Axis Capital Holdings Ltd Q2 FY2022 Earnings Call

Good morning, and welcome to the AXIS Capital Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. 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 Mei Zhang, Interim Head of Investor Relations. Please go ahead.

Thank you, Craig. 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 second quarter ended June 30, 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 the 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. Now, with that, I'll turn the call over to Albert.

Thanks, Mei, and good morning, everyone, and thank you for joining our second-quarter earnings call. We delivered another strong quarter of operating performance, reaffirming the sustainability of the improvements we've made over the last few years. We continued our trend of year-over-year improvements in core underwriting metrics as we advanced our strategy to grow AXIS as a specialty underwriting leader that is recognized for the value and high level of service we provide to our customers. The second quarter was highlighted by a consolidated ex-cat combined ratio of 88.4 and an all-in combined ratio of 93.4, and an operating ROE of 13.7%. Our industry will always have some volatility within quarters. Therefore, it's instructive to look beyond just one quarter, and our year-to-date results are very strong. Record second-quarter production contributed to all-time high mid-year production figures; half-year gross and net written premiums, and net premiums earned are all at record levels. On a year-to-date basis, we delivered a consolidated ex-cat current accident year combined ratio of 87.8 and an all-in reported combined ratio of 92.4, and overall operating ROE of 14.6%. Further illustrating our progress over the past six months, our underwriting income of $255 million is up 36% over the prior year, and our six months operating income of $329 million is up 30% over 2021. We believe these performance metrics attest to the solid progress we're making to shift to a more stable portfolio, especially when considering the headwinds created by our ongoing mix shift, which impacted our ex-cat loss ratios by a point. As we'll discuss further on this call, we're confident that the actions we're taking to position AXIS for a stronger future will deliver better and less volatile all-in combined ratios. To illustrate, our average market share of catastrophe losses over the prior five years was about 0.5%, and in 2022, we are at less than half of that, and we expect more progress as we run out the reinsurance catastrophe exposures over the next few quarters. Our specialty insurance businesses continued to produce impressive results that increasingly put us among the best in the industry. During the second quarter, we delivered robust 16% growth in our gross written premiums, 22% growth in net written premiums, and an 87.8 all-in combined ratio in a market that continues to offer attractive opportunities. With strong positions in wholesale and E&S markets, we're well positioned to build on that growth. These improved results are the product of a disciplined and concerted multi-year effort to enhance our leadership in specialty lines markets and shift our book of business towards profitable specialty risks, attractive investment returns, and lower overall volatility, a commitment that continued into this quarter. During the quarter, we announced bold moves to further advance our strategy, which included the exit from reinsurance property and casualty lines. We also reorganized our businesses into a front-end organization led by Vince Tizzio, with aligned underwriting support and analytics power to be headed by our Group COO. Let me address these moves in further detail. First, we completed the shift of AXIS to a specialist reinsurer, with a commitment to profitable casualty specialty accidents and health and credit lines. Although we believe reinsurance remains an attractive channel, it provides digital scale, balance, and geographical diversification to our consolidated portfolio, and we're very effective at it. Our clients and brokers appreciate the value that we bring to their businesses. On the other hand, we do not believe that AXIS is the best market for volatile property and catastrophe reinsurance lines. We felt it was best to be clear with our broker partners and customers about the sustainable long-term risk appetite of our business. To be clear, our exit from catastrophe reinsurance is not a view on the catastrophe business within the broader industry. Indeed, we expect that this line will continue to improve in the January 1 renewals. Rather, this is a strategic decision to advance our progress towards the company we choose to be: a leader in specialty underwriting with a strong and consistent earnings profile. We also believe that combining all our front-end business capabilities under one leader and all our underwriting support and analytics under a COO will increase our efficiency and agility and speed to market and responding to our customers' needs. Before I pass the call on to Pete to get to the specifics of the financial results, I just want to speak to the importance of our team and our culture in achieving the progress we've reported over the last few years and intend to sustain into the future. Specialty business is all about talent. We believe we've done a good job of attracting and retaining great talent and cultivating a strong internal culture. We're committed to growing our people and are proud of our consistently strong engagement scores, which are supported by external validations such as our recent inclusion on the Forbes list of best midsize employers in the U.S. We believe that our team and our culture present a sustainable competitive advantage as we look to do even more with our customers, partners, and distribution, realizing our potential as a leading specialty underwriter. And with that, I'll pass the call to Pete. And then we turn to our traditional review of market conditions.

Thank you, Albert, and good morning, everyone. As Albert noted, I will go through the particulars of the quarter, but I will also provide some comments on how exiting the reinsurance catastrophe and property lines will impact the reinsurance ratios on a go-forward basis. Overall, this was another strong quarter for AXIS. During the quarter, we generated net income available to common shareholders of $27 million, and an annualized ROE of 2.5%. Operating income was $149 million and as Albert noted, annualized operating ROE was 13.7%. The company produced a consolidated current accident year combined ratio, ex-cat and weather of 88.4%, an improvement of three-tenths of a point over the prior year quarter. The consolidated current accident year loss ratio, ex-cat and weather, was 55.3%, again, a decrease of four-tenths of a point over the prior year quarter. We continue to feel good about the progress that we've made across our entire portfolio. Underwriting actions, as well as rate and excess trend, have improved the ex-cat loss ratio by over a point. However, this has been offset by almost a point, as the proportion of our portfolio associated with catastrophe and property lines continues to decline. This quarter, our pre-tax cat and weather-related losses net of reinsurance were $67 million or 5.3 points, primarily attributable to South African floods and the high frequency of small to mid-sized other weather-related events that occurred worldwide. This compares to $29 million or 2.5 points in 2021. The consolidated acquisition cost ratio was 20.2%, an increase of over a point over the prior year quarter, driven by both segments. The consolidated G&A expense ratio was 12.9%, a decrease of over a point compared to the second quarter of 2021, largely attributable to net earned premium growth. Lastly, on a consolidated basis, fee income from strategic capital partners was $12 million in the quarter, compared to $16 million in the prior year quarter. Now let's move into the segments, and I'll start with insurance. Once again, insurance had a great quarter with impressive performance across several metrics. Gross premiums written increased by 16% to $1.5 billion this quarter. The increase came from property and liability lines driven by new business and favorable rate changes, primarily due to favorable rate changes in accident and health lines from new business. The current accident year loss ratio, ex-cat and weather, decreased by two-tenths of a point in the quarter. This was primarily due to the impact of favorable rate over trend in most lines of business, partially offset by changes in business mix associated with the increase in professional lines and liability business written in recent periods. The change in business mix generated about a point of headwind in the year-over-year change in the ratio. Additionally, there was some noise in the quarter due to a loss ratio catch-up on some program business. Thus, the six-month number is likely a better indicator of our run rate performance. The acquisition cost ratio increased by 1.9 points in the second quarter as compared to 2021. If you recall, last year, I noted that the second quarter had some timing adjustments that benefitted this ratio. In 2022, we had some adjustments that actually negatively impacted this ratio. Clearly, it's affected the year-over-year comparison. We expect that on a normalized basis, the quarterly acquisition cost ratio going forward would be about 18%. The underwriting-related G&A ratio decreased by 1.7 points in the quarter, mainly from an increase in net premiums earned, somewhat offset by personnel and travel costs. Now let's move on to the reinsurance segment. The reinsurance segment gross premium written of $600 million for the quarter was $29 million lower than the prior year. This decrease was attributable to catastrophe and property lines due to non-renewals and decreased line sizes. These decreases were partially offset by an increase in credit and casualty lines driven by new business and an increase in professional lines due to favorable market conditions. The current accident year loss ratio, ex-cat and weather, of 60.9% increased by 0.5, due entirely to changes in business mix driven by the decrease in cat and weather business written in recent periods. This mix shift increased the ratio by about 1.5 year-over-year. This was partially offset by favorable pricing over loss trends in most lines of business. In fact, when I look at the current accident year loss ratio, ex-cat and weather, excluding the cat and property business, the ratio improved by more than two points year-over-year. The acquisition cost ratio increased by almost a point compared to the prior year quarter. Again, this was primarily due to changes in business mix driven by the decrease in property catastrophe business written in recent periods. We also had some upward adjustments attributable to loss-sensitive features driven by improvements. I want to give you a sense as to what we expect the portfolio could look like. If I take the first six months of this year and completely eliminate the catastrophe business and property business, the pro forma year-to-date reinsurance ex-cat and weather loss ratio would be about six points higher than the 16% reported year-to-date. Also, the pro forma year-to-date acquisition cost ratio would be about a point higher than the reported year-to-date acquisition ratio. We anticipate these increased ratios will be offset by a significantly reduced cat loss ratio. Over both the past three and five-year timeframes, the annual reinsurance cat loss ratio has averaged 13.5%. So I expect that exiting the reinsurance catastrophe and property business will be a net positive for the company. While the ex-cat combined ratio may increase on a relative basis, I expect the significant decrease in cat loss ratio will more than offset that increase, and our resulting combined ratio should, on average, be flat or better with much less volatility. These new ratios will manifest over the next 18 months as the cat and property book runs off. To give you an idea of timing, the net unearned premium reserves at the end of the second quarter for the catastrophe and property business is about $190 million. I expect about 60% of that to run off by the end of this year, another 25% in the first half of 2023, and an additional 10% in the second half of 2023. The remaining 5% is essentially gone after 2024. I trust this additional detail will be helpful in understanding our portfolio going forward.

Thank you, Peter. Let's do a brief overview of market conditions and outlook; and then we'll open the call for questions. Market conditions are still favorable. While, as expected, the rate of increase is declining, we continue to achieve meaningful increases across nearly every line we write and remain ahead of loss cost trends. The average rate increase in our insurance book was close to 10% for the quarter. This represents the 19th consecutive quarter of rate increases for our insurance book, which in the aggregate, now exceeds 50% since the beginning of 2017. By class of business, professional lines once again saw the strongest pricing actions with average rate increases of more than 16%. However, as I noted last quarter, professional lines are diverging in pricing trends, and thus can be explained in three parts. The first is cyber, which continues to experience hard market conditions, with an average rate increase of 62%. The second is public D&O, which is less than 8% of our overall professional lines book; but this saw a 15% decrease this quarter. As I shared last quarter, the combination of strong price increases in the past periods, fewer new business opportunities, the coming online of new capacity, along with a recent decrease in the number of filed cases, have all led to a more competitive environment. As a result of these factors, we're writing much less public D&O business than we did at this time last year. However, the rest of the professional lines book, which comprises more than 60% of our professional lines, remains healthy, with average rate increases of close to 7%. Casualty lines are averaging over 7%, with primary casualty at more than nine and excess casualty at over five. Property rate increases were up more than 7%. Our other specialty lines experienced single-digit rate increases with an overall low single-digit average for that portfolio. During the quarter, 93% of our insurance portfolio renewed flat to up, with about 30% of renewals delivering double-digit increases. On a year-to-date basis, our average insurance rate increase was close to 11%. Just as in prior quarters, we continue to see new business pricing metrics, at least as strong as if not better than renewal pricing. Let's turn to reinsurance. For the quarter, the average reinsurance rate increase was close to 9%. Aviation generated increases of more than 13%, and liability was up more than 11%. Professional lines were up 9%, while motor, marine, credit, and surety also showed modest gains below 5%. Overall, as Pete noted, our experience in the second quarter reinsurance was consistent with those of the first quarter. We reduced property and catastrophe reinsurance volume by more than 50%, while growing other lines, including credit and surety, motor, and cyber by 13%. Thus, total reinsurance gross premiums written were down only 4%. For the July 1 renewal season, we were substantially out of property and catastrophe, but still grew other lines, such that the July 1 renewal volume was down 32%. In the business we renewed, we experienced average increases of close to 7%, with aviation and motor in the mid to high teens, and liability at about 11%. Marine, A&H, and professional lines were all in the mid-single digits, while workers' comp, credit, and surety were close to flat. On a year-to-date basis, our reinsurance pricing is up 8.5%. I'd like to take a moment to put these metrics in perspective. In our rate change discussion, we present our renewal rate change on a like-for-like basis per unit of risk. Our reported rate increases are over and above the additional change in pricing on renewals from a revaluation of the exposure base that may be impacted by financial inflation. Thus, our year-to-date rate increases of close to 10% for our entire consolidated book compared to loss trends, which we see in the mid to high single digits. Thus, we are satisfied that our pricing remains ahead of loss trends. I hasten to add that we're not looking just to pricing to improve our overall results. We continue to take intelligent actions on risk selection, attachment points, line size, and other terms and conditions, all of which are expected to deliver a favorable impact on our underwriting results. Stepping back, when looking at our overall portfolio, by and large, we feel that the vast majority of lines are adequately priced at this moment. However, we also know that our industry is experiencing an all-in loss trend in the high single digits when all factors are considered. We're also continuing to operate in an uncertain environment, as we collectively work to navigate the impacts of political and economic instability, the Russia-Ukraine war, and the ongoing questions as to the full long-term costs and effects of the COVID-19 pandemic beyond financial and social inflation. It's therefore imperative that our industry keeps pricing in line with these loss trends to protect our margin. On the positive side, our industry has a comforting historical record of adjusting to inflation and pricing to reflect those loss cost trends. For these reasons, we expect that on average, our industry should sustain pricing at about loss cost trends through 2023. We've already seen some lines re-accelerating in light of new data and conditions, and I believe this reflects the discipline we expect to see in this market. This scenario would maintain industry margins at adequate levels and provide us with excellent opportunities for profitable growth, especially given the ongoing positive fundamental conditions in E&S and wholesale markets, where we have very strong positioning. Overall, we look to the future with optimism and excitement. We've proven that AXIS is no longer a transformation story, but rather a profitable growth story. The progress delivered over the past few years has been both substantial and consistent, and we're convinced that the actions we continue to take will further advance our market positioning and our profitability. We know we must continue to enhance our business, and everyone at AXIS is committed to that goal. I feel privileged to be surrounded by a strong and talented team dedicated to supporting our customers and focused on advancing our goal of growing AXIS as a profitable leader in specialty underwriting. Thank you for your time. And with that, let's open the line for questions.

We will now begin the question-and-answer session. Our first question is from Brian Meredith with UBS. Please go ahead.

A couple of questions here for you. First, Albert. I just want to make sure I heard, I think you said that January 1 renewals are down 31% in reinsurance?

July 1 renewals. So property was down like 97%, because, as you know, we had some quotes outstanding. But property was 97%, we grew the rest of the book that was available for growth. So net-net it was 32%. But as you know, July is a very property-heavy renewal. So I wouldn't, I absolutely would not take that number and apply it to the book.

Got you. That makes sense. And I'm just curious on that. If I look at your liability, reinsurance, it's growing, but just a little bit. How much of an impact are you seeing from getting out of the property business on certain other lines like liability, so call it a whole account type business?

So we don't do a lot of a whole account type business, but I think you're probably addressing the question of how are we going to continue forward as a specialty underwriter? And that's a fair question. And we've thought about that long and hard as we made our decision. Let me share with you some of the components that went into our thinking. So, number one, we've been building these multiline relationships and specialty lines relationships for quite a while now. So we're actually in a good position. As of June 30, we had about $2.1 billion of reinsurance premium in force, in all lines other than property and property cat. So obviously, it was a little bit higher than that. But assume that property and property cat goes away, as we expect. What's left, as of June 30, is an enforced book of about $2.1 billion. Of that amount, Brian, 55% is with accounts that have no casualty property business. We think that those accounts should not be meaningfully affected by our announcement. Of the $950 million or so of premiums with accounts that do buy property coverages from us, 50% of that volume is from accounts where real property makes up less than 10% of the relationship premium, and 80% of that volume is made up of accounts where property makes up less than 25% of the relationship premium. We think that this reflects our deep multiline relationships built with our customers. We hope and expect that given the quality of our relationships, the multiline business we offer, and the service that we're providing, we'll retain and even grow those relationships over time. As you know, we've been exiting property or reducing property for a year now, so this is not the first moment that we've taken certain accounts to zero. I can say that with virtually all of the accounts that we've taken down to zero, we are still trading very healthily with those people. So we respect that our customers have choices, but we plan to earn and defend every dollar of reinsurance premium that we want to keep going forward.

Makes sense. Thanks. And then I just wanted a quick question: as we think about the mark-to-market on your investment portfolio. What was the impact of what that was on equity? Pete, how should we think about your debt to cap ratio? Do you think about it from an OCI perspective, including the marks? And it looks like it's going to be above 30%, as of the end of the second quarter cap, if we include the market? How should we think about that?

Yes, Brian, you're right; it's back over 30. If you recall, it was over 30 a number of years ago. What I would say is, I do look at, I do look at the impact just due to the movement of interest rates. And over time, we really want that ratio to get back down to 25%. But I'm willing to take some time to get there as we see investment income come back into the balance sheet, as well as interest rates continue to move forward. So right now, it is high; it's due solely to the change in interest rates, but I look at that as a long-term figure. I expect to see us in the future get back down to that 25% to 30% range, but I really want to target 25%, and I'm willing to take time to get there.

The only comment that I was going to add is, obviously, there's a mark-to-market component. But as you know, our fixed income portfolio is rated double A minus; we feel pretty good that maturities will return 100 cents on the dollar. That's a discount that over time should unwind, either through just the natural unwinding of the bond or a sale and reinvestment at a higher rate. We view this as a temporary increase in leverage that should unwind naturally over a short period of time.

The next question is from Yaron Kinar with Jefferies. Please go ahead.

I want to go back to the exit from property reinsurance, and you can maybe help us think about what that means for capital? How much capital is associated with that book today? And what were your goals for that capital to be once it's released?

So I guess the short answer is, as I mentioned to you just a second ago, we've got about $300 million of premium in force in the property cat book. So that's running off over 18 months. Our primary goal is to use that to drive more profitable growth and other specialty lines.

The only thing I would mention is, Albert's number is a gross number, Yaron. When we look at capital requirements for that cat business, we're really looking at the net written premium for rating agency formulas. That number, because we do cede about 50% of our property business to our third-party capital partners, will be much less than the $300 million Albert mentioned. I did note that I've got about $190 million of unearned premium, net unearned premium on the book. So that's probably a better figure when you're trying to think about what's the right number for capital. As Albert mentioned, the number one use for that capital as we continue into 2023 will be solid organic growth in the lines of business where we continue to see attractive opportunities.

Thank you. And then my second question goes to the insurance accident year loss ratio, where I understand there's a mix that is continuing to influence the results. When do you see that mix shift starting to slow or the impact of that mix shift starting to slow and for us to maybe see more of the rate over trend? And maybe the reunderwriting of some of the businesses that are coming through more forcefully?

So there's probably two pieces to that. I think there's always going to be some, but there's no question that right now because of our limited catastrophe appetite, we're holding back on the growth of property while we're not holding back on the growth of the other specialty line. So, given where we are right now, it's probably accelerated. I do want to make one comment you talked about reunderwriting. I'd say, we'd like where our book is. As I mentioned, we delivered an all-in combined ratio of 88 in the insurance book; we've done a lot of work over the past five years. At this point, I think we're well positioned, and it's really about continuing to build on that. I don't see repositioning or re-fixing.

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

My first question, given where your debt to cap is above 30%, with preferreds right now, as well as the move we've seen in interest rates, do you guys still expect to complete the remainder that you have left under that $100 million authorization this year?

I would say we'll look at that through the rest of the year, Elyse. I mean, right now, we did $35 million in the quarter; we felt good about the purchases we made there. We'll continue to evaluate as we go through the renewal season here in the third quarter. If we think the market still looks attractive, as Albert said, I look at the change due to interest rates, and we will be earning that back as those bonds march toward maturity, but also in higher investment income as we go forward. When we think about stock buybacks and our capital management, it's a point in time, but it's also looking over a couple of years. So right now, I know I've got $65 million left, and we'll decide when we get into probably after the renewal season, we see what the catastrophe outcomes are to determine whether we want to use it. But I think it's going to depend upon the market, the stock's trading, where interest rates go, as well as how the renewal season goes for us.

Okay, now, that's helpful. And then in terms of the insurance underlying margin and the mix that we were just talking about, I guess, is it right to assume that at least given the mix shift going on there, that at least for the balance of the year, probably the impact of mix on that underlying loss ratio could continue to overshadow the earned rate over trend? Or how should we think about the balance between those two items?

I don't know. I mean, we're still showing positive year-over-year. We've had headwinds for some time as we've been shifting the book. To our mind, it's the right call. But even through the first six months, the change in mix did not completely overshadow the rate over trend.

Yes, I would say, Elyse, when I think about this quarter, there was some noise due to one-time items that increased the loss ratio just in the quarter. Looking ahead to the rest of the year, I think the full year will probably come in around that 51, where we are year-to-date now; it may bounce around where a specialty company could be a little lower or higher in any given quarter. But the overall low 50s is a solid current accident year loss ratio for that book.

And then after that, the property and the cat we exit, you guys still will have some catastrophe exposure stemming from the primary operations. Where would you say the consolidated catastrophe load of AXIS ends up?

I'd say two things on that: one, I would say you still may see a little bit of catastrophe. I don't think it's going to be zero in reinsurance because we're still in the marine business there, and marine is exposed to catastrophe, but it will be negligible. When I consider the report card that we've put out, last year's cat loss ratio was 9.5%. We indicated we want to lower that by a good 3% to 4% this year. I would say our new expectation would be cat loss of less than five.

The question is from Josh Shanker with Bank of America. Please go ahead.

I'm wondering, I guess, reserves and the paid-to-incurred ratio will trend in the coming years as the remaining property reserves come off the book and are replaced by a higher amount of casualty reserves, which tend to be more reserve contented? How should we think about that transition?

That's the metric before, Josh. I think in the quarter, reinsurance was right about actually just slightly above 100, and insurance was down around 78. What I would tell you is, specifically for reinsurance, what we're going to see is probably top-line coming down because the catastrophe is going to run off. You're going to see the incurred number; this is pure math; you'll see the incurred number coming down. We still have cat and property claims to pay out, so those will be getting paid out. That might affect the reinsurance ratio in that way. Longer-term, over the next 18 months, when we actually close out a lot of property claims, will be in longer tails. They tend to run with a bit lower paid to incurred because we're posting the incurred, especially if those books are growing and you're typically not paying the claims for a couple of years out. We'll have to wait and see the reinsurance business turn into a growth mode, and then you should see them come down a bit because of the paid.

And related, where are we on COVID IBNR? Is there still a large COVID IBNR reserve on the book?

On COVID, we didn't change the reserves in the quarter, and we feel good about it. On the paid side, on the insurance side, we've got over 90% of the insurance paid, so we feel good about that, continuing to just drive that to an end. On the reinsurance side, the pays are still pretty minimal. I would say the percentage on the reinsurance side is less than 25%. You have a fair amount of cash reserves and IBNR still in reinsurance. We expect COVID from a reinsurance perspective will be a longer event to actually come through.

The next question is from Meyer Shields with KBW. Please go ahead.

Thanks. Pete in particular, thanks so much for the explanation of reinsurance on a pro forma basis. One remaining question: how do you think about fee income in the reinsurance segment concerning Harrington and the other partners?

That's a really good question. I'll handle a couple of the details, but I know I think Albert will want to add some color there because we are seeing really good traction with our third-party capital partners. We've done some really good deals, considering long-tail business and we're looking at more opportunities in that particular business line. Albert?

Yes, but overall, if you look at our fees year-to-date, there's about $12 million associated with property year-to-date. I think we're going to see that come off, but I do think we will see some fee income go back up due to some of our business in the long-tail lines. I also note that everything we do at Harrington, which is a substantial part of our fees, is now looking at pro lines, motor, and casualty business too. So year-to-date, we have about $29 million to $30 million of fees; about $12 million of that was associated with property. So that fee income will come down; however, we still think we'll be able to generate fees from those long-tail lines.

Okay, fantastic. That's helpful. And then just a second follow-up on reinsurance. Setting aside the mix shift, how are the ceding commissions on the specialty lines that you're seeing, and how are those ceding commission rates trending?

I would say that they probably hit their peak this year in terms of the reinsurance sessions. I think that those are firming up overall. We've seen a little bit of pickup, as you know, in some of the quota shares in property and professional lines. If I were to look forward, my guess is we've probably seen the peak of those.

This concludes our question-and-answer session. I would like to turn the conference back over to Albert Benchimol for any closing remarks.

Thank you. I noticed a couple of questions again on the impact of mix shift. I realized that as the book is progressing, it adds some noise to the comps. I wanted to share with you some ways that I look at it. Pete spoke about doing a pro forma of the book, completely excluding property and property cat, and we certainly do that because that's the book that we want to see going forward. If we were to take all the property and the property cat out of both sides, we would have seen a decline in the combined ratio. Even with the more active cat season this year, we would have seen a decline in the all-in combined ratio, and we would have seen a decline in the ex-cat loss ratio in both the second quarter and in the year-to-date. I feel confident that we're continuing to make progress in the profitability of our core book. As the book runs off, you will see that much more visibly. Thank you for your attention. Thank you for your time. As I do often, before we wrap up the call, I'd like to say thank you to my AXIS colleagues for all they do every day to support our customers and make us a stronger company. They've delivered a great quarter for us. We're continuing to make great progress, and we look forward to speaking to you again and reporting on better progress and more progress as we go forward. Thank you, everybody.

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