Lancashire Holdings Limited

Hello and welcome to the Lancashire Holdings Limited Q1 2024 earnings call. Throughout the call all participants will be in a listen only mode and afterwards there will be a question and answer session. Please note this call is being recorded. Today I'm pleased to present Alex Maloney. Please begin your meeting.

Thank you operator. Good morning everyone. Thank you for joining our call today. I'll just give some brief highlights on the progress that we've made through the quarter and the priorities we have for our business. Paul will then focus on some underwriting progress and then Nati will cover the financials and then we'll go to Q&A. I'm delighted that with the continued momentum in our business delivering another record first quarter. Our long-term strategy is to grow when the underwriting opportunities are strong and we did that again this quarter. We continue to grow our premiums in excess of the positive rate change we see demonstrating real momentum at the right time in the underwriting cycle. Underwriting margins continue to be attractive. Our aggregate rate change of 104% is achieved on the back of multi-year compound rate increases. And as you know, with insurance accounting the way it is, this bodes well not just for this year's profits, but also for the future. I want to touch on the tragic impact of the Baltimore Bridge disaster. In the past, events like this would have had a substantial impact on our ability to deliver strong shareholder returns. Thanks to the work we have done over the last five to six years, this type of event is business as usual, with healthy profit contributions from our diversified product suite. And it means that we're in a position to affirm our full-year guidance for an undiscounted combined ratio of the mid-80s and a return on equity of around 20%. As I look to the rest of the year, we continue to see attractive underwriting opportunities. One of these, Lancashire US, commenced underwriting at the end of the first quarter. You have heard me speak about the attractiveness of the ENS market and I'm pleased to say that the team are making excellent progress already. These risks are the ones we know well. We see the strongest levels of underwriting profitability, and we have trusted people to run the operation for Lancashire in the world's largest insurance market. As I've said before, I'm extremely pleased at this stage in the cycle that we have a healthy balance sheet to allow us plenty of flexibility to underwrite the opportunities we see. We continue to deliver what we said we would do. I'll now hand over to Paul.

Thanks, Alex. From the underwriting perspective, we're extremely pleased with the start to 2024, and there are a number of reasons for this. Firstly, market conditions have remained favourable. As we expected, rate increases have slowed, but importantly, remain positive. Our portfolio of 104% is a testament to this. Also, we continue to grow ahead of rate. Gross written premiums are up 8% and insurance revenue is up 25%. Finally, all underwriting segments grew premiums year on year. This is important as for as long as we can go profitably and take advantage of the stronger pricing cycle, we will do so. We specifically identified property insurance and specialty reinsurance as two areas of continued growth in 2024 and both had really strong growth opportunities in Q1. We have guided to approximately 10% growth for the full year, and given the renewal shape of the portfolio, remain confident in this full year guidance. Lancashire US, another avenue of profitable growth for us, is now open and underwriting business, a real achievement for all those involved to get the operation up and running so quickly, and importantly, in time for Q2 renewal season. More broadly, what has been pleasing to see is that on the whole, market discipline is being maintained. There is certainly more willingness to deploy in certain classes, which does bring increased competition, but thus far, not at the expense of underwriting discipline. As ever, our primary focus will be on rating adequacy. If we believe that rating adequacy exists, then we're prepared to increase our underwriting footprint. Given the compound rate increases we've seen over the past few years, we still see plenty of opportunity to profitably grow our portfolio and add further resilience to the book. I'll now pass over to Natalie.

Thanks, Paul. Hello, everyone. It's been a positive quarter from a financial perspective. The significant premium growth of the last couple of years is now benefiting our own premium and insurance revenue, which increased by 24.6% compared to the first quarter of 2023. The loss environment was far from benign for the industry, However, for Lancashire, aside from the Baltimore Bridge disaster, it was a quiet quarter from a loss perspective. Our exposure to the Baltimore Bridge loss is within our expectations for a loss of this nature and does not impact our overall guidance for the year. The diversification efforts we have successfully implemented over the last five years mean that losses such as this are much less impactful. As a reminder, we have guided for an undiscounted combined ratio around the mid-80s for 2024 resulting in ROE in the region of 20%. It is the work we have done over the past five years to ensure a more sustainable return profile that gives us the confidence to be more definitive in our guidance, and I am pleased to say that we are well on track to deliver on our guidance for this year. The investment portfolio returned 0.9% during the quarter. Our book yield is now 4.3% compared to 3.3% at Q1-23, generating strong investment income. that was somewhat offset by rising interest rates. The investment portfolio remains conservative, with an overall credit rating of A+. We are still short duration at 1.7 years, and will look to slowly increase this to be closer to the duration of the insurance liabilities. Our capital position is in line with expectations at our year-end results, with a BSCR ratio as of 31 December 23, standing at 328%. As a reminder, the year-end ratio is struck using 1 January PMLs, so encapsulates the bulk of the growth you've seen in Q1. Importantly, taking into account the capital actions announced last quarter, it leaves us with approximately 305%. More than sufficient to withstand the material net catastrophe loss event and take advantage of any opportunities that may present themselves over the course of the year. And with that, I'll now hand back to Alex to conclude.

Okay, thanks, Natalie. So there's no change to our long-term strategy. We've always said we would grow at the right time in the underwriting cycle, which we continue to do. We have plenty of capital to fund the opportunities that we see ahead. And as Natalie said, when losses happen, our business can just absorb those losses much better than it could in the past. So just delighted with the progress we make. We're making and we'll continue to grow for the rest of the year. So we'll now go to Q&A, please.

Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please press star 1 on your telephone keypad. If you wish to withdraw your question at any point, you may do so by pressing star 2 to cancel. Once again, that was star 1 on your telephone keypad to register for any questions. And our first question comes from the line of Alexander Evans from Citi. Please go ahead, your line is open.

Hi, yeah, thanks for taking my questions. Firstly, just on the really strong insurance revenue growth, could you just help us understand what's driving that this quarter and how we should think about that for the rest of the year? Secondly, as well, you just make a comment on casualty reinsurance, that there was some exposure reductions on contracts written in previous years. Could you just help flesh this out a little bit? I'm assuming that you're still comfortable with the business that you've written. An experience there is good, but what about appetite for new business? And then finally, just on the RPI levels of 104%, how do you view that developing through the year and just a bit of an outlook into the summer renewal season, please? Thanks.

Hi, Alex. I'll take the first two and then I'll hand over to Paul. On the insurance revenue, the strong growth that you're seeing is really a reflection of the business we've written over the past couple of years, which as you all know, takes a few years to come through. So we're seeing the benefit of the increased premium over the last few years coming through. I think the best way for you to think about it is if you look at the most recent quarter and project that forward, probably with a little bit more on each quarter. If you look over last year by quarter, you can see the trend there. So that's kind of probably the easiest way for you to think about projecting that revenue number. And on the casualty RI, I'll start the... The comment that you were alluding to, it's really more just an accounting adjustment that we're seeing in Q1, and it's nothing particularly to be concerned about. Paul can talk more about the actual business.

Yeah, as Natalie said, it's an accounting thing as opposed to anything we've seen on the underwriting side. We're still very happy... With the margin that we believe is in that portfolio, the market's probably a little bit more stable than we anticipated, to be honest, in Q1, predominantly a function of the continued pain that you're seeing. On prior year development, obviously noting that we don't have exposure to those years, so there's nothing in the underlying business that we're concerned about. I think we said at the last quarter, We won't see the same level of growth in the casualty reinsurance book because we've got a lot closer to maturity on that, but we will still be growing that book by a modest amount this year, particularly if the current conditions continue. I'll move on to question three on RPI. We're very happy with a Q1 RPI of 104% across the portfolio. To be honest, it's pretty much in line with our expectations. I think, as I alluded to in my script, there is certainly more willingness to deploy in kind of most areas of the portfolio. The underwriting discipline is being maintained. I think that each quarter will be different because there's different renewal periods. I think there's definitely a little bit more competition in some of the prophecy reinsurance lines, for example, and I think that's been well documented in the press. But, you know, we're very... We've just got to be very clear. The rating adequacy we have in those lines is really strong, and a normalisation of rates is nothing to be concerned about, and we're just very happy with the overall rating environment. So, look, in some lines, you know, we may get closer to flat renewals as we move through the year, but just reiterating the point at the great level that most lines of business are currently at from a rating adequacy perspective. Excellent.

Thank you. Our next question comes from the line of Trifonas Spirou from Berenberg. Please go ahead. Your line is now open.

Hi there. Thank you for taking my question. So on the Baltimore Bridge, can you maybe share a little bit more on where your exposure comes from, i.e. P&I Club or more directly related to the bridge or BI? And I guess in terms of trying to come up with a number, ballpark, should we think something like the South Africa Rise, 40 million people, So one last risk to be in the region of that, given the appetite you have previously. The second one is on property growth across reinsurance and property insurance. You mentioned that a couple of times in the release. Maybe can you share a little bit more on which areas you've gone and I guess how do the PMOs look like? both in sort of their 1 in 100 and maybe lower return periods, just to help us understand a little bit more on how you've grown this year. And then lastly on capital, my understanding is the strain of growing from January to New Year's is included in that BSCR, but the capital generation to come, so the forward-looking earnings are not in there. So I just want to clarify that. And clearly it's very early to talk about anything on the capital side, but I If we sit here in sort of nine months' time at the same level, is it too early for us to start expecting more to come back to all this? Thank you.

Hi. So I will take the first part of the first question. I think, well, the majority of any potential loss for us from the bridge will come from the marine element of our portfolio. on the reinsurance side. Some of that is via reinsurance of a reasonably well-known market contract, and the other would be from our specialty reinsurance portfolio. So for us, that would be the principal driver of any loss that we have. In terms of, I think we can only reiterate what Alex said in his opening lines, which is that this is very much a business-as-usual situation, type loss for us. There's a lot of unknowns at the moment, but it obviously has the potential to be a reasonably significant market loss. But we're comfortable with the potential exposure we have. And as both Natalie and Alex have already alluded to, it doesn't change our guidance for the year. So that should give you some comfort around

Yeah, and we always say that these types of claims, as awkward as they are, are exactly what we do. We're very used to looking at complex claims and we have a very good way of looking at various different ranges and on any range. This is totally within our expectations, but I think it's just a great example of the business we are today versus what we were five years ago that this doesn't change our guidance, it doesn't change our view of the year. We'll assess the claim like we always do at the appropriate time. We'll put an appropriate reserve, as we always do, and then we'll update the market accordingly.

On the second question, I think it's fair to say that you should assume a similar type shape to our catastrophe portfolio. We're not making any fundamental changes. We've obviously been reasonably clear on this. We will be going to our property insurance exposure. Obviously, we have the US office now open an underwriting business. We opened effectively last week of March, so there will be some growth there through Q2. It's obviously a big renewal season for the property portfolio. We'll obviously still be growing our London book on the property side. reason for that is fundamentally the rating adequacy is still really strong. There were some good opportunities in property reinsurance as well, but again, the shape of the portfolio is broadly similar to what you'd have seen last year. I think our next set of numbers, you'll get an updated set of PMLs, so you'll be able to see, but I don't anticipate any significant changes there. I always caveat that with PMLs isn't in the exact science, so there may always be some movement. But in terms of shape, just think of it as broadly similar to last year.

Hi, I'll take the question on the BSCR. So you're right, the forward earnings are not in the year end 23 BSCR. It also doesn't incorporate any 1617 renewals that we might do this year or any of the US business. So We do have a lot of capital at the moment, but there's no change to our strategy where we say we match capital to underwriting. And the fact that we're holding quite a lot of capital really means that we're very positive about the underwriting opportunities that we see. And we want to have the flexibility to write good business even when we find it. So, yeah, no change to the strategy recapital. So, too early to say anything about special dividends, but you can look at what we've done historically and decide from that.

Brilliant. Thank you.

Thank you. Our next question comes from the line of Kamran Hussain from JP Morgan. Please go ahead. Your line is now open.

Hi. Afternoon. A couple of questions for me. The first one is just around operational leverage. It's, you know, I look at your business and think, you know, you've brought on quite a lot of new teams in recent years. The U.S. operations just starting up. Just interested in when you think kind of if you, you know, stop now and kind of let everyone get on and grow kind of where they should be growing, how long until we see like full operational leverage coming through in the business? The second question is just on casualty. You know, it seemed like you, on the reinsurance side, you came into the market at a very opportune time. Some of the news flow we've seen from some of the US players have suggested maybe 2020 and later years are maybe slightly worse than had been hoped at the time. Just interested in any view on that and what your appetite is in that class of business. Thank you.

Cameron, I'll take question two on casualty first, if that's okay. Look, I think we can only talk from our perspective, obviously not privy to other people's positions. What I can say with absolute certainty is the pricing that we've seen on the portfolio since we entered in the first quarter of 2021, we're still very confident in. we're still actually seeing on the underlying portfolio some good rate improvement on the general liability portfolio. There are some well-publicized exceptions, but they don't, such as D&O, that doesn't necessarily form a large part of our overall book. But the general rating environment margin that we believe is there, we remain really confident on. On top of that, obviously, and as we've said many times, we're reserving this book incredibly prudently. So we've certainly not seen anything to change our view on that portfolio. If anything, it's probably better than we thought it was going to be when we first entered. So we're really happy with that book. We're really happy with where it's going. As I think I mentioned earlier, Q1 was probably marginally better than we anticipated in terms of price and environment, terms and conditions, et cetera. So we're really confident. We obviously do not have a back book to worry about. So that puts us in pretty good shape. So we're very happy with the book as it sits.

So just to add to that, I think exactly as Paul said, we can only talk for our book, but we can only talk for how we run our book, how we reserve our book, how we think about our pricing. So if you're a different business, it depends where you started. your view of pricing and risk and reserving at that point, you may be changing that now, but it just depends where you start. We've always been super conservative on this book, so we're very happy where we are, so we don't believe we need to change anything. But as I said, a different company may have a different view because the assumptions they made at the time. So that's why it's hard for us to answer.

Hi Cameron, on the operational leverage question, I assume what you're saying is if we didn't get any more new underwriting teams in, our expenses kind of, would they stay flat from what they are now? And I think you're right. If you think about last year, we started setting up the US office about nine months ago. So there's a lot of operational costs of setting up that office included in the 23 expenses, including actually a lot of the underwriters that we brought in. And there was no associated revenue with that. So this year you are going to see revenue, say, from the U.S. office, and there shouldn't be. On that revenue, we've already incorporated the expenses in last year. Is that what you were getting at?

Yeah, it's more kind of, you know, when you're being like full flight in terms of kind of, you know, something like measure like revenues to equity. So you've got a lot of new people who have started up who, you know, obviously aren't as productive at the beginning because there's lots of set up. involved in doing that. It's just when you'd be seeing them writing probably the portfolio size you'd expect to do. So whether this is like, it's more of a kind of how many years question. If you stop now and let everyone build up the books you expect them to.

It's more of an earnings question, right? So let's just pick the US as an example. As Natalie said, you have, like any product line, you have expense to start. They start writing business and it takes you a while to get those earnings through. So It's probably, well, it's just going up from here, isn't it?

And it depends on the type of business. As you've seen, the revenue coming through from last year is pretty strong in the insurance revenue line. And even in the US, we start writing business this year, a lot of the revenue will come through next year. So, yeah, it does take a few years to build from a revenue perspective.

Probably the best way to think about it, Cameron, is when we talk about going into new lines, and whilst the US isn't a new line, let's look at it in that respect. We always say, you know, you're not going to be fully up to speed really for three years. And I think you need to think about it like that. You know, it will take two to three years to build up. Then from that point, you'll start to get the benefit of earnings, you know, start coming through. So now obviously what we can't predict is what happens in the next couple of years. There may be other things that we can add, you know, et cetera, et cetera. But from that point of view, I'd think of it in that way if that's helpful.

Then we're sticking to our guidance, Cameron, and going forward, we'll change that combined ratio guidance at the start of every year is the intention. So it will be incorporated that way.

Yeah, thanks. I was just thinking about the upside from here. It seems like there's plenty. Thank you.

Thank you. And our next question comes from the line of Will Hardcastle from UBS. Please go ahead. Your line is open.

Hey, everyone. Thanks for letting me take the questions. I guess the first one is, Paul, you mentioned that you still see plenty of opportunities to grow the portfolio and add further resilience to the book. I guess, does this mean the growth from here is more likely skewed to non-property lines, or am I reading that a little wrong? The second one is, there's been lots of investor discussions. I'm certainly having lots of people expecting low to mid-single-digit year-on-year price declines. come the mid-year renewals. I guess, would you be surprised with that level of decline? And one of the interesting discussion points coming out on some of the international conference calls is whether the insurance actively incorporate the headline forecasts of active wind seasons into pricing or not at this stage. I guess I wondered whether you guys do or not. Thanks.

OK, so I'll take the question on resilience. Look, there are opportunities to grow in property. We've been clear on that. But let's be clear, there's also opportunities in all of our other lines of business. One area we commented on last quarter was obviously specialty reinsurance book, where we still view ourselves as underweight, and we were really pleased with the growth that we put on in Q1 for that class. And to be honest, that class, it's a Q1 heavy renewal period. So yes, there are opportunities in property, but there continue to be opportunities elsewhere. So when we talk about resilience, it is growth across all, profitable growth across all lines just adds more resilience to the overall portfolio. Sorry, the second question was?

The second question, I think, we're clearly used to writing cap business, and there's been some active years in our history, and I think We don't necessarily look at hurricane forecasts on an annual basis when we're writing business. I think the simple fact is that most of the forecasting is obviously difficult and we have seen hurricane seasons where you've had lots of hurricanes, but they don't either come to shore or when they do come to shore, it's not in heavy populated areas, so it's not an issue for the industry. And then you get years when Hurricane Ian is a great example of quite a start to hurricane season on record. And then you have one hurricane and that's the second largest in terms of insured loss on record. So I just, I don't believe you could run, we would never run Lancashire based on hurricane predictions on an annual basis. And as we always say as well, there's so many factors in wind season. for the whole industry of what leads you to a profit or a loss, whether that's inflation, social inflation, house prices, where the industry's at. If you look at the reinsurance market and the job that it's done in the last 24 months, just the level of attachment points and the coverage that's been restricted by retentions is materially different to what happened before. So it's way more complicated than just looking at hurricane predictions, and that's just not something we do as a business.

And sorry, Will, your other question was on are we going to start to see single-digit rate reductions? Was that right?

Yeah, low single-digit to mid-single-digit is sort of the debate that investors are having.

Yeah, look, I think we're massive believers in the cycle and talk about the cycle, and we've had six years of rate improvement, including in some lines very significant rate improvement last year. And I think as I alluded to in my script, whilst we haven't had new entrants, there's definitely more willingness to deploy from existing carriers. That is happening. And I think if you believe in the cycle, then you know that at some point there's going to be a normalisation of rating, which I think that's the part of the cycle we're in at the moment. And look, could there be single-digit rate reductions in some lines of business? There potentially could, but you've got to look at where we are in the pricing cycle. And I certainly have no concerns if one line of business had a couple of points off, given the level that we've got to. I think there'll be far tougher years at some point in the future, because we are in a cyclical business. So if we're having conversations around single-digit rate reductions, I really don't see that as a major concern. And you can see from our RPIs in Q1, we were still actually moving forward, which was another quarter of rate momentum. So as the market normalises, people get their confidence back, these are conversations we're going to be having But we'll keep going back to where we are in the pricing cycle, which is a really strong point for almost every line of business.

Brilliant. Really clear. Thanks, guys.

Thank you. And our next question comes from the line of Anthony Yang from Goldman Sachs. Please go ahead. Your line is open.

Hi. Thanks for taking my questions. The first one is coming back to your commentary on the 10% premium growth year-on-year guidance for 2024. Can I ask, should we expect maybe a less or how material the U.S. operation contributed to this growth? And how does the combined ratio from this U.S. platform compare to the portfolio outside U.S. platform? And then second question is, should we, I think you guided at a full year 23, there is a drag of roughly five percentage points in core from casualty growth. Given your commentary of modest growth in casualty this year, should we assume that drags five percentage points still remains valid? Thank you.

So I'll take the first part of those questions. So on full year growth, as I said in my script, We're happy with the 10% guidance, remain confident in that. Obviously, some of that will be coming from our U.S. operation now that we've opened. The majority of business underwritten through that office will be through Q2 and early Q3. We haven't split out what that will be for U.S. specifically. given that we didn't know exactly when we were going to be starting underwriting. We didn't feel that that was appropriate. But yes, there will be some there. But as I've said, there are other lines of business also growing because the rating environment is still really strong. We're not going to break out a combined ratio for the US business. We don't break out combined ratio for any line of business, to be honest. But what we can obviously refer you back to is we're affirming the guidance on the overall combined ratio range for the year which incorporates the startup of that U.S. operation.

Hi, I'll take the second question on the casualty drag. Yeah, you should expect to see similar for this year. Obviously, we've still got a lot of casualty earnings coming through, and we're still writing about the same or a little bit more casualty this year, so there won't be a significant change in impact from casualty. As Paul has just said, we're reaffirming the overall combined ratio guidance for the year and incorporate things.

Thank you.

Thank you. And our next question comes from the line of Frank Cadewood from a private investor. Please go ahead. Your line is now open.

Hello. Good morning. Or is it good day over there? I guess I should say if I were in Australia, but I'm not. I just wanted to congratulate you once again about, you know, kind of surfing the waves that kind of come through the financial area and also with windstorms and all the other things. I think you've done as good as anyone possibly could have, all things considered. A particular question for Natalie, just kind of surfing the waves and the rise and fall a little bit and then other rises in the interest rates, how have you kind of approached this during during the last couple of years particularly. And again, I think Alex and Paul have given a very good explanation of how they've approached the opportunities here, which it seems nothing to be above criticism, but it seems like you've come as close to perfect in the way you've handled this as possible. So just general comments on that.

Hi, Frank. It's Natalie. Yeah, on the interest rates, we've just really, because we had such a short duration portfolio, that's really benefited us because we've been able to turn the portfolio over relatively quickly to take advantage of those rate rises. And I can also pass on to Denise to see if she's got any further colour from the investments perspective.

Sure. There's a couple of things. I mean, I think Natalie mentioned, Frank, that duration will increase a little bit to match our liabilities. And we think that's overall a good state to be in thinking that rates will eventually come down. So the way we're thinking about it right now is to lock in where we have fixed rate coupon. So we can lock some of that in and have a higher duration coming into a rate cut environment, which likely not this year, but probably in 25. So that's kind of how we're thinking about rates.

Okay, well, I'll just make a little comment on that if you can. Of course, the time-standard duration is based on a normal distribution, but, you know, when you have things going crazy, you know, the tails just become the drivers of everything. So, you know, I guess your bottom line might be, you know, how, you know, what is the term of this rather than what your calculation is on the duration. So do you

make any allowance for you know kind of the fractal types of ways that uh you know go through which might uh you know not be fully captured by you know duration of your portfolio yeah i guess yeah when we do so to answer that we do a strategic asset allocation every two years and we look at key rate durations in conjunction with cash flows over the years So we try and match from that perspective on a long-term perspective, for sure. It's not just duration-oriented. We look at our PMLs. You know, it's all incorporating, trying to get asset liability matching rather than not just duration but also key rate duration, which is pretty critical that you're, you know, you're at the same spot, particularly with IFR 17 where you're discounting, right? You want to make sure you're discounting at the right parts of the curve as well.

Okay, well, it's a difficult thing, yeah.

Yeah, for tail risk, I would say we do a lot of stress testing. That's where we kind of try and manage the tail risk from that perspective.

Okay, well, good. This little personal observation, we do have a condo in Florida that is in one of the highest risk zones, but it particularly is very low risk because it's extremely well built, even though it's in a high risk zone and the Everything is well-designed, solid, and the rates have just gone through the roof, even homeowners rates for individual holders as well as, you know, the condo association. So in the midst of, you know, really risky areas, you know, there are little niches here, but I'm not sure from, you know, your perspective in London, you can take advantage of those little niches that might actually be rather low risk in the midst of everything that's very high risk. So do you try to kind of pick and choose a little bit or just reinsure stuff?

So, thank you for your comments, Frank. I think your example of your condo is just a demonstration of the market we're in, right? So, we can access cat risk in the US in various different forms, and one of the reasons that we're set up in the US is to write some business that doesn't come to London. But I think, as I said, we've always been positive on on the cap market in recent years and we've continued to stay in that game for exactly the reason you just said. That's the market we're in. The level of rating is first class, exactly as Paul said earlier, even when rates are slowing down. If you're an underwriter in today's market and you don't want to write business, you need to find a different job to do because that's the market we're in. And your earlier comments, we don't think we've done anything. We haven't reinvented the wheel at Lancashire. But we have done what we said we would do. And we were very disciplined when the market was really difficult. And we're now disciplined in growth because you have to grow now if you believe in the cycle. And you can see from the results that the work we've done for five years is benefiting the business. And it's just allowed us to be a more larger, more diversified business without losing our DNA. So as I said, look, we say to you guys, we'll do what we say we will do. And that's what we've done.

Okay, well, great. I mean, really, just congratulations. Again, I cannot imagine any company navigating everything any better than what you've done, so congratulations to all.

Thank you, Frank, for your comments, and we look forward to seeing you in Peachtree City in two weeks' time.

Okay, bye-bye.

Thank you. Once again, as a reminder, if you would like to ask an audio question, please press star 1. on your telephone keypad. Once again, that is star 1 on your telephone keypad to register for any questions. Our next question comes from the line of Faizan Lakhani from HSBC. Please go ahead. Your line is open.

Thank you for taking my questions. The first one is on the trajectory of capital growth or the requirements for it. Over the past year, capital growth has been quite limited due to diversified into casualty. but given the fact that you now have a more stable book, can we assume that the capital requirements grow in line with the top line? Second question is, I want to come back to Will's question. Under what scenario would you look to reduce premium levels, especially when you sort of think about the level of cumulative rate increases that the industry has seen over the past few years? And the final question, can you provide any color in terms of how the specialty lines have developed and what the market outlook is for them, please.

Thank you. Sorry, I'm just going to jump on that rate comment because I want to be crystal clear on this one. I think, in the nicest possible way, I think some of the investor sentiment about rates coming off I think is wrong because there is no trend at the moment of rates coming off, right? So there are individual cases on, sometimes for very good reasons with certain clients, where rates are coming off, and that's just the market we're in. But you have to look at the absolute level of rating where we are after six and a half, seven years of compound rate increases. And I don't think any underwriting company should be coming off of lots of business at this stage of the cycle. It just doesn't, that's just not where we're at. It's not where the market's at. I don't think you'll see any carrier coming off material amounts of business any time in the next 12 to 24 months because it just doesn't, the cycle doesn't move that quickly. You don't go from a great market to a bad market in six months. It just doesn't work that way. So that's not where this market's at at the moment.

Yeah, on a macro level, that's not in our heads at the moment in terms of when we're either going to reduce premiums or risk levels. It's more appropriate actually to talk about risk levels than premium because obviously there are ways you can manage risk levels. There will always be individual lines every individual line is at different points. And the overriding point for us, it comes back to rating adequacy. And at the moment, for the vast majority of lines, we're really strong rating adequacy. So while we have that, we will continue to grow. I think we've proven enough in our history that if we don't believe rating adequacy is there, then we're prepared to adjust our risk levels. But to be clear, on pretty much every line of business, we're not even close to that at the moment.

On the capital requirement growth question, capital requirement doesn't really necessarily go in line with premium. Obviously, PMLs are a big impact on capital requirements, but also things like reserves as well. And if you go back, I think what might be helpful is our November Investor Day presentation, which is still on the website. That explains it quite clearly. And if you've got any further questions, you can come back to myself or yell on

And on the specialty question, I think I said this earlier, I think a good area for growth for us will be by the reinsurance portfolio where historically we're reasonably underweight and we were able to do that in Q1, really happy with the growth we were able to execute there. Market conditions are relatively stable in the specialty reinsurance lines. I think the Baltimore the tragic Baltimore incident will obviously most likely add more momentum to that market at the next set of renewals. And as I said, most of the renewal for that book is the 1st of January. On the insurance lines, there's definitely been a slowing of rate momentum. It's still generally in positive territory. But again, going back to some comments we made earlier, most of those lines of business have been on a six- to seven-year compound rate trajectory. So there are still good opportunities for us to grow in especially insurance lines as well.

Thank you. Fantastic.

Thank you. And as we have no more questions registered, I now hand back to our speakers for any closing comments.

Okay. Thank you for your questions today and we'll close the call there.

This now concludes our presentation. Thank you all for attending. You may now disconnect.