Q2 2024 Earnings Summary
- Everest is achieving strong growth and profitability in property catastrophe reinsurance, becoming a preferred lead market, securing preferential terms, and growing their property book by over 25% at the June 1 renewal , .
- Strategic international expansion into markets with lower social inflation risk is allowing Everest to target upper middle market and large account business, focusing on lines with better loss ratios and less competition , .
- Disciplined underwriting and rate increases ahead of loss trends in casualty lines, with rate increases in commercial auto liability, general liability, and excess casualty averaging the mid- to high-teens, and an overall rate increase of over 10%, excluding workers' compensation and financial lines , .
- Increased exposure to property catastrophe risks: Everest is shifting its portfolio towards short-tailed businesses, including more CAT property exposures, which could heighten the company's risk profile and potentially lead to significant losses in the event of major catastrophes.
- Rapid international expansion may expose the company to execution risks and adverse selection: Everest is entering new markets internationally, including Italy, and there are concerns about adverse selection as they compete with entrenched legacy carriers, which could lead to higher than expected losses.
- Reduction in casualty premiums may impact diversification and future growth: The company is shedding $300 million of casualty business in the reinsurance segment, which might suggest challenges in this area and could impact their diversification and future profitability.
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Insurance Combined Ratio Delay
Q: Is the combined ratio target delayed to 2025?
A: Management confirmed that the 90% to 92% combined ratio target in the Insurance segment is now expected in the back half of 2025, with gradual improvement over the coming quarters. The delay is due to the pace of shifting the business mix towards short-tail lines and scaling up international operations. -
Liability Reserves Adequacy
Q: How are liability reserves for 2020-2023?
A: The company reviews reserves quarterly and maintains prudent loss picks, particularly for U.S. casualty lines experiencing high single-digit loss trends due to social inflation. Management feels comfortable with current reserves, noting no material changes in the first half of the year. -
Business Mix Impact on Ratios
Q: Is mix shift affecting loss and expense ratios?
A: The shift towards short-tail and specialty lines—with first-party business growing over 30% and specialty over 25%—is expected to lower both the loss and expense ratios over time as earned premium catches up, especially from international operations. -
International Expansion Strategy
Q: How is international growth progressing?
A: International business is growing strongly with loss ratios in the 50s, benefiting from lower social inflation compared to the U.S. The company focuses on upper middle market and large accounts, avoiding adverse selection by hiring top local talent and targeting underserved segments. -
Property CAT Reinsurance Growth
Q: Why is property CAT reinsurance growing?
A: The company achieved a lead market position in a hard market, with property CAT XOL reinsurance premiums growing 30% year-over-year. By being constructive and providing capacity when others pulled back, they secured favorable terms, strong pricing, and benefited from clients seeking stable partners. -
Casualty Reinsurance Strategy
Q: Why shed $300 million in casualty renewals?
A: Due to competitive market conditions and inadequate ceding commissions in casualty pro rata reinsurance, the company reduced exposure by over $300 million in the first half of the year, focusing on more profitable areas and maintaining disciplined underwriting. -
Rate Increases vs Loss Trends
Q: Are rates keeping up with loss costs?
A: Excluding workers' comp and financial lines, rates increased 10%, outpacing high single-digit loss trends. Including all lines, rates are up 6%-7%, consistent with past quarters, ensuring rate adequacy amid rising loss costs. -
Attritional Loss Ratio Improvement
Q: What's driving loss ratio improvement?
A: The 70 basis points year-over-year improvement in the attritional loss ratio is primarily due to the shift in business mix towards short-tail lines and increased international premium, rather than changes in loss picks. -
Timing of Combined Ratio Improvement
Q: When will the combined ratio improve?
A: The Insurance segment is expected to maintain a combined ratio of 93%-94% for the remainder of the year, with gradual improvement leading to the 90%-92% target in the second half of 2025. -
Capital Exposure to Catastrophe Risks
Q: Has CAT risk appetite changed?
A: Despite growth in property exposures, the company's CAT risk appetite remains unchanged, staying within their stated risk limits. They are carefully managing exposures, focusing on non-peak zones and thoughtful attachment points to avoid attritional CAT losses.