmilowicz:

Sorry, Mike. You cut out. Can you repeat the question. I'm sorry is this better. Can you hear me okay?

Mike Karmilowicz:

Look, we have -- and you know we started a lot of segments over the years, we've been building this out organically. So we particularly trying to hedge ourselves with some of the Reinsurance in some of these clients we do. I think as you continue to see us gain scale we will definitely see the net tick up with to our growth over time. And as we continue to kind of take the lines in the market to use increase, you'll see that happen.

Michael Phillips:

Okay, perfect. Thank you, guys.

Josh Shanker:

Yes, thank you. Two questions on reinsurance, and without naming names when you're growing as fast as you're growing, you need to be taking share from somebody else, who are the market participants? Again, without naming names but giving us a sense of what the market looks like who are by choice ceding share to growers like yourself right now would the marketplace looks like that's allowing you to take so much here?

Josh Shanker:

And the second question, if you talk to a number of competitors in the marketplace, they tend to say that that the litigation environment is still come up from the pandemic, the frequency of reported loss is lower than it should be, but everyone's reserving for it with a I'd say that will accelerate as things sort of return to normal and some extent. As a reinsurer obviously, you're one step away from that and you're relying on the reporting of your students to help you frame your own losses. How does the gums up litigation environment inform how you are thinking your loss picks at this point and preparing for that future?

Josh Shanker:

Have you seen any data that suggests this temporary slowdown as a person?

Juan Andrade:

And, Josh, I would -- this is Juan. I would give you some color on the primary side where you are starting to see frequency come back to more normalized lever particularly around commercial auto general liability et cetera et cetera. So this goes back to the theory that we have since last year, which is the shutdowns and the lockdowns in the COVID pandemic did lead to a temporary change in frequency patterns maybe even severity patterns. But that's not going to be a steady state, I think you will see normalized frequency normalized severity come back.

Juan Andrade:

Thanks, Josh.

Meyer Shields:

Great, thank you. Good morning. I'm asking this question not so much on the reserving side but from the underwriting side, the property pro rata book is growing. And what we've seen recently is obviously enormous volatility and loss trends for property lines, can you give us a sense in terms of how rapidly your cedents can can't respond to higher property losses with their pricing and underwriting?

Meyer Shields:

Okay, that's helpful. And my next question with on ceding commissions. Are you seeing the same success in casualty you are in property with regard to I guess declining ceding commissions.

Meyer Shields:

Perfect, thank you so much.

Philip Stefano:

Yes, thanks and good morning of focused more so on the insurance side of how I was hoping you could help give us an impression of what inning we're in the business mix change benefit to the attritional loss ratio. I mean part of the question is that there has been a reticence to recognize the benefit of rate over trend in terms of conditions and et cetera. And I'm wondering if the attritional improvement slow down at some point once the business mix changes played out. But the recognition of the rate versus trend in other industry trends has not come through yet.

Mike Karmilowicz:

Thanks, Juan. Yes. So I think the short answer is that we still think we're in early innings. We started a lot of these businesses, we've seen obviously some of that improvement. Come through, and again this is dependent on what's happening in the marketplace. So as you can see, to see opportunity, and we see the opportunity get scale and continue to expand our footprint, I think you'll see some of this continue to play through over time. But again, we feel we're making great progress, but we're still in early innings.

Mike Karmilowicz:

And I think why it's a well for the last thing I'd say is we continue to hold the line on the loss picks for good reason, because we recognize it over time so I think you're seeing us do the prudent thing and do this in a long-term view.

Mike Karmilowicz:

Well, Phil, I mean it's a constant question for us because, look, step one is always supporting the franchise expansion, we're in the best market in almost a generation here. So we are privileging that growth you're seeing very strong top line growth on both segments Reinsurance and Insurance. Having said that capital management. We've been active. We could certainly be more active. I don't see any hesitation on our side to do that. I think you will see that in the future and we can complete both sides of that equation grow strongly without any constraints and manage our capital even more efficiently.

Juan Andrade:

Thanks, Phil.

Juan Andrade:

Great, thank you. Everest is a growing and leading global reinsurance and insurance company with a seasoned leadership team, broadly diversified earnings streams and a clear strategy to drive growth and expand margins while reducing volatility. Our goal is simple, drive superior shareholder returns. We have the platform, the financial strength, the talent, the focus and the commitment to succeed. Thank you for your time with us this quarter and for your support of our company.

Operator:

Welcome to the Everest Re Group Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the call over to Jon Levenson, Head of Investor Relations. Thank you. Please go ahead.

Juan Andrade:

Thank you, Jon. Good morning, everyone, and thank you for joining the call. Everest is off to a strong start in 2021, with robust growth, strong overall profitability, continued improvement in attritional underwriting margins and excellent investment performance. We achieved these results, despite the meaningful impact to the industry of the U.S. winter storms in the first quarter. Our thoughts are with those affected by the storms, as well as the Australian floods and I am very proud of the work our claims team is doing on the ground to help people restore their lives. Our first quarter results demonstrate the earnings power of Everest and our success in implementing our strategy to build a broadly diversified company with a relentless focus on operational performance and disciplined underwriting. We are bullish about 2021. We will continue to profitably grow the Insurance segment, while continuing to grow and strengthen our position as a leading global P&C reinsurer. Our diversified Reinsurance and Insurance franchises, financial strength, deep distribution relationships and leading customer solutions enable us to thrive in today’s market. I will now discuss our Group, Reinsurance and Insurance first quarter 2021 results. Starting with the Group results, we grew gross written premiums by 14% and net written premiums by 16% with robust growth across both segments. Our growth stems from, one, the combination of new business opportunities, two, improved terms and conditions, three, increased rate levels, four, expanded shares on attractive renewals, and five, high overall renewal retention. The as-reported combined ratio was 98.1%, including the previously announced U.S. winter storms and the Australian flooding catastrophe losses. We generated $45 million in underwriting profit, compared to $29 million in the first quarter last year. While the pandemic is not over and as we have done in prior quarters, we completed a rigorous analysis of our COVID exposure in the first quarter, resulting in no change to our COVID loss provision. Our COVID loss provision remains at $511 million, of which approximately 80% is IBNR. The attritional combined ratio was 87.3%, a 2.5 point improvement over the first quarter of 2020 with both segments continuing to show significant year-over-year improvement in loss and expense ratios. We continue to diligently manage our portfolios to improve returns with a broad array of underwriting actions. This includes managing attachment points and limits, improving on terms and conditions and targeting non-renewals of business, which does not meet our hurdle rates, as well as many other actions. Underwriting profitability remains at the core of everything we do. Net investment income was excellent at $260 million, compared to $148 million in the prior year first quarter. These strong operating results led to a net income for the quarter of $342 million resulting in an annualized return on equity of 15%. For our Reinsurance Division, the first quarter continued our strong growth, with gross written premiums up 16%. We were pleased with our successful execution of our January 1 renewal plan. The targeted and disciplined growth was driven by higher rate, increased shares on profitable deals, along with new opportunities in property, casualty, specialty lines and facultative business. The attritional combined ratio was 85.5% for the quarter, a 2.3 point improvement year-over-year. This came from improvement in both the loss and expense ratio. We saw better economics in most treaties and parts of business around the world. We were disciplined and reduce shares or non-renewed underperforming treaties or those where we did not get our target rate, terms, conditions, wordings, or exclusions. We also deployed additional capacity into lines with more attractive risk adjusted returns. This dynamic capital allocation resulted in an improved attritional combined ratio. Overall, we continue to write a stronger, more diversified and more profitable book. With regard to the April 1 renewals, we achieved 10% to 15% rate increases on Japanese wind treaties and 5% rate increases in earthquake treaties. Rates in other geographies continue to rise in both property and casualty lines. John Doucette is available to provide additional details during the Q&A. Our Insurance Division continued its solid execution in the market, resulting in strong attritional underwriting performance and premium growth. Gross written premium grew 10%. If we exclude workers’ compensation where we see less attractive pricing, gross written premium grew 20%. This growth is driven by disciplined cycle management, new business opportunities, ongoing strong rate increases in our target classes of business and high retention rates on existing business. We are also seeing a slow but steady improvement in overall economic activity. The growth was well diversified in our target classes, where market conditions are prime for profitable growth, including specialty, casualty, professional liability and property short tail. We are happy with this diversification as it is a core tenet of our strategy. Everest Insurance delivered an improved attritional combined ratio of 92.2% for the first quarter, a 2.7 point improvement over Q1 2020. These results continue to be driven by proactive underwriting actions and a continued focus on expense management. These actions are resulting in the continued expansion of our Insurance margins. The attritional loss ratio of 64.3%, improved 1.4 points year-over-year and the total expense ratio improved 1.3 points year-over-year. Renewal rate increases continue to exceed our expectations for loss trend, up 16% in the quarter excluding workers’ compensation and up 10% including workers’ compensation. The increased rate we achieved and the expected increase in margin is a function of market conditions and disciplined proactive underwriting actions across our businesses. After years of soft pricing and rising loss costs, pricing adjustments remain necessary. We expect this favorable pricing to continue throughout 2021. Consistent with prior quarters, rate increases were led by excess casualty up 33%, D&O up 24%, property up 13% and commercial auto up 13%. We are also seeing widespread rate increases in other lines of business. We are managing the Insurance business to build a diversified portfolio, steering our mixed or product lines with better rate adequacy and higher long-term margins. We also continue to manage average limits deployed to control volatility. We are happy with the progress we have made and we expect that the strategic direction should possibly impact our results going forward. Conversely, we have been thoughtfully managing workers’ compensation through the cycle. This portfolio now represents 14% of our first quarter premiums, down from 21% the year ago. We have pared back for writings in the monoline guaranteed cost base and shift in our portfolio to more loss sensitive, loss ratable business. Workers’ compensation is an area of expertise at Everest and we are monitoring market conditions closely for potential opportunities, but these efforts illustrate the disciplined cycle management we have implemented in the company. Lastly, our strong position in both the E&S and retail channels continue to give us access to a wide set of opportunities. Mike Karmilowicz is available to provide additional details during the Q&A. Everest had a strong start to 2021, with robust growth, strong overall profitability, continued improvement in attritional underwriting margins and excellent investment performance. We have vibrant and well-diversified Reinsurance and Insurance businesses with experienced leadership and underwriting teams providing industry-leading solutions to customers. We have sustained momentum. This company has excellent financial strength, top talent, and a prudent capital management philosophy. We are focused on sustained profitable growth, a more diversified targeted and deliberate mix of business and superior risk-adjusted returns. We believe that the relentless and disciplined execution of our strategies will result in maximizing shareholder returns. I am confident in Everest’s future and in our ability to deliver and our commitments to customers and shareholders. Now, let me turn the call over to Mark Kociancic for additional details on the financials. Mark?

Jon Levenson:

Thanks, Mark. Operator, we are now ready to open the line for questions. We do ask that you please limit your questions to two or one question plus one follow-up and then rejoin the queue if you have any remaining questions.

Elyse Greenspan:

Hi. Thanks. Good morning. My first question, if we went back to last year, you guys within your Insurance book we are getting 24% of price that was excluding comps, 12% with workers comp and if we were to assume a 5% loss trend that would have resulted in about 4 points of accident year underlying loss ratio improvement this quarter and when we look at the Insurance book in back of COVID you produced just under 1.5 points. So is it a -- is a good rule of thumb that you will apply less than a half of the improvement brought at the bottomline and the other half you would use to build some reserves conservatism?

Jim Williamson:

Yeah. Good morning, Elyse. The only thing I would add and I think it’s important both in Insurance and Reinsurance, and I suspect it’s on the minds of everyone on the call today is, just this question of the loss trend and we talked about rate achievement exceeding the loss trend. But we have also talked over the last few years about the fact that the trend line has been accelerating in terms of whether it’s social inflation, inflation in building cost in terms of repair after natural disasters and things of that nature. And so that does two things, one, it will certainly consume a little bit more of the rate increases and we want to be prudent about that, that’s I would say a smaller effect. The larger effect though is the degree that, that places uncertainty around what the ultimate trend line will turn out to be, which is why we are going to take a very conservative position around making sure that we have proven out our trend selections over time, which would ultimately allow us to be looking on these accident years more favorably, but it’s going to take time for that to fully mature.

Juan Andrade:

Sure. Thanks, Elyse. I think it’s important. I think as you were describing just now to decompose the parts of the expense ratio. I think if we look at the operating expense ratio that 5.9. I think that 5.96, et cetera, it’s going to be pretty consistent for us. One of the things that you know about Everest and our company, it’s our disciplined expense management, whether it’s COVID or no COVID. The reality is we are pretty focused on being efficient. So I would expect that the operating expense ratio would be relatively consistent with those numbers that you have been seeing. The commission ratio is going to fluctuate based on the type of business that we are writing in any given quarter, right? And so, for instance, if you are writing on the primary Insurance business, lines that are growing faster but you are getting better seeds because of our Reinsurance structure that obviously will have an impact. On the Reinsurance side, obviously, the business mix that we write at the 1.1 renewals will also have an impact on that. But let me ask Mark Kociancic to weigh on that as well.

Elyse Greenspan:

Okay. Thanks for the color.

Operator:

Your next question comes from the line of Phil Stefano from Deutsche Bank. Please go ahead. Your line is now open.

Juan Andrade:

Great. Phil, thank you for that. Let me start with the topline growth question and then we will come back to the margin expansion point that you had. As I mentioned in my commentary and the script, one of the things that we are starting to see is a slow and steady return of exposure growth. It is starting to get near pre-pandemic levels. And I think that’s something that, as well as the economic recovery is consistent, you are going to continue to see probably for the back half of the year. So I think that obviously bodes well for the Insurance industry as we are creatures of an economy and as there is more to ensure if more opportunity for growth. So I think again in the back half of the year, if exposure growth continues, you are going to see improvement in that. With regard to rate adequacy, et cetera, we have been seeing rate exceeding our expectations for loss cost trend now for a number of quarters, and obviously, it’s going to vary by line of business. But you are starting to see where the majority of your lines of business are rate adequate at this point in time. Now that being said, it’s important also keep in mind the starting, particularly for some of the longer tail lines, such as general liability, excess and maybe some of the D&O lines, where they may be needed more rates as an industry over time and we are starting to catch up and we are starting to get there. Now what you see in our numbers, frankly, is that, we have that steady improvement of underlying profitability continue to improve. As I have just mentioned to Elyse a few minutes ago, we are holding the line on our loss picks. We expect that over time we will be bringing that to the bottomline. But all of that bodes very well for expected margin growth over time. But let me also ask Jim Williamson to weigh in on this question.

Phil Stefano:

Okay. No. I appreciate that. Right. So my follow-up is going to be dialing in on the workers’ comp line. So we have now got four consecutive quarters of material declines. How should we think about the impact of remixing the book of business versus exposure versus price? And what has caused this line to come down and how should we think about this line in particularly as we move forward? Is it economically sensitive or is price just not have it at a rate adequate point where you feel comfortable turning the valve on and growing that business?

Mike Karmilowicz:

Sure. Thanks. Thanks for the question. Yeah. I think only to follow-up, I think, that was well said is, we have been obviously managing overall exposure down as exposure growth is also shrunk as well. But the reality is we are starting to see that bottom out and to the point that was made by, Juan, as we start to see that opportunity, particularly pick up. I think we will cease that opportunity. We have been basically focused in the composition of the portfolio, really around low and moderate type hazard risk And so we feel very good about where we are and we are starting to see signs particularly outside of California where rate is starting to go up and nudge up and in California, we are seeing it starting to bottom out. But we are optimistic that, that toward the end of the year should start to change in California and that when the opportunity presents itself, you will see us certainly continue to gain some market share.

Mike Phillips:

Good morning and thanks for the time guys. Kind of a follow-up to an earlier question, I think, one of the first questions on Insurance margins and just kind of want get a little more clarity on it. Juan, you mentioned, the year-over-year increase -- the year-over-year improvement in interest on loss ratio to 64.3% and you talked about how the loss trends are making things a little more cautious on your part. I guess is that way for the first time in over a year we saw an increase in the loss pick from -- sequentially from the prior quarter. It’s been coming down over quarter over quarter over quarter and this quarter it went up from 4Q. Is that simply yet because of your concerns on loss trends or is there anything else going on that would make your increases from 4Q?

Mike Phillips:

Okay. Thanks, Juan. Switching it then to capital, I guess, as last quarter, you hadn’t deployed the $1 billion of debt and you mentioned here today that you have put some new deployment in the current -- new capital in the Reinsurance, I might have missed if you said anything on Reinsurance. But can you just tell us where you are with that $1 billion that you did back in October and where that stands today and how do you see that kind of being deployed this year, maybe more in gross or coming back a bit to anything else that you might do with that? Thanks.

Juan Andrade:

Yeah. Mike and what I would build on Mark’s answer is, remember what we said back in October when we did the debt raise, it was purely opportunistic, right? We have plenty of capital to be able to deploy. And so, as Mark said, and I will affirm that, we are seeing great opportunities in this market. You are seeing the continued momentum on the topline in both Reinsurance and Insurance, and we feel pretty good about the capital backing all of that.

Juan Andrade:

Thanks, Mike.

Yaron Kinar:

Good morning. My first question, I hope that you will be willing or able to answer it. I am going to give it a shot. I am looking at the slowdown in rate improvement 500 basis points quarter-over-quarter in Insurance. I am looking across some of your competitors, it sounds like there is a pretty wide range there of the rate of slowdown. And I am just trying to understand what would drive one company’s slowdown to be greater than anothers? Is it a business mix, are you accounting for rate in a different way? Any help there that you can offer in looking at those -- this wide variance of trends would be helpful?

Jim Williamson:

Yeah. Not a lot to add, Yaron. Other than to say, when you start looking across companies, just to give you a sense of how we think about it within our own portfolio. I mean, obviously, we are well aware of the topline number for our Insurance Division, for example. But we really do look at it a much more granular level because of all the reasons that Juan sighted. And at the end of the day, we have got underwriters they have -- they are approaching the market in a very disciplined fashion. But they are selecting one deal at a time. They are focused on making sure they underwrite the deal appropriately that they attach the right terms and conditions to drive the total margin outcome and so it’s really only a debt level that the numbers are truly meaningful. So I would just be -- I’d just be careful about reading too much into the fact that there is variation across firms.

Juan Andrade:

No. That’s great. And I will invite John Doucette to jump into this question, please.

Yaron Kinar:

Thank you.

Josh Shanker:

Yeah. Good morning, everybody. I will stick with Reinsurance. So the -- and then sort of a question getting up the loss ratio underlying didn’t improve all that much year-over-year, but of course, the expense ratio did. And I look at the business mix a lot of non-catastrophe, XOL business written, I think there’s a lot of business mix. Of course on Reinsurance, there is very different acquisition cost, different types of businesses. Can you talk a little bit educate us on cat versus non-cat property versus casualty on how the acquisition cost differ between XOL and pro rata, that kind of explains what’s going on I guess in the combined ratio which improved very well during the quarter?

John Doucette:

Yeah. Thanks for the question, Josh. So, yes, you are right, it is a business mix issue, a combination of -- and we do have different commissions and expenses, whether it’s an excess of loss or pro rata. But it’s more nuance from that. Really it -- there are deals that have very low commission structures, certain lines of business that the commissions even though they are on a pro rata basis. The commissions given it’s a function of the loss ratio is a lot lower and closer to an excess of loss business. So it really has to do with the mix and it also has to do with, we did see some improvement in ceding commissions on proportional deals, particularly on the property side where we need -- where the ceding commission is a function, is effectively rate change and so some of the proportional deals that needed some improved economics from a Reinsurance point of view. We did see some downward pressure on the ceding commissions that then flowed into the numbers you are seeing today.

John Doucette:

So I think the best estimate of where the loss and expense ratio would be this quarter, yes.

Operator:

Your next question comes from the line of Meyer Shields from KBW. Please go ahead. Your line is now open.

Juan Andrade:

Meyer, just to make sure I understand your question correctly, are you looking at the non-acquisition expenses so are you focused on the 2.9?

Juan Andrade:

Yeah. So I think there’s a couple of things play here. Number one, I think, as Mark mentioned, we certainly are seeing a benefit from earned premium growth coming through as a result of the business that we have been writing, and frankly, the success that we had last year in growing the franchise. If you recall, we grew that franchise by about 15%. So you are seeing the benefit of that coming through. Specifically to the dollars being up in the quarter on the Reinsurance segment, I think, a lot of that is frankly noise, as Mark said earlier. There’s always going to be a bit of volatility in the expense ratio from quarter-to-quarter, so I wouldn’t read too much into that. But as both Mark and I said earlier, when you think about the operating expense ratio, trajectory, you know that 2.9, 3 is probably a good number for Reinsurance. Mark, I don’t know, if you would like to add anything?

Meyer Shields:

Okay. That’s very helpful. And then a big picture question, I can’t remotely disagree with the rationality of rate increases slowing down as more business achieves adequacy. But the history of this industry is that second derivative continues and eventually becomes disruptive, this is non-Everest question, but as a reinsurer you talk to a lot of companies and Everest has been focused on relationships. Is there any reason to be more optimistic about the post-hard market phase of the cycle whenever that emerges?

Meyer Shields:

Okay. That’s very helpful. Thank you so much.

Operator:

Your next question comes from the line of Brian Meredith from UBS. Please go ahead. Your line is now open.

Juan Andrade:

Yeah. So let me start and then I will ask Mike Karmilowicz to jump in. I think a big driver of that, Brian, was really the business that we wrote in the quarter and how that business then fits into the Reinsurance structure that we have in place. So I think that’s part of that. I think the other part of that is that our reinsurers for the primary business are seeing and have seen the quality of the portfolio and the quality of the book that we have put together and so because of that, we are able to get slightly higher seed commissions on that business. But let me turn it over to Mike and he can add some additional color and context.

Brian Meredith:

Great. Thanks. And the second question I have I know it’s really early in the process here, but just wanted to ask a quick question about taxes here and the discussion about corporate income tax rates going up and particularly the GILTI tax. Does the GILTI tax have a big asset for you guys and how should we kind of think about that in the event that we do get some big changes in the GILTI tax?

Brian Meredith:

Great. Thank you.

Juan Andrade:

Great. Thank you. Everest is well-positioned for this market and for the opportunities we have seen and improving economy. Despite the material, social and economic impact of the COVID pandemic, we continue to grow unimpeded, recruiting top talent and delivering value to our stakeholders. We have leading financial strength, a preferred market presence and a diversified global platform. We are nimble. We have deep distribution relationships, great people and a great culture. I am very excited by the opportunity ahead of us and I believe we are well-positioned to excel. Thank you for your time with us this quarter and for your continued support in the company. We will talk to you after the second quarter. Thank you.

Operator:

Welcome to the Everest Re Group Earnings Conference Call. This call is being webcast and will also be available for replay on the Everest website later today. I’d now like to turn the call over to Jon Levenson, Head of Investor Relations.

Juan Andrade:

Thank you, Juan. Good morning, everyone, and thank you for joining the call. 2020 had its share of global challenges that COVID-19 leads any discussion of the year. The pandemic affected all our communities, our way of life, and resulted in an unimaginable death toll. It affected all aspects of the world’s economies, including the insurance and re-insurance industry. Despite unprecedented challenges and through the resilience and dedication of our team, Everest delivered solid 2020 results with excellent growth and improved underlying profitability. Key steps we took last year include adding to our deep and talented management team, strengthening our balance sheet, enhancing our enterprise risk management and operational discipline, and further diversifying our business. Most importantly, we have been a valued partner to our distributors and customers during a very perilous time. With a strong foundation in place, we remain confident in continued operational and financial success across our business. We are bullish about 2021. We will continue to profitably grow the Insurance segment while continuing to grow and strengthen our position as a global and leading P&C reinsurer. As we think about our positioning in the market, amongst our clients, partners and investors, we are guided by the following principles, by which Everest will seize opportunities and increase the value of our company. First, we will deliver superior growth in book value per share over the cycle. Second, we are an underwriting company. One of our core competencies is the identification, underwriting, pricing and management of risk. Diversification by line of business and geography is critical. We have clearly defined and quantified risk appetite, and we maintain strong enterprise risk management and performance monitoring. Third, investment returns are a critical value driver and investment management is also a core competency. We are further optimizing our invested assets via portfolio management strategy that is complementary to our underwriting risk. With a sizable invested asset base and significant cash flow, we seek to add value and diversify the sources of income to the company. Fourth, we manage our capital to fuel long-term profitable growth while continuing to expand our third-party capital capabilities. And fifth, we will maintain our industry-leading financial strength. We complement our core strengths with a low-cost expense space in a flat entrepreneurial and responsible organization. Our diversified reinsurance and insurance franchise, financial strength, deep distribution relationships, and leading customer solutions enable our continued performance in today’s market. We have robust momentum coming into 2021, and we are well positioned to continue diversifying our business for sustained profitable growth. I will now discuss our group reinsurance and insurance results starting with the fourth quarter followed by our full year 2020 and how these results position us well for 2021. Starting with group results. In the fourth quarter, we grew gross written premiums by 13% and net written premiums by 16% with strong growth across both segments. Our growth stems from a combination of new business opportunities, improved terms and conditions and rate levels, expanded shares on attractive renewals and high retention rates on our existing book. Our underlying combined ratio was 86.3%, a four point improvement over the fourth quarter of 2019 with both segments showing significant improvement in loss and expense ratios. Net investment income was very strong at $222 million compared to $146 million in the prior year quarter. For 2020, Everest grew gross written premiums 15% and net written premiums 17% year-over-year. We delivered $514 million in net income and $300 million in operating income, despite the COVID-19 loss provision, the prior year reserve strengthening and an active cat year. Our dividend adjusted book value per share grew over 11%. We are focused on delivering superior growth in book value per share over the market cycle. The underlying combined ratio improved almost a point to 87.5% year-over-year with our Insurance segment, improving 2.3 points to 94.2%. Net investment income was in line with prior year despite the market volatility. These results demonstrate the earnings power of Everest in our ability to thrive in any market. We continue to diligently manage our portfolios to improve returns with a broad array of underwriting actions, including managing attachment points, limits, terms and conditions, targeted non-renewals and many other actions. This is the hard work of building and sustaining a profitable book. Underwriting profitability remains at the core of everything that we do. As previously announced, in the fourth quarter, we strengthened prior accident year reserves in our Reinsurance segment by $400 million. The reserve strengthening does not change our view of current accident year loss picks as we had already selected more conservative loss picks in response to general loss trends. We are confident in the prior year reserving actions we took in the quarter and the quality of the enforced portfolio. These decisive actions will serve as well. In the fourth quarter, we also added $76 million primarily for third-party lines to our COVID-19 loss provision. Despite a high frequency of storms in the fourth quarter, our manageable catastrophe losses of $70 million resulted from disciplined underwriting and the purposeful reduction of volatility over the last two years in our reinsurance portfolio. Mark Kociancic and Jim Williamson are on this call and can provide more detail on these actions during Q&A. For our reinsurance division, the fourth quarter continued our strong growth. Gross written premiums grew 12% in the quarter and 15% in 2020. The attritional combined ratio X COVID was 83.9%, an improvement from 87.4% in the prior fourth quarter. January 1 is our largest renewal date and this one was one of the strongest in many years. The rate environment improved across most territories in lines of business with loss impacted business seeing material increases. Capacity is abundant, but reinsurers remained disciplined on pricing and terms and conditions. There is a flight to quality wherever strong balance sheet in highly rated financial strength set us apart. Customer and broker demand for Everest capacity is strong, as highlighted by our increased shares and preferential signings on treaties, counterparties actively want to do more business with Everest. Our responsiveness, ability to deploy significant capital, and reputation as problem solvers in the market, were critical to a successful renewal season. We saw outstanding results in Latin America, in the U.S. and Canada, as well as meaningful growth in Continental Europe. We had notable wins on large deals and increased our share with core customers and in territories and classes; we found the most attractive including facultative business. We continued to expand and diversify the portfolio as we execute to achieve a stronger, more diversified and more profitable book. Specific to our January 1 property book, total limit outstanding increased with an increase in rate online and significant improvements in the combined ratio, ROE, risk adjusted return and increased dollars of expected margin. We have a stronger and more profitable portfolio. John Doucette is available to provide additional details during the Q&A. Our insurance division continued its solid execution, as evidenced by our results in both the fourth quarter and the full year of 2020. Gross written premiums grew 15% or 18% excluding terminated programs, with gross written premium of $872 million in the quarter and over $3.2 billion for 2020. Both fourth quarter and full year 2020 revenues are milestones for the insurance division. This growth is driven by discipline cycle management, strong rate in target classes and improving activity in certain lines of business, such as transactional liability, that was partially offset by reductions in economically impacted areas such as energy, sports, leisure, and entertainment. Everest Insurance delivered an improved attritional combined ratio of 93.8% for the fourth quarter, a 4.3 point improvement over the fourth quarter of 2019 and 94.2% for the full year 2020, a 2.3 point improvement over 2019. These results are driven by portfolio and expense management and are consistent with expanding insurance margins. We achieved record renewal rate increases of 21% in the fourth quarter, excluding workers’ compensation and up 14% including workers’ compensation, where we are seeing rates flat. Rate is outpacing our expected loss trend and renewal retention across the entire portfolio is strong. The rate we achieved as a function of market conditions and disciplined proactive underwriting actions across our businesses. After years of soft pricing and rising loss costs, pricing adjustments are necessary and we expect they will continue throughout 2021. Consistent with prior quarters, these increases are led by property, up 21%; excess casualty, up 50%; D&O, up 35% and commercial auto, up 17%. We are also seeing widespread increases in other lines of business, which has been slower to turn most notably general liability, now up 9%. we are managing the insurance portfolio to build a diversified business and steer our mix toward product lines that earn higher long-term margins. Our position in both the E&S and retail channels give us access to a wide set of opportunities. Mike Karmilowicz is available to provide additional details during the Q&A. We have a vibrant and well-diversified reinsurance and insurance business with experienced teams, providing industry-leading solutions to our customers. building on the achievements of 2020, we will continue diversifying our business for profitable growth and sustain momentum throughout 2021. The company is on solid ground with excellent financial strength ratings, top talent, and a prudent capital management philosophy. We are focused on sustained profitable growth, a more diversified mix of business and superior risk adjusted returns. The relentless execution of our strategies results in maximizing shareholder returns. I am confident that Everest future and on our ability to deliver the commitments to our customers, shareholders and the marketplace. 2020 showed us all just how resilient we truly are. Now, let me turn the call over to Mark Kociancic for additional details on the financials. Mark?

Jon Levenson:

Thanks, Mark. operator, we are now ready to open the line for questions. We do ask that you please limit your questions to two or one question plus one follow-up, and then rejoin the queue if you have anything else to ask.

Elyse Greenspan:

Hi. Thanks. Good morning. My first question on, I want to touch on the reinsurance reserve charge. So one, I think in your opening remarks, you said that you guys had already selected more conservative loss picks. So, can you just – it would be helpful if you could provide more color there on them, will recent accident years just given right that there was strengthening of some of these long-tail lines going up to accident year 2018. So, can you just provide a little bit more color on what loss trend you’re booking to in some of these lines, but in your reinsurance book and how we could think about confidence in the more recent accident year?

Elyse Greenspan:

Okay. But can you give us a sense, I guess I know that there’s a many different business lines, but what kind of loss trends you’re booking to within reinsurance?

Elyse Greenspan:

Okay. And then my follow-up question is on the insurance, on the reserves there as well. So, I think Mark, you mentioned, there was no overall financial impact from the review. but I believe you mentioned strengthening on professional lines for 2015 to 2018 and they’re being releases and other lines. Can you give us the sense of the magnitude of the professional lines strengthening and then what were some of the other lines I’m assuming maybe, worker’s comp where you thought it was over leases?

Elyse Greenspan:

Okay. Thanks for the color.

Operator:

Mike Phillips with Morgan Stanley. Your line is open.

Juan Andrade:

Yes. Sure. thanks. Mike, this is Juan Andrade. look, I think we are building meaningful margin momentum, and you can see that by our numbers for the fourth quarter and full year underwriting results, that improvement both in insurance and reinsurance is really driven by portfolio management, decisive underwriting actions, and intentional shifts in our portfolio mix. If we exclude workers’ compensation, we’re also seeing the rates are outpacing our expected loss costs, and as that rate has been earned on a growing premium base, that’s also going to have a positive impact on expected margin going forward. but also in – and I would point this out, because this a very important point in addition to rate, we’re also taking a broad array of underwriting actions, including more granular segmentation in the enforced book, management of attachment point, limits, terms and conditions, we’re doing targeted non-renewals and many other actions. So, we’re doing a number of things that you’re starting to see show up in the underlying profitability of both insurance and reinsurance that are by design, and that are very proactive. It’s not just all about rate, but it’s also about all the other tools that we have in our kit about improving underlying margins. But all of that being said and I think this goes to your question, Mike, it’s important to keep in mind that some lines do require more rate than others. It also depends on the starting point that depends on the loss cost trends, and we also have to recognize that we’re in an environment, where the impact of COVID and the time that it will take for some of these claims to emerge. There’s some uncertainty, right. We also have to think about the underlying social inflation cost. So overall, I feel very good about the margin momentum that we’re creating in this business. It’s not just about rate, but it’s also about all the underlying levers that we’re pulling forth. And I feel very good and very comfortable with both books of business going into 2021.

Juan Andrade:

Sure, Mike. let me start, and then I’ll ask Mike Karmilowicz to jump in as well. I would say overall on the comp book, a couple of key things to keep in mind is, we have reduced the percentage of comp in our book of business over the last year, 18 months. It’s now roughly down to about 16% of our mix, down from about 24%. And again, this has been done in a purposeful way, right. As you have seen less attractive pricing in the comp book, we have diversified into a business. And so you see our growth in lines like casualty, property, D&O, et cetera. The other thing that we have done in our comp book is we have also moved more towards loss, sensitive business, loss rated business on the comp side, and we’ve done less basically guaranteed comp business at that point in time. So, we’re actively managing the trend, we’re actively managing what we’re seeing in the environment, and obviously, trying to continue to drive a lot of profit in that comp book. But let me ask Mike Karm to jump in specifically on your question about California.

Mike Phillips:

Okay. Thank you, guys. Appreciate that.

Yaron Kinar:

Hi, good morning, everybody. First question, it goes back to the reserves strengthening, can you maybe, talk about law specs for 2019, 2020, 2021 accident years relative to where they currently are for the 2015 to 2018 accident years in GL, commercial auto and professional lines?

Jim Williamson:

Yes. Sure, Yaron. just in terms of a little bit more detail, I mean, I think one thing to keep in mind is, we’re performing this analysis at a very detailed and granular level. And so there’s a lot of moving parts in terms of picks that have come up over that period, where we’re now at a higher level, and then other areas, where we’ve taken so much rate, so many underwriting actions and the picks have come down. I think the key thing to keep in mind though, is that as Juan had indicated, we took a very conservative approach to the setting of the loss picks for the 2020 accident year, the 2021 accident year. And those picks are consistent with the level of ultimate loss ratio that’s coming out of the reserve studies. And that gives us confidence that our starting point is the right one. We’re taking rate in excess of our loss trend, right. So, those things give you a confidence that moving forward, we’re positioned in the right way in the portfolio.

Juan Andrade:

No, no. not at all, Yaron. what I was saying in my opening remarks is that we have a very good market right now in both insurance and reinsurance, and our intent is very much to continue growing as long as the opportunities are there for us to be able to do this profitably. We have a leading franchise in P&C, reinsurance. we’re the seventh largest in the world. We are aiming to continue to grow that presence, continue to take advantage of those opportunities. So absolutely not. As a matter of fact, I would also point you to my comments around our January 1 renewals and the fact that we had one of the strongest renewals we have seen in a number of years. And so look, as long as the market opportunity is there, as long as we can underwrite profitably, we’re taking advantage of that. We are very well positioned, whether it’s from a capital standpoint, a distribution standpoint, a talent standpoint, to be able to continue moving forward in this market with a lot of momentum.

Juan Andrade:

Thanks, Yaron.

Josh Shanker:

Yes. Good morning, everybody. My first question, I know you can’t speak to others books, but we see something in your book that looks similar to what we’ve seen in others. Most of the improvement during this year has come on the expense ratio side of the combined ratio, despite very, very strong rate increases already coming through in earned rates. I’m wondering if you can talk about why we’re seeing such large expense ratio improvements, whether it’s sustainable and just giving your many, many years of work in the industry. What’s going on here? This is not just an Everest phenomenon.

Josh Shanker:

And my second question, maybe, I’ll try and get back in line then, the 6% expected normalized cat load for the coming year. It’s obviously, materially lower than where Everest has been in the past. So that’s where it’s been trending, given the property cat renewals, which weren’t as good as some were hoping certainly better than they’ve been. Do we expect that long-term Everest volatility is going to stay low or we’re just at a place right now in pricing, where it just doesn’t make sense to take on a lot of cat risk?

John Doucette:

Yes. Thanks, Juan and good morning, Josh. Yes. look, we had a very good one-one with significant rate increase. we saw a double-digit growth across many, many lines of business. And in terms of property, we did see rate increases in the U.S. 5% to 10%, in retro 10% to 15%. And really, it was a question of how we allocated the book and where we decided to deploy the capacity. and so number one, where do we decide to deploy the capacity. We also saw very good opportunities in the primary property space. So, we deployed more capacity into both cat and to primary property quota share, which we liked the risk return on that opportunity. So, that’s number one. number two, as noted, we have increased the AUM and Logan, and continue to look for ways to increase that and look to have that continue to be a very strategic part of our volatility management, capital management, and that will help decrease the volatility that you’re seeing. And then number three, as Juan said, a lot of this is about diversification, diversification within the reinsurance, diversification by growing the insurance operation. So, it’s different lines, territories, products, and that will result in just a lower, dollars may be flat, but – or even up a little bit, but as a percentage of overall gross premium, the percentage of our cat load could be lower.

Juan Andrade:

Thank you, Josh.

Mike Zaremski:

Hey, great. Good morning. First is a follow-up to Josh’s question. So, I think a lot of us look at the historical cat load and listen to your guidance and obviously, you have a lot more info than us on the cat load of being six points. So, to the answer to the last question are – is Mt. Logan taking a portion of the historical cat load, right. So, it’s kind of – it’s going to other investors that aren’t equity investors. And is that maybe, the piece that we, as investors, don’t fully appreciate, because you’re ceding to kind of a new set of investors versus pre-Mt. Logan that was all going to Everest.

John Doucette:

Yes. thanks, Juan. And so Mt. Logan, we’ve been – Mt. Logan’s been in effect since 2013. And it’s – it has grown and then came down a little bit in AUM and now has starting back up. So, I don’t think it’s a definitionally, it used to go to Everest and now, it goes to Logan. It’s part of a holistic suite of both what we’re doing on the growth side, capital management side and the hedging side. And it’s all – it’s part of that, but it’s clearly a core part of this, of how we’re thinking of capital management, volatility management going forward. But I mean, we also saw as Juan said earlier, while we did increase limits on the gross portfolio in our property book across property cat, retro and pro rata. we did increase that, because of the opportunity set, but we saw an increase in overall premium and a larger increase in expected dollar margin and percentage margin and an increase in the ROE. So, a part of it is how we’re thinking of what we want to keep on our balance sheet and other parts of the balance sheet. But I do think it’s more, I think then your – how you’re focusing on it. It’s more a function of the diversification. as a function of premium, it really has more to do with the diversification, the growth in the insurance operation as a percentage, the growth in reinsurance in different lines of business. We saw a lot of opportunities in casualty, continue to see opportunities in mortgage, professional liability, significant opportunities in fact, and all of that is on the – is growing the denominator of the 6% cat load that you’re talking about. And I think that is driving it more than specifically, in Logan or outside of Logan.

Juan Andrade:

Yes. Thanks, Mike. This is Juan. Look, I think from my perspective, the company has a very disciplined and multi-faceted approach to reserving and risk management, and that doesn’t change. But I bring you back to my earlier comments. There’s always opportunities for improvement on how you look at the data. So, from our perspective, the new senior management team that we have in place is very granular and very detailed in how we look at IBNR groups, and how we look at accident years by portfolio, by segment, et cetera, et cetera. And we’re making fact-based decisions based on the trending and the information that our reserving studies give us in what our actuarial department is able to provide to us. And so that is basically if there’s a change, it’s that, it’s the fact of that we’re being a lot more granular in how we look at the portfolios? How we make decisions based on the information that it’s there? And how we react to that basically?

Juan Andrade:

Thanks, Mike.

Ryan Tunis:

Hey, thanks. Good morning. I guess another follow-up on the charge and the reinsurance. Just trying to get a little bit more texture, is this mainly a few large programs? There’s a little bit more broad-based and then also just maybe, you could give us some feel for how you’re reserved for those accident years, 2015, 2018, relative to the loss ratio in the indications from the seasons. how your loss picks compared to the loss ratios being reported to you in those years?

Mark Kociancic:

Just a bit more on that, Ryan. I think in addition to what Juan was saying, when we took a look at these individual lines in accident years, we were looking also at the magnitude of uncertainty. So in other words, where are we within the ranges? And I think the strengthening that we put up in these individual years in lines, we feel pretty good about. So, we feel like there’s a good level of prudence that’s been set up for these and it solves the problem for us.

Ryan Tunis:

Got it. That was helpful and I guess talking about – like hearing you guys talking about how the loss fix in 2020 and also 2021 are more conservative. So obviously, you’ve taken a view on 2021. I’m just curious, thinking about the 58%-ish ex-COVID accident year loss ratio to reinsurance, should we think that given the higher 2021 loss pick, how easy or difficult do you think it’ll be to improve on that next year, also taking into consideration the rate backdrop? Thanks.

Ryan Tunis:

Thank you.

Operator:

Brian Meredith with UBS. Your line is open.

Juan Andrade:

Yes. So look, I think a couple of things, and then I’ll ask Mark Kociancic to jump in as well. From a capital management philosophy standpoint, our approach really hasn’t changed. Number one, we invest in our company and in the organic growth that we see there. We happened to be at a place in time, where we have terrific opportunities in the insurance side, under reinsurance side and you see from our numbers, we’re taking advantage of them. fact is we’re leaning forward. The fact that we grew 15% in a pandemic year with an economic recession, exposure reductions, I think is a very good outcome. And I think that gives you a sense of how we’re investing in our business to continue to grow and take advantage of those opportunities. At the same time, we also then look at other things that we can do to return capital to our shareholders. And I’ll let Mark talk a little bit about that.

Brian Meredith:

And I guess you don’t have the flexibility to do both at the same time, grow and buyback?

Brian Meredith:

Okay.

Jim Williamson:

Yes, Brian. And I would jump in there as well. As I’ve mentioned in the third quarter earnings call, we have the capital flexibility to attack this market and we’re doing it. As I mentioned earlier, based on the growth rates that you’re seeing, we also did the $1 billion debt raise back in October of last year. And that has not been deployed for growth yet, that has been invested in our portfolio, but we have dry powder. So, we have the ability to continue to do what we need to do in this market and take advantage of the opportunities that we see in front of us.

Juan Andrade:

Yes. Thank you for that. Look, I feel very good and very confident, where we are with our COVID numbers. We were very consistent in our reserving throughout 2020. Our processes were very good, very thorough. As Mark mentioned in his remarks, we’re at $511 million for the year of 2020, over 80% of that is IBNR. We look at the claims activity, that’s been coming in. We have not been surprised. Everything has been tracking along sort of what we expected. So, I feel very confident about where we are with those COVID numbers. Now, all of that being said, the pandemic is still ongoing, right. That that has not eased, it continues. And things that we look at are there going to be other legal, regulatory legislative type things that happen that we haven’t seen yet, right. So, those are the things that are still out there potentially. The other thing that’s out there is the fact that as a reinsurer, we do get late information from our seasons. but all of that being said, I feel very confident about where we are with that $511 million that we took in 2020.

Juan Andrade:

Thanks, Brian.

Meyer Shields:

Hi, this is Meyer – is with me.

Meyer Shields:

Great. I’m sorry, I couldn’t catch the name. So, two quick questions. One, the cat load is consistent in terms of expectations on a year-over-year business – year-over-year basis. And I was hoping you could break that down between business exchanges that had been driving down the catalyst ratio in prior years and maybe, just a more pessimistic expectation of losses, because of climate change or other factors underlying trends.

John Doucette:

Yes. Thanks, Juan. And yes, just continue on. So, two things we spend a lot of time thinking about in terms of how we manage the risk in our property portfolio. It’s all the aspects of climate risk. We spent a lot of time looking at wildfire and frankly derisking the wildfire exposure in our portfolio, spent a lot of time looking at the warm sea surface temperature, looking at droughts and the propensity for drought. So, a lot of how we deploy capacity, what should the right attachments, products, terms, conditions, and frankly, rate be looking at that. So, number one is climate change. And number two is, we’ve also been looking a lot at the different social inflation and risks that we’ve seen in the books. Things like assignment of benefits to LAE, the increase in LAE that we’ve seen in different areas, both in the U.S. and outside the U.S. And so that’s all factored into how we think about building the best portfolio, learning from the lessons that the industry has seen and really positioning our book on a go-forward basis. And it also, it has some loss trends for the reasons I just mentioned climate and some of the social issues, but it also – we also were seeing the uplift that we’re getting from improved rates, terms, conditions, occurrence clauses, hours clauses, et cetera, et cetera. So, all of that is we have several countercurrent that result in the 6% you’re looking at here.

Juan Andrade:

Sure. So, John Doucette, why don’t you start with that? And then we’ll go to Mike Karm for the insurance piece of it.

Mike Karmilowicz:

Yes. I think it really comes down from the insurance perspective, really on the value of the reinsurance relationships that we are successfully maintaining all the ceding conditions commissions that renewed over the last several months. I would say one comment is, our books varied and we had certain portfolios, like I mentioned, we had the beneficiary of that for some of the things, Juan mentioned earlier about ceding commissions that we gained by some of the portfolio mix and certain lines like specialty casualty and other specialty lines, like transactional and credit and political risk. So, we didn’t have really top talent in these areas, which I think have generated better terms and conditions for us in some of our reinsurance. But I think as we continue the journey, we see opportunity and we certainly think there’s also opportunities for us to manage that more effectively.

Operator:

We have time for one more question, Phil Stefano with Deutsche Bank. Your line is open.

Juan Andrade:

Yes. sure, thanks, Phil. let me ask Jim Williamson to address that question for you.

Phil Stefano:

Okay. And as we think about the growth is coming into the business, and maybe, this is more focused on insurance and reinsurance, but the potential for economies of scale, as we think about nominal expenses moving forward, it feels like the insurance business has some investments in teams and the building out of the functions and things like that. Does it feel like that should slow down and we return – or we come to a point, where expense growth on a dollar basis, is much more inflation plus or minus, or their investments still to be made in helping us think about the economies of scale you can pull through.

Operator:

And now, I’d like to turn the call back over to management for final remarks.

Operator:

This concludes today’s conference call. We thank you for your participation. You may now disconnect.

Operator:

Welcome to the Everest Re Group Earnings Conference Call. This call is being webcast and will also be available for replay on the Everest website later today. I now like to turn the call over to Jon Levenson, Head of Investor Relations.

Juan Andrade:

Good morning, everyone, and thank you for joining the call. For nearly 50 years, Everest has been a source of strength for our customers. This has never been more important than in today's public health, economic, social and natural catastrophe-impacted environment. Our business is running smoothly. We're performing well. And our people continue to demonstrate the passion, professionalism and resilience that differentiates Everest. I am thankful to our employees for their hard work and perseverance in delivering the solid results we're reporting today. I am particularly proud of Everest recently being named by Business Insurance as one of the best places to work in 2020, a meaningful achievement in the current environment. The economic recovery is uneven and there was significant natural catastrophe activity in the quarter. Despite this, Everest has continued to grow and generate operating profit. Our broadly diversified Reinsurance and Insurance franchise, our financial strength, deep distribution relationships, and our focus on providing solutions to our customers represent the foundation that position us well for the strength we see in the reinsurance and insurance markets today. In addition, we have added 2 exceptionally talented and seasoned global executives to our management team. Mark Kociancic, our new Group Chief Financial Officer, joins us from SCOR, where he was the group CFO since 2013. Jim Williamson, our new Group Chief Operating Officer, joins us from Chubb. Both of these executives have made an immediate impact to Everest. I want to thank Craig Howie for his commitment and contributions to the company. Craig has played an important role in the growth and evolution of Everest. Craig will remain with the company until the end of 2020 to assist Mark with a smooth and seamless transition. We have also further fortified our already strong capital base with $1 billion senior notes offering completed on October 7. This is very efficient long-term 30-year capital at a low 3.5% coupon. As I said in the second quarter earnings call, we have the capital to play offense in this improving market, and we also have capital flexibility. We chose to exercise some of this flexibility opportunistically, given the state of credit markets and the low borrowing rates available. We will seek to deploy these proceeds as favorable market opportunities continue to develop and in support of our overall strategy to grow book value over time. Our already strong company is now even stronger. Everest's strength is evidenced by our third quarter results for the group, where despite the high frequency of natural catastrophe activity, we achieved 16% gross written premium growth and improved attritional combined ratio of 85.8%, excluding cat and pandemic impacts, net investment income of $234 million, operating income profit of $97 million, net income of $243 million, book value per share growth of 7% from yearend 2019 or 9% adjusted for dividends, and a record shareholders' equity of $9.6 billion. Our growth in the quarter stems from a combination of new business opportunities, improved rate levels and high retention rates on our existing book. The underwriting loss for the quarter was driven by the previously announced $300 million in catastrophe losses. This is in the context of an estimated $35 billion industry loss in the third quarter. We also added $125 million to our COVID-19 loss provision, reflecting the ongoing nature of this event and our prudent reserving philosophy. This provision is predominantly IBNR. Excluding catastrophes and the pandemic impacts, our attritional combined ratios for the group in each of our segments, Reinsurance at 83% and Insurance at 94% improved year-over-year and are reflective of the earnings generating power of the Everest franchise. Underwriting profitability remains at the core of everything we do. On a 9-month year-to-date basis, Everest has grown 15% and delivered an 88% attritional combined ratio, excluding the pandemic impacts. Everest Reinsurance had 20% quarterly growth year-over-year. We executed our strategies to underwrite a high-performing book of business with higher economic returns and lower volatility. We executed on reinsurance opportunities in several classes, including facultative risk, property and casualty, and in certain territories, including the U.S., Canada and Latin America. Traditional capital from highly rated carriers like Everest has become more relevant and supply is tight. We see the favorable pricing environment continuing for the foreseeable future. We also continue to be disciplined and rigorously evaluate each transaction. John Doucette is available to provide additional details on market conditions during the Q&A. Everest Insurance had solid execution in the quarter with continued underlying margin improvement over 2019 and 6% growth year-over-year, despite exposure reductions in certain lines given the current economic environment. The attritional combined ratio, excluding the pandemic impact improved to 94% for the quarter compared to 96% in the third quarter of 2019. We are strategically managing the Insurance portfolio to build a more diversified business and steer our mix toward product lines that earn higher margins over the long term. Our significant position in both the E&S and retail channels give us access to a wide set of opportunities. For the quarter, the main insurance growth drivers were continued rate momentum of plus 19% excluding workers' compensation, and plus 13% including workers' compensation. We had strong growth across property, excess casualty and D&O, where market capacity is constrained and we are seeing the strongest rate increases and better terms. We had continued strength in the excess and surplus line space. And we also had strong renewal retention in both our retail and E&S businesses. Mike Karmilowicz is available to provide additional details on market conditions during the Q&A. Regarding the ongoing COVID-19 pandemic, the $125 million loss provision in the third quarter was comprised of $110 million for Reinsurance and $15 million for Insurance. Our overall COVID-19 loss provision year-to-date is $435 million, of which 85% is IBNR. Consistent with our analytical rigor, we continue to take a measured approach to our COVID-19 loss estimation that is based on credible, fact-based and supportable information. We instituted a thorough loss estimation process at the start of the pandemic. It is conducted team by team and contract by contract. As events unfold and more data becomes available, we are continuously testing our estimates. The claims data we're seeing is consistent with our expectations. It is also important to reiterate that as a reinsurer, our analysis is specific to each situation. And similar to reserving, we have established an equally prudent and rigorous claims process. We evaluate claims presented based on existing policy, and contract terms and conditions. Lastly, we remain comfortable with the exposure and loss reserves in our Mortgage business in the context of the ongoing economic uncertainty from the pandemic. In summary, Everest continued to perform well in the third quarter, despite the uncertainty in the world today. We continue to purposely seek the best opportunities to write business at attractive returns. We have a talented team, a diversified global platform and a strong capital position. All of which allows us to provide attractive solutions to our clients and capture the improving opportunities in front of us. Now, let me welcome Mark Kociancic to the call and turn it over to him for additional details on the financials. Mark?

Jon Levenson:

Great. Thanks, Mark. Operator, we're ready to open the line for questions. And we would ask if everyone can please limit their questions to 2, 1 question plus 1 follow-up. Thanks.

Elyse Greenspan:

Thanks. Good morning. My first question, just looking for a little bit more color on the margin profile within, I guess, Insurance and Reinsurance. So you guys are getting a good amount of rate in both of those businesses, showing some good growth as well. So I'm just trying to understand just the level of margin improvement. I know we saw some in the quarter when we backed out cat and the impact of the pandemic. But I'm just trying to think about the impact of earned rate exceeding trend and how we should think about the margin, the potential for expansion in both Reinsurance and Insurance for the balance of this year and into 2021.

Elyse Greenspan:

Okay. That's helpful. And then, my follow-up, I guess, just tied to that, was there any benefit from COVID in the accident year loss ratio? Just I'm thinking if there was any kind of frequency benefit within workers' comp or some short-tail lines that you took in the quarter? Or did you not take any of that within your results?

Elyse Greenspan:

Okay. Thanks for the color.

Operator:

Yaron Kinar with Goldman Sachs. Your line is open.

Juan Andrade:

We can hear you, Yaron.

Juan Andrade:

Good morning.

Juan Andrade:

Yeah, sure thing, Yaron. The lines of business were contingency, business interruption and a little bit of workers' compensation as well. And I would point, again, back to my remarks and remind you that, again, the vast majority of that provision was really in Reinsurance, which is about $110 million of the $125 million. And overall, 85% of our provision at this point year-to-date is on an IBNR basis. So I think that gives you a sense for, again, the prudent approach that we're taking on this.

Juan Andrade:

Yeah. The way I think about it, and I'd point you back to my remarks, Yaron, we have a pretty detailed and rigorous process by which we're estimating our reserves that is based on credible and fact-based information. So given that, what we're doing is essentially looking at the fact that this is an ongoing event. It's continuing. I mean you're certainly seeing the situation in Europe these days with some of the additional lockdowns and the spikes, et cetera. So from that perspective, it's an ongoing event. And so, what we do is we do a bottom-up, treaty by treaty, account by account, profit-center by profit-center type review and we true it up with the latest information that we have available at the time.

Juan Andrade:

Yeah, sure thing. So, Yaron, what I would say is, we have an ongoing and dynamic process to review our reserves. And our philosophy hasn't changed. It's really what we have talked about in the past in the sense that we recognize bad news quickly. And we require good news to be proven over a longer period of time. And hence, that was a little bit also of my answer to Elyse earlier about accident year loss picks. We need to see some of that season over time. But we're always continuing to review and analyze the portfolio. We have completed some reserve studies in smaller segments earlier in the year, and there was no material change in either direction. We will be completing longer-tail segments in the fourth quarter. And if we see any need to take action, we will take action at that point in time. But again, that's basically the reserving stance in our philosophy.

Juan Andrade:

Sure.

Brian Meredith:

Yes. Thank you. A couple of questions here. The first one, just on the Reinsurance space, I noticed a drop in casualty XOL and casualty pro rata premiums. I thought that was actually a pretty good market now. What's going on there? Just contracts lost, certain unusual items going on? Or is your conscious reason to decrease that?

John Doucette:

Yeah, good morning, Brian. Look, part of that is just timing of accounts and a couple of one-off accounts. But we agree that it's a good market, and we're seeing both on the treaty and the facultative side proportional casualty and excess of loss casualty opportunities both in the U.S. and international. And we had a very good July 1, and continue to see that. And frankly, expect that to be an area of growth for us in 2021.

Juan Andrade:

Yeah. Mike Karmilowicz, if you can answer that question, please?

Juan Andrade:

Yeah. And what I would add to that, Brian, as well, is that we're executing pretty well and we have the platform, both on the E&S side and the retail side. You saw the plus 19% rate that we had in the quarter, which is continuing to build over prior quarters. And when you take away some of the drag from the exposure reductions that you're seeing in the economy, this business will grow double digits. And that's just a matter of the economic recovery playing itself through.

Juan Andrade:

Sure.

Michael Zaremski:

Okay. Good morning. Thinking about the capital raise, I guess from hearing the comments on previous earnings calls, it didn't seem like capital was really needed. I heard the comments, Juan, about being opportunistic. So just curious, did something kind of change quarter-over-quarter? Or is it just simply low debt costs and some growth? And do - will some of this capital be used for buybacks, if the buybacks, you think, will come online now that COVID losses seem to be kind of improving, and we're through most of cat season?

Michael Zaremski:

Okay. Understood. And that would include share buybacks potentially reopening, Juan?

Michael Zaremski:

Okay. Great. And last question was a follow-up to Yaron's question about kind of reserve studies. Do you - is there any - do you think that the new management team coming onboard, there might be a change to kind of the reserving philosophy as you guys take kind of a new sets of eyes kind of look at the book, I think - versus one that historically you've thrown up just a little bit of reserve releases. Some of your peers tend to kind of just book a little bit more conservatively. Just curious if you think if there could be any changes there. Thanks.

Michael Zaremski:

Thank you.

Operator:

Meyer Shields with KBW. Your line is open.

Mark Kociancic:

Yeah, Brian.

Mark Kociancic:

Meyer, sorry about that. Yes, the ceding commissions what we're seeing in the Insurance space is an elevated level of ceded premium really due to the business mix of what we have. And so we're ceding a bit more business out in certain lines, which is leading to higher ceding commissions coming in there, but that's more of a business mix situation.

Meyer Shields:

Okay. That's very helpful. The second question, I guess, earlier this week, we had one of the Bermuda reinsurers talk about being more conservative in their interpretation of potential catastrophes than vendor models. And I was hoping if you could talk about how Everest sees that.

Meyer Shields:

It does. Thanks so much.

Operator:

Ryan Tunis with Autonomous Research. Your line is open. Ryan, your line is open.

Juan Andrade:

Yeah, Ryan, I can hear you. Good morning.

Juan Andrade:

Yeah, it's a good question. Look, I start with the fact that I think we have a great company and a great culture. And frankly, based on the numbers that you see us continue to report, we're attacking this environment, right. The pricing is there, the execution is there. So I feel pretty good about all of that. We certainly have strengthened the management team with two executives who have global capabilities, who have a lot of strategic strength, and I feel very, very good about that. Look, I think for us, the opportunity is how do you continue to execute in the middle of all of this, right. The context of a pandemic, the context of an economic recession, and the context of a very strong underwriting market. So for me, those are good problems to have, which is how do you continue to take a great franchise and move it forward in that environment and do it successfully.

John Doucette:

Yeah, thanks, Ryan. Good morning. And - so a couple of things. So as we've talked about on prior earnings calls, you break it into a couple of parts, you break it into wildfire. So we had talked about how we didn't think the industry was charging enough what we thought was required for the elevated risk for the wildfires. And so we pushed rates, terms, conditions and irrespective of getting a lot of improvements. We also decided, made a conscious decision to cut our wild - our gross wildfire exposure. And then on the - on some of the property and the wind-exposed areas, yes, we've been seeing a lot of rate, but we also talked about a view of an elevated risk, a combination of the climate change that Juan talked about before, but also seeing social inflation, things like Assignment of Benefits, and how that impacts things. And so, that along with exposure growth, and just frankly, our increased cost of capital, because our ability to deploy capital profitably into many other lines of business, and we expect to be doing that going into 1-1. As we see improving rates terms and conditions, our cost to deploy property ag has continued to go up, cat capacity. So that certainly was helpful in terms of our market share and absolute dollars of loss. But, frankly, that wasn't an accident, this was all intentional.

Operator:

Josh Shanker with Bank of America, your line is open.

Juan Andrade:

Good morning, Josh.

Juan Andrade:

Yeah, so John Doucette, maybe you can provide some color on that?

Joshua Shanker:

Okay. And then, if we're thinking about business mix going forward, orientation for 2021 between XOL versus pro rata, between property versus casualty, do you have any preview on how you think you might orient the book coming next year?

Joshua Shanker:

Thank you very much for the answers

Operator:

There are no further questions at this time. I would now like to turn it back over to the Everest team for final remarks.

Operator:

This concludes today's earnings call. We thank you for your participation. You may now disconnect.

Operator:

Good day, and welcome to the Everest Re Group Second Quarter 2020 Earnings Conference Call. Today's conference is being recorded. And now at this time, I'd like to turn the conference over to Mr. Jon Levenson. Please go ahead, sir.

Juan Andrade:

Thank you, Jon. Good morning, everyone, and thank you for joining the call. The world is struggling with the greatest public health threat in the last century, which has resulted in economic and great personal suffering. At the same time, individuals are rightly calling for positive social change and seeking an end to racism and inequality. At Everest, we stand together with our colleagues around the world against racism and discrimination. We have an unwavering commitment to supporting diversity, equity and inclusion in our workplace. In the context of this public health, economic and social environment, Everest is serving our customers and providing the strength and stability that they have come to rely on for almost 5 decades. Our business is running smoothly. We are performing well, and our people continue to demonstrate the passion and resilience that differentiates Everest. The health and safety of our employees and our customers are paramount. I am very proud of our team and very thankful for their hard work and perseverance in delivering the solid results we're reporting today for the second quarter and for the first half of 2020. Our ability to leverage our capital position, our global platform and our success in executing against our objectives, even under adverse conditions, positions us very well for continued profitable growth. We have strong and broad-based forward momentum across both our Reinsurance and Insurance divisions. Our growth stems from a combination of new business opportunities, resulting from our strong financial ratings, deep distribution and diverse portfolio as well as increased rate levels and high retention rates. We sequentially improved our underwriting profitability in the second quarter, and we continue to demonstrate strong structural expense management discipline. Our industry-leading expense ratio continues to give us operating flexibility. We also reported significantly improved net income compared to the first quarter as we benefited from the upswing in the capital markets during the second quarter. And our shareholders' equity grew to a record $9.3 billion as of June 30. Our book value per share was $232.32, up 8% from the first quarter of 2020 and up 4% compared to year-end 2019. Our excess capital position remains a source of strength, as evidenced by A+ financial strength ratings recently affirmed with stable outlooks. Everest has the capital to play offense in this market. If we were to identify a need for additional capital, our low debt ratio gives us high degree of flexibility. Our capital position, our focus on execution, our people and our emphasis on solving problems for our customers keep us well positioned to pursue all business opportunities that meet our underwriting appetite. Before I specifically address our second quarter results, let me share how we're driving the company forward. Our focus is on sustainably growing a balanced and diversified insurance and reinsurance portfolio by line of business and geography through the relentless execution of our strategies to deliver consistent underwriting profitability. We are nimble. We are opportunistic. We are capturing current market conditions that meet our return requirements. On the revenue side, this is about creating greater optionality and diversification across our entire business. With a broad mix of products, customer segments, distribution and selective local presence, we're capitalizing on growth opportunities around the world and balancing the highs and lows of our industry and economic cycles. This is why having vibrant reinsurance and insurance businesses is a key element of our strategy. The growth of the Insurance division, with gross written premiums now exceeding $3 billion on a trailing 12-month basis with sustained attritional profitability, is vital to greater balance in the organization. But this growth is not at the expense of our Reinsurance division. Today, we are a top 10 global reinsurer, a growing specialty insurer, and we are building on these positions in this market. As a group, we are playing offense to improve and further solidify our position with the best mix of talent, product and services. We are enhancing and sharpening the strategy and tightening the execution and operating rhythms. We are deploying our sizable balance sheet and diverse capital base to expand our relevance in our chosen markets. On the margin side, the focus is on underwriting profit. We are maintaining and enhancing our underwriting results with active portfolio management, strong risk governance and excellent analytics. We are reducing exposure in areas not meeting the right risk-return profile, and we're dynamically deploying that capital to areas that do. Our strategic utilization of alternative capital will enable us to further diversify the portfolio. We are focused on claims management to deliver consistently accurate outcomes with superior service. We are maintaining our expense leadership through more efficient and scalable operating models enabled by the latest technology, including artificial intelligence and natural language processing tools. On investments, we continue to generate strong cash flows that are invested in conservative, high credit quality portfolios. We remain well diversified. All of this will deliver growth in earnings over time, resulting in book value per share growth. Turning to the second quarter of 2020. We demonstrated continued momentum across the group with 11% growth in gross written premiums, excluding the impact of foreign exchange. The growth was broad-based across both our reinsurance and insurance businesses with gross written premium growth of 11% and 10%, respectively, also excluding the impact of foreign exchange. We continue to benefit from improved insurance and reinsurance market conditions during the quarter, which I will discuss in a moment. Excluding catastrophes and the pandemic impacts, our IBNR loss provision and a small amount of associated credit impacts, our attritional combined ratios for the group at 88.5% and each of our segments, Reinsurance at 86.7% and Insurance at 93.7%, are reflective of the strong underwriting performance across the group and the earnings generating power of this franchise. Underwriting profitability remains at the core of everything we do. On a 6-month year-to-date basis, Everest has grown 15% and delivered an 89.1% attritional combined ratio, excluding pandemic impacts. Our Reinsurance segment had strong growth for the quarter. We continued to successfully execute our strategies to underwrite a high-performing book of business with higher economic returns at the important April 1, June 1 and July 1 renewals. We continue to see excellent reinsurance opportunities in several areas such as facultative risk, property and in certain territories including the U.S., Canada, Latin America and Asia. This environment gives us the opportunity to better shape our book toward deals with better terms and pricing and walk away from others that do not meet our pricing hurdles. Traditional capital from highly rated carriers like Everest has become more relevant, and supply is tight, particularly given the more limited availability of alternative capital. We see this favorable pricing environment continuing for the foreseeable future, even with pandemic-related economic headwinds. Reinsurance profitability was also strong for the division, with a 95.3% combined ratio, including COVID impacts, and an 86.7% excluding the COVID impact. John Doucette will provide additional details on market conditions. Our Insurance segment's growth remained strong for the quarter at 10% and with improvement in underlying performance. The attritional combined ratio, excluding the pandemic impacts, improved to 93.7% for the quarter compared to a 96% in the second quarter of 2019. We are strategically managing the insurance portfolio to build a more diversified business and steer our mix towards product lines that we expect to earn higher margins long term. The maturation of several new product lines launched over the last several years as well as our wide market footprint give us access to significant opportunities. For the quarter, the main insurance growth drivers were

John Doucette:

Thank you, Craig. Good morning. Having now finished our June and July renewals, we are increasingly optimistic about the reinsurance market and our position as a global provider of reinsurance solutions. The flight to quality by reinsurance buyers continues. And highly rated reinsurers like Everest, with solid financial strength and global underwriting capabilities, will do well in this market. The expanded opportunity set allowed us to improve our portfolio across virtually all geographies and classes of business. As Juan stated earlier, Everest's market positioning, combined with healthier market conditions, led to strong growth in gross written premiums for this quarter and for the first half of this year. For net written premium, the growth was even higher at 15% for the second quarter as we retain more business given our capital strength, the improved underwriting environment and the shifting economics of retrocession purchases. Overall, we have a larger and more profitable portfolio than we did last year. By many measures of risk and return, the expected performance of writings this year is improved versus the expected performance of the last underwriting year. Our portfolio's growth has been broad-based with significant contributions from our global facultative operations, which are seeing large increases in submission activity and strong pricing trends. Encouragingly, rates are increasing strongly even in markets with sufficient capacity. In terms of property cat, market conditions overall remained strong, particularly in peak zones and recently loss-affected areas. Cat renewals in Florida and the U.S. generally experienced double-digit rate increases with higher increases on loss-affected business, leading to higher expected margins and profits. In our Florida cat book, we wrote more premium versus last year, but with less exposed limit. As a result of our underwriting execution and rate increases, our expected dollar margin for Florida is meaningfully higher. We also refocused our capacity on fewer core clients. Regarding our global property portfolio, we executed our plan. Expected profits grew considerably as we retained more economics due to a smaller outwards retro spend. However, we maintained hedging capacity through Mt. Logan in our catastrophe bonds. Across our peak cat exposures, our net PMLs increased midyear relative to January's net PMLs, reflecting our plan to capture this market's improved profitability. The net PML increases are predominantly further in the tale of the distribution. Competition from ILS capacity was less pronounced during the midyear renewals due to investor frustration from multiple bad industry cat loss years, adverse development and trapped capital by several ILS managers. The retro market is favorable for sellers. And as a net seller of retro, we captured strong double-digit rate increases. And demand from recurring retro buyers remains robust. We also deployed more capacity in property pro rata business with original rate improvement and tighter occurrence caps. The well-priced cat exposure of this class contributed somewhat to the increased PML. The casualty reinsurance markets are also improving directly from increased excess rates or indirectly as original business rates benefit pro rata deals. Excess casualty rate increases generally range from single digits to well into double digits, varying by ceding and product. Casualty ceding commissions improved slightly. While the casualty market improved, we still walked away from some large renewals priced below our return requirements. Nevertheless, we have several compelling opportunities to partner with our global clients in several classes of business, either through new deals brought to the market or increased shares on improved renewals. In Australia and Asia, market firming continued throughout the year with earlier renewal rates increasing less than later renewal rates. For these midyear renewals, more business met our return hurdles, and we wrote more premium accordingly. Our long-term relationships in Asia cultivated over the last 30-plus years allowed us to capture better opportunities and in times like these, those situations become more pronounced. Likewise, quality underwriting opportunities presented themselves in Canada as rate increases were achieved across several different lines of business in both fac and treaty. Therefore, we have been increasing our shares on several Canadian programs. Finally, some comments on our mortgage book. We remain comfortable with our exposure, loss picks and loss reserves on our mortgage writings. The majority of our in-force mortgage business will not be impaired by the pandemic unless housing fundamentals and post-economic recovery, unemployment deteriorate significantly. This is in part because of our generally high attachment points and our conservative underwriting and pricing of mortgage. Also, unlike the primary mortgage insurers, we, as a reinsurer, can and do book significant IBNR reserves. In summary, disruptions facing our industry and our personal lives create uncertainty around the future of many businesses and economic sectors. As a leading provider of reinsurance solutions, we maintain a strong position to absorb volatility and diversify that uncertainty for our clients with our robust balance sheet, global presence, and capital resources, while generating solid returns for our shareholders. Thank you. And now I will turn it back over to Juan.

Jon Levenson:

Great. Thanks, Juan. Cody, I see we have a number of participants in queue. Can you please open the Q&A?

Michael Zaremski:

First question. I appreciate all the color regarding the COVID losses that were booked. Curious, we get a lot of questions from investors about how to think about the COVID impact going forward. And I know it's complex, given a lot of your losses are coming through the Reinsurance division. But in regards to your conversations with cedents, do you - are some of them thinking that there's likely to be more losses trickling in during the back half of the year as this very complex situation is further assessed? Or some insurers, I think, mostly primary issuers are trying to say that they think they kind of have most of their loss picks on booked, unless things get materially worse regarding COVID?

Michael Zaremski:

Okay. Great. My last follow-up question is regarding your outlier low leverage level. And I think we appreciate that you guys are playing offense. Clearly, you can see it. PMLs came up a little bit, but still kind of well below historical levels. You're seeing certain participants in the industry either raise debt, equity, new startups. So has your thought process changed in terms of the opportunity cost of holding a lot of excess capital? Is it changing or is it kind of plan A is still is just let's keep kind of trying to grow the top line in excess of our ROE, less the dividend and we'll just kind of use up our excess over the coming 3, 5 years that way?

Craig Howie:

Juan, I think you covered it. I do think that, just to state the obvious, that if we did want to build our balance sheet, we have sufficient low leverage and certainly one of the lowest debt leverages in the industry to be able to do so.

Juan Andrade:

Yes. It's a great question. Fortunately, we're in a pretty good position, right, in the sense that you don't have to choose which of your children you like most. We see opportunities on both sides, right? And so I think as I articulated and John Doucette had articulated, we're seeing some really good opportunities on the facultative risk side, some very good opportunities in property as well. All of that being said, you also heard from John that we're being very disciplined. So if things do not meet our economic return criteria, we will walk away from it just like what we did at some of the recent renewals. But we see plenty of opportunity to deploy capital there. The same thing in insurance. You saw the growth rate there. We see great opportunities in property, both wholesale and retail. We see very good opportunities in excess casualty. We see very good opportunities in D&O. So right now, because of our capital base, we are looking at where we can play offense in this market and deploying our capital that way, so we can grow and essentially take advantage of the favorable conditions.

Joshua Shanker:

So I saw you took the PMLs up, of course, and following on what Mike was saying. Is there any change in the cat load guidance? And if we think about next year, if things go the way you want them to go, where would you ideally want to be setting your PML and your cat load guidance? What is a healthy market and a healthy PML in an attractive market for cat protection?

John Doucette:

Yes. Thanks, Juan. Thanks, Josh, for the question. So as I mentioned in the script, we have seen opportunities. And as we put in the investor presentation, the PMLs are up now, Southeast wind is 7% of equity, up from 5.7%. And really, it's going to be a function of the - of what we see in the market. We expect - we like Florida, but we were disciplined. We did shed some clients and nonperforming accounts that didn't meet our return thresholds. And that was true at July 1 as well, and we expect it to be true at 1/1. So we do expect to see momentum continuing into 1/1 and beyond. We think it's a great market to be a seller of retro. We are a top 2 seller of retro among rated reinsurers. And as Juan alluded to, we have the capital across the Kilimanjaro bonds, Logan and, of course, our common equity and debt - have the capital and flexibility to write the book that we see that's in front of us and what the market gives to us. But we do expect to see robust demand in 1/1 and going forward.

John Doucette:

Yes. That's a great question. And I think first principles. That's why we're agnostic to the form that we take in reinsurance risk, whether that's casualty, property, specialty and mortgage. We look at it across - we look at it as to how we want to deploy capital, and that will vary by product. And likewise, our clients will look to see whether they want to do things on a proportional basis, an excess basis, excess or loss per risk basis. And that varies. Some of them will change that over time. But that's why in my statement, in my comments, I mentioned that the casualty market we're seeing improving, but we're seeing a little bit of improvement in ceding commissions given the market that we're in. But we are seeing a lot more of the benefit coming through the original, the primary rates on the insurance operation. So - and then also, I think it's - we need to remember that there are a whole lot of clients out there that write their business using different capital levels. And some have capital - a lot of capital support that, that gives them flexibility, whether they do something potentially on a pro rata basis or an excess basis. But then a lot of our clients around the world, again, they don't have a lot of capital. And so sometimes they need to de-lever their premium. And so they do need to buy proportional treaties. And that's in the U.S., that's international, that's in Lloyd's, where it will vary, again, by line of business. And that gives us the opportunity by having the ability to dynamically allocate capital by line, by territory and by product, excess loss or pro rata, it gives us the best chance to capture what we see as the opportunity in front of us profitably.

Yaron Kinar:

I guess first question. I do want to go back to the capital raise question. It sounds like the environment is a very constructive one, and you see it probably with legs going into '21. So does the decision to not raise capital today - I'm just trying to understand how that fits in to this construct. Do you not see sufficient opportunities to deploy capital that you would raise? Is the market not attractive enough? I guess at what point - what would make you want to raise capital that you're not seeing today?

Craig Howie:

Yes, Juan, I agree. If you're going to raise capital, it should be accretive. And certainly, timing comes into play as well. If you're raising equity capital, certainly, earlier in the year was a good time to do it instead of waiting toward election times. But we didn't need to raise equity capital. We didn't need to build scale. We already have the scale. We're not trying to fund M&A at this point in time, and we're not trying to replace retro coverage at this point in time. So certainly, as the market changes, we still have flexibility, especially with respect to our debt leverage.

Juan Andrade:

Yes, Yaron, happy to talk about that. Look, every contract is going to be different, right? I think unlike a natural catastrophe, there's going to be hours clauses, there's going to be bench definitions, there's going to be different attachment points, et cetera. And so that's really when we say that, that's what we mean, is that this is not a panacea, and we're going to look at each contract by its nature, by its merits, by its own facts. And then we will make claims adjudication decisions based on that.

Juan Andrade:

Well, I think following the fortunes would imply that essentially, any loss that you're seeing to report as being a COVID loss would be automatically accepted. And essentially, what I'm saying - what we're saying as a company is it's very fact specific, and that will be put against the contractual requirements and wording in each of our contracts.

Elyse Greenspan:

Sorry, I also have a question to follow-up on the capital side of things. Is there a way that you can tell us like, I know you pointed to, right, that you have your own common equity, Logan as well as Kilimanjaro, that help support increased writing, cedings into what seems like a really strong market in 2021? But can you give us a sense on your current capital base, right, assuming on more increased deleverage, which sounds like you're holding off on that for the time being? How much growth could Everest absorb on its own capital base today in 2021?

Craig Howie:

Well, Elyse, it depends on which capital measure you're looking at. And right now, we feel as though we can grow both sides of our book, both reinsurance and insurance, with the capital base that we have today. And that even goes into looking forward to 1/1 renewals on a reinsurance basis. So that's why we feel as though given the market and given where we are today, that we have enough capital to not miss out on any opportunities in the current market conditions.

Juan Andrade:

Craig?

Operator:

We'll now take our next question from Ryan Tunis with Autonomous Research.

John Doucette:

Yes. Ryan, thanks for the question. So a couple of things. So what we've been saying for a while is that we want to - we're not just a one-trick pony within property. And if you rewind the tape, property - our view, the property was more attractive on a relative basis than some other lines, and you talked about being more bearish on casualty than some of our competitors. So what we've seen, a couple of things. We have seen property - improvement in property prices. We've also seen improvement in casualty. As you know, we've been growing out our mortgage book substantially. We're seeing nice increases and opportunities in specialty lines business. And so we're deploying more capacity along the way there. And really, I think what we're trying to do is capture what we see as the opportunity in front of us. We've also talked about on prior calls kind of an elevated risk that we've seen in a social - when you think about social inflation and things in Florida tied to like assignment of benefits and climate change and other risks that also have caused us to make sure that we're deploying what we view as the right amount of capacity fill combination. And so that elevated the return requirements that we needed to deploy increased capacity. And again, our view as to where are we head into 1/1, we expect to see a robust January 1, particularly in peak zone cat and retro. And we'll deploy capacity accordingly. So we'll do it, but we'll also be - we'll do it based on what the market terms and conditions are, what the clients' demands are, but we'll also be looking across all lines of business and territories to really build the best book we can.

Juan Andrade:

Thanks, Ryan. Look, what I would say is we are definitely seeing loss trend being essentially below our written price change, right? So we're seeing a lot more rate right now ahead of trend. And that's a good thing. That being said though, we are also keeping our loss picks up and conservative given the environment in all of this, right? So while you're seeing rate ahead of loss trend, and frankly, you're seeing some frequency benefit on some lines of business, at this point in time, we think it's just prudent to maintain the loss picks where they are. And so over time, you will see that margin improvement. And so that's basically how we're looking at that.

Meyer Shields:

I want to start with Juan, I guess, basic question. I know it's way too early to have an estimate for losses from the Beirut explosion. But how should we think about that impacting various insurance and reinsurance markets?

Meyer Shields:

I'm trying to get a sense in terms of directionally. When you got something like the Beirut explosion, obviously, far too early for any estimate of losses, but should we think of this as an insurance event, a reinsurance event?

Meyer Shields:

Okay. That's very helpful. I'm getting a couple of questions about the modest adverse reserve development in the Insurance segment. I was hoping that either Juan or Craig could comment on that maybe.

Meyer Shields:

Okay. So if this was an actual loss emergence instead of this happening. Okay. And then final question, and I know quarterly numbers again bounce around a lot, but the - within insurance, the other specialty line was down year-over-year. Is that a more economically sensitive line than some of the other specialty lines?

Michael Karmilowicz:

Sure. Thanks for the question. That actually is definitely an economic impact. That business usually is transactional risk, which is M&A, which is obviously impacted by the COVID and the pandemic and then other lines on the credit side. So some of those actions, we actually were deliberate in actually slowing that business down, given what's going on with the pandemic and its impact to the credit markets.

Brian Meredith:

A couple here. Juan, I just want to clarify. I think you said in your response to Ryan's question that you didn't take any frequency benefit in the quarter either on comp or short-term property lines in the Insurance segment?

Brian Meredith:

Got it. That makes sense. And I guess I'll just add on to that. I'm just curious, Juan. Could you give your perspective on kind of what social inflation kind of currently looks like? And what your outlook is here as the economy reopens? And with respect to that, is there anything that you can do right now with contract awards in your insurance space to potentially mitigate COVID-19 related claims here going forward?

Operator:

We'll take our next question from Phil Stefano with Deutsche Bank.

Juan Andrade:

Yes, absolutely. Look, I would tell you that the estimate that we have on the insurance side is a solid estimate, as I mentioned before. Particularly for event cancellation type policies, we are looking at early 2021 at this point in time. And this goes back to one of the questions I was asked earlier about the nature of this event. And what I mentioned, which, look, this is an ongoing event, and a lot of this will depend on the length and shape of it, frankly. But on contingency, we're definitely looking at early 2021 at this point in time.

Juan Andrade:

Yes. So let me give you my thoughts on that, and then I would ask John Doucette to jump in as well. So look, I think the process has been very similar from the perspective of the detailed discussions that we've been having with our cedents, we've been having with brokers trying to understand the book of business. Obviously, the difference being that in the reinsurance side, it's a much more global book. We have some very large cedents and they're still trying to grapple in some ways, as you've seen in a lot of the calls, with their own exposure. And so from that perspective, on the reinsurance side, we do get a bit of a lag as far as the information is concerned with some of this information. But I think as far as the time horizon is concerned, our conversations with the cedents have been - they're looking at similar time frames through the end of this year, beginning of next year. But John, I don't know if you would like to add some color to that also.

Juan Andrade:

Yes. And the last thing that I would add to that is, remember, the assessments we have out there are really management's best estimate. And what the auditors will review is really the approach on how management essentially achieve those estimates.

Michael Zaremski:

Great. Just two quick follow-ups. Any California wildfire subrogation benefits this quarter expected? And also, just wanted to confirm regarding the mortgage insurance book, I believe you said that losses weren't booked unless the situation deteriorates or did you say that there was some IBNR put up, but you don't expect kind of losses unless things deteriorate?

Craig Howie:

With respect to the California wildfire subrogation, first of all, on the reinsurance side, we'll see a lag in reporting from our cedents on that. The PG&E settlement just happened this quarter. So it will take some time before it gets reported to us. On the insurance side, we don't expect much subrogation at all since we had very few losses related to the California wildfires in our Insurance segment.

Juan Andrade:

Go ahead, Craig.

John Doucette:

Yes. This is John. I just wanted to add. So it very much is a function of what was their gross wildfire loss and then where do their reinsurance - what is the attachment point and the limits. So some of it, it could meaningfully impact their ceded losses. In some cases, it could have no impact on their ceded losses. So we're really in a wait and see, as Craig said, waiting to see what the settlement, if any, was and what they report as the benefit to the reinsurers. And when and if they do that, we'll book that into our numbers.

Joshua Shanker:

This is probably easy, and probably not. I want to say. Can you tell us anything about the insurance or reinsurance markets in Lebanon, given the news last week and how we might want to think about that?

John Doucette:

Yes. So I mean, again, very early days. It's a small market, and we're looking at what the - first, we're looking at what the coverages are that are offered in the region. So far, some of the brokers have come back with some modest coverages that are there. And really, we're still - it's too early to tell in terms of what the ripple effect is, both for the building, the specific building that was at risk, but then also the broader - the territory, the neighborhood that was impacted around that. So frankly, we're looking at it, but it's a relatively small market.

John Doucette:

We're still assessing that. We don't have - we certainly would expect it to be, but it does vary by territory, but we don't have any reason to think it wouldn't be.

John Doucette:

Correct.

Juan Andrade:

Great. Thank you, and thank you for joining us today, and we look forward to continuing the discussions next quarter. But before I let you go, just echo what I said earlier. We feel very good about where Everest stands right now. We feel very good about our traction, our momentum and our ability to execute in this market. So thank you for your support, for your questions, and I hope you stay safe.

Operator:

Good day, ladies and gentlemen, and welcome to the Everest Re Group, Ltd First Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would now like to turn the conference over to Mr. Jon Levenson. Please go ahead, sir.

Juan Andrade:

Thank you, Jon, and good morning, everyone, and thank you for joining the call. First and foremost, I hope you, your families, your friends and your neighbors are all staying healthy and safe. On behalf of our company, I want to offer our heartfelt condolences to all of those, including many in the Everest Re family who have lost loved ones during this difficult time. Our sincere thanks go to those medical professionals and first responders who are putting themselves at risk to keep everyone safe. Also, to all of those who are working hard to keep the supply chains going

John Doucette:

Thank you, Craig. Good morning. As Juan did at the start of the call, I would like to add my sympathies to our reinsurance trading partners and their families affected by the coronavirus pandemic. Like the rest of the group, the Reinsurance division, supported by our dedicated IT colleagues and our newly completed next-generation global underwriting platform was able to transition to 100% work from home without missing a beat. We are reviewing submissions, quoting and binding facultative and treaty business and settling claims. Now I will review the quarter. During Q1, the Reinsurance division increased our gross written premium to a record of $1.8 billion, up 16% from last year. Q1 growth was driven by January rate increases in loss-exposed areas and retro and writing more PURPLE products and casualty business due to improving conditions there. Growth was widespread, spanning territories and lines, including the U.S., international, casualty and property and short- and long-tail facultative reinsurance. Excluding COVID-19 losses, our underlying reinsurance loss ratio was up by two points largely due to more pro rata premium written over the last year. Pro rata business directly benefits from an improvement in original rates while ceding commissions have generally been stable and, in some cases, improved. Those improved original rates will take some time to be recognized in our loss picks. Note that the volatility associated with $1 of pro rata premium is generally lower than $1 of excess premium, and combined ratio alone can obscure risk-adjusted returns. We are pleased both with our progress at building a more diversified, profitable, sustainable gross portfolio and that we are seeing some tailwinds in the reinsurance market in casualty, property, retro, specialty and fac to help us achieve a stronger, more profitable portfolio. Everest's facultative operations continue to see an increase in demand. In the U.S. and international, we’re continuing to see significant double-digit rate increases in short-tail and long tail fac, with dramatic increase in submission count. Given that facultative renews on multiple inception dates, it is a good forward indicator of reinsurance demand and pricing. For our casualty business, original rates on certain lines have shown some increases, which will earn through on our pro rata premiums. As always, we’re deploying our shareholders' capital judiciously, seeking to build the strongest reinsurance portfolio possible while maximizing returns, while limiting our downside risk through increased diversification and balance. Now to comment on recent and upcoming renewals. April renewals showed continued rate momentum in loss-affected and capacity constrained segments. Japanese wind and retro rates showed strong increases, consistent with the need to maintain appropriate returns. Looking near term, particularly the upcoming June Florida renewals, we expect rates will be affected by limited capacity, recent losses and the market's heightened sensitivity to risk due to climate change and social inflation. Also, there is a strain on alternative capital, traditionally large players in Florida. Therefore, we continue to see upward pricing momentum in Florida along with improved terms and conditions. Now turning to mortgage. With the ongoing economic disruption, primary mortgage insurers could see increased losses along with regulatory capital pressure. However, housing fundamentals are stronger today than they were heading into the financial crisis with higher credit scores, tighter housing supply and lower-risk products. Our reinsurance mortgage book is seasoned and pegged conservatively. To give you some color on our mortgage book. By limit, our book is roughly 80% GSEs and 20% mortgage insurance. Virtually all business we write is on a QM basis. The underwriting box we participate in is very controlled and tightly underwritten, meaning our portfolio has no exotic products and has high FICO scores particularly on the GSE business. From the beginning of Everest entering the mortgage space, our pricing assumptions were and remain more conservative than the external vendor models that we use to validate our pricing assumptions. Regarding the MI treaties we reinsure, we effectively play in an excess position, thus avoiding the working layer losses and resulting in a meaningful buffer in gross loss ratio deterioration before we suffer any economic loss to our reinsurance treaties. Deterioration in this buffer range decreases the size of the profit commissions we would typically pay to the MIs, but at no economic cost to us. Regarding our GSE business, given our more conservative view of underwriting, pricing and capital modeling, we preferred higher layers over lower layers in these programs, and we’ve weighted our book to higher attachment points accordingly. Much of our exposure has been seasoned for several years, which benefits from home price appreciation. Going forward, credit standards at nearly all stages of mortgage origination are tightening and improving, therefore increasing the credit quality of borrowers in our book. Additionally, early government intervention in the economic crisis to support borrowers and lenders, including the broad offering of forbearance, will mitigate potential losses and help keep people in their homes and avoid default. We’re continually reevaluating the dynamics of this economically sensitive line to prudently manage our mortgage exposures now and on a go-forward basis. Now I will give some comments on the overall market ahead. Despite the uncertainty the industry faces, we cautiously anticipate that the reinsurance markets will remain healthy for the highly rated traditional reinsurers who can deploy capacity in multiple lines of business around the world, while also meeting clients' increasing counterparty credit requirements. This view is based on current reinsurance industry dynamics and the supply-demand curve. Starting with the market supply. More stable capital remains in place, while some of the opportunistic capital is exiting. Alternative capital investors are reevaluating the thesis that reinsurance is a non-correlated asset class. Potential uncertainty from COVID-19 and the possibility of more trapped capital compounds frustrations of these investors from the last 3 years of cats and subsequent loss creep from several events. This is in addition to higher relative return hurdle requirements given the increased price of risk across virtually all risk asset classes. On the demand side, clients have increased reinsurance purchases for risk management and capital support particularly as some of them come under capital or earnings pressure given the volatile markets. The flight to quality continues as reinsurance buyers and brokers are increasingly focused on the stability and quality of counterparties to protect program continuity and mitigate counterparty credit exposures in these volatile times. The length of the economic downturn will ultimately be a key factor impacting reinsurance demand. These market dynamics benefit Everest as we deliver stable capacity with strong security as a long-standing client-focused partner. Regardless of where the market turns, we will focus our capacity on those clients that align with our philosophy of prudent underwriting and sound claims handling practices. In summary, Everest is built to withstand volatility and uncertainty such as we’re seeing now. We continue to prove our resilience, our solution-driven partnerships with long-standing clients and our ability to execute through these unprecedented times. Thank you, and now I will turn it back over to Jon Levenson.

Operator:

Absolutely. [Operator Instructions] We will take our first question from Mike Zaremski from Credit Suisse. Please go ahead.

Juan Andrade:

Yes. Thanks, Mike. And this is Juan Andrade. Look, I think to echo some of the comments that John Doucette made in his opening remarks, from our perspective, I think there's really three things to consider. Number one is where we play as a reinsurer; and number two, the fact that we see this more as a frequency driven event essentially driven by unemployment. And so that certainly helps our view of all of this. The other part of that is that unlike the 2008 financial crisis, I think as we look at the mortgage products, the better original underwriting, I think, here will pay off. There's also much earlier intervention by the government, much tighter supply of housing, too. We also believe we have some very conservative loss picks on this. But let me ask John to answer your question more specifically on structure. John?

Mike Zaremski:

Okay. And on the GSE side, is there a way to frame maybe what -- is it a cumulative loss of like 2.5%, or any numbers you could put around on the GSE side that could help us?

Mike Zaremski:

Understood. My last question, switching gears to primary insurance. I think one of the most frequent questions we receive is trying to understand whether each insurer has a material amount of policies, property-related business interruption policies that may not have a virus exclusion specifically. And I know -- I think part of the IBNR charge you took included business interruption, but is there any way you could frame whether you -- a portion of your book doesn't have a virus exclusion and whether you are reserving or making some reserves for those policies?

Mike Zaremski:

That’s helpful. Thank you.

Operator:

Thank you. We will next go with Yaron Kinar from Goldman Sachs. Please go ahead.

Juan Andrade:

Yes, I would be happy to talk to you about that. I would say, number one is we really don't have exposure to frontline first responders and very minimal exposure to the frontline health workers, the health care workers in the portfolio. So that essentially is how we come to that conclusion. So as we went through this very thorough process that I mentioned, we looked at industry profile for businesses that we deemed essential. And that's where the IBNR provision really was put up for those kinds of businesses. But again, when you look at those industries that would be most affected, health care workers, first responders, etcetera, we’ve very minimal exposure in the portfolio.

Juan Andrade:

Yes, and that’s essentially the provision that is included in the IBNR that we put up for the quarter. So if you look at our total workers' compensation book, again, the exposure to health care workers, first responders is not there. When it comes back to what we consider to be essential workers, that is really the provision that was taken for the quarter. So we believe that we've already accrued for that.

Juan Andrade:

Thanks. Thank you, Yaron.

Brian Meredith:

Yes. Let me just follow-up on that one. I noted today that California came out and, I guess, officially expanded presumption of coverage for employees there. So I'm assuming that your estimate actually included the expanded presumption of coverage for workers' compensation?

Brian Meredith:

Thank you.

Operator:

Thank you. We will next go with Ryan Tunis from Autonomous Research. Please go ahead.

Juan Andrade:

Thanks, Ryan. Let me ask John Doucette to jump in and help me answer that question.

Ryan Tunis:

Got it. And then my other one, I guess, is trying to think about -- I guess what I'm trying to think about is if there is like a second wave later in the year, whether or not that would constitute a second event. So maybe trying to get some clarification. I'm not sure how to ask the question, but some clarification on, like, what would a conservative reading be of the end of this as an event from a reinsurance standpoint? Like what conservatively would, I guess, close the book on the losses associated with this first lockdown?

John Doucette:

Yes. Thanks, Juan. And I think it's important to point out that not only is the event going on, but we have rolling inception dates that are happening all the time. And we just finished 4/1s. We had some 5/1s in the U.S., May 1. Florida is coming up June 1. And in July, we’ve a lot of renewals kind of all over the world, and facultative is ongoing throughout the year, many times a year. We have inceptions. And one of the things to point out that I think is important is that we are pursuing terms and conditions that help narrow or exclude pandemic risk. And that will ripple into some of the things you're saying about the go-forward. And that will help mitigate, limit or exclude the potential losses going forward. And we're certainly not alone doing that. Other -- while we're leading the charge, many other reinsurers are doing it as well. And I think that will help narrow whatever the scope of this turns out to be. But there's a lot of economic facts and things to come in terms of -- to answer your question better than that.

Operator:

We next go with Meyer Shields.

Juan Andrade:

Yes, Meyer, we can hear you.

Juan Andrade:

Yes. No, Meyer. So this is Juan. Look, I think as I said in my opening remarks, we absolutely believe that physical damage absolutely is unambiguous in the coverage of this, right? If you think about it, there's double triggers, right? Number one, there has to be covered physical damage, which, again I believe is pretty unambiguous in the wording. And secondly, we also have virus exclusions on the portfolio. So I think that's the other trigger. So the answer would be yes to your question, do we believe it would hold?

Juan Andrade:

Sure. Craig, can you take that, please? Craig?

Craig Howie:

Thank you. Sorry. Meyer, I saw on your -- or I mentioned in my prepared remarks that our new money rate for the investment-grade portfolio was about 2.7% on average for the quarter. What we did see was due to some of the widening of the credit spreads and some of the actions that we took in the quarter, we actually saw better rates in March than we did for the overall quarter. So they were higher and closer to the 2.9% range. On average, we saw -- across investment-grade and some below investment-grade, we saw a purchase yield of about 3.2% for the quarter.

Craig Howie:

I'm sorry, I didn't hear that?

Craig Howie:

Well, the April yield is probably -- as I said to you, it's closer to the 2.7% on the investment-grade portfolio. And then some of the high yield that we are seeing so far is still over 5%.

Craig Howie:

Sure.

Elyse Greenspan:

Hi. Thanks. My first question, going back on the business interruption and COVID discussion and just on the reinsurance side, I recognize -- I think someone else asked about the commercial versus personal breakdowns as well. Maybe you can give us those percentages, but is there a way for you to give us a high level view of what policies could be at risk in terms of accounts that have virus exclusions so they don't -- just as we kind of think about this being an ongoing event and what additional losses would come to Everest on the catastrophe reinsurance side?

John Doucette:

Yes. I would -- I don't really have that much to add. As we've said, we're also -- our top down bottom up review, we looked internally, externally, talked to a whole lot of brokers, clients looking at our -- not just our catastrophe book, but our contingency book just across all lines of business. We did a kind of first principles review of everything that helped us get to the number that we got to and, again, trying of factor in retentions, deductibles, hours clauses, radiuses, contracts, some on a named peril basis and other provisions that vary. And we -- again, we looked and -- across, did a very thorough review, had a lot of people looking at it and are comfortable, based on what we know today, that we’ve put up a reasonable provision for that.

Juan Andrade:

Thank you. John, can you take that?

Elyse Greenspan:

Okay. Thank you for the color.

Ron Bobman:

Hi. Thanks a lot. Glad to hear everyone sounds well. I had two questions. One, trying to get some handle around sort of the reinsurance buying demand from the market. I guess that would be sort of directed to John principally. John, with primary property companies presumably having some affirmative BI exposure and losses and presumably some amount unknown, the sort of tail risk, whether it be sort of judicial decision, litigation-oriented, etcetera, and the unknown and significant amount of that, what should a primary company be thinking and sort of doing now, if at all, as far as buying additional reinsurance? And what I’m really sort of thinking about is sort of third event cover if some amount from COVID is going to tap their first tower.

Ron Bobman:

Okay. Thanks. And then the $3 billion in cat bonds that you mentioned and then separately the ILWs, do those -- is pandemic a named peril that those -- the cat bonds and separately the ILWs would provide protection for?

Operator:

Thank you. We have Yaron …

Operator:

Thank you. We will next go with Yaron Kinar from Goldman Sachs for a follow-up question. Please go ahead.

Juan Andrade:

Yes. Sure thing, Yaron. This is Juan. I think as Craig mentioned also in his opening comments, when you look at the loss ratio for the quarter, very close or very stable to where we were at the end of the year. There is really a main driver on sort of the uptick, and that really has to do with mix. We saw a bit more growth in A&H, in casualty and in risk management. And those lines of business basically could carry higher loss picks than some of the other lines of business. So I would attribute it basically to the mix and the growth in those specific lines.

Juan Andrade:

The expense ratio exactly, that was primarily on the commission side of things where because we did write some more risk management business, etcetera, you also had a mitigating effect on that. So that would be correct.

Juan Andrade:

Sure. Thanks, Yaron.

Jon Levenson:

Nadia, pardon, I think we are done with questions. And we would like to hand the call back over to Juan for some closing comments.

Operator:

This concludes today’s call. Thank you for your participation. You may now disconnect.

Operator:

Good day, and welcome to the Everest Re Group, Ltd. Fourth Quarter 2019 Earnings Conference Call. Today’s conference is being recorded. It is now my pleasure to turn this conference over to Jon Levenson. You may begin.

Juan Andrade:

Thank you, Jon, and good morning. It's my pleasure to join you for the first time as President and CEO of Everest. 2019 was a solid year for our company as we continue to benefit from improving market conditions across all areas of our business. We are well positioned for this market with broad capabilities in top talent, and we remain focused on solving our clients' most critical risk transfer needs in a disciplined and profitable way. For the full year 2019, Everest recorded net income of over $1 billion, a significant increase from the prior year and a 12% net income return on equity. Net operating income for 2019 was in excess of $872 million, also a significant improvement over the 2018 result. Our combined ratio for the year was 95.5% compared to 108.8% in 2018 despite $550 million of catastrophe losses during the year. Our book value per share growth was 16%, and we grew our revenues by 8%. We remain focused on our industry-leading expense advantage. We achieved a 6% expense ratio in 2019 while continuing to make significant investments in people, technology and the infrastructure necessary to grow our company. These overall results are a testament to the strength and diversification of our franchise. We had sizable contributions from both our underwriting and investment operations throughout 2019. Specific to the underwriting operations, 2019 demonstrated the success of our strategies in both reinsurance and insurance. For the full year 2019, Everest generated $336 million in underwriting income. In our Reinsurance division, we generated $255 million in underwriting income with a 95.4% combined ratio even with an active catastrophe year with industry insured losses in excess of $50 billion. This result reflects the steps we have taken to diversify our portfolio and reduce volatility. In our Insurance division, 2019 marked another strong year of profitable growth. We finished the year with gross written premium of nearly $2.8 billion, a 23% growth rate, over $81 million in underwriting income and a 95.8% combined ratio. Our U.S. franchise, which makes up the majority of our Global Insurance business, ran a combined ratio in the low 90s for the full year. The Insurance division had pretax operating income of $270 million for the year, including the allocated $189 million of investment income, an excellent result. Overall investment income for the group was $647 million, up 11% over the prior year. Given the prudent investment mix of assets we maintain, this was also an excellent outcome. Overall, our invested assets grew by $2.3 billion in 2019 to nearly $21 billion, driven by record underwriting cash flows and the solid return on invested assets. Turning to the fourth quarter of 2019, overall group results were impacted by $215 million in catastrophe losses and higher-than-expected losses in our crop reinsurance book as a result of inclement weather. This resulted in a group combined ratio of 101.5%. For the quarter, as a result of these losses, our Reinsurance division posted a combined ratio of 103.9% and an underwriting loss of $55 million. Our Insurance division generated over $26 million in underwriting income and a 95.1% combined ratio. Heading into 2020, we remain very well positioned. In our Reinsurance division, we were pleased with our January one renewals, which represents about 50% of our annual reinsurance premium. Underwriting discipline remains paramount, and we were able to underwrite a stronger portfolio with greater balance, diversification, more expected margin and reduced volatility. In our Insurance division, the rate momentum continues to build up meaningfully in virtually every class of business. Our Insurance division is hitting full stride at an ideal time given the market tailwinds. We have the right culture, platform and relevance with our clients and trading partners. We also have the underwriters and systems necessary to capitalize on the current market, with the infrastructure in place to ensure underwriting discipline and appropriate risk selection. Strategically, our focus is on increasing Everest's earnings power in terms of both our underwriting and investment income, with the goal of driving superior book value growth over time. Underwriting profitability will remain at the core of everything we do as we execute on our well-defined premium growth strategies in an improving underwriting environment. We will continue to search for profitable growth opportunities and increase relevance. To use a sports metaphor, we're on the front foot. We will also continue to create optionality and diversification in our business with a broad mix of products, distribution and geography. This allows us to focus our underwriting capital on the most profitable classes, regardless of the environment. With regard to investment income, strong operating cash flows and returns on invested assets will continue to grow our portfolio going forward. Our focus will be on optimizing the performance of our investment portfolio while maintaining a well-balanced and prudent investment posture. The efficient use of our capital facilitates returns on equity significantly in excess of our cost of capital. Our goal is a double-digit return on equity. Our first priority is to deploy capital into the business to position Everest for long-term success and profitable growth. Growth in our earnings power, combined with our strong balance sheet, low leverage, strong financial ratings and the effective management of capital, will position Everest to succeed in every stage of the market cycle. Now let me turn it over to Craig to provide additional details on the financials.

John Doucette:

Thank you, Craig. Good morning. Following three years of significant catastrophes and more recent loss development, the 2020 reinsurance market is dynamic, just as our property book in 2019 was a better portfolio compared to 2018. After this January 2020 renewal, we have a stronger, even healthier book across our overall global property portfolio, including property cat, proportional, facultative, per risk, retro and PURPLE treaties with better balance, diversification and limit deployment, and we have improved expected margins while managing the size of our catastrophe PML. We are optimistic about the opportunity set in front of us while remaining realistic that there are choppy waters to navigate in both property and casualty lines. It is an improving market marked by increasing demand for reinsurance with roughly flat reinsurance supply. And for specific deals, pricing was determined by class of business, territory and loss experience. Everest is well positioned in this market given our unique strengths and attributes. These include our long-standing client relationships and robust ability to source business globally with strong balance sheet and strategically located and seasoned underwriting teams empowered to make decisions and execute. At January 1, Everest deployed more capacity in retro; our PURPLE product; loss-affected territories with rate improvements or continued post loss, higher reinsurance rates; casualty; specialty; and facultative lines around the globe. Conversely, we continue to re-underwrite poor performing accounts or accounts which did not have strong pricing. On these programs, we cut back our share or came off. Approaching January 1, we utilized alternative capital to capture value in the improving market. We went back to the cat bond market to renew the expiring Kilimanjaro bonds and utilize the approximately $800 million of AUM in Mt. Logan. Along with in force, cat bonds and other hedges, we holistically built capacity to deploy on deals we like, particularly in retro and PURPLE. At 1/1, we were able to improve profitability of our global cat book, optimizing the risk/reward of the portfolio while managing the volatility. There's been a lot of discussion of the U-shape market pricing dynamics. I think the correct analogy is a W-shape. Why W-shape and not a U-shape? Both exhibit increasing primary and retro rates. But in the U-shape model, reinsurance rates would not move up much at all. However, in the W-shape model, the reinsurance rates, terms and conditions were mixed. Some disappointingly flat and some with nice improvements and continued attractively priced opportunities. That is why we believe a W-shape is a better visualization of the market. First, the left side of the W-shape model, primary insurance. Everest writes a large amount of proportional treaties. We are directly benefiting from improving primary markets in casualty, property and specialty lines, particularly in E&S and in certain capacity-restricted territories such as Canada. Our relevance to our clients and brokers for providing much needed risk transfer, capital support and volatility management helps them capture value in these improved primary markets. Now the middle part of the W-shape model, reinsurance. As I said, results were mixed, some good, some disappointing. Positives were global reinsurance programs, pockets of casualty, mortgage, structured business, many facultative lines and several loss-affected areas. Disappointments included several smaller capacity programs and several cat-free territories. Specifically, at January 1, several large global property programs that tapped out global capacity had improved pricing. Therefore, we wrote more with several large multinational global clients, particularly with our strategic partners. Loss-affected territories impacted by catastrophes over the last three years have substantially better rates, and in some cases, those rates continued to improve. But smaller limit programs, including regional U.S. and smaller clients around the globe, did not see much rate movement. Most of Europe and much of Latin America and Asia were closer to flat. China was down, and we deployed less capacity there. Casualty reinsurance saw a directional improvement in reinsurance rates as well as benefited from primary rate increases, improved terms and limit contraction, resulting in a better priced and better balanced book. There's been a lot of talk about social inflation and increased loss trends in casualty. We believe this is a reversion to the long-term mean as opposed to something new. And this reversion to the mean in trend and loss development is something that we have been underwriting for, pricing for and embedding in our trend factors for several years, prior to this being in the headlines now. Seasons continued to decrease their volatility through a combination of gross line reductions, buying down treaty retentions, buying more casualty reinsurance and buying more facultative reinsurance in both property and casualty. Fac helped seasons manage line size and protect certain rigs that get limited or excluded under treaties during this part of the cycle. Then at the right price, terms and conditions assuming that risk, our seasoned fac teams can specifically underwrite those risks. In the last many months of fac renewals, including this 1/1, we have seen a significant increase in the number of opportunities in fac, both in casualty and property, in the U.S. as well as internationally, much coming with significant rate lift. And mortgage, which has treaties incepting throughout the year, remains a positive driver in reinsurance. Finally, the right side of the W-shape model, retro. At January 1, retro rates were up meaningfully, and we wrote more premiums accordingly. We dusted off our pillared product, PURPLE, and marketed that beyond the few core clients who have been consistent buyers. The end result was roughly a 25% increase in our combined retro and PURPLE premium. Therefore, improving insurance, mixed reinsurance with some bright spots and improved retro results in the W-shaped market. As we look forward to 2020, we see January one momentum continuing throughout the year on reinsurance and retro, including upward pricing pressure both in Japan at April one and also in Florida at June 1. Trapped capital and investor fatigue continue as important drivers in the property space. We see a mixed casualty reinsurance market continuing in 2020 with some reinsurers writing more and some are treating or writing less. This is a function of perception of loss trends, market share and underwriting actions taken over the last several years. As discussed on many prior earnings calls, given casualty underwriting actions we took the last six to eight years, we are optimistic about the current market. Mortgage continues to be a core line for us. We have increased our book and expect to see increased reinsurance demand from the buyers in 2020 and beyond. With proactive optimization, continued re-underwriting and diversifying our global portfolio, we are pleased with the outcome at January one and are well positioned for the future. Thank you. And now I will turn it over to Jon to review our insurance operations.

Operator:

[Operator Instructions] Our first question will come from Elyse Greenspan, Wells Fargo.

Juan Andrade:

Yes Elyse, this is Juan. So let me start then I'll ask John Doucette to add to this as well. So as you pointed out, we did see a very good opportunity in the retro market at 1/1. We continue to see a good economic bet from the perspective of rate momentum. We were also successful in moving further up in attachment points, et cetera. So for us that was really a very good opportunity. And as a result of that, you will also continue to see our volatility continue to improve, as both John Doucette and I mentioned in our prepared remarks. I think you will see that in our numbers throughout the year. Now with regards to casualty, we also continue to see pretty good opportunity on the reinsurance side, essentially for all the reasons that we mentioned, with the improvement in the primary side of things, particularly in general liability and some of the improvements that we've seen in excess casualty as well, and given the fact we are providing proportional treaties with some key clients, that was also a pretty good opportunity for us up in the 1/1 period.

Elyse Greenspan:

That's helpful. And then, Craig, you mentioned you were kind of going down into some of the pushes and the pulls in terms of the reserve development. In terms of Bermuda segment, I guess the net number is a small number for the quarter. But could we just get a little bit more color on what you strengthened in terms of property and casualty accounts and the size within that segment?

Elyse Greenspan:

That's helpful. And then one last question did you guys see any movement in any catastrophe losses, prior year cats in the quarter that offset each other? Or it was just kind of not much movement there in the quarter?

Operator:

[Operator Instructions] Our next question will come from Mike Zaremski, Credit Suisse.

John Doucette:

Good morning Mike, this is John. We definitely - let me go back to sort of what we mentioned in the prepared remarks that we definitely saw a meaningful uptick in the rate environment in the second half of the year. As you mentioned, every line of business has a bit of a different dynamic. We obviously have a process for tracking or viewing rate and trend assumptions across all of our lines of business. But I would tell you that we feel quite confident that the written rate is exceeding trend in virtually every area. It will take a little bit of time for that to earn through. And this is a comment a bit export comp, of course. But even in that case, we're still seeing negative frequency trends. So we're watching all of this. The uptick as I mentioned, of 12% in the quarter ex-comp, that's up from 7.5% in the third quarter, 6.5% in the second quarter, so you get the feel. So we feel really good about the rate environment. We like where we're heading, and we do believe on a rate basis, we are exceeding trend in almost every area.

Craig Howie:

I think that's just normal variability, Mike.

Amit Kumar:

Two follow-up questions, the first question goes back, I think to the first question regarding the shift in business mix in the reinsurance segment, casualty market conditions as well as the cat market conditions. When we think about 2020, would that imply based on the shift that the AY ex cat loss ratio should tick-up or not?

John Doucette:

Yes good morning Amit. So there are a couple of countervailing currents, and Juan touched on a couple I'll just add. So like what Jon Zaffino said on the primary side, we are seeing, when it comes to the proportional treaties we write in short and certainly in long-tail lines. We're seeing in specialty lines, we are seeing the rate lift. So we have changing mix of business, which is changing our attritional. We also see the rate changes. But similarly as Jon Zaffino said, we would expect that to take a while to earn into the numbers. So net-net-net, we probably look to the full year's attritional loss ratio as a good guide.

Juan Andrade:

Sure, Amit. Look, keep in mind also that we released a total of $94 million in 2019. So while we had $19 million in this quarter, there was also $75 million in releases in prior quarters throughout 2019. That being said, we do have an ongoing and dynamic process to review our reserves. We do recognize bad news quickly, and we require good news to be proven over a longer period of time. As we do these reserve studies, and if we identify an area where we do need to strengthen, we will take a range of actions. We will increase our loss reserves already on the books, we will increase our current senior loss fix, and we will adjust our pricing targets for new and renewal business. And I think that's some of what you heard Craig described, particularly for the Bermuda segment in the quarter. But also keep in mind that, I think as Jon Zaffino said, while in most classes in this current market, the rate that's being achieved is outpacing the loss trend. In our business, we do need to see results season over time. So that leads me to take a position that is cautious upfront, but frankly, willing to have an upside surprise in the future. So in the meantime, we review, we analyze, we act on our portfolio throughout the year, and that's basically the approach that we will follow and that you saw in this quarter.

Yaron Kinar:

Good morning everybody. I guess my first question is around third-party capital. So I think both Mt. Logan and Kilimanjaro capital is down year-over-year. How much of that is a function of the markets or external pressure, timing? Or how much of that is just a function of Everest shrinking the gross property cat exposure growing its equity base?

Juan Andrade:

Yaron, the only thing I would add is that the way we access alternative capital in the end of the year and to 1/1 really allowed us to build the capacity to deploy and to improve 1/1 market, as we discussed earlier, particularly to our retro and PURPLE products, while helping us to manage our volatility and our P&L. And so for us, that was very strategic.

Jonathan Zaffino:

Yes, thanks for the question. Let me try to provide some additional color on this. So let me - I'll start with taking on a couple of parts. First off, as you mentioned, we do think the year-to-date number is a better gauge and more reflective of our performance. As respect to the attritional loss ratio and that 140 basis point increase you saw in the quarter, there is noise in the quarter emanating predominantly from an unallocated loss adjustment expense, a UA expense catch-up that affected the attritional loss ratio. Excluding that catch-up, the pure attritional loss ratio actually declined by about 100 basis points. Then again on a year-to-date basis, the attritional is flat basically for the full year. I also want to add, and if you recall in prior calls, we did take a more conservative view of our work comp book earlier in the year. So, on a year-to-date basis, that's also creating about a 70 basis point headwind, if you will to the year-over-year comparative. As respects, the expense ratio, as Craig mentioned, we experienced favorable prior period development in our work comp book as we have for the past couple of years, and associated with that was a one-time profit commission, which caused the commission ratio to go up a bit in the quarter. Absent of that, we had about a 200 basis point improvement in the commission ratio. And secondly, there were some timing issues associated with expense accruals in 4Q. And we also had some prior year lower incentive comp accruals based on company performance, et cetera. So that just hopefully gives you a little bit of color as to sort of what was going on in the quarter. But again, we think the full year numbers are more indicative of our run rate and our trend.

Meyer Shields:

I want to look at the reserves from maybe a different perspective. When we look on a full year basis, we're seeing a little bit of a decrease in dollars of reserve release. Is it fair to say that the gap between the conservative numbers that you're booking and the ASCO numbers out there that, that gap is shrinking?

Meyer Shields:

Second question, I guess international reinsurance had a phenomenal attritional loss ratio. Was there anything unusual or was that just a true-up for the full year?

Operator:

Our next question will come from Brian Meredith, UBS.

Craig Howie:

So it happened in two separate regions, Brian. But essentially, it's $50 million.

Craig Howie:

And the two separate regions are U.S. reinsurance as well as it happened in Canada as well. So from a total reinsurance perspective overall, the $50 million is about 3.5 points for the quarter and about one point overall for the year.

Juan Andrade:

Yes, sure so let me start that, and then I'll hand it over to Jon Zaffino. So I think it's important to recognize where the growth is coming from, right? And I think as Jon illustrated in his prepared remarks, it's really from a couple of buckets right so increased rate is certainly part of that. Keeping in mind that we did have a 12% increase in rate in the quarter, excluding workers' compensation, so that's certainly part of the lift. The other part of the lift that we're seeing is about 40% of our business and growing is exposed to the E&S space, which is really where we've seen the majority of the opportunity come up at this point in time. We also had very good renewal retention. If we look at our retail book of business, it's really in the mid to high 80s, and our E&S retention is in a good place. So you look at those three things

Operator:

Thank you very much. At this time, we have no further questions in the queue. So I would like to turn the conference back over to management for any closing comments.

Operator:

Thank you very much. Ladies and gentlemen, at this time this now concludes today's conference. You may disconnect your phone lines, and have a great rest of the week. Thank you.

Operator:

Good day, and welcome to the Everest Re Third Quarter 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Jon Levenson. Please go ahead, sir.

Dominic Addesso:

Thanks, Jon, and good morning, and welcome to our call. In the third quarter, Everest produced operating earnings of $3.39 per share despite experiencing $280 million of cat losses. Our underlying performance continued to be excellent as our attritional underwriting gain of $250 million nearly offset the catalysts. On a year-to-date basis, our underwriting profit was $365 million and $700 million, excluding cats. This is a solid outcome and demonstrates our ability to absorb cat volatility due to a large and well-diversified book of business. When combined with another solid quarter of investment income, the year-to-date operating income is at $742 million. These outcomes are being driven by an organization that has evolved dramatically over the last several years due to an intentional strategic focus and supported by market conditions. What you see, for example, is a continued effort to reduce cat volatility as a result of growth, diversification and exposure reductions. In reinsurance, the growth has been focused largely on mortgage risk and casualty lines where rates, terms and conditions have been improving. Keep in mind that our cushion for these lines, especially casualty, was of a more recent vintage. For many years, we deemphasized casualty. Only recently, as the market has been improving, have we been growing premium. The greatest diversifier, however, has been our successful push into the specialty insurance space. By year-end, we will be closing in on $3 billion of annual gross premium. And as you have seen, the profit picture there remains solid. Our timing on these initiatives has been good. Rates are improving in many sectors. And, yes, while there have been pockets of frequency and severity trends to take note of, these are managed through conservative loss picks through the cycle. We're in a long-term business, and at times, cost of goods sold may seem uncertain, but we are less worried about that and what we see on trend versus rate given our book of business and where we have it pegged. The market is poised to continue higher as it grapples with trend, increasing weather events and anemic investment returns on new money, but now is not the time to retreat. With that, let me pass it over to my colleagues to give you some of the details around the story. First, to Juan Andrade, who, as you know, is my successor effective January 1. Juan?

Craig Howie:

Thank you, Juan, and good morning, everyone. For the third quarter of 2019, Everest reported net income of $104 million. This compares to net income of $198 million for the third quarter of 2018. On a year-to-date basis, Everest had net income of $792 million compared to net income of $474 million for the first 9 months of 2018. The 2019 result represents an annualized net income return on equity of 13%. These results were driven by a strong underwriting performance across the group, our highest quarterly investment income in the last 9 years and lower catastrophe losses compared to the first 9 months of 2018. In the third quarter of 2019, the group incurred $280 million of net pretax catastrophe losses compared to $230 million in the third quarter of 2018. The catastrophe losses related to Hurricane Dorian at $160 million and Typhoon Faxai at $120 million. On a year-to-date basis, the results reflected net pretax estimated catastrophe losses of $335 million in 2019 compared to $795 million in 2018. Everest reported $52 million of favorable prior year reserve development in the quarter. This primarily related to a onetime commutation of a multiyear contract that reduced prior year carried loss reserves by $44 million, which was offset by $44 million of commission paid, effectively no material impact to the underwriting result in the quarter. Another $4 million of the favorable development was identified through reserve studies completed in the third quarter of 2019. Excluding the catastrophe events and favorable prior year development, the underlying book continues to perform well with an overall current year attritional combined ratio of 87.7% through the first 9 months compared to 87.0% for the full year of 2018. This increase was primarily due to the business mix in the reinsurance segment, which, as we have noted, has been writing more casualty business over the past several quarters. Turning to investments. Pretax investment income was $181 million for the quarter and $501 million year-to-date on our $20 billion investment portfolio. Investment income was up $60 million or 14% from 1 year ago. This result is primarily driven by the growth in investment assets coming from our record cash flow, which was $1.5 billion during the first 9 months. Some of the strong cash flow comes from the increase in overall premium volume, including an increase in the casualty writings, which has a longer tail and allows us to invest the money longer. Before moving to taxes, I'd like to point out that we included, for the first time, on Page 15, in the financial supplement a split of our net investment income between the Insurance segment and total reinsurance. This shows an indication of the contribution provided by each segment to pretax operating income and reflects $361 million allocated to reinsurance and $140 million of net investment income allocated to the Insurance segment. The split is based on gross carried loss reserves, excluding catastrophe reserves. We are including this information to better demonstrate the total contribution by business segment and illustrate the unrecognized embedded value of the growing insurance franchise. This is consistent with previous comments, encouraging investors to look at Everest on a sum-of-the-parts basis. On income taxes, the tax benefit we recorded in the quarter was the result of the amount and geography of the losses associated with the catastrophes and the favorable prior year reserve development associated with the onetime commutation of a multiyear contract that I previously mentioned. The year-to-date effective tax rate of 9% is an annualized calculation that includes planned catastrophe losses for the remainder of the year. Higher-than-expected catastrophe losses would cause the tax rate to trend lower than the current 9%. Shareholders' equity for the group ended the quarter at $9 billion, up over $1 billion or 14% compared to year-end 2018. The increasing shareholders' equity is primarily attributable to the $792 million of net income and the recovery in the fair value of the investment portfolio. Our balance sheet and overall financial position remain strong. We maintain industry-low debt leverage, a high-quality investment portfolio and continue to generate positive cash flow. You will notice some minor revisions related to foreign exchange in our financial supplement. None of these revisions impact operating income. Thank you. And now John Doucette will provide an review of the reinsurance operations.

Jonathan Zaffino:

Thanks, Jon. Good morning. Everest Insurance has just completed another quarter of solid execution, resulting in excellent top line growth, and more importantly, continued profitability. We continue to advance our strategy to build a world-class, diversified Specialty Insurance Group fueled by talent, partnerships and a deep set of specialty products that are well positioned within this changing market. Our solid results this quarter billed on the first 2 quarters of this year and marked the 19th consecutive quarter of growth for the insurance operations. Our gross written premium growth of 29% quarter-over-quarter is once again balanced across all major business segments. Our growth accelerated this quarter beyond our year-to-date trend line of plus 21%, in part, reflecting the changing nature of the market which is impacting nearly all major product lines. This is particularly the case for business originated within the excess and surplus line market, which accounted for over 1/3 of our premium written in the quarter. Our new business this quarter provides some additional context on our balanced growth. It was driven by a multitude of areas, reflecting the specialty nature of our portfolio, including specialty casualty, which, once again, experienced meaningful rate increases in the quarter; our property and short-tail businesses, led by both our retail and excess and surplus property divisions, both of which also achieved meaningful rate increases; and our various other specialty product lines, including transactional risk, credit and political risk and surety. Each of these businesses continues to see meaningful increases in opportunity. The segments I just referenced make up approximately 75% of our business growth in the quarter and represent the balanced portfolio we seek to build. The combined ratio for the quarter is 96.4%, 3.2 points better than the third quarter of 2018 and year-to-date is 96% or 2.1 points better year-over-year. This is due to both lower catastrophe losses impacting our repositioned property portfolios and to an improved attritional loss ratio. The expense ratio remained stable despite our continued commitment toward investments in people, technology, new business units and new facilities. New underwriting capabilities established in Bermuda and the regulatory approval of the London branch of our Irish insurance company are good examples of these new facilities and represent our continued commitment to international expansion. Further, new and expanded office locations in the U.S. are bringing us closer to the customers and trading partners we serve. Turning to the rate environment. We are encouraged by the results we see here. In the quarter, we experienced pure rate increases, which exclude the impact of exposure of 7.6%, excluding workers' compensation, and a positive 6.7% year-to-date. The quarterly ex work comp rate increase is the largest increase seen since the second quarter of 2012 and continues to be led by double-digit rate increases within our property and commercial auto portfolios. Financial line in umbrella, excess are also showing improvement in the mid- to high-single digits, while general liability rate lift continues to build momentum with rate increases in the mid-single-digit range. The London wholesale market is also improving, showing double-digit improvement this quarter driven by professional indemnity, management liability and property. Year-to-date, International is showing a 7% improvement. We are very well positioned to take advantage of this improved pricing environment. In terms of our people, product set and our ability to offer compelling solutions to the market. This, coupled with strong retention rates within both our wholesale and retail books, is an encouraging sign. In other words, the strategic plan we have been executing over the last several years has positioned us well in this current rate environment. Most importantly, this growth in top line, coupled with improved business metrics, has resulted in Everest Insurance continuing to post an underwriting profit over 2x greater for the year-to-date period and now standing at 10 of the past 11 quarters. As Craig mentioned in the new investment disclosure, the pretax net investment income for insurance is $140 million year-to-date, thus our pretax operating income year-to-date now stands at $195 million, an excellent result. In conclusion, we remain pleased with the continued progress we are making and the establishment of a world-class specialty insurer. The over 90,000 new business submissions we have received year-to-date in our direct broker operations speak to our relevance and positioning in this market. Further, the underlying performance of our diverse books of business remain solid, and hence, we are well positioned to create value for all of our constituents in the evolving market ahead. We look forward to reporting back to you on our progress next quarter. And with that, I'll turn the call back over to Holly for Q&A.

Amit Kumar:

And welcome to Juan on the conference call. One question and one follow-up. Maybe I'll start with Juan. With you coming onboard, and I know you mentioned that you've been meeting people, et cetera, over the past 2 months. Do you have a view on Everest Re's reserves? And will you be doing some sort of a ground-up reserve review as we head into year-end?

Amit Kumar:

Got it. That's helpful. And the only follow-up, and I will re-queue. This might be for Dom or Mr. Zaffino. Going back to the growth in the Insurance segment, I think 21%. I know we discussed this on the last call. However, in some of the recent conference calls, there have been further alarm bells on the loss cost trends, the discussion on social inflation, the total environment, even the underlying loss cost trends. Does this give you a reason to maybe slow down the growth from here? Or how are you thinking about the rate versus your loss cost trend metric?

Jonathan Zaffino:

Yes. Let me touch on the growth for a second in the quarter here, and there's really 5 or 6 things we're seeing as contributory to the growth. First and foremost, as I mentioned in my prepared remarks, it's all increased rate opportunity that we're seeing across the board almost, excluding workers' compensation, combined with pretty solid renewal retention. So if you recall from prior quarters, there was a lot of portfolio reshaping, repositioning going on. We've seen that stabilize, so our retention ratios are much stronger than they have been. Secondly, as I mentioned, we're seeing a lot of opportunity in the E&S space. Submission flows are through the roof. We're seeing a lot more opportunity there, a lot of dislocation, and it's predicated off of a number of different factors, but we're certainly taking advantage of that. And then somewhat linked to that is the growth in our underwriting population. Over the last year, we sort of stopped the clock at third quarter of '18 to say we've increased the underwriting population by almost 20%. So we have more people, wonderful talent across the board who's able to respond to this market change and condition, and we're taking advantage of that. The other piece I'll point out is even as you look at the supplement, even in our -- some of our specialty casualty areas -- remember, very little of what we do is standard business. This is a specialty company. So while it might be in a certain line like GL, we will write GL out of 12, 13 different areas, each with various tones of specialization. And as Dom mentioned, we're going to react to trends as we see them. We're constantly monitoring for those and react accordingly. So you almost have to deconstruct those buckets to really get the -- to feel what's happening underneath there, but we're comfortable where we're at.

Elyse Greenspan:

My first question. Was hoping, Juan, to get some color from you just in terms of thinking about Everest's outbound retro strategy for next year, if you have a view in terms of using cat bonds, ILWs or traditional retro within the outbound purchases. And I guess, just on an overall basis, you guys alluded to retro rates increasing substantially at 1/1, and so retro rates really do skyrocket next year. Would you have to shrink your kind of curve capacity if you aren't able to buy that coverage?

John Doucette:

Yes. Thanks, Juan. So part of the rationale as to how we built the strategy of how we think of hedging the book is we want to get it to the right net risk appetite and then also shape the book to where we want, more here or less there, in terms of net position. But very importantly is we have -- and we've talked about this a lot. We have a variety of hedges, different products, different durations, different attachment points, different territories, frankly, different investor pools of capital that we're -- that we've been tapping into. And that's the cap on capital pool is different than the Logan investor pool is different than our traditional reinsurance and retro hedges that we put in place, different than ILWs. And what we have built is a suite of those that are a lot more robust than any one of them individually. And I would note that, particularly with the cat bonds, and this was intentional, the cat bonds that we do are on a multiyear basis. And we are one of the largest, if not the largest, sponsor of the catastrophe bonds in the world on the property side. And those basically, year-over-year, will have no increase in the cost of hedging. And so that provides a nice, stable anchor to our hedging strategy, and then -- and again, we'll look at all -- across the whole suite of the different hedges that we have. We'll look at that in terms of how -- what we want to do where and based on availability and price and execution and things like that.

Dominic Addesso:

Let me start, and I'll then ask Craig to mention the tax rate. It's really early days on assessing Hagibis. You've seen, I'm sure, what the modeling firms have put out in one particular case. The range is pretty wide, and it's really too soon for us to direct the market on where that loss is ending up. We obviously have other events, Faxai, that can be used somewhat as a guidepost. But even in that particular case, it is still very early in assessing where that might end up. Although, obviously, we feel we've reserved it conservatively at the high end of the range. So we can't give any guidance at this point until we know more. And the minute we know more, I'll come up with an estimate. We certainly will be potentially disclosing that. And, Craig, why don't you...

Dominic Addesso:

Keep in mind that -- I know you're trying to get to a specific number on the P&L. But in fact, to the whole notion of how we manage cat exposure, we do manage cat exposure on an after-tax basis. Clearly, some markets don't have the ability to do that because they're in a tax-free jurisdiction, but we look at our net cat exposure on an after-tax basis. So we think we have a unique ability to take on business in a tax-efficient manner.

Brian Meredith:

Yes. John, I'm just curious your commentary about more renewals and solid pricing and what's happening here. If you break that down, what are you looking at as far as Europe goes? Because Europe, I don't think it's had quite the cat activity. And could that potentially offset some of the -- kind of good pricing we're seeing in retro when we look at the total picture?

Brian Meredith:

Great. And then just quickly on the Insurance side, I'm just curious. Big growth in your property short-tail this quarter after it being kind of down for the last several quarters. What kind of happened all of a sudden caused a big shift there?

Brian Meredith:

Great, great. And just one other quick one on the Insurance side. Special liability, are you guys seeing the same type of loss trend pressure that others have kind of talked about and reported?

Dominic Addesso:

And that is another series of lines of businesses where we took -- made some loss pick selections higher a couple of years ago. So we have been aggressive in pushing up our loss picks in those lines as well. I mentioned earlier the casualty, in particular, and commercial auto but also on the professional areas, we've been pushing up our loss cost -- pushing up our loss picks.

Yaron Kinar:

First question is around losses from Dorian and Faxai. I guess there are many ways to slice and dice this, but one thing I did note was that the market share -- Everest market share of these losses seem to be pretty much in line with the market share of prior losses in these regions for the company. And I would have just thought that maybe that market share should compress, just given the actions that you've taken to shrink your catastrophe exposures. So any thoughts on that?

Dominic Addesso:

So you would have seen -- I think another way to answer that question is that, as we were trying to reduce some volatility, as John mentioned, looking at our PML disclosures, certainly a big part of the reduction would have occurred in Florida specifically.

Dominic Addesso:

Craig, can you...

Yaron Kinar:

Okay. So I guess we should look at the year-to-date results as maybe a better indicator of the actual run rate?

Dominic Addesso:

And keep in mind, that highlights the fact that -- we've been saying about improving rates, terms and conditions on the reinsurance portfolio. That evidence fell through in the proportion of business through lower, lower cedes. So that's where we're seeing the benefit of that.

Crystal Lu:

This is Crystal Lu in for Ryan Tunis. My first question is about the reserve development this quarter. Can you provide some detail on where the reserve releases came from?

Dominic Addesso:

In addition to the mortgage.

Crystal Lu:

Okay. That's helpful. And the second question is on capital management. Can you just talk a little bit about your desire to build capital versus return it going forward?

Operator:

We will now take our next question from Meyer Shields from KBW.

John Doucette:

That's a multi-faceted question. There's not a simple answer for that. We do look at -- maybe I'll bring it back to kind of our pricing and ROE framework. So we do have a holistic ROE framework that goes across all lines of business, all territories, and that factors in volatility of the lines, historical performance of the lines. It also factors in duration. So we can kind of crystallize things into one view of risk and return based on an ROE framework that we have, and we would see -- and so that would factor in long duration versus short duration, volatile versus nonvolatile and things like that, that allows us to help turn the dials. And again, that will vary all over the place by territory, by line, by client, by size, by product, et cetera.

Meyer Shields:

No. That's very fair. Just a quick follow-up. The Faxai estimate that you guys put out was clearly very conservative. But I'm wondering, now that we've had another typhoon in sort of the same region and the risk of some demand surge associated with that, is there still a risk of, I guess, either industry-wide or Everest's Faxai losses going up?

Operator:

We will now take our next question from Mike Zaremski from Crédit Suisse.

Dominic Addesso:

I think it's -- it could be a number of factors, and I'll ask certainly any of my colleagues here to chime in as well. I do think that the marketplace is seeing trend, clearly, which, again, we feel that we've either accommodated through rate increase and/or a higher loss pick. And just to stay on that point for just a second, I think you'll find that if you examine our lines of businesses that we are near the high end, if not at the high end, or even above many industry loss estimates for the industry loss picks. So we have reserved it conservatively. And clearly, with our mid-90s combined ratio and you back off a very competitive expense ratio of lower than average expense ratio, you back into a loss ratio that I think you'll find is, again, above the industry. And that's not because of our book of businesses. It's because we conservatively selected a loss space. So just to focus on that for just a second. But I do think, back to your question, factoring will be trend. The factor will be perhaps some of the industry maintaining their loss picks through a softening cycle and perhaps they're seeing some of the redundancy, if have had redundancies, start to erode. That's a factor as well. Certainly, anemic investment returns, meaning an increasing desire or need to have an increasing underwriting return. Those are all factors that impact any underwriter's view or any management's or executives' view of where the market needs to go.

Michael Zaremski:

That's helpful points. And finally -- yes, please.

Dominic Addesso:

Thanks, Mike.

John Doucette:

Yes. There's a lot of moving parts there. And so a lot of it is a function of what, where the losses have happened and frankly what the response for the market and what the response of some of our clients is to losses. And $250 billion, $350 billion of losses we sometimes have a disagreement with some of our clients in terms of what the right price equilibrium should be after the losses have happened. And you look at different brokers put out different rating indices. And while we have seen some rate, that's kind of coming back. That's building back up to some of the rate decreases that have been happening since in 2011, 2012, and we watch that carefully. So we are looking. It will vary -- certainly, there's been underwriting issues that we've been focused on in terms of reunderwriting and managing our wildfire exposure and things like that, that we had focused on. So there's a variety of conditions that -- where we're going to get to. But we're going to deploy capacity where we think we're getting paid the best. We're going to deploy capacity behind long-term strategic clients, and that will vary by product, and then we'll allocate. And this is important that I don't think people realize as much. We also move between excess loss -- cat ex loss versus proportional versus per risk, and we'll move that within the same client to get -- and we'll also move within cat layers. We'll move up and down layers based on where we think we have the best rates, and that's very helpful. And because of our trading relationships and our balance sheet, we have more ability to do that than some of our competitors. And then we'll also look at allocating between our reinsurance and retro based on where we see the best pricing conditions. So there's a lot of moving parts going into that for where and how we're going to deploy our capacity.

Joshua Shanker:

And, Dom, congratulations on a decade. Hopefully, you won't be a stranger. And congratulations to Juan on your start at Everest. Wish you the best.

Joshua Shanker:

Yes. First question, I guess for John Doucette. And if we look over a multiyear attritional combined ratio like underlying in the reinsurance space, it's been going up. As you've been deemphasizing catastrophe -- or not deemphasizing, but writing non-cat and casualty as a higher proportion of the book, as we think about 2020 and the mix of the book, should we continue to see the attritional combined ratio rising in the reinsurance segment based on mix?

Dominic Addesso:

And again, back to -- let me -- Josh, let me just jump in. By the way, thank you for your thoughts. Let me just jump in here. Again, back to my comment I made earlier about let's not get too focused on the "combined ratio". The only way you'd see the combined ratio go up on an attritional basis is if the dollars of profit margin would be going up. So that's the way we would look at it.

Dominic Addesso:

I take your point on that, and I don't think you'd necessarily see that book of business shrink so dramatically that it would have a meaningful impact on that element of the combined ratio that you're referencing.

Jonathan Zaffino:

Josh, I guess I would maybe reframe the question a little bit and just start by offer a comment on what defines a relevance to our brokers. Number one, and we talked about this in the past, while we've been active at transforming and building the insurance operations over the last 5 years, recall that all of our main divisional "client-facing leaders" are far from new to this business, averaging over 30 years' experience. They have deep and long relationships with many of our distribution sources. So number one, we have a number of connection points within both the retail, wholesale, even delegated authority pockets of the market. Secondly, I think one of the keys themes for relevance is can you bring forth a very strong, differentiated balance sheet across a wide range of products. That's why we constantly sort of quote the 150 specialty products. And we're finding that happen in lots of different pockets. We're seeing the relevance of that in a lot of different pockets. For instance, some of our rating-sensitive lines of business, D&O, credit, political risk, surety, our balance sheet differentiates So we're seeing a good flow of opportunity there. In a market like this, the key is to be able to respond to the flow that you're receiving. So a lot of the work we're doing -- and we constantly talk again about investments in technology. How do we handle all this throughput? Again, I mentioned, I think, the 90,000 submissions new business year-to-date. How do you handle that? A lot of work we're doing operationally to make sure we're prepared. So when you think of those things together, the relationships we have, the wonderful balance sheet, the deep set of products and the improvement operational environment to handle all this, it creates a pretty powerful formula. Did that get to it, Josh?

Jonathan Zaffino:

Well, I think one thing we are seeing is a change underwriting posture from a lot of our competitors. And you heard about limit compressions in a bunch of different markets which is opening up opportunity for us. We've been pretty much front foot from the beginning. We know what we want to do to. It's an organic build. We're not distracted by rapid changes in underwriting appetite. So we are picking up some of the advantage of a market that is viewed, I think, generally as quite skilled in what we do, very stable and very clear on what our asset types are. So that's been benefiting us.

Dominic Addesso:

Yes. Thank you, Holly, and let me just close this out. I'd like to thank you all for joining this morning. And of course, thanks for the many years of relationships we've developed. As you know, this is my last earnings call, and you can well imagine the smile on my face. Not that I don't love you all, just saying. Actually, through that time, I've appreciated the exchange. It's not easy to summarize these last 10 years, but let me leave you with a few quick thoughts. As I've said many times, this is a long-term business. It needs to be managed in that fashion. And while, at times, conflicts with your mandate, which I understand, one shouldn't lose sight of the game plan. To that end, Everest has been on a path to grow shareholder value. And over a 10-year period, we had a compound annual growth rate of close to 10% in that shareholder value growth. And gross written premium has grown from $4 billion in 2009 to what would be hopefully an annualized $9 billion in 2019. At the same time, we reengineered our legacy Insurance business and bolstered those reserves and went on to build what is becoming one of the best premier specialty insurance franchises in the business, approaching $3 billion in gross premium written. Our reinsurance business has evolved into a more diversified portfolio, growing profitably into what is now one of the top markets for brokers globally, a true international brand. Investment portfolio has been greatly diversified and by several metrics has proven to be one of the best performing relative to duration, quality and data. None of this happens without the great team sitting with me here today, and I thank them enormously for their support and efforts. And now we ask Juan to lead us on that journey. I'm extremely confident that he and Messrs. Doucette and Zaffino, along with the rest of the Everest team, will continue to do great things. Thanks for this morning, and hopefully, we'll see you in the days ahead. Have a good day.

Operator:

Good day, ladies and gentlemen, and welcome to the Everest Re Group Limited Second Quarter 2019 Earnings Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Jon Levenson, please go ahead, sir.

Dom Addesso:

Thanks Jon. Good morning and welcome to our call this morning where we are pleased to outline the excellent results we had for the quarter. As you've no doubt seen by now, our net income per share for the quarter was $8.39 resulting in an ROE of 16.1%. This combined with the first quarter equaled almost $17 per share and a 16.5% ROE. The quarter saw a continued underwriting profitability in both our Reinsurance and Insurance divisions along with a very strong level of investment income. My colleagues will give many of the details underlying our success, but let me say that we continue to execute successfully on our strategy. For Reinsurance, it has been a diversification effort and over time, has seen growth in casualty, mortgage and non-cat property and of course our strategic repositioning in the insurance space which began just over four years ago is now hitting its stride. Given our scale, ratings, global franchise and diversification in all our businesses, we can capitalize on the rate momentum we are now seeing in the market. Rate activity, we are seeing; however, is still spotty and in several instances not yet at levels they need to be. Nevertheless, this certainly appears to be a market that will continue to see Re. Our observation of capacity pullbacks and an increasing flow into the facultative market and the E&S markets are encouraging signs, perhaps not a classical hard market but given industry reserve positions, capital levels and frankly better analytics. The amplitude of prior pricing cycles is likely being replaced with more timely actions. I believe that is in part what we are seeing now. An element of this is also in reaction to loss trend. There has been much discussion about loss trend over the last couple of weeks. No doubt it is evident in many classes but to varying degrees and while everyone is looking for a Point estimate, there will undoubtedly be varying numbers based on book profile, class, attachment point et cetera. As a general comment our rate increases are for the most part, above trend. In addition, we would expect that loss trend to continue and accordingly rate increases will likely persist. My colleagues will get into the many details on our results. But it is worth emphasizing that over the past several years, we have continued to diversify and reduce volatility. One measure of that is our expected annual cat loss which just a few short years ago was 12 points as a percentage of premium and now stands at approximately 6.5 points. The end result is less volatility and improved profit targets. Our reinsurance division has successfully diversify this portfolio. As I mentioned earlier and our insurance segment now at over 30% of our business. Is growing profitably. At its current pace, as I mentioned in last quarter the sum of the parts should prove to be quite positive. Thank you. And now to Craig for the financial highlights.

John Doucette:

Thank you, Craig. Good morning. We are pleased to report another strong quarter for the Reinsurance Division with $178 million of underwriting profit in Q2. And further diversification of our portfolio providing stability and balance to our operation. Our global franchise is well positioned and new initiatives, underwriting actions and rate increases. We are finally seeing both the property and casualty reinsurance markets move positively. Reflecting a combination of recent catastrophe losses, capacity shortages, trapped capital, pockets of poor loss experience and new found discipline from some of the largest players in both insurance and reinsurance. The upshot is improving original insurance rates which Jon Zaffino will touch on later and better reinsurance rate terms and conditions in several parts of our portfolio. In Florida, we were pleased with our June renewal. Overall, the market was rational with pricing up. We saw a more risk adjusted rate increases on loss affected treaties and increases on many others, but there was a wide range of outcomes with some programs remaining underpriced. I think of this not as a hard market but as a reasonable market. Finding its way back to a sustainable balance between serving clients needs and generating appropriate returns on reinsurance capital therefore, we continued our practice of allocating capital to long-term strategic clients and the deals with the best returns. Our underwriting and modeling teams did a great job positioning Everest to capture more of the best business while shedding less attractive deals, the end result was a reduction of Everest exposure to property gap and an effort to encourage rate discipline through scarcity of our capacity. On some deals we achieved tighter terms and conditions such as LAE cap and lower current limits on proportional treaties. Consequently, we are encouraged with the direction of the Florida market, but more improvement is needed given several years of Deterioration, rate pressure and loss cost inflation. Nevertheless, the bottom line for our Florida book is a higher ROE and a reduced model cat loss. We achieved portfolio rate increases that outpace the overall market by strongly differentiating programs through disciplined underwriting. We are pleased that model profitability remains relatively flat despite meaningful reductions to our catastrophe exposures. Switching to July 1st, outside of Florida, U.S. property, renewals were orderly and directionally positive. Rates were up mid-to- high single-digits on a risk adjusted basis. Property business at July 1, outside of the U.S. was generally stable. With rate increases driven by loss activity or the reunderwriting mandated from some of the Lloyd's Syndicate. As mentioned previously, during the April 1st renewals for Japan, Everest did employ more capacity there given the improved rates. And the Japanese market is preparing for potentially further rate increases for upcoming renewal. Due to recent loss experience particularly the industries loss creep on JEBI. In the U.S. casualty lines trends remain positive. Despite plentiful potential capacity, the market has grown more discipline in both reinsurance and insurance, as primary rates improve across most line. Casualty reinsurance terms are stable for non-loss affected business; however, poor performance and increasing loss trends over the last several years are prompting reinsurers increase rates and decreased commission because of Everest, 40 plus year history, strong balance sheet and ratings, large market presence, robust, long-term client relationships and responsive underwriting we continue to garner preferential access on casualty reinsurance business. As we have previously discussed, until about 18 months ago. We have been reducing our casualty writings over the last several years prior to that due to the deterioration in both the insurance and reinsurance casualty markets. This has helped us avoid much of the poor loss experience that has emerged and we are now very well positioned to deploy our underwriting expertise and capacity as the casualty markets improve. In addition to casualty we have significant opportunity in mortgage business shown by the 16% growth in mortgage writings during the first half of this year. Also of note is the evolution and strong growth of our facultative book globally over the past several years. We have several very experienced fact teams worldwide who are product experts and local market specialist. We now have over $430 million of facultative reinsurance premium in-force, covering property casualty, professional, specialty and order lines across Miami, New York, New Jersey and several other offices in the U.S. as well as in Toronto, Singapore and London. This is an all-time high gross written premium for our facultative book after meaningful growth during the last few years. And it is well diversified as our global back book is broadly split by line approximately 60% casualty and 40% property. And it is also split geographically 60% international and 40% U.S. meaningful improving back opportunities emerged following dislocation in Lloyd's the 2017 and 2018 cat losses and general decrease in D&F capacity. Tax submission flow is up significantly in all territories in line highlighted by the 26% year-to-date increase in U.S. that fac casualty submissions. On the demand side, our fac clients are seeking both short and long tail limit reduction and exposure management, particularly in auto due to poor experience increased demand is broad based across back including property, casualty, individual risk auto fac, U.S. placements and placements from abroad. Our growth in facultative business exemplifies our ability to capitalize on opportunity around the globe. Writing all P&C lines of fac in key centers all over the world requires a robust global infrastructure and it's hard for competitors to replicate which gives us a sustainable competitive advantage. Our strong growth in fac is more evidence of an improving overall reinsurance market as Dom mentioned earlier, because fac renewals happen much more often than treaty renewal they are good leading indicators of market trend. We are bullish that this improving trend in fac will continue well past 2020, particularly as tough exposures meet limited capacity in the firming treaty market. During the second quarter Everest purchased an aggregate property retro program that will help protect us from a large catastrophe loss or series of mid-sized losses. This retro program was designed to refine the shape of our portfolio by further diversifying our capital structure, reducing that volatility, adding flexibility to deploy our capital for interesting and unique opportunities. This retro purchase aids to be better positioned to capture improvement opportunities in the property space, including at January 1, 2020, given the retro market dislocation and trapped capital while managing the volatility of our property book with the combined financial strength of our shareholders. Common equity, Mt. Logan capital Kilimanjaro cat bonds ILWs, facultative retro protection and now this additional aggregate retro capacity, we are well capitalized and not reliant on any one capital source to finance our underwriting risks. Moving on to our year-to-date results, our global reinsurance operations at growth of 3% on written and earned premium during the first half of 2019. Growth came from U.S. operations with increased casualty and mortgage writings offset by slightly less premium in treaty property as we push rate and in Bermuda due to some non-renewal of some - of a few large deals . we booked in 86.6% combined ratio for reinsurance operations with cat losses of $55 million which included losses from the Townsville monsoon, Australian flooding and some loss - some additional loss development from Typhoon Jebi as the market loss worsen significantly just as Craig mentioned earlier these cat losses mostly impacted our international segment. Excluding catastrophe losses, the underlying loss ratio of 57.4% for reinsurance operations increased by 0.4 points compared to the full year of 2018. Given the greater mix of casualty and pro rata business in our portfolio. We continue to be viewed by clients and brokers all over the world as a core go-to trading partner and garner increased opportunities particularly with dislocations of capacity around the world in multiple lines of business. These dislocations and pressure on supply of risk capital include one dislocation due to lower large scale rationalization impact and direct and facultative capacity And many international portfolios helping to drive improvements in the E&S Primary and facultative books, two ongoing trapped capital from 2017 and 2018 losses and the subsequent market loss deterioration are pushing ILS investors to retrench, withdraw capacity for demand better pricing and terms the resulting dislocation in several property reinsurance market and global retro capacity will likely continue for the upcoming January renewal. Three, some European reinsurers have been pulling back casualty and professional reinsurance capacity decreasing authorizations on specific programs were pushing casualty rates and terms, which is leaving potential in some clients treaties and creating some upward pressure on casualty rates both of which provide attractive opportunities. Four, some reinsurers our now bumping up against internal risk capacity limits or rating agency constraints for mortgage causing reduced involvement on new mortgage deal. We believe this mortgage reinsurance capacity constraints for some rated carriers will continue or even grow. Each of these or taken separately and certainly together present robust prospects for profitable growth opportunities for a large global reinsurers with strong capital high ratings and dry powder. In summary, we are pleased with not only our year-to-date results but also with our strategic positioning for the future. Despite this evolving market we remain focused on building long-term value for our shareholders while being the first call for our clients and broker partners. Thank you and now I will turn it over to Jon Zaffino to review our insurance operations.

Operator:

[Operator Instructions] We will now take our first question from Yaron Kinar from Goldman Sachs. Please go ahead. Your line is open.

Dom Addesso:

This is Dom. I'll start and ask Mr. Doucette to - and Craig to complement wherever I say. But first of all, I think the comparison against the year ago quarter is a little bit difficult because of the number of adjustments that we made in the second quarter of last year. So we think the more appropriate comparison is to look at the full year, December of '18 against the six months of '18. So the gap that you described is much narrower. Again it's business mix shift, it's certainly conservative loss picks, less of a factor is any loss cost trend, but those are the main drivers of the movement and the other thing to keep in mind is that through six months we still carry fairly good size non-cat, cat loads so that's also reflected in the six months numbers. We're in the full year that tends to get equalized out. So those are some of the factors, I don't know if Craig or John want to add anything to that.

Yaron Kinar:

And then my other question is just with regards to premium growth in reinsurance. So I appreciate the color and the opening statements, and I realize that there are a bunch of offsets there. But, and this may be Monday morning quarterbacking here, but I guess I'm looking at the prior year had 137% growth and gross premiums, about 47% growth in net premiums, definitely saw a slowdown here even as rates have improved I guess how should we think about the rate, the premium momentum here and I guess, in hindsight, was the capital deployment in 2018 maybe too aggressive leading to some needed to slow down growth and '19?

Yaron Kinar:

Yes and too, I don't think this has anything to do with capital in terms of our deployment, it really is opportunity set and where we see it. And there's a - there is a - these are core renewal portfolio, there are some large one-off deals and this year, there were a couple of those deals that we didn't come to you know the renewal terms with the clients and so that again skews the numbers, which is one of the reasons we think it's better to look at the year-to-date numbers as opposed to the quarterly numbers. And we're actively talking to some clients about some large, complicated deals now, and so it could move the other way as well. So I - but it's absolutely not capital related. Okay.

Operator:

And now take our next question from Mike Phillips from Morgan Stanley. Please go ahead.

Dom Addesso:

I'll start and ask Mr. Zaffino to answer that. Our combined ratio and loss ratio is here again, also driven by mix. So in the insurance operation - by the way is a great, a great result and we're quite proud of it. But we've got this additional rate activity, rate increases coming into the market, we have not pull down our loss ratios to account for any of that we tend to be more conservative in our loss picks. So we continue to pick the same loss ratio on a higher premium base on the other hand, again to reflect some level of conservatism where comp with rate decreases we've actually increased our loss pick and will come, given the fact that they were rate decreases that we're facing. So we've kind of short sighted ourselves in a way there and then I guess the last point you mentioned or I mentioned already, but mix, so we have a bit more risk management business in our portfolio than we anticipated, which just by - and accident and health business, which by its very nature, books at a higher combined ratio still very profitable, consistently profitable business. So that's some of the reasons why perhaps we're not seeing as much movement as you would otherwise have expected in the combined. But nevertheless we are still anticipating continued improvement over the quarters and years ahead. So Jonathan, you have anything to add.

Mike Phillips:

I guess more generally then there has been some concerns affecting the overall industry. And kind of rising toward activity and litigation activity and I guess anything you've seen there and if I - kind of your business and if so, anything that we would see from maybe the paid activity that we can look at it from your Loss Triangles?

Craig Howie:

And fair to say we do not see an explosion in trend. And as I mentioned in my opening comments, what we see in our portfolio and differs by company but what we see in our portfolio is trend is well within our rate increases.

Elyse Greenspan:

My first question is going back to the margin conversation and really this is on the reinsurance side of things. So I know it's reflective of your business mix and Dom, I think you said we should look at the full year '18 and kind of compare the second quarter there, but I guess I'm thinking more about going forward, do you expect the mix to continue to tilt more toward casualty and away from property and should we think about the reinsurance At 86, attritional combined ratio is how we should think about modeling going forward or the half year. Just kind of margin expectations on a forward basis.

John Doucette:

And Elyse, this is John, just to add a little more color. I mean, we're close to done within the treaty world of what we're going to put on the books for this year. They will still be facultative throughout the year. And there'll be the odd treaty deal. But obviously not that far along is January 1st and so we'll be watching closely obviously what happens in wind season as well as what we think the capital situation is the supply demand balance and that will dictate how much capital we deployed going forward and you know there continues to seem to be some dislocation and capacity shortages and trapped capital and related - related events As I talked about earlier. So we'll watch that and that will influence mix as well as we head into the New Year.

John Doucette:

You're absolutely right, I mean we pushed rate and one of the ways that the market is going to get hard is - or okay - and less people willing to walk away from things and we pushed and we pushed and in some cases, we came off. We also did move up particularly in Florida, we moved up the tower, which again we thought that was a better place, better risk adjusted place to play and that that could be less, less premium, but it doesn't mean that it's less profitable risk adjusted profit. So we were pleased with how we reposition that book and then there certainly been up a couple of pro rata deals where we, we pushed for certain ceding commissions and the current summits and things like that and we didn't get there, but again we're bullish. We're not retreating from property at all. We thought after $200 billion, $250 billion losses maybe we had a view on what the right rate was to deploy capacity and something we talked about before is, we're also looking at is not in isolation of just property. We're also looking at it has the opportunity set for us to deploy capital whether that's into the casualty space where we see in an emerging situation, obviously the insurance, the facultative both casualty, and international property as well as the mortgage which we remain very bullish on. So we're also, we're looking at it beyond just a property comment. We're looking at it across the whole global portfolio.

John Doucette:

So particularly on the Florida part, Elyse, it's John, again And particularly on the Florida part where the view of the increased risk from some of the social inflation aspects we thought were more prevalent on the lower layers.

Craig Howie:

Yes. In the current quarter, we actually had more income and more foreign source income that came through. So we were able to use more foreign tax credits against that income, Elyse. So that's the reason it dropped to 12% for the first half of the year.

Josh Shanker:

I guess, and this is for Jon Zaffino. You mentioned that your rate overall, your renewal rate pricing was up 2.9% and I think you said it was up 8.1% excluding workers' comp, workers' comp is about 20% of your portfolio. I'm trying to reconcile those numbers, did I understand you correctly?

Josh Shanker:

And then I guess, the number of assortment. So the, everything, example, workers' compensation of eight point - I mean, I know I did I just can't make the math work with numbers like that.

Josh Shanker:

And you're still growing comp, I think comp probably is pretty healthy. But what is your flexibility if comp margins begin to change? How quickly can you move in and out of the comp markets?

Josh Shanker:

And can you give any color on where margins are year-over-year in comp and accident year and calendar year basis, you going to give numbers like us - can we talk about - has there been a difference and where the initial marks are on comp business?

Craig Howie:

We have not. We've said that it's run in the low '90s. In the past.

John Doucette:

And just to echo Dom's comment earlier, we did take a little bit more of a conservative view of this year in the comp line in relation to some of the increased rate reductions that we were seeing, so feel pretty confident we're sort of in that range today.

Mike Zaremski:

First question, in terms of the cat load coming down over time. Is there a dynamic of increasing reinsurance, retro purchase which is flowing through the financials and causing the underlying combined ratio did increase a little bit or is simply diversification and kind of shifting up the tower and whatnot?

Jonathan Zaffino:

Just on the margin, the hedging, we have a very holistic broad brush hedging strategy and structure. And on the margin that can change the attritional combined ratio. But really, what's driving it is mix shift and growth in certain areas and growth in non-cat areas is driving it more than the hedging.

Craig Howie:

It's purely a mix shift and ceding commissions on pro rata casualty and product.

Craig Howie:

Yes. I and by the way, I appreciate everyone's restraints 4-5 callers to get to that question. But the simple answer to that is yes. And of course, I can't expand on that any further.

Amit Kumar:

Just a few quick follow-ups. The first question goes back to the growth in casualty reinsurance segment. I was just trying to better understand, if I look at casualty reinsurance pro rata. And I guess look at the definition in the K. Can you maybe you can just talk about some of the sub-segments. The growth is coming from, I guess I'm just trying to get some comfort that it's not skewed toward lines such as other liability et cetera. where there could be potential slippage in the tort climate?

Amit Kumar:

And maybe just related to that this might be for Dom or are you, do you have a view on the discussion on social inflation right now.

Amit Kumar:

Got it.

Amit Kumar:

Yes, that's what I...

Dom Addesso:

So to sum that up. I would say that we don't necessarily see any "shock to the system." coming from what everyone is identifying as loss cost trends. But it is something that we and the rest of the industry frankly are addressing and are dealing with and recognizing that it's a factor in reshaping portfolios, taking a look at rates et cetera. And I think everyone is being very deliberate about that.

John Doucette:

Yes, this is John. So, it's what at - Mt. Logan is a core strategic vehicle for us as we - as we manage our catastrophe risks, but it's one of them and we look at, we have the cat bonds we buy traditional reinsurance, we buy traditional retro for Facultative for treaty. We now have the new aggregate retro. So it's - will turn dialed up and down. Based on that we have continue to add and look to add investors into the mix and normal course of business we will continue to do that, but we're not trying to grow for the sake of growing. It's one of the strategic dials it has very specific values to Everest, but, so do some of the other ones. And so we look across all of these as part of the holistic hedging strategy and structure that we have and you know we have the ability to turn up and down other deals as well.

John Doucette:

I don't recall ever given that number.

Operator:

We’ll now take our next question from Ryan Tunis from Autonomous Research. Go ahead.

John Doucette:

So I mean, it varies - we track 75 zones. It varies a lot by territory and by return period and based on what products that we offer and where the attachments are, you get very different answers to that along the way.

John Doucette:

Can look at premium if you're trying to look across the premium, to determine of PML decrease?

John Doucette:

I think we don't have that split out, but I think across the entire reinsurance. I mean, I think they are directionally moving about the same.

John Doucette:

I think the answer is it's too soon to tell what we would want to do as we had to the exploration which happens in November in December and it will depend on pricing. It will depend on the wind season and things like that. And we do track the cat bond market and the pricing spreads widened for a while and then they came in a little bit. So it will be one and there'll be a lot of factors that we look at what is our gross book looks like, what are the alternative hedges look like. But right now we're not in a position to know whether what we would do for that or any of the other hedges.

Meyer Shields:

And I appreciate your patience on this call. I don't know - I'm guessing just a quick question for Craig. I was hoping you could walk us through the earnings impact of the decline in Mt. Logan, assets under management?

Meyer Shields:

And then second, I guess, I'm trying to balance the year-to-date decline in interest rates with the growing presence of longer-tail lines of business in gross written premiums. Should we anticipate net written premium - I'm sorry. Net investment income going up or going down as we consider those factors?

Meyer Shields:

I was thinking next year, but happy to hear how you're thinking about it.

Operator:

We'll now take our final question from Brian Meredith from UBS. Please go ahead, your line is open.

Craig Howie:

On an overall basis it's about 3.5%. Brian, but it really depends on what you're investing in, investment grade is probably slightly below that. But any bank loans or high-yield investments that we have alternative investments would be higher than that.

Craig Howie:

Thanks.

John Doucette:

Yes, good morning Brian, it's John. So...

John Doucette:

So it was obviously a late start to the season, given the weather conditions and there was some prevented planting, and I know there's been some talk of that the prevented planting claims that you know they are - they are likely to some there, which will have - potentially have a - an upward pressure on the, loss ratio. But you know it's still early days that can recover. We don't know what's going to happen. It's both yield and revenue. And so the yield and recover, it's maybe a little bit more focused on or depending on what happens late in the year in terms of the temperatures on what's going to impact the harvest and in terms of what the crop prices are? We don't know, I mean that you know, if we knew that we are going to do a reinsurance as well.

John Doucette:

So I think it's a combination of things. I think both some trapped capital that's still exists. And we think, well, but it's also I think the development that the markets on Irma, the development now that the markets on Jebi and I think - and then you have weather is a surprise or not maybe would depend on who is looking at it, but the situation with a couple of the alternative cat managers and how - what's happened to them, but so I think the sentiment among investors has been strained over the last couple of years. Having had five years of no-cat, basically, a very low cat, below average cats and then to have the two years with the losses. And then also have the development, I think has really focused a lot of the old alternative investors particularly ones that we call tourists that are really just they're just in it because it sounds different and interesting I think are really focusing on whether this is something they want to do. And I think all of that will map to a healthier reinsurance market and healthier retro market as the alternative investment manager is going to be held the higher standards on transparency, rate change, collateral lease and things like that. All that points to us to a healthier property market in 2020 at January one and beyond.

Craig Howie:

Thank you.

Operator:

Good day and welcome to the Everest Re Group Limited First Quarter 2019 Earnings Call. Today’s conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Jon Levenson. You may begin.