Axis Capital Holdings Ltd Q1 FY2022 Earnings Call

Good day, and welcome to the First Quarter 2022 AXIS Capital Earnings Call. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Matt Rohrmann, Head of Investor Relations. Please go ahead.

Thank you, Jason. Good morning, ladies and gentlemen. I'm happy to welcome you to our conference call to discuss the financial results for AXIS Capital for the first quarter ended March 31, 2022. Our earnings press release and financial supplement were issued last night after the market closed. If you'd like copies, please visit the Investor Information section of our website at axiscapital.com. We set aside an hour for today's call, which is also available as an audio webcast on our website. With me today are Albert Benchimol, our President and CEO; and Pete Vogt, our CFO. Before I turn the call over to Albert, I will remind everyone that the statements made during this call, including the question-and-answer session, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from those projected in the forward-looking statements due to a variety of factors, including the risk factors set forth in the company's most recent report on Form 10-K and other reports the company files with the SEC. This includes additional risks identified in the cautionary note regarding forward-looking statements in our earnings press release issued last night. We undertake no obligation to publicly update or revise any forward-looking statements. In addition, this presentation may contain non-GAAP financial measures. Reconciliations are included in our earnings press release and financial supplement. With that, I'll now turn the call over to Albert.

Thank you, Matt. Good morning, everyone, and thank you for joining today's call. Before starting our quarterly update, I'd like to express that at AXIS, we're dismayed by Russia's invasion of Ukraine, and our hearts and minds are with the people and families whose lives have been affected by the war. In all instances where it's possible, we stopped writing business in Russia and the impacted regions and through our philanthropic programs, we're supporting the relief efforts to address the humanitarian crisis that's happening on the ground in Ukraine. I'll now begin our traditional quarterly update. AXIS started 2022 with another strong earnings report, the latest in a succession of positive quarters. In fact, we've seen our operating income more than double as compared to the prior year quarter. Even with some headwinds driven by business mix as we continue to reduce our exposure to volatile cat-exposed lines, we've delivered improvement across every key metric on our operating ratios and income statement. During the first quarter of 2022, we continue to expand our footprint in some of the most attractive specialty P&C markets, strengthened the overall quality of our book and materially lower our net cat exposures, all the while delivering great service to our customers and distributors. Our first quarter performance was highlighted by record premiums written and earned, a combined ratio of 91.4%, a materially lower market share of global net cats and an operating ROE of 15%. Substantially, every line across our company achieved improved core underwriting results. A handful of lines were impacted by the war in Ukraine, but we're confident our exposures there are well contained and manageable, given what we know today. Our insurance segment delivered its fifth consecutive quarter of 20% growth, setting production records for gross and net premiums written and net premiums earned. Our progress is underpinned by our focus on those lines and markets where we have strong competitive positioning, enhancing the value proposition that we offer to our customers, all while leveraging the deep expertise and relationships that we have in the E&S specialty and wholesale channels as well as our strategic retail partners. This, coupled with favorable market conditions, has contributed to increased new business opportunities, rate increases on renewal and continued strong retentions. At the same time, we've continued to drive meaningful improvement in underwriting performance. Our insurance combined ratio of 87.5% is down over six points from the prior year period, with almost two points of reduction in the core ex-cat loss ratio and almost four points of reduction in the nat cat loss ratio. The momentum underway gives me even greater confidence that we're on pace to become a top performer in the specialty insurance space. I feel very good about the progress we're making on the reinsurance side as well. We continue to proactively build the best portfolio for enhanced profitability and lower volatility. Our reinsurance segment's lower premiums written were purely on the back of a planned 45% reduction in cat reinsurance that only serves to increase the quality and sustainability of that book. We're also making great progress in the profitability of our reinsurance business, with a combined ratio of 92.5%. While the ex-cat loss ratio is up over the prior year, this is entirely due to targeted mix shift. Excluding cat lines, the core ex-cat loss ratio for all other lines other than cat improved by over two points in the quarter. Stepping back, the actions that we're taking across both insurance and reinsurance are delivering strong results. Finally, I would like to take a moment to recognize and extend my appreciation to AXIS Insurance Chief Executive Officer, Pete Wilson, who will transition out of the CEO role on the 1st of June and be succeeded by Vince Tizzio. Under Peter's leadership, we've driven significant transformation that strengthened our insurance business and we're grateful for all of his contributions to AXIS. Thank you, Pete. Vince is becoming our new CEO at a great time. The business is delivering strong results and has terrific momentum. While 2022 is off to a tremendous start, we also know that we can build further on the progress achieved. We're excited by the opportunities available in pursuing new avenues for profitable growth and in further enhancing our efficiency, all as we continue to sustain lower cat volatility. We're committed to taking the business to the next level, and there's a palpable sense of excitement across the organization. And with that, I'll now pass the floor to Pete, who will walk us through the first quarter financials, and then we'll come back and discuss market trends, and we'll have our Q&A.

Thank you, Albert, and good morning and good afternoon to everyone. This was another excellent quarter for AXIS. During the quarter, we generated net income available to common shareholders of $142 million with an annualized ROE of 12%. Operating income was $180 million, and as Albert noted, annualized operating ROE was 15.3% and the combined ratio for the quarter was 91.4%, which was 7.5 points better than the prior year quarter, with core underwriting results continuing to show strong improvement. The company produced a consolidated current accident year combined ratio ex-cat and weather of 87.4% and is 1.8 points better than the prior year quarter. The consolidated current accident year loss ratio ex-cat and weather was 54.2%, a decrease of 0.9 point over the prior year quarter due to the improvement in the insurance segment. The quarter's pretax catastrophe and weather-related losses net of reinsurance were $60 million or 4.7 points. This included $30 million or 2.3 points attributable to the Russia-Ukraine war. The war loss provisions included $16 million for insurance, which was mostly attributable to terrorism and political violence covers. In reinsurance, we have not yet received any notices. However, we have about $25 million in war covers, and as a precautionary measure, we have put up about 60% of that limit. The natural catastrophe losses of $30 million were primarily attributable to Australian floods and other weather-related events this quarter. This compares to $110 million or 10.1 points in 2021. Quarter-over-quarter, natural catastrophe industry losses are estimated to be down about 45%. I'll note that our nat cat loss ratio is down nearly 80%, and this speaks to the work that we've been doing to reduce natural cat volatility in our book. We reported net favorable prior year reserve development of $9 million compared to $5 million in the first quarter of 2021. The consolidated acquisition cost ratio was 19.7%, essentially flat year-over-year, and this was driven by a decrease in the insurance segment, which was offset by an increase in the reinsurance segment. Consolidated G&A expense ratio was 13.5%, a decrease of 0.8 point compared to the first quarter of 2021. This was largely attributable to net earned premium growth, partially offset by the personnel costs associated with an increase in underwriting roles in the insurance segment. Lastly, on a consolidated basis, fee income from strategic capital partners was $18 million compared to $12 million in the prior year quarter. This was associated with an increase in performance fees. Now let's move on to the segments, and I'll start with insurance, which once again had a great quarter with impressive performance across a number of metrics. Gross premiums written increased by over 20% to $1.3 billion this quarter, which is a record quarter for the Insurance segment. The increase came from significant growth from both existing and new business, as well as favorable rate changes throughout the book, but especially in professional lines, liability and property lines. The current accident year combined ratio ex-cat and weather decreased by more than four points with improvement across all metrics. The current accident year loss ratio ex-cat and weather decreased by almost two points in the quarter, and this was principally due to the impact of favorable rates over trend in most lines of business and improved experience. The acquisition cost ratio decreased by less than one point in the first quarter compared to 2021. The underwriting-related G&A expense ratio decreased by slightly over 1.5 points in the quarter, mainly from an increase in net premiums earned somewhat offset by the underwriting roles that I noted earlier. Now let's move on to the reinsurance segment. The reinsurance segment's gross premiums written of $1.3 billion for the first quarter were $125 million lower than the prior year. This decrease was attributable to significant declines of 45% and 40% in catastrophe and property lines, respectively. That came from nonrenewals and decreased line sizes as we continue to make changes in the portfolio to improve balance. We also saw a decrease in motor due to nonrenewals, the timing of some renewals, and the impact of FX. The decreases were partially offset by increases in A&H lines that came from new business and the timing on renewals as well as new business and credit surety lines. During the quarter, our current accident year combined ratio ex-cat and weather increased by just over two points. This was due to changes in business mix, driven by the decrease in catastrophe business written in recent periods. The current accident year loss ratio ex-cat and weather increased by just over one point due to changes in business mix from the previously noted decrease in catastrophe business. As Albert noted earlier, when we exclude the catastrophe line of business, the rest of the portfolio's current accident year loss ratio ex-cat and weather decreased by just over two points. This reflects the impact of favorable pricing over loss cost trends in most lines of business as well as underwriting actions. The acquisition cost ratio increased by just under one point compared to the prior year quarter, and again, this was primarily due to the decrease in catastrophe business written. Net investment income was $91 million for the quarter compared to net investment income of $114 million in the first quarter of 2021. The decrease in net investment income was primarily due to lower gains from alternative investments. At the quarter end, the fixed income portfolio had a book yield of 2.1% and a duration of 3.1 years, and our market yield was 3.1%. Diluted book value per share decreased by $3.81 in the quarter to $51.97. This was principally driven by net unrealized losses related to increased treasury rates and the widening of credit spreads. While the increase in rates has impacted our book value per share, it's encouraging that new money yields are now higher than our portfolio yield and bodes well for future investment income growth. Overall, with continued improvement in most operating metrics and positive momentum in our core underwriting book, this was a strong quarter for AXIS. That summarizes our first quarter results. With that, I'll turn the call back over to Albert.

Thanks, Pete. So we'll do a brief overview of market conditions and outlook, and then we'll open the call for questions. Market conditions continue to be favorable. And while rate increases are generally off their highs of last year, they continue to extend to almost every line we write and remain, by and large, well ahead of loss cost trends. The average rate increase in our insurance book was close to 12% this quarter. This represents the 18th consecutive quarter of rate increases and the 8th consecutive quarter of double-digit increases for our insurance book. By class of business, professional lines once again saw the strongest pricing actions with average rate increases of 24%. I would note, however, that professional lines are really best explained by thinking of them in three parts. The first is cyber, which remains in hard market conditions. The average rate increase was almost 70%, but in some cases, was well in excess of 100%. The second part is public D&O, and that's less than 10% of the overall professional lines book, and that was only modestly positive this quarter. The combination of strong price increases in prior periods, less new business opportunities, and the coming online of new capacity all led to a more competitive market, especially in the excess layers of public D&O towers. The third part is the remaining professional lines, which comprise more than 60% of our book, and they remain healthy with average rate increases of close to 15%. Casualty lines are averaging close to 7%, with primary casualty strongest at 9% and excess casualty in low to mid-single digits. Property rate increases were up close to 9%. This is a line that's been much exposed to inflation, and I would note that the 9% rate increase is risk adjusted for changes in exposure and terms and conditions. We're achieving these rate increases over and above the revaluation of exposure-adjusted risk rates. Among our other specialty lines, we saw mid- to high single-digit increases throughout the portfolio, and this included renewable energy and marine lines, which are up nearly 8% on average, while aviation rates increased by 6%. During the quarter, 94% of our insurance portfolio renewed flat to up and close to half of the increases were double digits. We're generating record new business for the first quarter. And just as in prior quarters, we continue to see new business pricing at least as strong as, if not better, than renewal pricing. AXIS is very well positioned in the best parts of the current market, and there's significant opportunity to grow profitably while adding value to our customers and partners in distribution. Let's look at the reinsurance business. For the quarter, we averaged reinsurance rate increases of close to 9%. A&H generated increases of more than 11%, and casualty and professional lines both increased by close to 9%. By and large, other specialty lines, including credit and surety and marine came in, in the mid-single digits. In catastrophe lines, as I noted in our prior call, we significantly reduced our participation in lower layers of towers and aggregate treaties, focusing our efforts on higher layers of towers where admittedly, there was more appetite and capacity. Thus, our average rate increase achieved was about 6%. Turning to the April 1 renewal season. This is a relatively small renewal period for AXIS, covering about 12% of the total reinsurance book. Nevertheless, we continued our practice of reducing catastrophe business while looking for growth or conditions that meet our profitability thresholds. Our property and catastrophe volume was cut in half while we grew in casualty and professional lines. On April 1, we achieved increases of about 5% on catastrophe lines and averaged 10% on casualty and liability lines as well as A&H. Professional lines were up in the single-digit range. We did see pressure for more ceding commissions on certain quota share treaties. In those cases, we generally reduced or even exited our participation where we thought the ask was just too much. With the reduction in property and catastrophe exposure, these two lines represented about 16% of our year-to-date reinsurance gross written premiums, down from 27% through April 1 of last year. While the mix shift has put some pressure on the reinsurance portfolio's ex-cat combined ratio, we're convinced that the business will ultimately benefit from a lower all-in combined ratio and less volatility. Looking forward, we expect disciplined pricing to persist in both insurance and reinsurance into 2023. Given the quantum of pressures and uncertainties on loss cost and profitability, the industry needs to maintain a rational approach to pricing. Over the last few years, as an industry, we've demonstrated the vital role that insurance plays in helping society and business navigate through tremendous challenges. This will only continue as the world faces increasing losses both by financial and social inflation, climate change, the Russian invasion of Ukraine, and the continued impact of COVID. For insurance to deliver on its social purpose of helping our customers during their time of need, it's absolutely crucial that we continue to sustain pricing discipline so as to deliver an adequate return on the capital that is so critical to fulfilling our role as a safety net for the free markets. To conclude, this was a very strong quarter for AXIS and one in which we continue to produce positive results, and we're committed to building on this momentum that we've worked so hard to establish. Moreover, we believe AXIS is poised to begin a new phase of profitable growth as we further advance our position as a leader in specialty risk and focus on continually delivering increased value to our customers and in turn, to our shareholders. We're excited for what the future can bring and we're committed to continue to work relentlessly to take our business to the next level and ultimately achieve our goal of becoming a top quintile performer. And with that, operator, let's please open the line for questions.

Our first question comes from Meyer Shields from KBW. Please go ahead.

Albert, I hope you'll indulge me in this. I'm sure you saw yesterday that there was a news article talking about AXIS considering a sale of AXIS Re. And I was wondering, first of all, whether you can comment on how you're thinking about that broadly. And secondly, when there are articles like this out there, whether they're realistic or not, do they have any impact on day-to-day operations at the reinsurance unit?

Yes. Look, Meyer, as you know, I can't comment on market rumors and speculation. It should go without saying that we're always focused on value and positioning the company for success and we have and will continue to act with those objectives in mind. But as you can see from the performance that we delivered, we've demonstrated that we're committed to driving top-tier return on capital. I think the performance that we've been showing in terms of our improvements over the last few quarters and this quarter provides real evidence that we're delivering on our promise. I want to say I'm incredibly proud of the work that our team has done to strengthen our reinsurance business. They've delivered on the ambitious task of improving the quality and reducing the volatility of our reinsurance business. And now AXIS Re is well positioned to deliver very attractive returns. As to the second part of your question, look, this is a business where occasionally, we get crazy rumors out there, and one of the things that we found is that the best response is to keep your head down, focus on providing value to your customers and your partners and distribution, and that works. And I'll tell you, we've got a really professional team. They're dedicated to what they do, and I've got incredible confidence in their ability to stay focused and to manage through this.

Okay. Perfect. That's helpful. Second question, and this goes to your comments on public D&O pricing. So I guess there's increasing competition. In your mind, is that rational? Is it overly aggressive, and mapping because of a concern that is billed in other lines?

I think it's really a unique situation that it's a very attractive line right now, given what I mentioned to you, the fact that we've had some very good pricing improvement over the last few years. There's frankly fewer deals on the table today than there were a year ago. There's less packs, there's fewer IPOs. So I think people are hungrier. And the new capacity is coming in, and they're looking for ways to implant themselves. But again, I think where we're seeing it is really in some of the upper excess layers where I think it's probably easier to get in and get out. So there's a unique set of circumstances that we're seeing in public D&O. I will tell you that in the rest of the market, we have not seen quality incumbents lose business when they want to keep it.

The next question comes from Yaron Kinar from Jefferies. Please go ahead.

I want to avoid discussing the news article, but I would like to highlight the accident year loss ratio in insurance. We are still seeing improvement, although it has slowed compared to last year. You mentioned some shifts towards professional lines and liability. I am curious if the inflationary trends we are observing are affecting the loss trends. Are you adopting a more conservative approach? What are your expectations for the underlying loss ratio in insurance moving forward?

So let me address that, and I think the order of your question is right. I believe that if you look at today, I think for the first time, we actually have a majority of our earned premium in insurance, which is actually in professional and casualty lines as opposed to short-tail lines. So there is a mix shift impact. And in fact, we've identified well over one point of mix shift impact simply by moving away from cat-exposed lines to the longer tail lines. But we've been talking about inflation and loss trends now for a while. And as we mentioned to you, when we were planning for 2022, as we were coming into 2022, we have already modified our view of risk and our pricing models to reflect higher inflation. And so that's already in place. We told you already that we would be prudent in incorporating loss trends in the reserving of our business. But I can tell you that if it weren't for mix shift, you would have seen a significantly higher improvement in the loss ratio.

Going forward, could you help us understand how the accident year loss ratio might look?

I believe the shift will likely be less pronounced than in the past as we are moving toward the right balance. However, we continue to see pricing significantly outpacing loss cost trends. We are still writing business that we expect will improve the loss ratio due to rates exceeding trends. In the near future, we anticipate continuing to write business with more favorable rates than trends, which gives us optimism about the loss ratio. Peter, do you have anything to add?

Yes, I would just add that I think that the comments about inflation are noted, and you have seen the insurance non-cat loss ratio was 50.8% in both the third and fourth quarter of last year, now it's 50.5%. We feel very comfortable where it is. We feel very comfortable about our inflation assumptions. And you've heard the rate that we've been getting now that's being earned in, and so I think we're taking a very prudent view as to where we set it. And I think the loss ratio is in a really good spot where it is now.

I guess the other thing that I would add for our company is we've made huge progress on the ex-cat loss ratio. And at this point, I think it's going to be a lot more driven around rate over change and then the changes that we make on the edge of the portfolio. Where I think the big bang is still to come is all of the work that we've done on reducing our cat exposure is such that we have to expect a lower cat ratio going forward, and I think that will have a positive impact on our overall combined ratio. And frankly, we know that we need to work on our expense ratio and focus on that. So I still say that we've got a good runway for ongoing improvement in our results.

That's very helpful. I have a second question regarding losses related to Russia and Ukraine. It's a two-part question, so I apologize. First, on the reinsurance side, do you expect losses to closely resemble those of the primary carriers, or do you anticipate potential challenges and differences between primary insurers and reinsurers? The second part concerns cyber risk. Do you believe that you, or perhaps the industry as a whole, have sufficient protection from war exclusions?

I'll take that, Yaron. This is Pete. Considering that the war is ongoing and its complexities bring many uncertainties, we expect that reinsurers will align with the primary companies. That's our expectation based on the information we have today. However, as you pointed out, it remains a complicated situation. Regarding your second question, we are quite confident about the war exclusion in our cyber policies, especially given the current circumstances. Ours is one of the most clear and effective in the market, even before the current war, and we've been training our underwriters extensively on maintaining high standards in their wording. Overall, we have also introduced many minimum cyber hygiene standards in our business for some time, and we believe this has positively impacted both frequency and severity due to our underwriting focus on hygiene. We feel confident about our book. While there's been significant discussion in the industry about war exclusions in cyber, we are satisfied with ours, considering it one of the best available. Albert, would you like to add anything?

No, perfectly said. Thank you.

The next question comes from Brian Meredith from UBS. Please go ahead.

A couple of questions here. First, I'm just curious. I noticed you didn't buy back any stock in the quarter. Your stock got hit, like a lot of the reinsurance companies did, pretty significantly in March. Why didn't you actually execute on your share repurchase program? Was there anything inhibiting your ability to do that?

Yes. Thanks, Brian. This is Pete. I'll take that. As we noted when we came out with the program, it's going to be opportunistic throughout the year. I'd say when we hit March, two things happened. One, the Russia-Ukraine war broke out and that created a little bit of agitation, but also the movement in interest rates. We knew that was going to put pressure on our fixed income portfolio in the quarter. So we thought it was just not the right time to buy back some shares. We will look to deploy that the rest of the year. And again, we'll be opportunistic about it. But I think it was more events happening globally at the moment. But you know what, let's hold our powder and we can use it later in the year.

And then next question. Just curious, Pete. You talked about the investment portfolio. I think you said market yield 3.1%. Is that what your new money yield is right now versus your book yield of 2.1%, so there's a 100 basis point difference? And then on that, how much your portfolio rolls this year?

Yes. So that's a great question, Brian. I guess what I'd say is at 3/31, the new money yield was 3.1%. As you and I sit here today, it's actually 3.4%. So we keep a good look on that number these days with our investment department. So it's about 130 basis points now. As I said, the duration is about three years, 3.1 years. So we have a $12 billion portfolio, 100-plus basis points as it rolls over. My expectation is just straight math, you'd roll over about 1/3 of the portfolio this year. Given the economics, we'll see with some of our fund managers and our investment guys think about more of the opportunities today. But I would say, at a minimum, you'd probably see 1/3 of the portfolio roll over at a minimum this year.

The next question comes from Michael Phillips from Morgan Stanley. Please go ahead.

Albert, you've done a lot of work and talked a lot about the work you've done on kind of smoothing out your results over the last year or so, if not longer. How does that relate specifically if you think about that topic just on the insurance side of the equation?

Well, I think that the numbers on the insurance space speak for themselves, right? So we've taken well over 10 points of loss ratio out. We've taken, what, two, three points off the expense ratio. We've been growing 20% for each of the last five quarters. I can't tell you how good I feel about that business. It's delivering combined ratio, what, 87%. Last year, it was low 90s. So I think we're in the late innings of the game here. And I really think that when you look at our results, they're going to look really good against other specialty insurers.

Okay. One quick one, I guess, also on the Russia events. Are you at all surprised by kind of the level of reported losses so far to date by some of your peers?

I don't know that I can really comment on that. Everybody's got their own books. But I'll recall two years ago, when COVID happened, we were probably very early in recognizing that, look, this could be something, and we engaged you all, and most of the industry really reacted to it in the second quarter. So I think there's probably styles of management teams. There are some that want to come out and tell you here's what we think we know today. And there are others who are saying, 'You know what, let us take all the dots and everything else and then come back to you tomorrow.' I think it's just style.

The next question comes from Elyse Greenspan from Wells Fargo. Please go ahead.

My first question, I guess, just I'll start with the first quarter cat load of, obviously, Russia, right, was included within that. But Albert, given that you guys said you've taken a lot of action to lower the cat load, do you think that first quarter was in line with, slightly above normal for AXIS relative to where you would have thought it would have come out?

I want to share that we recorded a nat cat load of around 2%. As Pete mentioned, industry nat cat losses dropped by 45%, and our loss ratio declined by 80%. We're seeing significant progress. In response to the earlier question, we opted to recognize some losses from Russia-Ukraine this quarter, while others did not. However, I believe that a 2% nat cat load is quite positive.

And then my second question. Within the insurance segment, you have been earning and writing a substantial amount of rate over trend. Albert, I know you've mentioned that you have already reflected and responded to higher inflation. So do you think the level of year-over-year improvement, which I believe was around 180 basis points within the underlying loss ratio, is a reasonable level to consider for 2022 as we think about the potential improvement within the underlying loss ratio in the insurance segment?

Elyse, this is Pete. I'll take that. Yes, I think that's a good level to consider for improvement in insurance. As I mentioned, the second half of the year will largely depend on pricing from the first half. The written rate increases will be reflected in the second half. I believe that's a solid figure. You might notice that improvement in the non-catastrophe loss ratio could slow down in the second half because, as you noted, the second half of 2021 was quite favorable for insurance. However, I think the real improvement will come in terms of our catastrophe load. We are focusing on our PMLs. If you look at the 12-month changes in the PMLs in our financial supplement, you'll see that most areas have decreased by about 35% to 50% from a year ago. That's where we're concentrating our efforts to reduce volatility and improve the overall combined ratio for the company.

I think it's fair to say that we continue to believe that if things go as planned, we will deliver a lower loss ratio for insurance compared to last year.

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

Yes. Albert, you've been doing a remarkable job lowering your PMLs in cat loads for probably about four years right now, maybe it's even longer. When you look at the return in 2022 on deploying money into cat versus how you look at the world one year ago, why does it feel less attractive to you now? And are you cutting the cat loads too much? Shouldn't AXIS be willing to tolerate some cat risk because they're paid for it?

I appreciate the latter part of your question. Shouldn't we be able to accept some cat risk since we're compensated for it? We just don't believe that the current returns are sufficient to justify taking on the volatility. If we reflect on the early 2000s, we experienced a few challenging cat years, but for the rest, we achieved 25%, 30%, and 35% returns on equity during years with low cat incidents. Currently, we don't see similar potential for gains in low cat years, and it's important to note that we haven't had a low cat year in five years. Therefore, I don't think this situation is accurately represented. Additionally, I believe many others in the industry now share this sentiment, as there is noticeable pressure to fill lower layers of towers because most capital providers are concerned about not being sufficiently compensated for the risks taken in those lower attaching layers.

Yes. And Josh, I guess what I'd also add on to that is, is Albert gave you a really good point on an absolute basis. We just, in the cat line, don't feel the returns are right there. But I'd also point out that as a hybrid company with all the lines of business we have to invest capital in, on a relative basis, we just see more attractive areas across our portfolio to move the capital, and that's what we've also been doing over the last year or two. And so you've been seeing us grow in areas where we really see the capital returns better than on a risk-reward basis than what we would get in cat. So you also have to think about it for us on a relative basis because we have other opportunities to deploy capital and we will always put it to the best use.

So if you can get a better return for lower volatility, that's what we would do.

There are no more questions in the queue. This concludes our question-and-answer session. I'd like to turn the conference back over to Albert Benchimol for any closing remarks.

Well, thank you. And to all of you, thank you for your time this morning. Really pleased to discuss with you a really strong quarter and the continuation of a great trend for us. And as is often my practice, I want to reach out to my colleagues and just thank you all for all the great work that you've done. Your drive, your resilience, your commitment to our customers, to one another, that's why we're delivering the results that we are. And I know that you share my enthusiasm for seeing this move forward. So to all of my colleagues, thank you for your contributions for making a quarter like this one happen. And to our shareholders, I look forward to talking to you about continuing progress and more positive quarters going forward. Thank you all. This will end our call.

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