Axis Capital Holdings Limited

Good day, and welcome to the third quarter 2019 Access Capital Earnings Conference Call and Webcast. All participants will be in listen-only mode. If 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 a touchstone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. Alan, I'd like to turn our conference call over to Mr. Matt Rohrman, Investor Relations. Mr. Rohrman, the floor is yours, sir.

Thank you, Mike. Good morning, ladies and gentlemen. Welcome to our conference call to discuss the financial results for Axis Capital for the third quarter and period ended on September 30, 2019. Our next 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. Set aside an hour for today's call, which is also available as an audio webcast through the investor information section of our website. 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'll 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 report on Form 10-K, as well as the additional risks identified in the cautionary note regarding forward-looking statements in 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. For the purposes of this call, we believe the best way to discuss our operating results is on an ex-PGAAP basis, which is a better representation of the run rate performance of our business. Reconciliations are included in our earnings personal lease and financial supplement, which can be found in the investor information section of our website. With that, I'd like to turn the call over to Albert. Thank you, Matt.

Good morning, everyone, and thank you for joining our call. As I noted in our earnings press release, this was a challenging quarter with large catastrophes in the Caribbean, US, and Japan. There was also a higher incidence of mid-size losses, particularly in our credit and aviation lines. To be sure, even with these factors that affected our entire industry, we're very disappointed to be reporting an operating loss for this quarter. But while we're not pleased with our results, we are also encouraged by a number of positive indicators that reflect the progress that we've made to strengthen our business. To this point, I'd like to take a few minutes to discuss our third quarter results within the context of where we are in our journey, and why we're confident that our performance will continue to show progress. To better address these metrics, I'll break down my comments by speaking individually about our two segments, insurance and reinsurance. First, let's talk about insurance. Our quarterly insurance combined ratio, excluding the effects of PGAP on acquisition expense, improved by three points. This reflected a lower attritional loss ratio, which absorbed the higher incidence of midsize losses and still came down over a point, a lower CAT loss ratio, and lower acquisition expense. Excluding CATs in prior year development, the combined ratio was flat at 99, as the much improved technical ratio was offset by what we see as a short-term bump in the G and A ratio. Let me explain. As part of the remediation of our portfolio, we shed a meaningful amount of premium and made greater use of reinsurance. As a result, third quarter net earned premiums for insurance are down 13%. A consequence of these actions and reduction in premium is that while G&A expense for insurance is essentially flat on a dollar basis, the insurance G&A ratio is up by two points given the lower premium base. Reducing our premium writings in the short term is a necessary step to improving both the profitability and volatility of our insurance portfolio. We view the resulting increase in the G and A expense ratio as an acceptable price to pay for delivering a much stronger performing business. I'm confident that given our strong positioning, coupled with increasingly attractive market conditions, we will make up the loss volume, allowing us to more clearly demonstrate improving loss and expense ratios over the next couple of years. To that point, the reported 6% reduction in insurance gross written premiums year to date is not a good indicator of our growth potential. Specifically, this year we reduced gross writings of less attractive business by more than 40% in our insurance book while we were remediating it. In parallel, we grew the more attractive business by over 13% year to date. Indeed, in markets that we consider highly attractive, our growth rate has been well in excess of 20%, including cyber, primary and excess casualty, marine, and design professionals and environmental business. We've also had strong growth in Canada and in UK liability business. In addition, we're shifting more of our insurance portfolio towards more SME exposure, which tend to exhibit less volatility. We're not growing in every line. And that's because, as I've said on last calls, With the pricing actions that we're seeing, we believe the industry is appropriately reacting to loss trends that have deteriorated over the last few years and that have exacerbated the negative impact of several years of price declines. Our view remains that even with the increases we've seen in the last two years, many lines of business are still not at acceptable pricing. I would add that the canceled and non-renewed business are adding about two points to the reported insurance combined ratio. Adjusting for a G and A ratio that is on par with last year's, our continuing core business in the insurance segment is currently running at an ex-cat, accident and share combined ratio in the mid-90s. These metrics are highly encouraging and demonstrate to us that we're taking the right actions to strengthen our insurance book. Let's move to reinsurance, where we reported a very disappointing quarter. Our quarterly ex-cat reinsurance results reflect normal quarterly volatility. However, it's worth pointing out that year to date, the accident year ex-cat combined ratio for our reinsurance business is still down by more than a point, showing the progress over the prior year. But the big item this quarter was the large losses that we experienced in Japan. As noted in our last earnings call, we took advantage of improving market conditions to expand our presence in Japan, a rare opportunity given the high client loyalty within that market. This aligned with our long-term strategy as we view Japan to be among the most attractive reinsurance markets. In addition, increasing our Japanese exposure brought more capital efficiency and further diversification to our overall CAT portfolio. Unfortunately, 2019 proves to be a highly active year for typhoon activity in Japan. However, we continue to believe that, from a longer-term perspective, growing in Japan is the right call, and we're confident that we will receive appropriate returns for our commitment to the Japanese market. So let me conclude by saying that while it was a tough quarter, there were many positive indicators reinforcing that we have the right strategy. We're continuing to build momentum, and we're seeing significant growth in the most attractive areas of our business. It's because of this that we're confident that we will deliver the results that our team and our investors expect. Later during the call, I'll speak on trends that we're seeing in the marketplace. But first, I'll pass the floor to Pete.