Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Everest Group Ltd (EG, Financial) reported strong operating income driven by healthy underwriting results and investment income, resulting in an annualized total shareholder return of 19.4% and an annualized operating return on equity of 18.7% year to date.
- The reinsurance franchise is generating excellent results and is well-positioned to benefit from attractive market conditions, particularly in property and specialty lines.
- The insurance segment has made progress by improving the portfolio mix, growing in lines with higher expected profit trajectories, and gaining traction internationally.
- Net investment income was nearly $500 million in the third quarter, showcasing the outperformance of the investment portfolio.
- The company has proactively managed its exposure to high-risk areas, such as reducing exposure in Florida, which has allowed for growth in the property catastrophe portfolio with higher expected profitability.
Negative Points
- The combined ratio included approximately 8 points of catastrophe losses from multiple hurricanes and other natural disasters, impacting overall profitability.
- There is ongoing caution in certain casualty lines in the US due to challenging market conditions and elevated loss activity, which could affect future profitability.
- The insurance segment's combined ratio increased to 97.1% in the quarter, reflecting higher catastrophe losses compared to the previous year.
- The company is facing elevated loss activity in US casualty lines, particularly in excess casualty, general liability, and commercial auto, which could necessitate reserve strengthening.
- Despite strong performance in some areas, the insurance segment's attritional loss ratio remained flat, indicating challenges in achieving expected improvements due to higher loss ratios in casualty lines.
Q & A Highlights
Q: What would you say to investors concerned about cuts in casualty premiums and the potential need for reserve strengthening?
A: Juan Andrade, President and CEO, emphasized that diversification is key to their strategy. They are nimble and opportunistic, focusing on cycle and portfolio management to ensure the best returns. While some casualty lines remain attractive, others are less so due to elevated loss trends and social inflation. The company is adjusting its portfolio to focus on more accretive lines of business.
Q: Do you still expect to achieve the updated 93 to 94 reported combined ratio guide for insurance?
A: Mark Kociancic, CFO, stated that achieving the 93 to 94 range depends on catastrophe (CAT) losses. The fundamentals are still in place, and they are targeting a 92 combined ratio in the back half of 2025, driven by scaling premiums, favorable business mix, and expense leverage.
Q: Can you provide insights into the expense ratio for the insurance segment for 2025 and 2026?
A: Mark Kociancic explained that the commission ratio is expected to remain stable around 12%. The general expense ratio may be elevated due to investments in people and systems, but as earned premiums increase, the ratio should decrease over time.
Q: What are your expectations for property CAT pricing as we approach the January 1 renewals?
A: Juan Andrade expects firming in property CAT pricing at the 1/1 renewals, with potential increases of 5% to 10% in both the US and Europe. Recent hurricanes and storms have highlighted the need for pricing adjustments.
Q: How is the reserve study in Q4 expected to impact capital and share buybacks?
A: Mark Kociancic indicated that the reserve study is not expected to impact share buybacks or excess capital strength. The company is focused on maintaining a well-diversified business with strong margins, particularly in property and short-tail lines.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
