Lancashire Holdings Limited

Ladies and gentlemen, welcome to the Lancashire Holdings Limited first half 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. I would now like to hand the conference over to our speakers today, Alex Maloney, Group CEO, Natalie Kershaw, Group CFO, Paul Gregory, Group CEO. Thank you, Alex. Please go ahead.

Okay, thank you very much. Good morning, everyone. Thank you for joining our call today. As always, I'll just give some brief highlights of the progress we've made so far this year and the priorities for our business. Paul will then focus on the underwriting trends. Natalie will cover the financials, and then we'll go to Q&A. We've delivered an outstanding result for the first half of 2024. It's our best ever since the inception of Lancashire. Our return on equity, as measured by the change in diluted book value per share of 14%, is the strongest it has ever been for the first six months of any year since Lancashire was formed. Importantly, both underwriting and investments have contributed strongly to the bottom line. Starting with underwriting, we continue to take advantage of favourable market conditions. We have grown our premiums by 8%. This is, again, in excess of the rate change we see which puts us well on track for the largest footprint we've had as a business for 2024. As I've said many times before, our long-term strategy is to grow when the underwriting opportunities are strong, and this is the delivery of that strategy. Importantly, the benefits of this growth are coming through to our earnings. In the first half of 2024, the industry has yet again seen high catastrophe losses and large risk events. Against this backdrop, we have delivered an excellent combined ratio of 73% or 82.2% on an undiscounted basis. And none of the first half of insured events were individually material for our group. Our investment portfolio performed strongly too, delivering the strongest dollar contribution to results in the half year. Overall, our best first half since Lancashire started nearly 20 years ago, back in 2005, And as such, 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 and into 2025, we continue to see attractive opportunities to deliver superior returns for our investors. By growing our existing lines, further expanding our newly minted U.S. operation, Or should the right team arise looking at new product lines? As I've said before, I'm extremely pleased that at this stage in the cycle, 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 to talk you through our underwriting trends.

Thank you, Alex. As Alex has just explained, it's been a very strong first half of the year. We're incredibly pleased with all aspects of underwriting performance in the first six months. We are seeing the benefits of the underwriting strategy we've put in place and executed over the past few years. We have produced significant underwriting profitability despite an active loss environment, and we have continued to grow ahead of rate. To give you a quick overview, the rating environment remains very supportive, with a year-to-date RPI of 102%. From a rating perspective, almost all our lines remain in a very healthy and attractive position. This is why we continue to grow ahead of rate, and we still see opportunities to do this in the second half of the year and beyond. We guided to approximately 10% growth in gross premiums, and whilst we're marginally behind this at half-year, we still feel this is a reasonable guide for fall year. Our underlying growth rate, which excludes impacts such as reinstatement premiums, is much closer to 10%. As ever, our focus will not be on hitting certain premium numbers, but underwriting the opportunity to build the best quality portfolio that we can. We have the most resilient portfolio in our history and are comfortable with the balance of our book. I'll now move on to more detail on the underwriting environment, starting with reinsurance. It's very pleasing that underwriting discipline is being maintained. Whilst it's fair to say there's more appetite from existing carriers to deploy, we did not see new capacity in the market. and we continue to see increased demand, particularly from our existing clients. As we'll keep reminding everyone, the majority of the products, the margins are extremely healthy. In property reinsurance, there was no material changes to attachment points or rating levels. Instead, as we saw at the mid-year renewals, if aggressive orders were sought, the market held firm with sensible underwriting prevailing. This is encouraging. Demand continues to increase for property reinsurance, which helps offset the increased willingness to deploy capacity. We see the property reinsurance market as a great place to be, with ample opportunity to write well-priced and structured business. Turning now to casualty reinsurance, the continued prior year loss development for the market helps keep the pressure on current underwriting years, with the market being able to continue to push for rate increases on the underlying business. As a reinsurer, we get the benefit of this underlying rate momentum, as well as seeing slight downward pressure on seeding commissions, both of which help maintain margin. We are very happy with the rate adequacy and margin embedded within our casualty reinsurance portfolio, and we remain confident in the prudence of our lost cost assumptions. I know you will get bored of us reminding you that we entered this class in 2021, so come from a position of strength, a time when a number of problems in those old underwriting years were already known. This allowed us to cater for them in our pricing and reserving. On top of this underwriting margin, we continue to hold very prudent reserves and will continue to do this for the foreseeable future, given the long-term nature of the class. Importantly, we are not seeing any trends that make us question our pricing assumptions at this stage. If I now look at our specialty reinsurance book, where we have continued to build out our offering. This was a targeted area of growth for us this year, and we achieved our objective by growing our existing client portfolio as well as adding new business. This will remain an area of growth for us in the coming years, given we are still relatively underweight. Now moving to the insurance segment. In the insurance lines, rating remains positive at mid-year. Much like reinsurance, there is an increased willingness from existing carriers to deploy more capacity, but on the whole, underwriting discipline remains. As with reinsurance, the majority of classes are sitting in a very strong position from a rating perspective, following seven years of compound rate increase, and this is the most important point. In property insurance, we anticipated growth, and we have been successful in achieving this. We have done this through our established property insurance portfolio, as well as our more recent initiatives, such as our Australian and US operations, as well as via our construction team. The robust nature of the rate environment has enticed others to grow in property, so competition will increase. Nevertheless, demand remains strong, and rating is at historically high levels. Outside of property, we see an orderly market in most other insurance classes. Any class with a casualty focus, such as energy liability and marine liability, are still seeing positive rate trends. This is an overspill of the broader casualty market dynamics. In lines such as marine, energy, and terrorism, There is more competition and rates have plateaued. Importantly, in the majority of classes, margins are at very healthy levels. In conclusion, we are very satisfied with where we are at mid-year. By growing our footprint when rating levels are good, as good as they are, just prolongs the earnings power of the portfolio, helping future underwriting years. We are encouraged that there remains good opportunity for more profitable growth for 2024 and beyond. I'll now hand over to Natalie.

Thanks, Paul. Our first-half performance was excellent. We have continued to demonstrate the benefit of the strategic changes we have made to the business in the last few years, in particular in improving our return on capital as measured by the growth in diluted book value per share. I would like to draw your attention to three key highlights. We continue to focus on profitability and efficient use of capital. This has resulted in an ROE of 14% for the first half of the year. Our investment performance was excellent, with the overall return for the half year at 2.3%. The outstanding first half performance means that we are more than happy to reiterate our full year guidance of an undiscounted combined ratio in the mid-80s and ROE as calculated as growth in book value per share about 20%. I'll talk about this later. A summary of our results for the year is laid out on slide eight. Our profit after tax of $200.8 million represents an increase in profit of 26% compared to the first half of 2023. This is exceptional and reflects strong underwriting and investment performance. Insurance revenue increased by 18.5% compared to the first half of 2023. As you know, it takes us a bit of time to earn the premiums through. Hence, revenue has increased at a higher rate than gross premiums written, as it benefits from the significant premium growth of the last few years. The rate that premiums earn through as insurance revenue will vary dependent on business mix. The allocation of reinsurance premium is flat compared to 2023. We are retaining more risk across the business given the positive market and stock of robust earnings. We continually refine our reinsurance purchasing. The allocation of reinsurance premiums as a percentage of insurance revenue was 25% down from 29.5% in the prior year. Our undiscounted combined ratio was 82.2%, or 73% on a discounted basis. This includes all expenses incurred by the group, operating as well as underwriting related, and therefore may not be directly comparable to headline combined ratios reported by others, given that we include all our costs. The combined ratio has resulted in an insurance service result of $222.8 million. That is 18% higher than last year. This is reflected in changes in business mix as we focus on overall profit and return on capital. Our operating expense ratio is relatively similar to 2023 at 7.8% compared to 8.6%, with the increase in operating expenses in dollar terms being proportionally lower than the increase in revenues. Employment costs are the most significant driver of the dollar increase due to additional headcounts supporting the business growth. These headcount increases also result in higher related expenses, such as building costs, IT expenses, and so on. Moving onto the claims environment on slide nine. During the first half of 2024, the loss environment was far from benign for the industry. However, for Lancashire, there were no catastrophe losses of any significance, and our large risk losses were a manageable $45.5 million. This includes the impact of the Baltimore Bridge disaster. Our exposure to the Baltimore Bridge loss is within our expectations for this type of loss and does not impact our overall guidance for the year. The growth and diversification efforts we have successfully implemented over the last five years means that losses such as this are much less impactful to our earnings. Turning now to our reserving, our confidence level of 87% is in line with recent periods. This represents a net risk adjustment of £257.6 million or 17.3% of total net insurance contract liabilities. There has been no change to our reserving approach or philosophy, and we expect the disclosed reserving confidence level to remain within the 80th to 90th percentile band, unless there is a change in our reserving risk appetite. The disclosed percentile will move around within this range from period to period, depending on the mix of reserves and our view of their associated benefits. Prior releases total $52 million compared to $72.1 million in 2023. Both years benefited from prior year IBNR releases as well as reductions in prior year catastrophe reserves. Due to the specific events released in 2023, there was a larger benefit from the release of expense provisions and reinstatement premiums than in the current year. As I have said before, the timing of reserve releases can vary quarter to quarter given the nature of the risks that we are exposed to. The total impact of discounting in the year was a net benefit of $40 million, compared to a net benefit of $15.8 million in the same period of 2023. Discount rates across all major currencies remained at a relatively high level throughout the period. This resulted in a net initial discount of $59 million, largely on the 2024 accident year loss reserve, offset by $33.4 million net unwind of the initial discount previously recognised in relation to the prior accident year. The impact of the sustained high interest rate environment is seen in the growing unranked period on period. A small increase in rates during the period drove the 14.4 million impact of the changing discount rate assumptions applied in the year. In the prior year, interest rates at H1 were more closely aligned with the year-end position, meaning that the impact of the change in yield curve assumptions was relatively minor. The investment portfolio performed well. generating an investment return of 2.3% or $75.2 million. The returns were driven primarily from investment income, given the high yields during the year on the growing portfolio. While Treasury rates increased and there was a slight spread widening, any resulting unrealised losses were mitigated by the higher yields. The risk assets also had strong returns in the first half of the year. The investment portfolio remains relatively conservative, with an overall credit rating of AA-minus. As previously mentioned, we have modestly increased duration in the first half of 2024. We will continue to maintain a short, high-credit quality portfolio with fund diversification to balance the overall risk-adjusted return. Moving on to capital on slide 11. We continue to remain extremely well capitalised. Looking at the BFCR on the same basis as year-end, the ratio is just over 300%. The profitability in a period means we have generated quite a lot of capital which is offset by the 156 million paid for our final regular and our special dividends. In addition, we continue to grow the business. The BMA has introduced model changes to the BSCR model during the quarter. The main impact of these changes for Lancashire is to increase the capital requirements for man-made catastrophe exposures. The increased charge will be transitioned into the model over the next three years. We have estimated the impact for 2024 to be in the region of 10% as shown on the chart. This does not impact our overall capital flexibility, as there are no equivalent increases in capital charges in the rating agency capital models, which remain our most constraining capital requirement. We remain exceptionally well capitalised on all bases and in a strong position going into peak wind season. Moving on to forward guidance. As a reminder, the work we have done over the past five years to ensure a more sustainable return profile enabled us to be more specific in our forward-looking guidance for 2024. We guided for an undiscounted combined ratio around the mid-80s, resulting in ROE in the region of 20%. I am pleased to say that we are well on track to deliver on our guidance for this year. Note that we always expect a higher loss load and combined ratio in the second half of the year, given the timing of the North American hurricane season. With that, I'll now hand back to Alex to conclude.

Thank you, Natalie. So just to summarise, our strategy is completely on track for where we want to be as part of the underwriting cycle. We continue to grow our underwriting portfolio ahead of the rate change we've seen, which has been a key priority for us ever since the market hardened six years ago. We have lots of capital that gives us lots of flexibility in an increasingly uncertain world. And we're seeing strong earnings coming through our business based on the work that we've done over the last five years. So very happy with the results. Happy to go to Q&A now.

Thank you. If you wish to ask an older question, please press star 1 on your telephone keypad. If you wish to withdraw a question, you may do so by pressing star 2 to cancel. Once again, please press star 1 to register for a question. There will be a brief pause while this question is being registered. Our first question comes from the line of Cameron Hossain from JP Morgan. Your line is open. Please go ahead.

Hi, Austin. A couple of questions for me. The first one is just on thinking about the outlook for capital deployment into next year. The market's clearly been on like a rip since 2018, you know, premiums of, gone up, prices have gone up, you've been able to add business everywhere and it's transformed Lancashire. Do you still think there will be that many opportunities to deploy council at attractive rates into next year? And is this to any extent dependent on hiring of new teams, etc.? ? The second question is just on the guidance of the mid-80s combined ratio. Just wanted to square two things. I think in the comments it was stated that the first half was a little bit lower than expected on CAT. So why is the guidance not improving? Because you would assume less than CAT in the first half. Is this just hurricane season caution, et cetera? Just interested in the view on that. I suspect it's caution, but just wanted to clarify that. Thank you.

Okay, Cameron, thanks for those calls. I'll take the first one, and then Natalie will take the second one. Look, for me, we think we're in a great place. We think the market's in a great place. Rating has been strong. As you said, we've seen north of six years of positive rate change. So we believe whatever happens, in the next year to 18 months, that's still going to be in a great place. When you're at the top of the cycle, you don't go from a great market to a market where you're struggling to find opportunity in a year. That doesn't happen. So yes, we definitely think there's opportunity through 25, what happens this year. But equally, if you believe in the cycles we do, at some point, it's just going to get more difficult. But that's fine. I think for us also, With that US platform, that gives us a nice growth opportunity there. New teams is always something we're always focusing on. And also, lastly, I think M&A will start at some point, and M&A for us has generally been good. And what I mean by that is it disrupts people, and that tends to mean we've had good opportunity out of M&A, whether that's people or products. So that's another benefit for us. So the outlook is strong. Whatever happens to rate, we're positive. We think there's opportunity next year. But we are generating more capital as a business as well. So we're just thinking we're in a really good place.

Hi, Cameron. On your second point about the guidance, obviously we're in the middle of the hurricane season at the moment, so we wouldn't update guidance at this point. We will plan for update guidance at the next earnings call. But as you said, you're right, we have a much heavier cap load in the second half of the year than the first half of the year, so we would always expect that the second half of the year combined ratio is higher than the first half.

Thanks. Our next question comes from the line of Daryl Gore from RBC Capital Markets. Your line is open. Please go ahead.

Hey, hey, afternoon, everyone. I'm just curious to hear about the attritional loss ratio. So it kind of acts out discounting large losses, PYD. It looks to be about flat year on year. I'm just surprised. Why isn't there more of an improvement? Or is it a case that maybe there's some seasonality between how you book the first half and second half? The second question, it's the expense ratio, so it's about an 80 basis point improvement year on year. What is the trajectory that you're expecting from second half onwards? Do you think it could improve further? Please, thank you.

Hi, Darold. It's Natalie speaking. As we've mentioned previously this year, we're just giving guidance on the overall combined ratio. We're not looking to split out the components. What we look at really is the overall profits and the overall return on capital, which we're more than happy with. We're not particularly focused on attrition. As we've said before, it changes depending on the business mix. But the most important thing is that we're generating profits and we're most efficiently using the capital base that we have. And on the expense ratio, it's the same answer really. It's all included in the combined ratio and all included in the combined ratio guidance.

Yep, yep, got it. And can I just check if I heard correctly in your response to Cameron, you're saying you expect a higher combined ratio in the second half than the first half because it's a heavy cat load?

Yes, that's correct.

Okay, I would have thought, I mean, cat businesses would tend to run at a lower combined ratio, right, all else equal?

Sorry, what was that?

A net cat combined ratio, an all-in combined ratio for net cat business would typically be lower than other lines of businesses, right? So if you have a higher share of cat business in the second half, wouldn't you expect a lower combined ratio?

Well, no, because you'd expect a lower combined ratio if there were no cats, but obviously we're more exposed to actual catastrophe events in the second half of the year. So assuming a reasonable catastrophe load from the hurricane season, your combined ratio will be higher.

Okay. Okay. Thanks.

Next, the question comes from the line of Atrafona Spiro from Berenberg. Your line is open. Please go ahead.

Hi there, thanks for the opportunity. I guess two questions for me. I was wondering if you can give us an update on the new sort of ENS platform and the progress so far and how has this evolved versus your expectations coming into this? How much premiums do you roughly expect to write this year and what would be sort of the plan to step up for next year? Second question is if you can comment a little bit on what you've done with the NatCat exposures during the period. looks like you put on a little bit more exposure on the book, the one in 100 and one in 250, so a little bit this year. And how should you think about this in the context of the expected active wood season? Thank you.

Hi, it's Paul here. I'll take both of those. So as we mentioned on the last call, the UNS Sorry, the U.S. E&S platform got up and running for the 1.4 renewals, which we were very pleased about. We've been really successful in hiring for that operation. That's both on the underwriting side and the non-underwriting side. So we're up and ready to write business in the two classes that we started with, which was property E&S and energy casualty. Been really, really happy with how we started. Obviously, we're only three months into underwriting, but we're very much on track with what we expected to. We're pleased with the market conditions that we're seeing. As I said, we're really pleased with the underwriting hires that we've got, and it's been a really encouraging start. There will be more business in those classes of business as we move through the balance of the year, so that will continue to grow. We haven't given any guidance on individual premium levels for that operation, and I won't be doing that now, I'm afraid. But it's fair to say that we're going to see continued growth from that operation, not just this year, but beyond. We'll also be looking at are there any other lines of business we can add to that operation. That's something that we're currently underway in doing. So it's definitely going to be one of the drivers for growth, as Alex mentioned earlier, for us going forward. In terms of cat exposure, yes, there's been some moving parts, as there always are. As I always remind everyone, they are a snapshot in time. They're model numbers, and they don't always move for logical reasons. But overall, our cat footprint across all perils is broadly stable. Some have come down, and then some have gone up. In summary, We obviously sit in a really healthy capital position. We retained some of our earnings last year going into this year to write more business. There were some really good opportunities to write increased lines, increased shares with existing clients that were buying more limit on very well-structured placements. At this point in the cycle, as we've alluded to, the rating environment is in a very healthy position. That's exactly what we should be doing. And there were some opportunities to do that, so we did that. But as you said, they're relatively small movements overall, but we did have the opportunity to write a bit more business and we took that.

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

Hey, afternoon, everyone. First one's on the BMA uplift in the capital requirement. I just wanted to confirm, I think you said, you know, essentially this is not your binding constraint, so therefore there's no potential impact really on anyone thinking about shareholder distribution. But I also wanted to just check, you do a stress scenario in the slide deck, which is always really helpful. I guess that's gone down, obviously, but just making sure that's a fully loaded on the, you know, the full three year impact is not a transitional type of impact. And then a bit of a history lesson for me and a reminder, maybe it was clearly that stage where you were going through a build out of new teams and you were booking You always book new teams initially very conservatively. I wonder if we're some way down that stage in processing where we're starting to book some of those new teams that were added over the last three or four years at maybe less prudent levels and the more normalised prudency levels. It's been a long day. Thank you.

Yeah, so I'll take the first question, Will, on the BMA uplift. This is a specific change in the BMA model to take account of manmade catastrophe exposures. Now, we've estimated that to the year end of 2024, that will have around about a 10% impact on the BSCR ratio, and that is just the first year impact, so it does come in over three years. Obviously, we don't know the exact impact for the next two years, but you could assume it would be in the region of 10% each year. So the overall impact may be in the region of around 30%. But as you said, the most important thing to note is there's no impact from this on any of the rating agency capital models, which remain our binding constraint. So we're just in a great capital position going forward, exactly the same as we were last quarter.

Hi, Will. I'll take the second question. Yeah, on new teams, our general kind of rule of thumb for shorter-tail classes is we take a reasonably prudent approach. For the first three years, then we look at where we are and adjust as necessary. So it would be fair to say some of the classes that we went into, say, 18, 19, 20, they're now running at where we'd expect to be. I would overlay that with generally our normal reserving approach is reasonably prudent as well. And then obviously for the newer classes, and there's been less shorter tail classes in recent years, that would still be unwinding. Obviously, casualty is somewhat different. We take a different view on longer tail. We only entered that class in 2021. As you know, we are reserving that incredibly prudently, and that will continue, as I said in my script, that will continue for the foreseeable future. But things like the US operation, which is new, Australia's reasonably new, You know, construction is reasonably new. They're still within that kind of three-year window. So you have still got some of that that we will reassess kind of at the end of that three-year period. Does that answer your question?

Perfectly. Thank you.

Our next question comes from the line of Freya Khan from Bank of America. Your line is open. Please go ahead.

Hi, thanks for taking my questions. Can I just clarify if the 250 stress BSCR includes a 10-point impact from this year of the BMA model change? And then second question is on reinsurance spend. It's gone down a bit to 25% from 29% last year as you've decided to retain more business. How should we think about your reinsurance use going forward, even at least just some directional steer? Thank you.

Hi, Freya. On the first question, yes, the 250% is after the impact of the model change.

On the second point, on reinsurance spend, obviously, as we've mentioned, given that we're writing more business at the top of the cycle, our earnings going forward look to be very strong. When that is the case, generally, you would expect our reinsurance spend as a percentage to decrease. That's exactly what's happened over the last A few years, dollar amount sometimes go up given we've got to book the book. But I would very much anticipate that same trend in 2025. Helpful.

Thank you.

Next question comes from the line of Nick Johnson from . Your line is open. Please go ahead.

Thanks very much. Good afternoon, everyone. Question on the solvency ratio. So on the chart on page 11, capital consumption from business growth seems to be higher this year than it was in 2023. And that's despite, I think, slower top line growth this year than last year. From the charts, I don't know if it's correct, but it looks like the capital consumption this year is about 40 points off the solvency ratio in last year. It was 10 points. Just wondering what's going on there. Does that mean the diversification benefit from growth in new lines has now reached its full extent? Something else happening? Could you possibly expand a bit on the mechanics there? Thanks.

Yeah, I mean, it just depends what new business we write and then, therefore, what impact that has on the various different metrics within the solvency model. And obviously, the last few years, we expanded casualty. quite significantly which doesn't have as much of an impact on the solvency ratio and I think as PG said we're kind of happy with where the casualty portfolio is now so the growth this year has been you know in other lines of business which have more of a capital impact but it's not to say that we're not getting diversification benefit we definitely are but we do what we do all the time we look at capital we look at the lines of business we want to write and we match the two things together

Very clear. Got it. Thanks very much.

Our next question comes from the line of Darius Zadkowskis from KBW. Your line is open. Please go ahead.

Hi. Thank you for taking my questions. So the first one is just to clarify on one of the questions asked before. I also don't understand why the combined ratio would be high in second half versus first half. You know, yes, losses should be higher, but so should the earned premiums as you earn most of the CAT risk in the second half. And CAT business in normal year should be a lower combined ratio business. So could you please clarify what are we missing here? And the second one is one of your peers recently started disclosing the solvency ratio. I understand that you don't have to report it, but do you know internally what your solvency ratio is and would you consider reporting it in the future or disclosing it? Well, thank you.

Hi, Darius. I'll take both of those. Your earned premium from catastrophe business is even throughout the year. You don't earn more of it in the second half of the year, and obviously you're exposed to more losses in the second half of the year. So your combined ratio will be higher in the second half of the year. And then we don't have a group solvency 2 ratio because we're regulated by the BMA, which is why we disclose the BMA-BSCR ratio. Hopefully that's helpful.

Thank you. I know you don't have to report it, but my point is, do you know what your solvency 2 would be?

It's equivalent to the BSCR ratio. There is equivalence in Bermuda with solvency 2.

But one is exposure-based, the other one isn't, so I think the difference is... Anyway, thank you.

Sorry, just on that, Darius, there will be obviously under different methodologies, there will be different approaches as we demonstrated in our investor day last year. But importantly, neither the BSCR nor Solvency II in any of our operations is the binding constraint for the business. We ultimately look to our rating agency models where we sit on a very, very comfortable cushion. So I appreciate there's a lot of conversation about sort of changes to the BSTR model. It doesn't really drive our decision-making. Operator, can we go to the next question?

Our next question comes from the line of Fizan Lankhani from HSBC. The line is open. Please go ahead.

Hi there. Thank you for taking my questions. The first one's coming back to the CAT budget in H1-H2. I know you don't give a budget exactly, but could you provide some of the steer of what the split should be between half year and H2? Thank you. And the second one is, how should we think about capital generation in H2? Is there any seasonality in that? Thank you.

I'm actually not going to let Natalie answer this one. We have given a very clear combined ratio guidance for the full year. So H1 versus H2 is sort of almost irrelevant. This morning we have affirmed our guidance for the full year. We appreciate we are well on track to do particularly well relative to that guidance, but we are still very happy with full year consensus. Where is it? Capital generation. As far as capital generation is concerned, you'll note, of course, that we write a lot of our capital-intensive business in the first half of the year. That means the capital requirements in the second half are potentially less onerous, but obviously we'll revisit capital in Q3.

Okay, thank you.

Our next question comes from the line of Andreas van Amden from Peel Hunt. Your line is open. Please go ahead.

Thank you. Good afternoon. I've got a question on the casualty reinsurance business. Paul, you mentioned in your introductory remarks that there weren't any trends that would question your pricing assumptions at this stage. But listening in to what reinsurers in the U.S. are saying, among seedings, there is a revisiting of initial loss picks for the recent underwriting years, 21 to 23. I'm just wondering, when you look at your own book, and you're not seeing these trends with your own seedings, is it because you don't write this business or your seedings don't write this business? Or have your seedings, secondly, been prudent, so you're quite happy with the loss picks that your seedings have put up? Or is it, three, the fact that you put in an additional layer on top of your seedings' loss picks, so you're very, very prudent and, therefore, pretty comfortable with your pricing assumptions? Thank you.

Yeah, thanks, Andreas. I think, to be honest, it's more the latter point that you made. I mean, I know I keep saying it, but we entered the class in 21. The reason we entered was the market was changing because of some of the issues that we are still seeing from prior years. So you're going into it with your eyes open. Some of the drivers have increased. Lost cost trend. I completely note what you're saying about some carriers are now changing their lost cost trends on more recent years. Now, obviously, I don't have full insight into any of our competitors' views. What I can say, though, is we do get a lot of information from our seedants. We are incredibly prudent. We don't just follow what our seedants provide us. We have our own view of risk, which does tend to be prudent. on how we price the business. Obviously, on top of that, you have the increased buffer of how we've been reserving that business. So the fundamental point for us is the assumptions we put into our pricing, whether it be on lost cost trends or anything else for that matter, we are very comfortable with and haven't made any changes to since we entered the class. Now, obviously, we will always continue to review that, as we would do with any other line of business. But as we sit here today, we're comfortable with how we've priced the business and the embedded margin that's within it, and also even more comfortable given how we've reserved it. Hopefully that answers your question.

Yep, great. Thank you very much.

Thanks, Andres.

Our next question comes from the line of Trofonis from Berenberg. Your line is open. Please go ahead.

Oh, yes. Hi. So just a very quick follow-up on capital again, and I appreciate you, you said, you know, this doesn't have any impact whatsoever on AMS, but I think you previously mentioned sort of the 200 level as being somewhat commensurate, maybe, or maybe this is the minimum level you want to operate at, even post the stress scenario. So can we maybe assume that now that level is sort of turning around at 190 and closer to 170 at the time, given the mechanical impact of this DSCR charge? Thank you.

Well, yeah, that would be logical, Trish, but we haven't actually, we haven't done the full model change yet. We're just giving an indication of the impact so we can update that 200% guidance maybe when we get to the year end. Great, thank you. The most important thing is there's no impact on the rating agency models and we're more than well capitalised on that front.

Brilliant, thank you. Thanks a lot.

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Ray, if there are no questions, we can conclude the call here.

At the moment, there are no further questions. You can go ahead and conclude the call.

I'll pass it back to you for closing remarks. Okay. Thanks very much for your questions today. We'll close the call now.

Thank you. This now concludes our presentation. Thank you all for attending.

You may now disconnect.