Everest Group, Ltd.

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

Thank you, Cody, and welcome to the Everest Regroup Limited 2020 Second Quarter Earnings Conference Call. The Everest executives leading today's call are Juan Andrade, President and Chief Executive Officer, Craig Howey, EVP and Chief Financial Officer, John Doucette, EVP and President and CEO of the Reinsurance Division. We are also joined by other members of the Everest Management Team. Before we begin, I will preface the comments on today's call by noting that Everest SEC filings include extensive disclosures with respect to forward-looking statements. Management comments regarding estimates, projections, and similar are subject to the risks, uncertainties, and assumptions as noted in these filings. Management may also refer to certain non-GAAP financial measures These items are reconciled in our earnings release and financial supplement. With that, I turn the call over to Juan Andrade. Thank you, John.

Good morning, everyone, and thank you for joining the call. The world is struggling with the greatest public health threat in the last century, which has resulted in economic and great personal suffering. At the same time, individuals are rightfully calling for positive social change, and seeking an end to racism and inequality. At Everest, we stand together with our colleagues around the world against racism and discrimination. We have an unwavering commitment to supporting diversity, equity, and inclusion in our workplace. In the context of this public health, economic, and social environment, Everest is serving our customers and providing the strength and stability that they have come to rely on for almost five decades. Our business is running smoothly. We are performing well, and our people continue to demonstrate the passion and resilience that differentiates Everest. The health and safety of our employees and our customers are paramount. I am very proud of our team and very thankful for their hard work and perseverance in delivering the solid results we're reporting today for the second quarter and for the first half of 2020. Our ability to leverage our capital positions our global platform, and our success in executing against our objectives, even under adverse conditions, positions us very well for continued profitable growth. We have strong and broad-based forward momentum across both our reinsurance and insurance divisions. Our growth stems from a combination of new business opportunities resulting from our strong financial ratings, deep distribution, and diverse portfolio, as well as increased rate levels and high retention rates. We sequentially improved our underwriting profitability in the second quarter, and we continue to demonstrate strong structural expense management discipline. Our industry-leading expense ratio continues to give us operating flexibility. We also reported significantly improved net income compared to the first quarter, as we benefited from the upswing in the capital markets during the second quarter. And our shareholders' equity grew to a record $9.3 billion as of June 30th. Our book value per share was $232.32, up 8% from the first quarter of 2020, and up 4% compared to year-end 2019. Our excess capital position remains a source of strength, as evidenced by A-plus financial strength ratings recently affirmed with stable outlooks. Everest has the capital to play offense in this market. If we were to identify a need for additional capital, Our low debt ratio gives us high degree of flexibility. Our capital position, our focus on execution, our people, and our emphasis on solving problems for our customers keep us well-positioned to pursue all business opportunities that meet our underwriting appetite. Before I specifically address our second quarter results, let me share how we're driving the company forward. Our focus is on sustainably growing a balanced and diversified insurance and reinsurance portfolio by line of business and geography through the relentless execution of our strategies to deliver consistent underwriting profitability. We are nimble. We are opportunistic. We are capturing current market conditions that meet our return requirements. On the revenue side, this is about creating greater optionality and diversification across our entire business. With a broad mix of products, customer segments, distribution, and selective local presence, we're capitalizing on growth opportunities around the world and balancing the highs and lows of our industry and economic cycles. This is why having vibrant reinsurance and insurance businesses is a key element of our strategy. The growth of the insurance division, with gross written premiums now exceeding $3 billion on a trailing 12-month basis with sustained attritional profitability, is vital to greater balance in the organization. But this growth is not at the expense of our reinsurance divisions. Today, we are a top 10 global reinsurer, a growing specialty insurer, and we are building on these positions in this market. As a group, we are playing offense to improve and further solidify our position with the best mix of talent, products, and services. We are enhancing and sharpening the strategy and tightening the execution and operating rhythms. We are deploying our sizable balance sheet and diverse capital-based to expand our relevance in our chosen markets. On the margin side, the focus is on underwriting profit. We are maintaining and enhancing our underwriting results with active portfolio management, strong risk governance, and excellent analytics. We are reducing exposure in areas not meeting the right risk return profile, and we're dynamically deploying that capital to areas that do. Our strategic utilization of alternative capital will enable us to further diversify the portfolio. We are focused on claims management to deliver consistently accurate outcomes with superior service. We are maintaining our expense leadership through more efficient and scalable operating models enabled by the latest technology, including artificial intelligence and natural language processing tools. On investments, we continue to generate strong cash flows that are invested in conservative, high-credit quality portfolios. We remain well diversified. All of this will deliver growth and earnings over time, resulting in book value per share growth. Turning to the second quarter of 2020, we demonstrated continued momentum across the group, with 11% growth in gross written premiums, excluding the impact of foreign exchange. The growth was broad-based across both our reinsurance and insurance businesses, with gross written premium growth of 11%, and 10% respectively, also excluding the impact of foreign exchange. We continue to benefit from improved insurance and reinsurance market conditions during the quarter, which I will discuss in a moment. Excluding catastrophes and the pandemic impacts, our IBNR loss provision and a small amount of associated credit impacts are attritional combined ratios for the group at 88.5. In each of our segments, reinsurance at 86.7, and insurance at 93.7 are reflective of the strong underwriting performance across the group and the earnings-generating power of this franchise. Underwriting profitability remains at the core of everything we do. On a six-month year-to-date basis, Everest has grown 15% and delivered an 89.1 attritional combined ratio, excluding pandemic impacts. Our reinsurance segment had strong growth for the quarter. We continue to successfully execute our strategies to underwrite a high-performing book of business with higher economic returns at the important April 1, June 1, and July 1 renewals. We continue to see excellent reinsurance opportunities in several areas, such as facultative risk, property, and in certain territories, including the U.S., Canada, Latin America, and Asia. This environment gives us the opportunity to better shape our book store deals with better terms and pricing and walk away from others that do not meet our pricing hurdles. Traditional capital from highly rated carriers like Everest has become more relevant and supplies tight, particularly given the more limited availability of alternative capital. We see this favorable pricing environment continuing for the foreseeable future, even with pandemic-related economic headwinds. Reinsurance profitability was also strong for the division, with a 95.3 combined ratio including COVID impacts and an 86.7 excluding the COVID impacts. John Doucette will provide additional details on market conditions. Our insurance segments growth remained strong for the quarter at 10% and with improvement in underlying performance. The attritional combined ratio excluding the pandemic impacts improved to 93.7 for the quarter compared to a 96 in the second quarter of 2019. we are strategically managing the insurance portfolio to build a more diversified business and steer our mix towards product lines that we expect to earn higher margins long-term. The maturation of several new product lines launched over the last several years, as well as our wide market footprint, give us access to significant opportunities. For the quarter, the main insurance growth drivers were strong and widespread rate momentum, excluding workers' comp of plus 18%, and including workers' compensation of over plus 12. This is the highest overall rate change we have seen in a long time. Insurance written rate also continues to exceed loss trend across our core P&C lines of business. We also saw continued strength in the excess and surplus line space. We had strong renewal retention in both our retail and E&S businesses. But this growth is offset by pandemic-related headwinds in lines heavily impacted by lower payrolls and lower business activity. Turning to investments, net investment income decreased to $38 million for the second quarter. The drop was attributable to negative returns from our limited partnerships, which as we mentioned in our first quarter call, report on a one-quarter lag. Given the lag, this drop reflects the market turmoil which occurred in March. The second quarter recovery in the public markets provides a basis for expecting an improvement in limited partnerships which will be reported in the third quarter. The amount of the recovery is difficult to predict given the ongoing uncertainty caused by the pandemic. Regarding COVID-19 impacts, as per our July 23rd announcement, we have taken a $160 million loss provision in the second quarter made up substantially of IBNR. The majority of this loss provision, $130 million, was for the reinsurance business. These losses relate to event cancellation or postponement, business interruption, and workers' compensation. We have also increased our IV&R for allocated loss adjustment expenses based on anticipated costs to investigate and defend some portion of claims. We are taking a measured approach to our loss estimation process that is based on credible and supportable information. This is an ongoing event and very different than a natural catastrophe. we are continuously monitoring this evolving situation and recognizing potential exposure based on the most up-to-date information available. Our second quarter estimate was based on a refreshed analysis updated with the latest information from our clients. While our analysis continues to include all aspects of our global portfolio, our estimate does not take into account legal, regulatory, or legislative intervention that could retroactively mandate or expand coverage provisions. Of the $30 million loss provision for the second quarter in our specialty insurance business, the majority was from event cancellation and postponement policies, as the nature and duration of the pandemic has increased the likelihood of cancellations into early 2021. Smaller portion of the insurance loss provision was predominantly loss adjustment expenses for business interruption policies. As stated last quarter, our property policies have unambiguous policy language that requires direct physical loss for business interruption coverage to be triggered. Additionally, the majority of the property policies enforced contain a virus exclusion. Only a very small number of policies have endorsed sublimits that would offer BI coverage for a notifiable human disease. These exposures have already been recognized as part of the overall IBNR estimate. Workers' compensation represents the smallest portion of the insurance provision in the quarter. We have refreshed our analysis based on the industry profile for businesses, which have now been deemed essential by many states. However, this is not a significant amount. Our portfolio has no known exposure to first responders and very minimal exposure to frontline healthcare workers. With regard to the reinsurance loss provision, we have updated our analysis based on information from students and brokers. It is important to reiterate that as a reinsurer, our analysis will be very fact-specific to each situation in each contract. We have also updated our review of our mortgage reinsurance contracts. Based on our current view of the macroeconomic situation, updated client information, and our internal modeling, we remain comfortable with our exposure and with our loss of reserves. We will continue evaluating this business as the economic situation unfolds. In summary, Everest continues to gain traction and forward momentum despite the macroeconomic uncertainty and the rapidly changing external environment. We are operating smoothly, with the health and safety of our employees and our families top of mind. I am optimistic about our future. We have a talented team, a global platform, and a strong capital position, which allows us to capture the improving opportunities in front of us. Lastly, I want to welcome Mike Karmalovich to the call today. As you saw in our recent announcement, I am pleased to introduce Mike as the new CEO of our insurance division. Mike's promotion is an acknowledgement of the key role he played in the growth of the insurance business over the past several years and provides continuity so Evers can execute on our winning strategy. He will be available to answer your questions today. Now, let me turn it over to Craig to provide additional details on the financials.