Everest Re Group, Ltd.

Welcome to the Everest Group LTD third quarter 2023 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 Mr. Matthew Rohrman, Senior Vice President, Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to the Everest Group Limited third quarter of 2023 earnings conference call. The Everest executives leading today's call are Juan Andrade, President and CEO, and Mark Kosciancic, Executive Vice President and CFO. We're also joined by other members of the Everest management team. Before we begin, I'll preface the comments in today's call by noting that Everest SEC filings, including 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'll turn the call over to Juan. Thank you, Matt. Good morning, everyone.

Thank you for joining us. Favre's third quarter performance was excellent. We delivered outstanding returns, including a near 20% operating return on equity and an annualized total shareholder return of 25%. We are leaning into the hard reinsurance market, where favorable conditions and a flight to quality persist. As the lead reinsurance market and preferred partner, we are taking advantage of strong pricing, while deepening our client relationships and expanding our global portfolio at significantly improved risk-adjusted returns. We are positioned for success as we head into the January renewals. We also remain on track for January 2024 for the full deployment of the equity capital raised in May. Our primary insurance business delivered strong underwriting income with a significant year-over-year improvement in the third quarter. And our high-quality investment portfolio continues to support our underwriting performance with outstanding returns. We achieved these results despite another active catastrophe quarter. We tracked over 80 material events globally this quarter, resulting in a nine-month year-to-date industry loss estimated at roughly $93 billion. The industry is on course for another $100 billion loss this year. This reinforces the need for continued underwriting discipline and for additional pricing increases across all lines. As the world becomes increasingly complex, Everest's value proposition fits in greater demand. As you have heard me say before, we are on offense with strong tailwinds across all of our earning streams, a strong balance sheet, and top tier global talent powering it all. With that, I'll turn to our third quarter financial highlights, beginning at the group level. In addition to delivering exceptional returns, we drove substantial improvements across our group key financial metrics, underwriting income, net investment income, operating income, and net income. And we delivered record increases in operating cash flow and book value per share. We grew the business at significantly expanded margins. Rose-written premiums increased by 23% year-over-year in constant dollars, led by record quarterly reinsurance growth. We generated $613 million in net operating income, a significant year-over-year increase, and we have generated $1.7 billion year-to-date. The group combined ratio of 91.4% also improved year-over-year by 21 points, which translates to an underwriting profit of over $300 million for the quarter and nearly $1 billion in underwriting profit year-to-date. Our attritional loss and combined ratios both improved by more than a point year-over-year to 59% and 86.5% respectively. We generated more than $400 million in net investment income. in the third quarter, and we delivered over $1 billion of net investment income year-to-date. In addition to the improved interest rate environment, this year-over-year improvement was driven by strong returns from both our fixed income and our alternative investments. Turning now to our reinsurance business, the Reinsurance Division delivered an exceptional quarter with outstanding top and bottom line results and superb execution by our team. Leading into the strength of the market, we maintained our strategy of targeted and nimble capital deployment with core clients, resulting in significant growth across virtually all business lines and geographies as materially improved risk-adjusted returns. We grew gross written premiums on a constant dollar basis and excluding reinstatements by 33% to $3.2 billion for the quarter. This is a new record for the division. In property catastrophe, where the market remains outstanding, premiums excluding reinstatements were up 41% from last year. Property pro rata premiums increased 44%. Casualty pro rata premiums were up as well, at 20%, while we carefully managed the casualty market cycle and target best-in-class clients. Internationally, we expanded in key target growth markets across Europe, Asia, and Latin America. We also grew in specialty lines with strong margins, including aviation, marine, and mortgage. Despite the active catastrophe quarter, we improved our catastrophe loss ratio significantly year over year, reflecting our deliberate and consistent actions to manage volatility. The attritional loss and combined ratios were down year over year by 1.6 and almost two points, respectively, with the overall combined ratio improving to 91%. This helped us achieve an underwriting profit of $234 million. Looking ahead, our outlook for the January 1, 2024 renewal remains strong. We fully expect the robust pricing and favorable conditions to continue. And as a lead market, we stand to benefit. Our nimble, creative, and collaborative approach allows us to simultaneously improve our economics and strengthen client relationships. This tremendous relationship equity will serve us well. Expectations for pricing and terms and conditions in the global property market are now well understood. which should make future renewals more orderly. At recent industry events, including Monte Carlo and CIAB, our clients told us that they want more of our capacity and want to further broaden their partnership with us. Our confidence in our strategy and in the strength and durability of the market is high. I am excited by the magnitude of the opportunity we have created for the business. We are extremely well-positioned with the expertise global capabilities, and financial strength to seize this generational market opportunity and to optimize the portfolio for the long term. Now turning to our insurance division. In our primary business, rate continues to exceed loss trend with improvements across multiple lines. We achieved an 11% increase in our core portfolio, excluding workers' compensation and financial lines. In addition to property, improved pricing was particularly strong in marine and other specialty lines. We grew the business approximately 4% and generated more than $1 billion in gross written premiums. Growth in the quarter was diversified and particularly strong across property where we see excellent opportunities. And specialty lines such as marine, aviation, trade credit, and political risk. The growth was offset by reductions in workers' compensation and financial lines where the market is less attractive. Additionally, we are gaining traction internationally where we are methodically scaling our capabilities and our platform. Our focus remains on driving bottom line growth. We continue our discipline underwriting to take advantage of high margin opportunities and reduce exposure in pockets of business that do not meet our profitability objectives. The attritional loss ratio improved year-over-year to 63%. Our pre-tax catastrophe losses at $10 million, net of estimated recoveries and reinstatement premiums, were modest, leading to an improvement in the reported combined ratio to 92.6%. We achieved an underwriting profit of $66 million in the quarter and a record profit of $196 million year-to-date. We continue to attract and develop best-in-class talent. We share our vision for the company and our commitment to world-class customer service. I am bullish about the momentum we have created for our business and Everest position in the market. We have every advantage at our disposal, a world-class team, strong and diversified reinsurance and insurance platforms, and market tailwinds at our back. to accelerate our progress and build even greater value for our shareholders. With that, I'll turn it over to Mark to review the financials in more detail.

Thank you, Juan, and good morning, everyone. Everest had another very strong quarter and built upon the momentum we saw in the first half of the year. The company reported operating income of $613 million, or $14.14 per diluted share in the quarter, equating to an operating income return on equity of 19.2%. Year-to-date total shareholder return, or TSR, stands at 24.5% annualized. We significantly improved our overall combined ratio while generating double-digit growth as pricing and terms remain attractive in most lines of business around the world. The company's strong performance in the third quarter was led by our team's high level of execution in our core markets, and we have a number of tailwinds across both of our businesses heading into the last quarter of the year and into 2024. Looking at the group results for the third quarter of 2023, Everest reported gross written premium of $4.4 billion, representing 23.4% growth in constant dollars year over year. The combined ratio was 91.4%, which includes five points of losses, or $175 million, from pre-tax natural catastrophes, net of estimated recoveries. The natural catastrophe losses in the quarter were driven by a number of mid-sized events globally. Group's attritional loss ratio was 59%, 120 basis point improvement, over the prior year's quarter led by the reinsurance segment, which I'll discuss in more detail in just a moment. The group's commission ratio increased 50 basis points to 21.4% on mixed changes, while the group's expense ratio remains a competitive advantage of 6.1%, up modestly year over year as we continue to invest in our talent and systems within both franchises. Moving to the segment results and starting with reinsurance. Reinsurance gross premiums grew 32.7% in constant dollars when adjusting for reinstatement premiums during the quarter. As Juan mentioned, this was a record for the segment. The strong growth was driven by double-digit increases in property pro rata, property cat XOL, casualty XOL, and casualty pro rata, and was broad-based globally. The combined ratio was 91%, which improved from 115% in the prior year. The prior year period included $620 million of pre-tax catastrophe losses, net of recoveries, and reinstatement premiums, largely due to Hurricane Ian. The attritional loss ratio improved 160 basis points to 57.5% as we continue to achieve more favorable rate and terms, particularly in property, which we expect to continue throughout 2024. The commission ratio was 24.8%, an increase of 90 basis points from the prior year due to the impact of reinstatement premiums from the Q3 CAATs last year. There was a modest 30 basis point underlying mixed impact benefit excluding the Q3 2022 reinstatements. The underwriting-related expense ratio was 2.5%, which was essentially flat year over year. We continue to lean into the hard reinsurance market, and the equity capital raise deployment remains on track and will be fully deployed by January 1st's renewals. Moving to insurance, gross premiums written grew 3.5% in constant dollars to $1.2 billion. As you may have noticed, Gross written premium growth was more modest this quarter as the division enjoyed double-digit growth in a diversified mix of property and specialty lines, while being partially offset by lower written premiums in workers' compensation and financial lines. Overall, pricing remains ahead of last trend, and we continue to see attractive market opportunities across our book of business. We will also continue to have underwriting discipline in areas we find less attractive as we exhibited this quarter. The combined ratio was 92.6%, which improved from 103.5% in the prior year. The division benefited from a relatively low level of natural catastrophe losses in the quarter in the amount of $10 million net of estimated recoveries and reinstatement premiums. further demonstrating the success of our de-risking actions on our portfolio. The attritional loss ratio improved slightly this quarter to 63.1%, driven primarily by business mix, given the higher proportion of longer tail lines of business. The commission ratio improved 120 basis points, largely driven by business mix as increased property writings earned through, as well as increased volume of seeding commissions. The underwriting-related expense ratio was 16.7%, largely driven by certain one-off expenses and the continued investment in our global platform. And finally, to cover investments, tax, and the balance sheet, net investment income increased $255 million to $406 million for the quarter, driven primarily by higher new money yields, our investment in floating rate securities, and higher assets under management. Alternative assets generated $75 million of net investment income, a sequential improvement as equity markets have continued to rebound. Overall, our book yield improved from 3.2 percent to 4.2 percent year over year, and our reinvestment rate remains close to 6 percent. We continue to have a short asset duration of approximately 2.7 years, given the attractive level of short rates. And as a reminder, the 23% of our fixed income investments are in floating rate securities. For the third quarter of 2023, our operating income tax rate was 6.5%, which was lower than our working assumption of 11% to 12% for the year. And this was largely due to geographic income splits. Shareholders' equity ended the quarter at $11.3 billion, or $13.1 billion, excluding net unrealized depreciation on available-for-sale fixed income securities. At the end of the quarter, net unrealized losses on the available-for-sale fixed income portfolio equate to approximately $1.9 billion, an increase of $242 million as compared to the end of the second quarter, resulting from rate increases and foreign exchange movements. Cash flow from operations of 1.4 billion during the quarter was a company record. And book value per share entered the quarter at $258.71, an improvement of 22.4% from year-end 2022. When adjusted for dividends, $5.05 per share year-to-date. Book value per share excluding net unrealized depreciation on available for sale fixed income securities stood at $301.76 versus $259.18 per share at year-end 2022, representing an increase of approximately 16.4%. Net leverage at quarter-end stood at 18.6%, modestly lower on a sequential and year-over-year basis. In conclusion, Everest had an excellent third quarter of 2023 and is well positioned heading into the final quarter of the year and into 2024. And with that, I'll turn the call back over to Matt.

Thanks, Mark. Operator, we're now ready to open the line for questions. We do ask that you please limit your questions to one question plus one follow-up, then rejoin the queue if you have additional questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roaster. The first question comes from the line of Alex Scott with Goldman Sachs. Please go ahead.

Hi, thanks. Good morning. first question I had for you is on the demand for property cat reinsurance headed into this next year. And I'd just be interested if there's any color you can provide from, you know, early discussions and indications around that, that, piece of things in terms of just thinking through last year, the retentions brought up a bit. I think limits in certain cases weren't taken up as much as insured values were going up, that kind of thing. Are you seeing some willingness to reverse some of those actions? Do you think you'll see that kind of growth in the property CAD reinsurance market this next year?

demand is that we see very strong signals that our clients are looking for more property cat capacity and as you say you know there was I think some pent-up demand at 1 1 of 23 that ultimately didn't get fulfilled and so they're now back in the market and seeking capacity we're having discussions with our clients actively about the 1 1 renewal and have also taken advantage of some opportunities to do some private in the latter half of this year to start filling in that demand. So I think that's a very strong signal. And our view with that is that that will continue to drive really attractive returns in that market. As respects, you know, retention levels and the market's reaction to that and what might happen next year, you know, our view is overall the movement and retentions were necessary and appropriate. There clearly was too much industry loss activity flowing into the reinsurance sector that needs to be retained in the primary market. Now, does that mean that every single carrier landed in the right spot? You know, probably not, and I'm sure there will be some adjustments around the edges. But fundamentally, I don't see any change in terms of going backwards on retentions.

Got it. And in terms of a follow-up, I wanted to ask you about casualty reinsurance and just your comfort with the price adequacy of the quarter share commissions and so forth. We heard that there was some negativity coming out of Monte Carlo from some of the European reinsurers. What's your perspective on some of the social inflation concerns and how well that's being captured in price and willingness to grow in some of those areas?

Sure, Alex. It's Jim again. So as you say, I mean, this issue is clearly on the minds of the market, and it's been much discussed, including by, you know, Everest with our customers at both Mining Carlo and CIAB. I think to fully understand our view of the market and what happens next, you really have to understand the context of how we built our book of business. We've been incredibly deliberate and focused on managing the market cycle and growing with the best-in-class seedings around the world, right? So we timed it correctly. We grew after the market began to harden. In 2019, we grew with best-in-class underwriters. We did not write the entire market, and I think some market participants did do that, and their results and their market commentary reflects that error. And you also may have heard recently a view expressed, I think, that you mentioned. I mean, that is absolutely not the case with Everest. You would have seen our approach over the last three plus years. We've been very decisive on the reserve front. We've been prudent in our loss picks, which we've maintained, by the way, even though pricing over the last couple of years has exceeded our expectations. We've been updating our trend factors on a frequent basis. So we're staying very much close to these trends and staying on top of them. So today we're sitting here with a very strong book with the best underwriters in the market. And those underwriters are not sitting by idly waiting for bad things to happen, which, by the way, is why we're starting to see signs of some reacceleration of rate taking among many of our clients. They're managing this closely. That said, you know, social inflation is real. It's a real trend that needs to be managed. And so our approach. whether it's the January 1st renewal that's coming up or really any renewal, is to assess each deal on its merits. And we do that in a very rational way. If the deal passes muster, then, you know, and it's delivering returns we want, we'll write it. If it doesn't, we're more than happy to move away from it. We have many, many options to deploy our capital, which is why diversification is so important in our business. Many, many different ways to get to our financial among deals. The other point that I would make just relative to a piece of your question around seating commissions, you know, given all these trends, our expectation is that seating commissions will continue to improve. We've seen that movement already begin, and we expect it to strengthen considerably as we move into 2024.

Thanks for all the details.

You got it.

The next question comes from the line of Josh Shanker with Bank of America. Please go ahead.

Yeah, thank you for taking my question. Maybe there's no answer to this question, but obviously the attachment points have gone up this year and the portfolio is more risk-averse than it was a year ago, presumably. Given the moderate and frequent catastrophes this quarter, is there any way of putting into context what the cat loss would have been had it happened last year instead of this year?

Sure, Josh. This is Jim. Well, one point I would start with, you know, I know you've made a point that, you know, it was a moderate cat quarter and And I think we feel very good about our cat loss. But this quarter, from an industry perspective, was anything but moderate. I mean, we tracked over 80 events around the world. You had, you know, significant hurricane activity, which fortunately, because of, you know, landing points, et cetera, did not do, you know, significant damage. But the comment I would make, and as you say, it's sort of an unanswerable question, but you've seen our year-to-date performance. in terms of our reported CAT losses. And that's happening against the backdrop of a year that's likely going to be another $100 billion-plus industry loss a year, which is incredible, right? And our expectation is that, you know, if you repeated the losses of 2022, for example, our loss this year against those same events would have been meaningfully lower, and that's because of attachment points aggregation, it's our underwriting discipline, it's all those things laddering up. So we have clearly changed and improved the risk profile of the book, particularly when you're talking about, you know, a large number of mid- to large-size CAT losses.

Okay, and then if I can get one more in. You mentioned that you're ready to deploy the capital you raised earlier than year, January 1st. Is there any way to discuss the degree to which capital is under-deployed right now in 3Q23 and what the impact might be if you were fully deployed the way you want to be?

Yeah, sure, Josh. Jim again. Well, look, so just to kind of go back to what we said earlier, after the capital raise, our expectation was that we would begin the deployment meaningfully with the 7-1 renewal, that there would be incremental opportunities through the back half of 2023, and then we would complete the deployment at the January 1st renewal. So we have done exactly that. We've begun the process of deployment. We had a really strong 7-1. The back half of the year after 7-1 gets quieter, but there's been some nice deal activity, both at the renewal periods as well as on a private placement basis. And based on the conversations we've had with our scenes, we see a very strong path to completing the deployment. We really have no concerns around that. So I'm not going to speculate on, well, you know, what if I had just, you know, sort of deployed all the capital at 7-1. But what I can say is the path to completing that process, as we described, is incredibly clear.

Josh, it's Mark. Just to add a couple of points to Jim's commentary. So, number one, we're obviously very, very certain of our ability to deploy by 1-1. So you're dealing essentially with a six-month timeframe between the raise and the 1-1 deployment. Along the way, clearly we're deploying it where we see fit. From an investment point of view, it's fully deployed the way we would like it for the time being. No issue for us to carry a little bit of excess capital. That's going to get remunerated to some extent, but we'll be, like I said, fully deployed by 5-1-1. And there's no... benefit to rushing any kind of deployment. We want to stay disciplined and focused, just as our initial plan back in May for the equity raise indicated.

Yeah, Josh, and this is Juan, just maybe to put a fine point on it. Rates are still improving in property, and we also got paid a lot more for the risk that we took. And so that's part of the confidence that we have in being able to deploy this fully by the one-on-one renewables.

And so we should expect healthy growth with 1-1 given all that you've said.

Yeah, Josh, it's Jim. I mean, my expectation is we're going to grow our property cat writings with our core clients very nicely. You know, again, we see significant demand. Our expectation is that risk-adjusted rates will increase at the 1-1 renewal. So lots of opportunity in the environment.

Thank you for the extended answer. Appreciate it. All right.

The next question comes from the line of Yaron Kinar with Jefferies. Please go ahead.

Thank you, and good morning. My first question piggybacks on your thoughts on 1-1 renewals in the property reinsurance market. So certainly you sound very constructive. You're also talking about demand being up. What about the supply side? Because I would have thought that with relatively benign reinsurance losses this year, and certainly in hurricane season, you're going to see an uptick in capital. So how are you thinking about that and the kind of supply-demand dynamic, especially for maybe more remote risk, which seems to be where reinsurers are more interested in playing right now, into 1.1? Is the constructive view really driven by supply-demand, or is it more about sentiment and discipline, considering maybe a more balanced equation this year?

Yeah, Yaron, this is Juan. Thank you for the question. Look, I think from our perspective, you know, you're seeing a couple of dynamics that really have not fundamentally changed since the beginning of the year since we've been talking about this issue. Number one, there's still definitely a supply and demand imbalance that's out there. And, you know, I think as we've discussed before, whether that's 100 billion or 40 billion, it doesn't really matter because it's a pretty big gap between supply and demand. And there has not been a particularly large or moderate influx of capital into the industry to close that gap. So there's definitely that imbalance that continues to exist on the supply side. In addition to that, and building on what Jim said earlier, you're still seeing pent-up demand and increased demand from our students across the board. A lot of that is also generated Basically, Seaton's wanting to work with more companies like us who have stronger balance sheets, who have been very constructive in the renewals, et cetera. So from that perspective, you know, we're not seeing anything in the environment right now that really fundamentally changes the pricing trajectory or the trajectory of this business going into 1.1 and, frankly, further. You know, you saw the growth rates that I quoted earlier in my prepared remarks where we were up over 40% in property. You heard Jim's comments just a minute ago about what he expects to see at 1.1. So we do expect that tailwind to continue to be behind us as we go forward. But let me ask Jim to jump in and see if he wants to add anything to that.

Yeah, sure, Jeroen. A couple of other points I'd add to what Juan said. I mean, there is, I think you've referred to it as sentiment, but there's an underwriting discipline that underlies all of this, irrespective of how much capital is available to underwriters. In our industry, every underwriter I've talked to, they want to get paid more for the risk they've been taking, and that's a reflection of the last several years of elevated cat losses and even what we've seen this year and in this quarter. And I don't see any sign that that's dissipating. And then to your – the other point you made around, you know, more remote layers, and that seems like, you know, an area where more people want to participate. You've seen some cat bond activity up there, et cetera. I mean, that – you know, how much rate gets added to the effects of 2023 and at which levels, you know, will remain to be seen. But in our view, it doesn't really matter. If there's more supply at the remote level, that means that just below that, there'll be great opportunities. You know, we're very flexible and nimble in where we deploy our capital. And so, you know, those kinds of impacts don't really reflect or change our opportunities.

Thank you. That's very helpful. And then if I can maybe shift gears to the insurance segment. And I think, Mark, in your prepared comments, you talked about some mixed shift as maybe driving the loss ratios to stay unchanged year over year, despite the fact that you're getting rate over trend. Can you maybe elaborate on that a little bit? Because, you know, for me as an outsider, if I look at the book, it seems like, you know, Property and short sale lines grew by about 40% year over year in aggregate over the last 12 months. I see other specialty up 40%, and then I see some of the lines that I would have thought have higher attritional loss ratios, such as workers' comp, professional liability actually coming in a bit. So I'd love to better understand the dynamics there if you could elaborate.

Okay, Jaren. It's Mark. I'm going to start, and then I'll ask Carm to finish and add some color to it. Look, first of all, I think the attritional loss ratio is pretty much right where it should be. We're still setting conservative loss picks for casualty lines in particular. We are in an elevated risk environment. We want to be prudent on that. We're obviously getting rate, and we're getting – the kind of business we want to write in terms of cycle managing this particular marketplace. So you've seen some increases in writings and decreases in different lines, and that gives you a sense of our discipline in the marketplace. And so that mix in the attritional loss ratio is coming out to, you know, broadly stable with last year. We don't see any problem with that. We've got an embedded margin in there that we're quite comfortable with, quite confident in, and we think it takes into account the risk environment that's out there for the different lines we've underwritten.

Yeah, and, Yaron, I would add – this is Mike Karm. I would add to it a couple things. First, the focus for us as one state and as opening comments is about profitability. And we've been leaning into the first-party lines pretty heavily, particularly on the property, aviation, and marine. And then you see the other specialty lines, like you mentioned. We're driving lines like credit and political risk and energy, where we see really, really strong risk-adjusted returns. And ultimately, that's being offset when you think about what we are in that cycle management that Mark mentioned, particularly on the workers' comp and financial lines. And that offsets it. If you think about the quarter for us, we are focused on mixed. That is our general focus, ultimately, is to get the loss ratio to get lower. But for us, ultimately, it's really trying to make sure that we're leaning into the market where there's opportunity and, again, being disciplined around what we don't change. that we think right now are not showing those risk-adjusted returns. So if you took those out, particularly the workers' comp and particularly the financial lines, our growth would have been where we are here to date, around 9% plus. So I think for us, we tend to focus on the long term. It's really about generating the right mix and making sure that we're driving the best loss ratio we can do.

Thanks so much.

The next question comes from the line of Michael Zaremsky with BMO. Please go ahead.

Hey, good morning. Thank you. Maybe just looking at the paid to incurred ratio X catastrophes and reserves, it's been, I think, not just you all, but it's been ticking up a bit, you know, year over year and quarter over quarter. Anything worth calling out or talking about in terms of trend there?

Uh, Mike it's Mark. Uh, I wouldn't say there's anything specific to say there. Um, I think it's largely your portfolio mix. That's that's just driving that, uh, trend, you know, mix of property, the long tail lines. There's no particular, um, you know, significant set of claims or COVID settlements or anything like that. That's that's in the mix. Um, so from my standpoint, it's just a natural outcome of the portfolio mix.

Okay. That's helpful. I guess switching gears a bit back to the discussion on seating commissions, the business mix has changed a lot over time. And, you know, I know you used the, I think the wording, it could improve considerably. Any perspective on kind of like if seating commissions are still, you know, many points differently than they were many years ago, right? But I know your business mix has changed a lot, too. So is there any context about what considerably could mean if things do go, continue to move in favor of reinsurers into 24?

Yeah, Mike, this is Jim Williamson. Look, one of the things we've said this year is that seating commissions on casualty pro rata overall have moved by about a point. is that that will accelerate and needs to accelerate. And we've certainly seen some anecdotes that you probably would have heard of as well of, you know, deals in the back half of this year moving by more than that, and we've seen some of that as well. And I think that bodes well for us in 2024 being able to accelerate, you know, from that one point to a larger number. I'm not going to predict what that ends up being, but the trend line around getting a better outcome is certainly there.

Okay. Got it. And, um, maybe lastly, um, wanted to make sure, uh, on, on, uh, Everest historical cat load guidance, is it correct that, um, your, your last catalog guides was less than 6%. And I'm, um, and I'm, you know, we're, I, I clearly heard what, you know, we clearly heard what you said about, you know, if cat losses, uh, last year happened this year, what would, you know, what would happen? But then also you're probably leaning into the marketplace as well, and business mix has changed. So just is less than six the most recent update?

Yeah, roughly 6% is the expected annual catalog that we would have in our operating plan for the year. Now, that's consistent, broadly consistent with what we said at IR Day back in 2011.

Thank you. The next question comes from the line of Mike Ward from Citi. Please go ahead.

Thanks, guys. Good morning. I was just wondering if you had any preliminary view on maybe the industry exposure for Hurricane Otis in Acapulco.

Yeah, sure thing, Mike. This is Juan Andrade. Look, I think Otis is a great example of what we've been talking about over the last few minutes and the reason why, frankly, the property cap market will continue to be hard into 2024 and 2025. Let's put it in the context of what we said earlier, right? We saw 80 events roughly around the world that we were able to track. The industry loss now is at about $93 billion nine months here to date. headed well probably into $100 billion plus by the end of the year. And now you have something like CODIS, which if you follow what happened with that storm, it basically exploded from being a 70 mile an hour storm to being 165 miles an hour in a period of about 12 hours, which was pretty significant strengthening, and then hitting Acapulco, right? So this is one of the things that You know, when you look at the world, you realize that, you know, you still need to continue to push for pricing. You need to continue to push for attachment points being up, terms and conditions, et cetera. Look, from our perspective, we expect that loss to be modest at the end of the day. I can't speak for others out there, but I think this is also the discipline that you've seen from us on how we manage our volatility and our accumulations around the world.

Thanks. That's helpful. Maybe on the expense ratio front, the internal investments seem a little weighted to insurance. I guess as you look to 2024, do you expect that to set up softer comps in that segment or for the group overall?

I missed the last three words on that. Sorry. Could you repeat it, Mike?

I was just looking to 24. I was wondering if you expect the expense ratio weighted towards insurance to set up softer comps, whether it's insurance or just for the group overall.

Well, we're continuing to expand in insurance, both in North America, but also internationally. So that comes with a bit of front end loaded expenses, something we think we can manage well within our combined ratio expectations for the business. You know, it's a bit elevated right now compared to prior years as we start to gear up, but it's not something that I would expect to have any kind of meaningful impact on our combined ratio going forward. Having said that, I think the benefits of our expansion, this is something we'll get into in our investor day, but that's something we feel very confident about going forward in terms of being a future profit driver and an expansion of our franchise offering.

Thanks, guys. Thanks, Mike.

The next question comes from the line of Ryan Tunis with Autonomous Research. Please go ahead.

Hey, thanks. Good morning. So I just had one, and I guess it's on the Kilimanjaro bond. So earlier in the year, it looked like you guys let a couple hundred million of those expire without replacing them. And it looks like there's almost another half billion of those that expire at year end. I'm just curious – if there is a plan to replace those with some other form of reinsurance, or should we think about the capital raise you did earlier this year as potentially going to fill a little bit of that?

Ryan, it's Mark. So let me take a shot at this. I think whenever we talk about our capital shield, we always start with the gross risk that we're underwriting. We essentially want to be gross underwriter. It's not a flow-through or anything else in terms of the use of, you know, retrocession cap bonds, et cetera. So that's kind of the starting point. So we have a substantial laddering of cap bonds, you know, typically over a four- or five-year type of duration. There are different layers at which they attach. And our book changes as well on the growth side from time to time. So we take the gross portfolio that we're underwriting into account. We take our overall cat position into our account, and then we start to modify. And there's a couple of other factors that would go into it. So let me just start with the easy stuff. So we always, we have the ability to use and we prefer to use Mount Logan. our third-party sidecar vehicle as much as we can in terms of hedging and aligning it with the kind of risk we're taking in PropertyCat. Tactical use of ILWs on a periodic basis is another tool that we use. And we use this proactively depending on where the efficiency of the pricing and the placements are for Kat Bonds and ILWs, and then Logan, of course. So we also take into account the capital position. You referenced the capital raise in May as an additional source of capital base for the company. So that definitely enters the equation. And lastly, I would throw into the mix the economic capital at risk graph that we talk about frequently in our investor deck. And essentially, that space that we're comfortable playing in shows that we have a lot of room to expand risk appetite within our tolerances for tail risk, earnings at risk. And we tend to do that, especially when we see a superior margin on the types of risks that we're underwriting, particularly property cat. And so we take all of these factors that I've mentioned to plan out our capital shield going forward. And so obviously we had a conscious decision to not renew the, I think we had two bonds in the spring. We did add another one at a different layer, but net-net there was a reduction. We've got significant capacity that's up for maturity in, I believe it's November, December. And that's something that we're taking into account now, but I've given you the framework of how we look at it. So I can assure you that, you know, given our ambition as a gross underwriter and pursuing superior risk-adjusted returns, we're going to look at the options on the Capital Shield side relative to our gross book as we make those decisions.

Thank you. That's helpful.

The next question comes from the line of Gregory Peters with Raymond James. Please go ahead.

Well, good morning, everyone. I guess I wanted to step back and with the substantial growth and as you're leaning into the market and property in the reinsurance side, and then you're also reporting the growth in the insurance operations on property short tail. Could you just talk to us about how you're managing risk aggregation? Because it's a lot of growth and just, you know, I'm sure there's a lot of involvement in managing your risk. But give us some perspective there.

Yeah, Greg, this is Jim Williamson. It's clearly an important topic. We have a very robust risk management process at Everest that spans almost both our reinsurance and our insurance business across really all aspects of the risk we're taking, whether it's property CAD, it's credit risk, casualty, et cetera. And there are robust processes underneath that framework where underwriters in the respective divisions are analyzing our aggregations, assessing risk-reward. We have a company-wide risk-reward scorecard that shows us where we're getting best paid for capital deployment. And we leverage that process to ensure that we're moving capacity to the areas of the business that drive, you know, the best returns. And so what you would have seen, for example, early this year, if we had rewound the clock in those discussions, you know, Mike, Carmen, and I were staying very close on what was happening in the reinsurance market. And so reinsurance started consuming more of the available capacity because that's where the opportunities lie. That started to balance out a little bit more now as the opportunity in insurance has strengthened so much. So that's the process we use. You know, if you look at our PMLs by peak zone, we're still in really good shape in all of our peak zones. We do monitor it very carefully, but as Mark had indicated on an earnings and capital at risk, or if you look at our stated risk tolerances, in our horse defiling, et cetera, we're all well within risk tolerances, which gives us room to grow both reinsurance and insurance as these opportunities emerge.

Yeah, Greg, and one thing that I would add to what Jim just said, and this is one, a lot of it is rate, not necessarily exposure, right? And that's the trade that we've talked about in the past. It's an excellent trade for us, which is we're able to get significant rate for similar exposure and significantly better risk adjustment.

Yeah, sorry, I guess you're going to get all four of us. Greg, it's Mark here, and then I'll let Mike finish it off. I just want to add two points. So, number one, we have very clearly defined risk tolerances inside the company for how much risk we're willing to take. Those are not going to be breached. Those are governed at the board level, respected by management, and we have a clear process to manage that stuff. A lot of flexibility there. as well. And number two, we are fairly diversified and broad based with our exposures as well on a geographic and line basis, which also helps. You're not seeing single concentrations that are onerous in the different zones. Mike? Sure.

Yeah, and I'll finish it off. I guess just from a perspective, you've seen over the last few years in insurance, we've meaningfully de-risked a lot of the portfolio, particularly in the peak zones. Over the last two years alone, you saw us exit the Florida condo business, not just because it wasn't profitable, but because it really didn't meet our risk adjustment. returns, and we just saw the regulatory environment, the litigation environment changing. And then more importantly, the specific portfolio actions we've taken around our hurricane 100 PML, over 40%, we reduced that. We took our gross limits in our wholesale, which is more cap-prone again, and reduced that over 40% deployed limits over the last year. And what you're seeing from us right now is basically getting much, much better risk-adjusted returns, but really de-risking our concentration around these peak zones and really basically diversifying the portfolio.

Well, that's good detail. Juan, I think you mentioned the durability of the market in your prepared remarks. And I know every, well, many of us are focused on wind and North America wind, which has not been an issue this year, at least in any sort of material way. But there hasn't been many losses in fire or DIC in North America either. And I'm just curious, I know it's rather a specific question, but do you see any change in pricing or terms in FHIR or DIC going into 1.1, considering the lack of any loss there?

Look, I think, thanks, Greg, is one. I think ultimately all of this goes back to the fundamental question as to how much capacity is available for property in general. So I think it is part of the same equation. And so in our view, we expect this market to continue the way it is. You know, you look at the rates that you're getting in wholesale in North America are basically 30 or plus. In the retail property in North America, you know, they're 20 to 30 percent. And that has continued. That's sort of gone unabated in this period of time. I think that same dynamic that we talked about earlier where not only is there a supply and demand issue here, but there's also the psychology that Jim was talking about. I think Yara may have asked a question. You know, the environment hasn't fundamentally changed. And so because of that, I don't think there's going to be a fundamental change in pricing in property ex-cat at this point in time.

Fair enough. Thank you for the answers.

Thanks, Greg.

The next question comes from the line of Mayor Shields with Keithy, Briette, and Woods. Please go ahead.

Great. Thanks so much for putting me in. Two really quick questions. First, Mark, in addition to the investment spends, I think you noted some one-time expenses in insurance, and I was wondering whether there's any way of quantifying that.

Well... one-time expenses. So let me break it down into kind of two components on the insurance expansion. So I would say roughly maybe a little less than two-thirds of our expense is compensation-related, so human capital. So we are expanding. That's going to provide future bandwidth to underwrite and current bandwidth. It's clearly actionable. The second piece is you are dealing with technology spends as well to improve systems and, you know, middle office process type stuff. So that stuff is making its way through. It's very manageable. It's a relatively modest amount, and it's something that comes first, and the growth is trailing somewhat. But we definitely see this paying for itself and, again, manageable within the – combined ratio assumptions that we have for the plan.

Okay, perfect. That's very helpful. Second question, just to make sure I'm not overlooking anything. I think, Juan, you've talked about a lot of executives have noted that this year, or sorry, the 1-1-24 reinsurance renewal should be much more orderly. Is there any benefit to the more chaotic renewals that we saw last year? Was there any good guys embedded in that?

Well, look, I mean, you know, you always want to be in a place where your customers, your students and the brokers sort of understand the situation and understand, you know, what you are essentially putting forth as terms, conditions, et cetera, et cetera. And I think that was a more challenging renewal last year because the market changed so quickly. I think what we see now is basically what I articulated earlier, where At this point in time, I think we all recognize the world that we're living in. We all recognize the environment. Discussions have begun much earlier than they did last year. And so from that perspective, I think that's actually a pretty good thing. So we feel pretty good about it. I think, frankly, the only benefit that I would have seen last year is the fact that Everest is was one of the first, if not the first, to get out and offer constructive terms and conditions and pricing, whereas a lot of our competitors were still looking to essentially fill the retro buckets to know how much capacity they had. So I think for us, that was a good guy last year. But ultimately, I think having an orderly market is good for the industry.

Perfect. Thank you so much.

Thanks, Martin.

The next question comes from the line of Ryan Meredith with UBS. Please go ahead.

Yeah, thanks. Just one quick one here. Mount Logan, I'm just curious what kind of plans are for 1-1. Do you think you're going to be able to increase capital there and maybe investor demand for those types of facilities?

Yeah, Brian, this is Jim Williamson. Yeah, Mount Logan has had a pretty solid year from a capital raising standpoint, particularly against the backdrop of of a lot of the big ILS allocators sort of being on the sidelines this year. We've raised over $250 million. AUM sits just under $1.1 billion, so feeling very good about that. The team at Mount Logan has done a terrific job of building a pipeline of what we view as sort of world-leading allocators, meaning the really smart, long-term money, the sovereign wealth funds, the pensions, etc., And we do expect some incremental capital raising at 1.1 and throughout the course of next year. I will say as a general comment, you know, I've had a number of discussions recently with some large pension fund allocators. You know, the challenge they still have is they've seen a lot of deterioration in other parts of their portfolio, which tends to bump them up against their ILS risk limits. And that is easing a little bit, but it's still a factor. And so I think, which, by the way, we view as a good guy. It helps sustain momentum in our underlying market, which is our critical priority. But my guess is that we'll have some nice successes in 2024.

Great. Thank you. Appreciate it. Got it.

The last question for today is a follow-up from Mike Ward with Citi. Please go ahead.

Hey, guys, thanks. I just wanted to follow up on the Otis and Acapulco. Is there any quantification on the potential industry exposure? I know it's early.

No, Mike, this is one. I think it's so early. I mean, this thing just made landfall really yesterday at this point in time. And, you know, for us, as I said, this is a modest exposure based on how we have managed to portfolio to reduce the volatility. But I think it's way too early. We haven't seen anything yet from any of the modeling agencies at this point in time.

Okay. Thanks so much, guys.

Thanks, Mike.

That was the last question.

Okay. Well, thank you all for your questions and for the excellent discussion. You know, we had an excellent quarter, and I look forward to discussing the company's strategic plan on our investor day on November 14th. I hope to see you all then. Thank you.

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