Axis Capital Holdings Limited

Good day, and welcome to the Access Capital's first quarter 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Matt Rohrman, Head of Investor Relations. Please go ahead.

Thank you, Sean. Good morning, ladies and gentlemen. I'm happy to welcome you to our conference call to discuss the financial results for Axis Capital for the first quarter and period ended at March 31st, 2019. Our earnings press release and financial supplement were issued yesterday. evening after the market closed. If you'd like copies, please visit the investor information section of our website at accesscapital.com. We set aside an hour for today's call, which is also available as an audio webcast through the investor information section of our website. A replay of the teleconference will be available by dialing 877-344-7529 in the U.S. and the international number 412-317-0088. The conference code for both replay dialing numbers is 101-301-61. With me on today's call are Albert Benchimol, our President and CEO, and Pete Vogt, our CFO. Before I turn the call over to Albert, I will remind everyone that the statements made during this call, including the question and answer session, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks, uncertainties, and assumptions. Actual events or results may differ materially from those projected in the forward-looking statements due to a variety of factors, including the risk factors set forth in ACTS's most recent form on 10-K, as well as the additional risks identified in the cautionary note regarding forward-looking statements and our earnings press release issued yesterday evening. We undertake no obligation to update or revise publicly any forward-looking statements. In addition, this presentation may contain non-GAAP financial measures. Reconciliations are included in our earnings press release and financial supplement, which can be found on the investor information section of our website, located at accesscapital.com. With that, I'd like to turn the call over to Albert.

Thank you, Matt. Good morning, everyone, and thank you for joining our first quarter call. We've brought our performance back to double-digit operating ROE on an ex-PCAP basis this quarter, in line with the results we produced in the first nine months of 2018. The underlying results improved for all of our lines other than the two that were affected by large industry losses. This reflects the disciplined actions we've taken in recent years to strengthen our market position, improve our portfolio profitability, and reduce volatility. While catastrophe activity was low this quarter, we did absorb meaningful market increases in loss estimates for the Japanese windstorms Jebi and Trami, all of which led to an XPGAP operating ROE of 10.2 for the quarter. As we progress further into 2019, we remain steadfast in sustaining our momentum. This explains the small reductions in gross written premiums in the quarter. Our new business production was more than offset by reductions from canceled or non-renewed business that is no longer in alignment with our profitability and volatility goals. Separately, we're also pushing forward on a number of exciting initiatives that will advance our leadership, put more tools in the hands of our underwriters, and increase our responsiveness to our clients and partners in distribution. We're entering the final stages of integrating Novi into our business. In less than a year and a half, we've brought our organizations together and are operating as one company. The combined book was renewed into a single syndicate at January 1, and next Monday, we're scheduled to move all of our London teams into a single office. To the credit of our team and the very hard work done by many individuals within our combined organization, we've successfully integrated our companies, pursued more than $60 million in Synergy savings, and strengthened our position in a market that is much more attractive today than it was at the time of the purchase. This gives me great confidence that the acquisition will ultimately be judged as a significant positive for Axis. We've also continued our enterprise-wide efficiency drive. As of this quarter, Our combined net savings from integration and transformation activities amounted to $69 million on an annualized basis against our target of $100 million, which we intend to reach by the end of 2020. These net savings are net of incremental investments in our future. These include advancing initiatives to enhance enterprise agility, grow our digital technology and new product capabilities, and better leverage data to support our underwriting. Perhaps most importantly, we've invested in growing our talent, which will ultimately drive our success. With all this activity in progress, we remain confident that we are well on our path to leadership in key markets, generating profitable growth, and improving our performance to consistently deliver double-digit ROEs. Later during the call, I'll speak on some of the trends that we're seeing in the marketplace. But now, Pete will walk us through our first quarter results.

Pete? Thank you, Albert, and good morning, everyone. As Albert stated, in the first quarter of 2019, we brought our performance to be more in line with the progress that we had seen during most of 2018, and we continue to strengthen our market position. During the quarter, we generated net income of $98 million. On an XPGAP basis, our operating income was $112 million, generating an XPGAP annualized ROE of 10.2%. With regard to the acquisition of Novi, in the quarter we recognized amortization of intangibles of $16 million, including amortization of VOBA of $13 million. This expense affected the company's consolidated operating income, but was not included in the segment results. Underwriting income in the quarter continued to include the earn out of Novi's unearned premium as of the closing date. This was without the recognition of associated acquisition costs since the DAC asset was written off at closing. DAC would normally have been amortized into acquisition costs, and we estimate that the consolidated acquisition costs on an ex-PGAP basis would have been $6 million higher, resulting in an ex-PGAP acquisition cost ratio of 23.5% versus the reported 23%. We believe the best way to discuss results is on an ex-PGAP basis, which is a better representation of the running rate performance of the business. In the quarter, the net drag on operating income from the VOBA DAC adjustments was $8 million after tax, or approximately 10 cents per share. As we've previously disclosed, we expect the VOBA impact to be minimal beyond mid-2019. Some quick highlights for the quarter. Our current accident year loss ratio, XCAT and weather, was modestly higher than the first quarter of 2018. but significantly improved from the fourth quarter and improved from last year's full-year results. CAT loss experience in the quarter was minimal at $11 million compared to $35 million a year ago, and the decline of favorable prior-year development in the quarter was largely attributable to increases in our estimates for Japanese typhoons Jebi and Trami. Moving into the details of the consolidated income statement. The current quarter consolidated combined ratio is 96.9%, an increase of just over six points from the first quarter of 2018. As I mentioned, both quarters combined ratios benefited from a lower level of acquisition expense due to the purchase gap adjustments. On an XP gap basis, the current quarter and prior year quarter consolidated combined ratios were 97.4% and 94.3% respectively. On this comparable basis, the current quarter combined ratio was just three points higher than last year. This increase is largely driven by a decrease in favorable prior year development. We reported net favorable prior year development of $15 million in the quarter. Of this, $7 million came from insurance and $8 million came from reinsurance. The year-over-year decrease in favorable prior year development was primarily due to a $33 million increase in our loss estimate for Typhoon's JEBI and TRAMI, especially with respect to JEBI, where we increased our market loss estimates to $12 to $13 billion. This increase was centered in the reinsurance segment and depressed their favorable prior year development in the quarter. In the quarter, in both reinsurance and insurance, every business unit except property had favorable prior year development. The current consolidated accident year loss ratio, XCAT and weather, increased by six-tenths of a point. This was driven by mid-size losses in aviation and marine, partially offset by the favorable impact of rate and trend. The consolidated acquisition cost ratio is 23%. We think the best way to look at this ratio is adjusting for PGAP, so on an ex-PGAP basis, the ratio is 23.5%, an increase of half a point over the comparable ratio in the prior year. This increase was primarily driven by mix and the impact of reinstatement premiums. We expect this ratio to continue to trend at 23 on an exp gap basis for the year. During the quarter, the consolidated G&A expense ratio of 15.4% increased by almost a point compared to the first quarter of 2018. The normalized G&A ratio this quarter would have been 15.1%. which is comparable to the normalized first quarter of 2018 ratio. Typically, our first quarter G&A ratio tends to be higher, and my expectations for the full year is that this will be in the mid-14 range. We continue to be on schedule to achieve our net annual savings of $100 million compared to that 2017 run rate. In the quarter, we had net annualized savings of $69 million. This is up from the first quarter last year, but only up marginally from the fourth quarter. While we made tremendous progress in 2018 on gross savings and got out ahead of any investments, in 2019 we are starting to invest. As I discussed in the last call, I expect the net savings to materialize slower in 2019 and then ramp up again in 2020. Non-operating reorganization expenses of 15 million were recognized in the quarter. These were associated with our Novi integration and our transformation initiative. Fee income from strategic capital partners was $20 million compared to $13 million in the prior year quarter. This important part of our business continues to grow well. We will now discuss the underwriting results of both insurance and reinsurance segments. Let's begin with insurance. The insurance segment reported decrease in gross premiums written of $30 million in the first quarter. This was due to a significant decrease in property partially offset by increases in liability, marine, and professional lines. Insurance property gross premiums written decreased by $95 million in the quarter, or 32% year over year. As we discussed in previous quarters, we have exited some program business, and we have non-renewed other property business where we continue to hold our pricing discipline. Offsetting the drop in property, we saw favorable new business opportunities in liability, especially in U.S. excess casualty, and U.S. primary casualty, and in professional lines, mainly cyber. The insurance segment current accident year loss ratio ex-cat and weather of 56.2% increased by just under two points from the first quarter of last year. The increase was primarily driven by mid-size losses in aviation and marine, which contributed just more than two points to the current quarter loss ratio. In addition, the loss ratio was impacted by changes in business mix as we earned less premium in property and more in liability and professional lines. This resulted in almost a point increase in the loss ratio. However, this mixed change was more than offset by the favorable impact of rate and trend. This quarter pre-tax catastrophe and weather-related losses were only $8 million in insurance, primarily attributable to weather-related events, compared to $28 million in the same period in 2018. The insurance segment acquisition cost ratio is 21.2%. Again, we think the best way to look at this ratio is adjusting for PGAP. So on an ex-PGAP basis, the ratio is 22.3, an increase of six-tenths of a point over the comparable ratio in the prior year. The increase was driven by mix of business, the impact of reinstatement premiums, and profit commissions. During the quarter, we saw solid results within our reinsurance business. The reinsurance segment reported a decrease in gross premiums written of $50 million in the first quarter. However, adjusting for FX, the decrease is only $9 million. This decrease is principally due to non-renewals largely related to underperforming business in motor, credit insurity, and property. These decreases were offset by new business growth in catastrophe, A&H, and liability. I would add that while our growth in CAT gross premiums was 27%, on a net premium basis, catastrophe grew only at the high single digits. The reinsurance segment current accident year loss ratio ex-CAT and weather is 61.5%, improved by just over half a point. The improvement is driven by favorable experience in most lines, especially in credit and surety. This was somewhat offset by aviation losses in the quarter. Reinsurance pre-tax catastrophe and weather-related losses were $3 million, primarily attributable to weather-related events this quarter. This compares to $7 million in the same period in 2018. The reinsurance segment acquisition cost ratio of 24.7% was a half a point higher compared to prior year, driven by the impact of retro contracts and catastrophe and liability lines, partially offset by the favorable impact of loss-sensitive features in agriculture. Net investment income of $107 million for the quarter increased from $101 million in the first quarter of 2018. This was due to an increase in income from fixed maturity contracts attributable to the increased U.S. Treasury interest rates. And this was partially offset by a decrease in income from alternative investments, in particular income from credit funds. These alternative investments are reported on a lag and were adversely impacted by the decline in credit markets in the fourth quarter. We expect a positive first quarter performance of these funds to be reflected in the second quarter. Our current book yield is 3.1%, and our new money yield is also 3.1%. The duration of the portfolio continues to be approximately three years. With respect to capital actions, I would note that on April 1st, we repaid an outstanding $250 million note, As you recall, we raised the funds to repay the note in December of 2017 at favorable terms. While the note is on our March 31st balance sheet, as we report the second quarter, you will see our financial leverage ratios come down. Lastly, diluted book value per share increased by 5.8 percent in the quarter to $52.84. This was principally driven by net income generated and unrealized gains on investments and partially offset by common dividends. That summarizes our first quarter, and with that, I'll turn the call back over to Albert.

Thank you, Pete. Let's discuss market trends in our positioning, and then we'll open the call for questions. We've now experienced five successive quarters of rate increases in our portfolio, and I'm optimistic that the market will continue to head in the right direction. Within insurance, we generated average rate increases of 4% across the entire book, In our U.S. division, average rate increases were nearly 9% for the quarter. Rate was led by U.S. casualty, both primary and excess, which both delivered increases of about 12%. E&S property was up 8%, and we produced rate increases of close to 5% within our U.S. program business. Overall, 89% of the U.S. book renewed flat to up in the quarter. Within our North American Professional Lines Division, rate change was higher than it's been in recent quarters, at nearly 2%. D&O was up over 4 points, while E&O lines were flat on average. In our London-based International Insurance Division, the average rate increase was in excess of 3% for the quarter, but with a very wide range. Professional and casualty lines were up 9%, while U.S. property, aviation, and renewable energy averaged about 5%. 96% of the international book renewed flatter up, with the exceptions of terrorism and political risk, both of which experienced strong results in recent years. Overall, there's renewed discipline in the London market, driven largely by recent actions by Lloyds, including the Desal 10 program. We expect this better environment to extend into the rest of 2019 and next year. Given our company's increased presence in London and at Lloyd's following the Novi acquisition, we believe Axis is very well positioned to benefit from these improvements. In summary, about 93% of the total insurance book renewed flatter up. Importantly, though, improvements are not limited to rate, but also extend to terms and conditions, including sublimits, exclusions, and higher deductibles. As we continue to push hard for better terms, Our retention rates are a bit lower than last year's levels, but it's a good trade for better profitability. Moving to reinsurance, we're also seeing progress in pricing, but more is required. On quota share-based business, access is getting at least the benefits of underlying improvements in primary terms and conditions, as seeding commissions are either flat or down across the book. Access of lost business is generally flat or modestly up, depending on recent results. Catastrophe reinsurance has improved, but there is room for more. Loss-affected treaties are seeing increases of up to 30% depending on the size of the loss. However, loss-free treaties are generally flat or only up modestly. It's our belief that given recent history, increasing concentrations in peak zones, and the ongoing impacts of climate change, even loss-free accounts should go up at some point. We recently completed the April 1 renewals, which included the attractive Japanese market, where we had an opportunity to significantly expand our presence. Japan suffered substantial wind fund losses last year, and treaties for those perils were up as much as 30%. Quake treaties, which have generally been loss-free since the 2011 Tohoku earthquake, were generally flat at satisfactory terms. There was more coverage purchased by Japanese accounts. Under these conditions, we significantly upgraded our standing in the Japanese market and nearly doubled our premiums of this renewal at quite attractive terms. Overall, Access Re performed well in the April 1 renewals, which make up less than 10% of our annual reinsurance volume, increasing exposures where it made sense, but also reducing or non-renewing business where we were offered terms that did not meet our requirements. Overall, we achieved a 5% increase in aggregate gross written premiums over expiring with an increase in price profits. Across both insurance and reinsurance, we're encouraged by recent improvements, but it will take more than five quarters of mid-single-digit increases to offset the compound reductions experienced by the markets over the past several years. With market conditions improving, it's good to have the wind at our back, but this is not just about rate. our focus remains on continuing to strengthen both the quantum and quality of our underwriting results. And we expect to see further progress as the business that we choose to cancel or non-renew runs off our books and is replaced by better priced and more balanced business. Let me speak some more about the balance of our portfolio. Over the last few years, we've expended significant effort to enhance our book of business. We exited several markets, and re-underwrote a number of lines, delivering a clear trajectory of improvement across the portfolio. We also diversified our book with new risks that drove attractive growth, including cyber, renewable energy, A&H, and mortgage business. We've become more focused and upgraded our standing and relevance in our chosen markets and producer relationships, and this positions us well to be in the flow of attractive business and opportunities. As we continue our progress, we expect to see lower combined ratios in our existing lines, and our new business should be additive as we further optimize our portfolio. However, the heavy CAD activity of the last two years has obscured the full impact of our work and marred what otherwise would have been strong performance. We have, over recent years, reduced our net CAD exposures, but as both 2017 and 2018 demonstrated, we need to do more. This year, we've made additional reductions both to our gross book and to our net retentions by using more reinsurance and sharing more risks with strategic capital partners. As you'll observe in our investor financial supplement, we've made more progress again this year in reducing PMLs and key zones. We believe that these are the right actions to secure a more stable portfolio and one that will be more resilient in years of higher CAT activity. Our commitment to further reduce our net retained CAD exposures will continue throughout this year and into the next renewals. I'm confident that we can both sustain our franchise and property markets and reduce our net CAD exposure. Over the last three years, we've put in place many of the capabilities and resources necessary to achieve this. A broader and deeper range of risk funding mechanisms and new tools and analytics for our underwriters that are starting to deliver visible results. We're confident that ongoing improvements across our overall book will more than offset any mixed driven impact on our loss ratio. And we believe that the resulting benefits to both earning stability and ROE will become increasingly evident to our shareholders. In parallel, we will also continue to invest in innovation. It's our belief that there are great opportunities available to those companies that can leverage analytics and technology to change their approach to underwriting and better access and serve their customers. We're confident that with the investment that we've made in the past few years and are increasing now, will allow us to be among that group. We're on the right path, and we're seeing tangible results from the actions that we've taken. It's because of all these factors that I'm very optimistic about our future. And now, let's please open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Amit Kumar with Buckingham Research. Please go ahead.

Amit Kumar Good morning. Maybe just starting with the discussion on GNA. In the last conference call, you had mentioned a 13.5 percent number, and today that number is being pegged at mid-14 percent. I just wanted to better understand what changed from Q4 to Q1?

Yeah, Amit, I would say that 13.5 is more of our long-term expectation, that as I think about the calendar year 19, mid-14s is more where we expect to come out.

I think we did last year indicate that we were a little bit ahead of our And we know we're ahead on the savings, and we indicated that it would go up a little bit this year as we started to invest in it. Started to invest, yes.

And then we knew this year that our net premiums were down a little bit this year, and that would actually affect the ratio a bit. Got it.

That's helpful. The other question I had was the discussion on the aviation loss, I guess the BI loss. How should we think about that number as that issue drags on? Could there be any possibility as the number evolves of loss creep, or is it pretty capped at this point?

I mean, we generally don't like to speak about individual accounts or treaties, but what I can tell you is that we're confident that the number that we have out there on a net basis is quite firm. we have a significant amount of reinsurance in that line of business.

Okay, and final question, and I will read to you. There has been a lot of discussion on late planting or delayed planting. Could you remind us, I know you write on quota share and excess of loss, the MPCI book and other stuff. The size of your book and any thoughts, how should we think about any potential impact from later delayed planting on access results going forward? Thanks.

I think it's too early to give a lot of precision on that one, but I would say that generally the reinsurance comes in when the planting happens. So the delayed planting generally does not have a significant impact on those results.

And could you remind us the size of your book?

I'll come back to you. I think it's a little under 100, but we'll come back to you on that.

Okay, I'll stop here and let others ask. Thanks for the answers.

You're welcome.

How much was it? $126 million at the quarter.

Our next question comes from Elise Greenspan with Wells Fargo. Please go ahead.

Good morning. My first question, just looking at your underlying loss ratio was, you know, 58.9 on an overall basis in the quarter. You guys pointed to about two points of, you know, one-off kind of larger losses within your reinsurance book. So that's about one point overall. So is the right way to think about it is that that underlying loss ratio is running kind of net of those losses at just under 58, and we should think about improvement from there over the balance of the year as you earn in some of the initiatives that you've been working on?

Yes, so Elise, this is Pete. I'll take that. Actually, I think I mentioned that the large losses hit the insurance segment by just over two points in the quarter. We did have some aviation losses also in reinsurance. And when I take the aviation losses in reinsurance as well as aviation and marine losses in insurance, for the company in the quarter, it was just over two points. And so we do expect to get these large losses through the year. We let them run through this year, this quarter, because it was early in the year and we didn't want to absorb them. But I would say that on a normalized run rate, if I'm thinking overall company, you know, this would be a higher than normal quarter when it comes to large losses because we really, early in the year, we had nothing to absorb it. So if I was thinking about it at least, I'd take it down by at least half of that two-point overall for the company.

Okay, and then the assumption would be that we would see sequential improvement every quarter of 2019?

Oh, absolutely, yeah. We would expect to see that happen through the quarter. I guess I would also point out that we did talk a lot about the program business, which hurt us on the insurance side in the fourth quarter. That behaved itself, I'll call it, in the first quarter, but it was still higher than our normal insurance attritional loss ratio or non-CAT and weather loss ratio. And that added about a half a point to the insurance non-CAT loss ratio in the quarter. And again, as that business runs up at the end of the year, we expect to continue to see the insurance book improve.

Okay, great. And then on the acquisition side, you guys pointed, I think you said 23% ex-PGAP for the remainder of the year, I guess. Can you just confirm that's the acquisition cost ratio guide and then I guess that contemplates that you could continue to see earned premium decline just as you reposition and your premiums might continue to go down?

Yeah, we're going to see that, Elise, on the acquisition side. I think one of the things that affects that acquisition cost, which just happens in each quarter, some loss-sensitive features on the reinsurance side, but that is a net-net positive to us if the acquisition cost goes off. It means that the loss ratio is down for one of our clients. But I think it was just up in this quarter slightly because there were some profit commissions booked as well as the impact of some seed commissions that we do think that that high 22s, 23 is where we'll see the overall company track for the rest of the year. Absent any of these one-off things, which really should, especially the loss-sensitive features, you'll see an offset in the loss ratio.

Okay, great. And then one last question, Albert, can you give us, you know, some of your initial views as we think about the upcoming Florida renewals, just expectation for price increases, you know, chatter, any change in terms and conditions, and, you know, kind of can you peg the, you know, rate increases we might see there, you know, relative to how the loss impacted accounts moved at both, you know, January 1 and April 1?

Right. Well, Elise, it's still a moving target, as we say. I mean, there's still a lot of talk going back and forth. I think basically you've read and heard the usual stuff, which is some of the loss-affected accounts and layers are going up to 30% or more, but the non-loss-affected accounts are closer to flat, maybe very modest increase. So that's kind of where we're seeing it now. As I said, there's a lot of talk going back and forth on it. I think there's a couple of things that are potentially positive, a number of things that are potentially negative. You've read about the AOB improvements. The legislature just passed AOB reform in Florida, which has been a major driver of growth and loss adjustment expense. So that's possibly going to be reflected in some of the pricing conversations. But we're also looking at the fact that there's huge concentrations in certain parts of Florida that need to be priced for. So what I can tell you is it's still a moving situation. Loss affected up to 30 or more. Non-loss affected, closer to flat, low single digits. That's the current talk, but it's moving.

Okay, thank you very much.

Our next question comes from Yarin Kinnar with Goldman Sachs. Please go ahead.

Hi, good morning. My first question is on favorable development in the insurance segment. It seemed a little light relative to where it's been. Can you maybe talk about the moving parts there?

Yeah. I mean, when I think about that, especially when you compare to last year in the first quarter, last year in the first quarter we had a fair amount of prior period development actually coming out of HIM. And so if you adjust for HIM, the insurance PYD was in the single digits. So when you compare year over year, that is one impact. The other thing I'd say is in this particular quarter, while we had good positive prior period development, all the business units and insurance except for property, where in property we had some losses come in at the end of 2018 that didn't get into the 2018 year. So we had some property shock losses as well as some attritional come in into the first quarter of 19 that affected the PYD for insurance.

Okay, that's helpful. And then I guess my second question is on the increase in the Japan wind PML. So I understand that this is an opportunity here with rates being up as much as they are. At the same time, you are also talking about lowering your overall exposures. So how do you, I guess, square the push and pull here between the the interest in going after opportunistic, you know, attractive opportunities and lowering your overall PMLs. And I'm asking that also as we look at, you know, June, July renewals in the U.S.

That's a very good question, and thank you for asking it. What really matters here is what are we doing with our overall loss curves and make sure that our overall loss curves come down as a percentage of our overall equity. And what you'll notice is that the peak zones, which is really what drives those loss curves, are continuing to come down. Japan is not a peak zone. It does not drive the curves in the PMLs for us. But importantly, it's about providing more balance to the portfolio. So shaving off the peaks, filling in the troughs so that there's more balance, more premium, more diversification in the portfolio, which ultimately results in a better loss curve and ultimately better ROEs on that line of business.

Okay, so I look at the peak zone. I think it's still southeast U.S., and as we head into June, July renewals, I'd expect there to be maybe a few better opportunities there. So even with that in mind, you'd still expect that peak zone to be lower year over year?

Yeah, I think what happens is every year there's always some situational volatility around what happens, but by and large it would be our expectation that those PMLs will be coming down around the peak areas, yes.

Thank you.

And as you can see, we've been doing that for several years now, so it's a trend that you should continue to see.

Okay, thanks.

Our next question comes from Jay Cohen with Bank of America Merrill Lynch. Please go ahead.

Thank you. Most of my questions have been answered. It was very helpful. So one question, share repurchase. Should we basically take that off the table for the balance of this year?

Hey, Jay, this is Pete Vogt. Right now, I would take that off for the balance of the year. You know, given where we were in the fourth quarter with the California wildfires, we are looking to build up the balance sheet through 19.

Got it. Thanks, Pete.

You're welcome.

Our next question comes from Meyer Shields with KBW. Please go ahead.

Thanks. There are two small questions, and then one may be a bigger one. Albert, can you talk about the increase in corporate expenses on a year-over-year basis?

Yeah, I mean, there are a number of items that are kind of first quarter items that come through, but Pete, why don't you go through the details?

Yeah, Myers, if you're just looking at the dollars year over year, last year in the first quarter, there were some unusual good guys that came through, the biggest being some takedowns of some bonus accruals, and all that ran through the first quarter. That's probably the most significant thing that actually drove the corporate year over year increase.

Okay, so that implies that this is a good run rate going forward.

Yeah. Okay. Well, I mean, I wouldn't take the first quarter and necessarily use that as a run rate, Meyer, because as I mentioned in my comments, we do tend to expense a number of things in the first quarter, so our first quarter tends to be a little bit higher on the corporate side as well. So I would bring that down by a couple points. If you're looking at dollars, I'd bring it down a bit. But overall, we really do think the overall G&A ratio is going to come in in the mid-14 range for the year.

Okay. No, that's helpful. Thank you. Does the PML calculation for Japanese wind, does that include maybe more conservative modeling following the loss increases that we've seen on last year's storms?

Look, the truth is that every quarter there's some improvement to some models, so hopefully we're getting better every quarter, whether it's southeast wind or quake or Japanese wind. But the real change that you've seen in the PMLs is really driven by the growth in our business in Japan.

Okay. No, that's helpful. Bigger picture question. I'm not sure I'm thinking about this right, but when people talk about reinsurance pricing, there's always a split between loss-impacted accounts and loss-free accounts. I'm wondering whether that's not a really weak way of reflecting changes in loss propensity. It just seems more reactive than predictive.

Well, that was my point, right, which is that even loss-free accounts should have an increase because if we believe that the curve is moving up, then everybody should share in that curve. But that's not what's happening right now. Those are the market conditions. So I think you and I are probably on the same page. The curve moves up. We're mutualizing risk, so everybody should pay a little bit more. But market conditions being the way they are, that's how it's ultimately coming through.

Right. Is there an opportunity to sort of like go in the loss-impacted accounts and say that, you know, their exposure hasn't changed just because they had a bad year? I guess that's really what I'm driving at.

That would be fine if everybody was going to share in the increased loss, right? But right now what's happening is since those who haven't had a loss are not paying for it, it comes down to those who've had the loss to contribute to that adjustment in price. I think what you're talking about is the difference between the theory of the pricing and the market reality of the pricing. I think everybody would agree with you, but it's very difficult to get an account that has not delivered a loss to pay for one that has.

Right. No, I understand that. Thank you. That's very helpful.

Our next question comes from Brian Meredith with UBS. Please go ahead. Yeah, thanks.

A couple quick questions here for you. First, I'm just curious, as we think about the insurance business and we think about the property down as much as it was given some of the non-renewables, what's the kind of headwind I should expect kind of going forward on the premiums from those non-renewed accounts?

So I think we've talked about the impact on a growth basis, and we've and we've gone through it, I think that's already embedded in the first quarter numbers, isn't it? Yes, it is. It is.

And we will see some more through the year, but right now we're also seeing good growth in some areas we do like, Brian, including on the professional line side and good rate in a hardening market. We see on the U.S. casualty both excess and primary, and we've seen some good growth even in renewable energy. So If we see property come down a bit, we do expect that top line to not necessarily drop as much just because of property in and of itself.

I don't know if we got into this enough time, but the truth is that a big chunk of the drop in the first quarter had to do with a number of contracts that really were a one-one contract. We've already done, and we've discussed this, I believe, throughout last year, progressively canceling a number of businesses when they were coming up. Some we couldn't touch before 1-1 January, and therefore that's a big impact that you're seeing in the first quarter. There's less of those big contracts coming through for renewal in the rest of the year, so you should have less of an impact from those contract cancellations. That would be the first thing I would say. The second thing that I would say is that if the trends in the market are continuing as we see them, it is likely that we will find more of that business to be attractive to us. And so it could well be that we would be quoting more or winning more towards the end of the year if the market improves. Of course, all of those things are market dependent. If the terms are good, there'll be more opportunities. If not, we will have no problem shrinking some more.

Gotcha. And then, Albert, I'm just curious. Looking at what you kind of talked about on rate here, 4% across the entire book in insurance, it sounds like you think that's enough to actually get margin expansion. So loss trend is still running fairly benign. Is that true?

Absolutely. And in some cases, we're getting rate increases that are, you know, when I think about the U.S. casualty book, that are multiples. of what our loss trend is. So we certainly would expect to see more loss ratio impact in those lines. But yes, across the book, the average of 4% that we're getting is ahead of loss trend. And when we've been talking about the improvement in our books of business over the next couple of years, certainly rate over trend was going to be, we were looking to that to drive at least a point of improvement year over year for the next couple of years.

Okay, excellent. And then you talked about maybe terms and conditions improving. Are we seeing anything on terms and conditions at this point?

Oh, yeah. That's actually even more interesting. We're doing much more around exclusions, around sublimits, higher deductibles, all of which have a meaningful impact on loss costs.

Gotcha. And so when we look at that 4% rate, that's not including that, is it?

That's right. It's not.

Gotcha. Makes sense. Terrific. Thank you.

You're welcome.

Our next question comes from Michael Phillips with Morgan Stanley. Please go ahead.

Thank you. Good morning, everybody. I want to, I guess, first question back on insurance acquisition expense. A couple of things there. I guess part A is, is there any change in your MGA appetite? And if so, is that driving any impact on the acquisition expense ratio?

Peter will go through the numbers, but in terms of appetite per se, we tend to look at the business on a technical ratio. In some cases, the acquisition expense is higher, the loss ratio is lower. In some cases, it's vice versa. I think it's difficult to determine the adequacy or the attractiveness of a piece of business simply by the loss ratio alone or the expense ratio alone. I just wanted to put that point out there. Peter?

Yeah, but what I would say is, as we've mentioned in the fourth quarter call here, we have canceled a number of relationships we had with MGAs. Many of those started last year, but a number of them, as Albert mentioned, happened in this first quarter. As we actually was the first quarter, real first quarter, we could action a combined access and no buy book. And with that, I would expect that the acquisition loss, the acquisition ratio for insurance to actually come down through the year as the earned premium in those MGA contracts kind of wanes and therefore changes the book a little bit. And that's why I do think the acquisition ratio for the overall company will trend more to the 23 high 22s. But specifically for insurance, I would say, you know, it came in on an XP gap basis at 22.3 in the first quarter. You know, that should come down by, you know, to the mid-21s by the end of the year.

Okay, yeah, that's helpful. Thank you, Pete. I guess on the same token, on the acquisition, you know, given the higher expense from Lloyd's, is that going to be something that can be improved for you guys any time in the near term, or is that more of that's going to be there for a while?

Are you referring to acquisition or G&A, or what exactly?

Acquisition, yes.

Yeah, so... Generally, I would say there's a Lloyds market situation and there's an Axis situation. Lloyds, as you know, is looking very hard at their acquisition expense, and Bruce Carnegie Brown and John Neal and the team are pushing towards that. And I want to use that as an opportunity to mention that there's a lot of good work being done in London to improve both the competitiveness of the London market and the profitability of the London market. So I think we will all benefit from that. But with regard to our own book, we always knew when we acquired Novi, we always knew that there was a bunch of the business there that we would not renew. And some of it had to do with the fact that there were some cover holder arrangements that were not as necessary for our portfolio. And I'll give you a good example. We have a very strong U.S.-based business. Novi was a Lloyd's company, and so it accessed a lot of U.S. business through U.S. cover holders, for which it paid cover holder acquisition costs. We believe that for much of that business, we would rather write it locally where we are closer to the risks and therefore can ultimately deliver a better portfolio. That was always part of our plan. You're seeing some of that in the reduction of the January 1 renewals, and the benefit of that, I think, is more than just on the acquisition costs. I believe that we will do a good job of delivering better premium locally than once removed through a cover holder.

Okay, no, great. Thank you very much for all those details. I guess last one, just a quick one. Your comments on rates are somewhat similar to what we've heard so far in the quarter from others. I guess one number that kind of stood out to me, and maybe you can, if you can, a little more detail on it, is the U.S. casualties, I think you said up 9%. which stood a little bit out to me, and anything you can add to kind of where that is specifically?

It's going to be further out. It's up 12. Okay. The reason for that is we focus on the ENS market. In the U.S., we only write ENS casualty primary and excess, and some of that is driven by the auto liability where we're seeing literally 18% increases in those lines. So these are definitely tougher risks. That's why we're in the excess market. And what happens is as the standard lines markets are starting to restrict their appetite, you're getting a lot more of those risks coming to the E&S market, and that's driving price. We're very pleased with the price that we're seeing. As I mentioned earlier, it's well above our lost cost trends, and this is an area that we're looking to grow.

Okay, perfect. Thank you very much.

You're welcome. Our next question comes from Josh Shanker with Deutsche Bank. Please go ahead.

Yeah, thank you. I just want to get a few notes on Jebby. Obviously, the change in the loss pick is much higher than the initial pick. Did you trigger into an excess contract, or what's going on there?

No, this has a lot to do with the way we chose to participate in wind risks in Japan. And we do this for every zone. We look at the towers. We determine where it is that we would prefer to play in the towers. Sometimes it makes more sense to be in the lower layers. Excuse me. Sometimes it makes more sense to be in the upper layers. We've historically been underweight wind in Japan because we felt it was not as well priced as the quake. So we had lower participation in the lower layers and then increased our participation in the upper layers. So as Jebi in particular started to deteriorate, we started to take a larger share of every yen of loss at the upper layers than we did at the lower layers. But I want to be clear. We do that with every account. We look at the price of every layer, and we try to position ourselves where we think we're getting the best risk-adjusted returns. In Japan last year, we thought the mid-layers of the towers were the better place to be.

And so the shape of the portfolio has changed with April 1 renewals?

Yes, there is a little, well, there's both a little bit more on the bottom, but also both a little more on top as the Japanese accounts bought more cover.

Okay, okay. And in this pricing commentary, a lot of people are commenting on how good pricing is here. How does the competitive environment feel? I mean, I tend to think that the market is efficient and it gets increasingly efficient over time. Do you think that this is an invitation for competition to increase, or do you see your competitors backing away and giving you that opportunity?

I think the competitors that we have are by and large the same. Without getting into some news, you're very well aware that a number of leading players in the ENS market have announced significant reductions in their appetites. You also know that Lloyd's is reducing their participation in the U.S. E&S market. And so right now, I think there is significantly less capacity and more demand in that market than there's been in a while. But I do want to take you back to my comment that I made earlier, which is it's great to see five quarters of mid-single-digit increases, but let's recognize that we've been seeing significant price declines since 2011. What we have today is better than what it was, but it's still not time to back up the truck. So you still have to be selective.

All right. Well, thank you very much, and good luck this year. Thank you.

Our next question is a follow-up from Amit Kumar with Buckingham Research. Please go ahead.

Hey, just very quickly, I know we're coming up at the top of the hour here. In terms of going back to the discussion on Jebby and Trami, I know in the opening remarks you mentioned Jebby is now at $12 to $13 billion. I guess two parts. One, can you remind us, are you using sort of a $3 to $4 billion for Trami? And what was the previous loss estimate you were using for Jebby? Because that number moved from, I guess, $5 to $9 to $10 to $13. So, Maybe just help me with those pieces. Thanks.

Hi, Amit. This is Pete. With regard to TRAMI, we are currently using a lost estimate of about $3 billion. And with regard to JEBI, I mean, we ended the year last year at about $8 billion. And actually, in the fourth quarter, we had actually moved up our estimate from four to eight and actually took a little bit. But now we're up to 12.5%. Got it.

That's very helpful. Thanks so much for the answers, and good luck for the future.

Thank you. Our next question is a follow-up from Elise Greenspan with Wells Fargo. Please go ahead.

Hi, thank you. So I just had a couple quick questions. The first was in response to an earlier question about rate over trend. You guys said that should drive about one point of improvement for the next couple years. Was that an insurance or overall comment? And then, can you peg where your loss costs are sitting in your insurance and reinsurance segments so we can just get a sense of how much weight needs to be to continue to drive margin improvement?

Right, so what we said is at least a point. I think there'll be some places where it's more, some places where it's less. Obviously, some of that will be offset by a little bit of mixed impact. But we're certainly confident with at least a point in the next couple of years. I think if you look at the average, I think that we go from some loss trends in the 5 percent range all the way down to some that are flat. But I would say that at the 4 percent range right now, just to give you a sense of it, and I believe Peter spoke to it, rate over trend was a little over a point already in our earned this quarter. So that basically tells you that at a 4% rate, that's a one-point benefit to us.

And then what about on the reinsurance side?

As I said, most of the book that we have on the reinsurance side is quota share, so you kind of get the same trends. And the number that I gave you is across the entire portfolio. Okay.

Okay, that's great. Another question that I had just going back to the Florida discussion, we hear about some companies potentially electing changes to how much business the CAT fund has within their towers. Also, there's some additional alternative capital that could potentially come into the market. Do you think the dollar of premium that goes to traditional reinsurers is flat up or down compared to last year at this coming renewal?

Yeah, this goes back to the issue that we're right in the middle of the action, and there's no question that some buyers are looking to put more into the CAD fund as a way of rebalancing the supply-demand equation in their favor. So I think we just have to let that play out.

Okay, and then one last quick numbers question. The DAC benefit, your expense ratio in millions, how much do you have left, and should that all come in the second quarter when we think about modeling?

Yeah, that's pretty small, Elise, when I actually think about the VOBA impact for the rest of the year. And again, DAC is less than VOBA, but I do know that the VOBA is about you know, $7 million in the second quarter, and then four and a half in the third, and two in the fourth. So it runs off pretty quickly. And then DAC's a subset of that.

Okay, thank you very much.

That's why we continue to talk about PGAPs, because I think ultimately those are really the numbers that will eliminate all of that, you know, PGAP adjustment volatility.

Our next question comes from Cliff Gallant with Philadelphia Financial. Please go ahead.

Hey, good morning. Hey, Cliff. How are you doing? There's been a couple of outside analysis done of your reserves indicating that there's weakness. But I know you've got a strong track record for setting your reserves. And so I'm just curious if you could comment on that. You know, when you look at things from the inside, you know, what are some of the things that you can see that perhaps an outside observer of your public data might miss?

Well, we both want to go for that one. Peter, you go first. I'll go first. I'll let Albert add the color.

I'll give a little bit more of a technical answer. But I guess what I'd say is inside our own actuaries and our own reserve committee feels good about where our reserves are. Our auditors have looked through our reserve and our reserving practices and opine favorably on those. As well as we do hire an independent third-party actuarial firm to review all our reserves and give a separate independent confirmation to our audit committee about where our reserves reside. And in all of that internally, we feel very good about where our reserves are. With regard to the external reports, I think one of the things that I would just mention is Some of these reports were using the new SEC 10K triangles, which are really just paid triangles. And so there's a lot of shortcomings of those triangles, and I think trying to do analysis just off of them when you're trying to use one consolidated triangle is very difficult. What I would ask and what I would point our investors to is we do publish a very comprehensive, transparent view of our triangles with our global loss triangles. that we publish usually every May or June. And those, I think, are good triangles for you to get your own read and do your own work on what you think about our reserves. And right now, I know there is one positive report out there that actually looked at our triangles, our global loss triangles from last year and did a fair amount of work on that, and that was a positive report. So I think part of it is Unfortunately, with the SEC triangles, they're not the best ones to use to make, personally, with an actuarial background, conclusions on someone's reserves. And with that, I'll let Albert add anything.

I think just to keep it technical, as I mentioned during the call, we've made a lot of changes to our portfolio. We got out of certain lines of business. We got into others, some of faster payout patterns than others. you need to go and look at it on a very micro portfolio approach, which is what our actuaries do. To just take a look at a single triangle, you just can't capture all of that. So our confidence in our reserves is unfazed by these recent reports.

Thank you very much.

This concludes today's question and answer session. I would like to turn the conference back over to Albert Benchimol for any closing remarks.

Thank you, and thank you all for your time this morning. As I've said at the beginning of the call, we're pleased to be back in double-digit operating ROE, and that's certainly something that we want to build on in the future. And our actions to strengthen our market positioning, improve our book, enhance our operations, invest in our future, that will continue. We're 100% committed to that. And to that point, I do want to take a moment to express my appreciation to our team at Axis. I'm really grateful for the hard work and commitment that I see from our people every day. It's a challenging market out there. They're doing great work serving our customers and delivering better returns to our shareholders. And we're going to continue doing that. So thank you to everyone who dialed in today, and we look forward to reporting to you on our further progress.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.