Q3 2024 Earnings Summary
- The company achieved 25% growth in gross premiums written this quarter and 36% year-to-date growth in reinsurance, while maintaining underwriting discipline and only modestly increasing exposures, indicating strong top-line growth potential.
- The company is actively repurchasing shares, having returned $141 million to shareholders through dividends and buybacks this year, and believes the stock is undervalued, enhancing shareholder value through accretive buybacks.
- The company expects to maintain strong profitability, targeting a combined ratio in the mid to high 80s and a Return on Equity of 14% to 16% in an elevated market, with favorable market conditions expected to persist, providing opportunities for profitable growth.
- The company experienced adverse prior year development of $14 million in their Specialty segment due to increased estimates in the aviation and aerospace line, driven by ongoing Russia-Ukraine litigation; management declined to provide further detail on reserve additions, which may raise transparency concerns.
- A significant shareholder, Platinum Ivy (a wholly-owned subsidiary of ADIA), sold 3.25 million shares back to the company during the quarter, which could be seen as a lack of confidence from a major investor.
- The expected rate increases in the aviation line of business did not occur, resulting in fewer underwriting opportunities as deals did not meet the company's underwriting criteria, potentially limiting future growth in this segment.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Return on Equity | FY 2025 | no prior guidance | 14% to 16% | no prior guidance |
Combined Ratio | FY 2025 | no prior guidance | mid to high 80s | no prior guidance |
Premium Growth | FY 2025 | no prior guidance | approximately 20% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Gross Premium Growth | Reported consistently as strong growth with quarterly increases (Q1: 21.6% , Q2: 24.7% , Q4: 32% in Q4 with full‐year growth of 18.6% ) | Q3 noted a 25% increase and robust growth driven by multiple segments, including Specialty, Bespoke, and Reinsurance | Consistent expansion with a slight acceleration and continued emphasis on premium increases |
Share Buybacks and Capital Returns | Discussed across periods: Q1 detailed a measured $50M program with remaining authorization , Q2 highlighted proactive repurchases with a new $200M program , Q4 had criticism regarding slow execution (only $3M utilized) | Q3 exhibited active capital management with a completed $50M program, a new $200M repurchase authorization, and strong execution, with repurchases representing 69% of book value | Improved execution and strategic focus, addressing past criticisms and reinforcing shareholder returns |
Underwriting Discipline and Combined Ratios | Q1 reported a combined ratio of 85.8% , Q2 had a ratio of 92.7% with emphasis on long‐term targets , and Q4 showed industry‐leading results at 82.1% | Q3 reported a combined ratio of 87.4% with a sustained focus on disciplined underwriting and holistic loss management | Steady focus on risk control with minor fluctuations; overall disciplined underwriting remains a cornerstone |
Reinsurance and Catastrophe/Extreme Weather Management | Q1 emphasized robust reinsurance arrangements with Herbie Re bonds ; Q2 detailed proactive adjustments and optimization for natural catastrophe exposures ; Q4 highlighted renewals with Travelers and new catastrophe bond tranches | Q3 maintained a strong reinsurance program with noted growth, effective management of catastrophe losses (e.g. Hurricane Helene, Storm Boris, and Hurricane Milton potential), and continued strategic partnerships | Robust and consistent strategy with an increasing focus on managing emerging catastrophic events |
Profitability Metrics (ROE/ROAE) | Q1 achieved an annualized ROAE of 14% ; Q2 reported a year-to-date ROAE of 12% with targets of 14%-16% ; Q4 posted exceptionally high quarterly ROAE (23.6%) and annual ROAE of 18.8% | Q3 recorded an annualized operating ROAE of 16.4% and maintained strong profitability targets, supported by disciplined underwriting and capital management | Stable and strong profitability performance, consistently meeting or exceeding targets |
Segment-Specific Growth (Specialty, Bespoke, Property Direct/Facultative) | Q1 saw Specialty driving growth with 24% increase (with Property DNF up 36.5%), while Bespoke showed modest gains ; Q2 reported 15.1% Specialty growth with variability in Bespoke ; Q4 projected 30%+ growth driven by Specialty with variability in Bespoke | Q3 continued to emphasize Specialty as the growth leader, with solid gains in Property Direct/Facultative and variable but positive performance in Bespoke | Consistent focus on Specialty driving growth, while Bespoke remains variable and Property Direct/Facultative continues to be a standout performer |
Investment Portfolio and Net Investment Income | Q1 saw net investment income rise to $41M with portfolio optimization ; Q2 reported $46M with active repositioning into higher-yield securities ; Q4 increased NII to $39M for the quarter and $120M for full-year with a conservative yet higher-yield portfolio | Q3 further increased NII to $52M through continued selective portfolio rotation and reinvestment into higher-yielding securities, with an average book yield of 4.9% | Continued optimization yielding progressively higher income and improved portfolio yields |
Litigation and Reserve Adequacy Issues | Q1 mentioned reserve reviews and a notable provision for the Baltimore bridge collapse, with some adverse reserve developments in aviation ; Q3 detailed $14M adverse development linked to Russia-Ukraine litigation in aviation ; Q2 and Q4 had little or no mention [not provided] | Q3 continued to acknowledge litigation-related challenges in aviation, reflecting occasional risks and reserve stresses | Ongoing, intermittent concerns that re-emerge in certain quarters, highlighting potential risks to earnings stability |
Market Valuation and Investor Sentiment | Q2 included views on undervaluation paired with proactive buybacks ; Q4 featured critic views on corporate structure and skepticism around share buyback pace ; Q1 provided limited direct commentary | Q3 emphasized stock undervaluation, active repurchase strategy, and bullish sentiments from some analysts, while management stressed balancing growth and capital returns | Growing focus on undervaluation coupled with efforts to combat market skepticism, reflecting an optimistic yet cautious investor environment |
Exposure to Catastrophic Events and Specific Incidents | Q1 featured the Baltimore bridge collapse with a $51.2M provision ; Q2 highlighted significant losses from tornadoes in Oklahoma ; Q4 discussed generic catastrophe loads and strategic reinsurance to manage exposures | Q3 detailed losses from hurricanes (Helene and Boris) and anticipated impacts from Hurricane Milton, underlining specific large-event exposures managed through reinsurance | Consistent risk exposure to catastrophic events, with specific incidents periodically driving significant potential impacts on future results |
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Capital Allocation and Stock Buybacks
Q: How do you decide between stock repurchases and writing more business?
A: We prioritize supporting profitable underwriting growth, leveraging our strong capital position to grow 25% this year with solid results. With excess capital, we've returned $141 million to shareholders through dividends and buybacks. While we see our stock as undervalued, offering an accretive opportunity, our primary focus remains on profitable growth with favorable market conditions. -
Return on Equity Expectations
Q: Do you expect to maintain a 14%-16% ROE in 2025?
A: We're still focused on achieving returns in the 14%-16% range. We don't see any reason to change this outlook and aim to maintain stable combined ratios into next year. -
Growth Outlook for 2025
Q: What top-line growth do you anticipate in 2025 versus 2024?
A: It's too early to predict growth for next year. However, we expect to maintain our target combined ratio and see opportunities due to disciplined market conditions following recent catastrophic events. -
Acquisition Ratio and Margins
Q: Has your view on the acquisition ratio changed going forward?
A: The increase this quarter was due to higher variable commissions in our Specialty segment, driven by profit commissions on very profitable contracts. This is somewhat lumpy and not our ongoing run rate. We expect the acquisition ratio to normalize to 28%-29%, as seen in the first half of the year. -
Loss Experience and Combined Ratio
Q: How do you view large versus attritional losses?
A: We focus on the overall combined ratio as the key profitability metric. We don't draw significant distinctions between attritional and large losses since thresholds can shift losses between categories. Overall, we observe benign attritional activity year-over-year. -
Underwriting Discipline in Aviation
Q: Is the lower GBW in Aviation due to Russia-Ukraine or other factors?
A: It's due to general market dynamics, not Russia-Ukraine. Expected rate increases didn't materialize, so some opportunities didn't meet our underwriting hurdles, and we chose not to write less profitable business. -
Market Conditions and Competition
Q: What's your perspective on the competitive landscape in the London market?
A: As market leaders, we secure preferential terms and conditions. We've grown 35% in the quarter by leveraging our position, being nimble, and providing exceptional service. -
Investment Income Trajectory
Q: What's the outlook for net investment income and duration?
A: We're pleased with our portfolio optimization, purchasing new securities at 4.6% yields and achieving an average book yield of 4.9%. We've extended duration slightly and will continue to optimize while maintaining a high-quality portfolio. -
Pricing Dynamics and Leadership
Q: How did you maintain stable pricing amid market decreases?
A: Our leadership position allows us to secure stable pricing. Cross-selling, strong client and broker relationships, and exceptional service contribute to maintaining favorable terms. -
Share Count and Impact on EPS
Q: What is the fully diluted share count at quarter-end?
A: Our share count is 111,726,363 as per our latest financial statements.
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