Release Date: January 28, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Everest Group Ltd (EG, Financial) has taken decisive action to strengthen its casualty reserve position by $1.7 billion, indicating a proactive approach to addressing potential future liabilities.
- The company has implemented a comprehensive review process for its reserve portfolios, ensuring a conservative and sustainable management best estimate.
- EG is undergoing a transformation in its North American insurance business, with new leadership and a focus on remediating its casualty book to achieve target profitability.
- The international insurance business of EG is performing exceptionally well, with strong technical margins and growing scale reducing expense ratios.
- EG's reinsurance division is setting a global standard, with clients and brokers actively seeking to include Everest in their programs, demonstrating strong market confidence in the company's reinsurance capabilities.
Negative Points
- EG has faced higher than expected loss development in 2024, particularly in US casualty classes, exacerbated by social inflation and legal system abuse.
- The company has a high concentration in casualty, which reached 45% of its North American insurance GWP in 2022, magnifying the impact of social inflation.
- EG's insurance segment has underperformed, particularly in US casualty lines, leading to a significant reserve strengthening of $1.3 billion.
- The company is experiencing pressure on its expense ratio due to the shedding of unprofitable business and the focus on remediation.
- EG has decided to stop providing detailed forward guidance, which may create uncertainty for investors looking for specific future performance indicators.
Q & A Highlights
Q: Should we expect the 2024 reserve strengthening to negatively impact the core loss ratio for Everest Insurance going forward?
A: James Williamson, CEO, explained that the starting point for the insurance loss and combined ratio is around 100. The company intends to maintain casualty loss picks at current levels and will not take credit for underwriting actions until results improve. Growth in short-tail and international insurance businesses, which perform well, will provide a tailwind to the combined ratio over time.
Q: Will the expense ratio be higher in the near term due to non-renewals and muted growth?
A: Mark Kociancic, CFO, acknowledged that the expense ratio might be stickier in 2025 due to shedding casualty business and growing in other areas. However, the remediation process started in 2024, and as unprofitable business is non-renewed, the composition of the US casualty book will improve, leading to a better expense ratio.
Q: How does the risk margin compare with historical practices, and how was it determined?
A: Mark Kociancic, CFO, stated that the risk margin is part of management's best estimate, which is more pronounced now due to definitive trends in the US liability loss environment. The risk margin reflects management's prudent view of the market and risk environment, and it is larger now given the size of the charge.
Q: Can you explain the favorable development in the reinsurance business that offset the charge in casualty?
A: Mark Kociancic, CFO, noted that the reinsurance division performed well, with favorable development in property and mortgage lines. The favorable development is well-seasoned, and the company took prudent actions elsewhere outside of US casualty, resulting in net zero prior year development for the quarter in reinsurance.
Q: What changes in strategy were made in the insurance segment post-2020 that concentrated losses in recent years?
A: James Williamson, CEO, highlighted that the challenges were due to underwriting choices, such as writing large guaranteed cost programs and overexposure to certain classes. The strategy has shifted to focus on writing best-quality accounts with the right team and brokers, and the company is confident in the actions taken to transform the portfolio.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
