Axis Capital Holdings Ltd Q4 FY2025 Earnings Call

Thank you. Good morning and welcome to our fourth quarter 2025 conference call. Our earnings press release and financial supplement were issued last night. If you would 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. Joining me on today's call are Vince Tizzio, our President and CEO; and Pete Vogt, our CFO. In addition, for the Q&A portion of our call, we will be joined by Matt Kirk, our incoming CFO. I would like to 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 the Form 10-K or our quarterly report on Form 10-Q and other reports the company files with the SEC. This includes the additional risks identified in the cautionary note regarding the 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, our non-GAAP financial measures may be discussed during this conference call. Reconciliations are included in our earnings press release and financial supplement. And with that, I'll turn the call over to Vince.

Thank you, Cliff. Good morning and thank you for joining our call. The fourth quarter marked the close of an excellent year for AXIS as we built upon our track record of sustained positive results with 13 quarters of increases in diluted book value per share growth and 77% growth over that period. Our performance has been consistent and our actions have aligned with the core principles that we laid out at our Investor Day in May of '24. In 2025, this translated to strong results across our key indices as we leaned into attractive specialty markets, drove increased profitable growth that was largely propelled by our new and expanded business classes and further enhanced our operating efficiency. I'll share some of the headline metrics for 2025: 18% year-over-year increase in diluted book value per common share at $77.20, 18% operating return on equity, record gross written premiums of $9.6 billion, up 7% over the prior year and a combined ratio of 89.8%, our lowest full-year combined ratio since 2010. We entered 2026 well positioned to advance our momentum and have confidence in our ability to execute. I'll share five key messages that we would like our listeners to take from this call. First, AXIS is built for all seasons. As a specialist, we have an operating model that enables us to leverage our size and speed to pivot as needed across our business lines and geographies, serving as a competitive differentiator in today's changing risk landscape. Second, we're poised for profitable growth driven by our strategic initiatives. We would point directly to our new and expanded business classes, as well as the growing contributions from our dedicated lower middle market units and our recently introduced AXIS Capacity Solutions as proof points. Third, disciplined cycle management. Our growth will not come at the expense of bottom line and we remain steadfast in putting profits above premiums. In recent years, we have instilled a culture of strong cycle management as evidenced by the repositioning of several of our businesses. You may recall the actions taken in primary casualty, cyber and public D&O as just three examples. Four, our global distribution model. Our multivariate distribution platform is grounded in customer centricity and deep broker partnerships that we've worked diligently to nurture. In our most recent annual broker survey, this was reflected by top quartile Net Promoter Scores and the recognition of AXIS in its specialty leadership positions. Five, finally, we've driven a performance culture. We have built a culture that is both results-driven and people-oriented, encouraging exceptional work through our pay-for-performance model. Further, in recent years, we've built a strong and talented team while providing a favorable workplace environment that has earned AXIS numerous awards and recognitions. In supporting each of these areas, we continue to invest significant resources to our How We Work transformation program, which is driving continued improvements across our business and operating model, leveraging enhanced technology and AI solutions. The investments we are making through our How We Work program are reflective of the commitment we made at our Investor Day to deploy $100 million to strengthen our operations and how we go to market. We accelerated these efforts in 2025 and indeed raised our investment threshold with an emphasis on scaling our new and expanded lines and integrating a new AI-enabled front end within our organization. We're pleased with the momentum that's coming from these investments. Let's now discuss our segment results. We'll begin with insurance. Our Insurance segment produced outstanding results in 2025, including several all-time highs, record gross written premiums of $7.2 billion, a 9% increase over the prior year, record new premiums written of $2.4 billion, record underwriting income of $597 million, a 40% increase over the prior year. And finally, a combined ratio of 86%, a 3 percentage point improvement over the prior year. In North America, we delivered standout performance with gross written premiums up 10%, reflecting the benefits of strategic investments in product and channel expansion, coupled with significant underwriting platform enhancements. These efforts are continuing to unlock new opportunities in our targeted markets. In global markets, results were strong as we leveraged our lead line product positions and multi-platform solutions, including Lloyd's, while driving a 6% increase in gross written premiums. Key drivers included marine, energy and construction, lines where we have strong margin and a healthy pipeline. In addition, our investments to establish a footprint in the retail lower middle market space are starting to produce attractive results within the U.K. property segment. To complement our profitable growth journey, we have continued investing in innovation, including those that extend beyond technology. For example, we're pleased by the early progress of AXIS Capacity Solutions, otherwise known as ACS. Through ACS, we are tapping into our deep knowledge and experience with third-party capital, bringing innovation to the insurance platform of our company, serving both our open brokerage and delegated businesses. This includes leveraging our underwriting and portfolio management expertise to work in tandem with our strategic partners to develop structured portfolios at scale, while producing new business and underwriting fee income as a new stream to AXIS. While it is early days, several transactions have already been completed. Stepping back and looking at the broader insurance market, we continue to see many micro markets influenced by a risk landscape that is being impacted by a number of dynamics: geopolitical tension, economic uncertainty, war, volatility in climate, energy transition and technological disruption. Against this backdrop, the need for customized insurance solutions is as high as it's ever been. And as a specialist with a diverse product portfolio and robust global platform, AXIS is fit for purpose. As noted, we're seeing varying market conditions across our different lines of business. In liability, overall rates were up 10% in the quarter with 6% growth. In U.S. Excess Casualty, we generated a 13% rate increase and 4% growth. In particular, our wholesale lower middle market segment continues to show favorable margin and sustained positive momentum. Within property, we grew our property book by 12% across our eight underwriting units worldwide, observing different degrees of competitive pressure. Our growth has been bolstered by our highly premium adequate lower middle market units, both in the U.S. and U.K. as well as by taking advantage of the innovation we brought to the market through ACS. Pete will share more detail about property in his comments. In professional, we grew 19% with a rate environment that's virtually flat. The majority of our growth was generated from transactional liability and our new and expanded E&O lines, which, by way of example, includes Allied Health, miscellaneous E&O and enhancements to our design professional offering. As respected to management liability, we continue to produce solid growth within our private D&O business. Importantly, the areas where we have grown continue to meet our risk-adjusted return expectations. Within cyber, consistent with our prior observations, we are seeing an escalating risk landscape impacted by increasing ransomware attacks and the environment is made worse by the potential of AI enabling more effective and sophisticated ransomware threats. This phenomenon, coupled with increasing competition from MGAs is placing downward pressure on price adequacy. Thus, we will continue to maintain a cautious and selective appetite and do not see cyber as a growth area for the foreseeable future unless a better risk-reward outcome is realized. Moving to our Reinsurance business. AXIS Re has generated positive bottom line results for the last eight consecutive quarters. This financial consistency has been grounded by a clear underwriting strategy centered around selective profitable growth and strong cycle management. In 2025, AXIS Re produced a strong combined ratio of 92.6%, underwriting income of $128 million. We produced $2.5 billion in gross written premiums, a low single-digit increase over the prior year period, consistent with prior indications. As respects the 1/1 renewals, the market grew increasingly competitive and we held our discipline across our casualty lines for the same reasons we've cited in the past. We maintain a cautious and highly selective stance in professional and liability and our caution has only escalated, reflecting our view of a misalignment of risk and reward. As we progress into 2026, AXIS Re's focus is to continue to deliver bottom line performance. Before I close, I want to take a moment to extend my gratitude to our longtime and long-serving CFO, Pete Vogt, as this will be his last earnings call before he passes the baton to Matt Kirk. On behalf of all of his AXIS colleagues, we're deeply appreciative to Pete for his years of leadership and important contributions to our multiyear transformation program. I, in particular, am indebted to his assistance during my initial transition as CEO of our great company. In summary, 2025 was an outstanding year for AXIS. We are pleased and motivated by the consistent progress and momentum we have achieved. We remain focused on continuing to pursue our specialty leadership ambition while delivering tailored insurance solutions to our customers and producing attractive returns for our shareholders. Finally, I want to extend my appreciation to our AXIS teammates worldwide for their many accomplishments and commitment to excellence. With that, I'll now pass the floor to Pete for his comments.

Thank you, Vince, and good morning, everyone. AXIS had an excellent quarter and a phenomenal full year 2025. For the quarter, our net income available to common shareholders was $282 million or $3.67 per diluted common share. For the full year, $978 million or $12.35 per diluted common share, producing a 17% return on common equity. This drove our book value per diluted common share to $77.20 at December 31, an increase of 18% over the past 12 months and up nearly 24% when adjusted for dividends declared and share repurchases. Our operating income was $250 million or $3.25 per diluted common share for the quarter or just over $1 billion or $12.92 per diluted common share for the full year, resulting in an operating ROE for the year of 18.1%. Let's look at the consolidated company underwriting highlights. Our gross premiums written of $2.2 billion were up 12% over the prior year quarter, driven by accelerating growth initiatives in insurance. On a net basis, premiums were up 13%. For the full year, gross premiums were $9.6 billion, up 7%. Our quarterly combined ratio was an excellent 90.4%, consistent with an outstanding 89.8% for the full year. Cat losses in the quarter were just $30 million, producing a cat loss ratio of 2%. Cat losses were driven largely from Hurricane Melissa, which devastated Jamaica. Our full year cat loss ratio was 2.8%. We are pleased to see the benefits of the strategic actions we have executed over the past few years reduce the volatile impact of cats to our earnings. We adhere to our philosophy of wanting to see sustained positive signals before releasing reserves. We recorded a release of $30 million with $23 million in insurance and $7 million in reinsurance in the quarter. We remain highly confident in our reserve position. And as is our normal practice at year-end, an independent third-party actuarial firm completed a review of our reserves and this provided us additional confidence in our reserve position. Our consolidated G&A ratio for the quarter, including corporate, was 13.9% versus 13.7% a year ago. The increase is mainly driven by variable compensation and an increase in headcount in insurance as we have added new teams throughout the year. For the year, the ratio was 12.4% versus 12.6% in 2024. We continue to invest in new technology as part of our How We Work program and we expect our new hires and investments to drive growth and efficiency. I'd note that the benefit of our G&A ratio from Bermuda's substance-based tax credits were minimal. I would also note that underwriting fees from ILS partners were $14 million in the quarter and $54 million for the year and represent an attractive stream of fee-like earnings delivered from our ILS partners. Insurance had a strong all-around quarter and year. Fourth quarter gross premiums written were $1.9 billion, an increase of 12% compared to the prior year quarter and $7.2 billion for the full year, up 9%. As Vince detailed in his by line market commentary, we're seeing a wide spectrum of distinct market cycles across insurance products. Our growth has been broad-based across the portfolio as all classes of business grew, except for cyber. We are focused on the profitability and are pleased with the premium adequacy we continue to see across the portfolio. I will note that specifically in property, a significant proportion of the 12% growth came from the build-out of our U.S. and U.K. lower middle market businesses as well as new business associated with ACS partnerships. As Vince noted, our property book is quite diverse across both geography and classes of risk. As we look to 2026, given the current insurance market conditions, we reiterate our confidence that we can grow gross written premiums at a mid- to high single-digit rate while maintaining premium adequacy at our long-term targets. The insurance combined ratio for the quarter and the year were 86.5% and 86.1%, respectively, improved from 91.2% and 89.1% in the year-ago periods. We've shown remarkable stability in our ex cat accident year loss ratios. For the quarter and the year, we were 52.5% and 52.4%, respectively, compared to 52.2% and 52.1% in the comparative periods in 2024. This quarter, we saw an uptick in the loss ratio from the effect of rate and trend, which wasn't fully offset by mix. Our insurance expense ratios for the quarter and the year were 33.4% and 31.6%, respectively, versus 32.4% and 31.9% in the comparative periods in 2024. The increase in the quarter is driven by variable compensation for a very successful year in insurance and the investments we've made throughout the year in hiring teams as well as technology and operations. Our investments in operations have significantly reduced submission, quoting and ingestion times, particularly as we employ AI tools and we are still at the early days of implementation. Turning to Reinsurance. Gross premiums were up 13% in the quarter. I would stress that Q4 is seasonally our smallest quarter, with only about 10% of the annual GWP generated in the fourth quarter. This quarter, a significant part of the growth was driven by a single large quota share U.K. motor transaction, which is renewable in Q1 2027 and therefore, will not repeat in 4Q 2026. We also saw new business and favorable adjustments in the credit and surety line of business. Full year gross premiums were up 3% and a better characterization of the year's trend. The reinsurance combined ratio was 93.9% in the quarter, with an ex cat accident year loss ratio of 68%, with no cats and a 1.9% benefit from reserve releases. For the full year, the combined ratio was 92.6% with an ex cat accident year loss ratio of 68.1%, including 0.2 points for cats and a 1.5 point benefit from reserve releases. The quarter's and year's acquisition ratios were 23.1% and 22.2%, respectively, up from 21.8% and 22% in 2024, reflecting business mix changes. The increase in the G&A ratio for the quarter, up 4.7% from 4.0% a year ago, largely reflected higher variable compensation accruals. For the full year, the ratio was 3.6%, flat versus 2024. Building upon Vince's comments about the January 1 renewals, we held true to our strategy of a bottom line focus with an emphasis on premium adequacy. We kept a cautious stance in reinsurance liability and professional lines. If we continue to see a challenging reinsurance market as we progress through 2026, we will remain bottom line focused. Our overall reinsurance gross premiums could be down in 2026, even up to double digits. However, while the volume may be reduced, we remain confident in the portfolio's expected underwriting profitability. We had a strong quarter and year for investment income. In the quarter, investment income was $187 million and for the full year, investment income was $767 million, up 1% over the prior year. This despite the impact of the LPT transaction, which closed in April. With increasing stability in our underwriting results, we have moved up marginally in our investment risk appetite with a slightly increased exposure to below BBB- rated bonds at year-end. We are now at the high end of our stated range of 15% to 20% of the portfolio designated for higher risk at 19%. Our effective tax rate in the quarter was 14% and included a $19 million nonoperating income benefit arising from an increase in our Bermuda ETA that was required due to an amendment to the Bermuda Corporate Income Tax Act. We expect an ongoing overall effective tax rate in the 19% to 20% range. We are in a very strong capital position, which enabled us to return substantial capital to shareholders this year through $139 million of dividends and $888 million of share repurchases. And we have a current authorization for another $112 million of share repurchases. I would highlight that our priority for capital is to fund organic growth opportunities, which are accelerating in our specialty insurance business. I wanted to take a moment to acknowledge that this will be my last earnings call for AXIS. The company has gone through a lot of changes over the years and I'm pleased to be able to step back when the company is better positioned than it has ever been before, both operationally and financially. It has been a privilege to represent my AXIS colleagues to the public markets over the years and I'm confident that Matt and the rest of the AXIS finance team will continue to serve you all well. Thank you and we'd be happy to take your questions.

The first question comes from Andrew Kligerman with TD Cowen.

Pete, great run. Congrats. And I guess the first question I'd like to touch on is the expense ratio. And so the underwriting-related general and administrative expense ratio came in for the year at 12.4%. And make sure I'm right, please. I think the goal for 2026 would be 11%. So that's the part A of it. And the part B of it is, the overall expense ratio consolidated was 34.2%, where does that go over time as well?

Thanks, Andrew, and I appreciate your opening comments. This is Pete. I’ll address your question in two parts. The general and administrative (G&A) ratio for the year and the quarter was affected by variable compensation. If I normalize it, for the year, the underwriting G&A would be 11.6%. There was an increase for variable compensation, and in the quarter, it would have been 11.2%. Both of these metrics are aligning with our trajectory towards an 11% target as planned from 2024 to 2026. Additionally, we invested more in IT and operations than anticipated, enhancing efficiency by accelerating some spending for 2025 compared to our initial targets set during Investor Day in 2024. We are optimistic about our progress towards 2026 and remain committed to achieving an 11% G&A ratio by that year. We will always act in the best interest of our shareholders and are eager to fulfill that commitment. This is our path forward, and we feel very positive about our position as we approach 2026. Vince, do you have any additional thoughts?

I would. Thank you, Peter. I think the other important point that perhaps adds to Pete's comments is that we expect in the '26 year to realize the leverage of the various investments that we've made, Andrew. You'll recall that we mentioned in the third quarter, we had accelerated our investments in technology in all facets and forms. We hired a number of teams. We reasonably expect in the operating year of 2026 to start to monetize those investments in efficiency, productivity and rationalized expenses in our operating model. There's a variety of shapes and forms that, that will show itself over the coming quarters. But we remain optimistic as we head toward end of 2026 and representing the goal that we had talked to accounting for, of course, normalized incentive compensation.

That was super helpful. And maybe shifting over to kind of the sustainability of margins as you grow. I mean, 12% net written constant currency on consolidated was really strong. And I think I heard mid- to high single-digit growth outlook for insurance and potentially even down double digit in reinsurance. So as you do this, do you feel comfortable with what was an accident year combined ratio ex cats consolidated of 88.6% for the year and 90.4% for the quarter? Do those numbers feel very sustainable? Do you do closer to the 90.4% or closer to the 88.6% that was for the full year? How should we kind of think about those combines on a consolidated basis?

So Andrew, this is Pete. I'll take that first. As we think about where we are in the quarter and then leading off into 2026, when we think about the various pieces, as I mentioned, we already talked about the G&A ratio. So I'll let that conversation go but we feel really good about where we're going there. When we think about the cat loss ratios, as I've mentioned on the cat side, we really do expect full year cats to be in the 4% to 5% range. And so really good year for us in cats this year, really good, us handling the volatility that was out there. But I think a normalized year would kind of be in that range. And then when we think about the attritional, we've been actually very much able, especially on the insurance side, as we've talked about, there's been some pressure on the attritional due to rate and trend but we've been able to offset that by mix and we've been able to do that all through 2025. As we go into '26, I think there'll be some more pressure on rate and trend that we may not be able to completely offset by mix as we go into 2026. And that would be the one area where we see some pressure. But again, I look at the all-in combined where if we see some uptick in the attritional loss ratio, as we talked about, we're working on bringing the G&A ratio down. And so all-in combined, around that 90% target is a pretty good number for the overall company. And Vince, do you want to come in over the top?

I think you're right, Pete. And I think you broke out the component parts of how we get there. But we entered the year feeling very good about the portfolio in terms of the start point of premium adequacy. As Pete indicated in his prepared remarks, we acknowledge some of the intersection of rate trend and mix. We've done a really superb job at redesigning the underwriting portfolio. We're entering the year here '26 with continued discipline around our cost structure. I mentioned in your prior question, some of what will be revealing itself through the investments that we accelerated in the prior year. We've done a really good job in managing our catastrophe exposure. But I think ultimately, the range that Pete just expressed is in keeping with our own expectations.

That was great. If I could sneak in one last quick question. You mentioned favorable development of $23 million in insurance and $7 million in reinsurance. Is there anything unusual you would highlight regarding casualty? Also, I’m not sure if Matt is on the call, but Pete has consistently shown confidence in the reserves. Pete, are you still feeling confident, and Matt, what are your thoughts on the reserves as they come in?

Andrew, it's Vince starting off. First, we feel very good about our reserve position for the company. Secondly, in the quarter, we followed the same philosophy that we articulated since our reserve charge. So there's no change in our philosophy of how we manage our reserve position. As it relates to the source of where it came, it did not come from long-tail lines, as you know. And I'll transfer to Pete now.

Yes. Thanks, Andrew. I guess what I would say is, again, the reserve releases really did come from short-tail lines. You'll see it from property and on the insurance side as well as Credit & Surety and then a little bit from agriculture, Credit & Surety and A&H on the reinsurance side. And overall, I'd say when we think about the long-tail lines, there's always some little puts and takes across the accident years and we'll see that when we have the triangles in the 10-K. However, there was nothing significant or material that would give us any cause for concern. If there was, we would have taken some action. So we feel good about all that. And to your first question to me, as I sit here at the end and I look at the balance sheet, I feel very confident and feel good about leaving the company in the great hands of Vince and Matt and the rest of the management team and where the balance sheet stands, both from a capital position and a reserve position. And with that, I'll pass it to Matt.

Great to be here and speak to you all. I would just reiterate, I've been here for 3 months in a very well-planned out transition plan. Much of that time has been spent working with the reserving team, working with Pete. And overall, I'm quite comfortable with where the reserving is at right now. And I agree with what Pete said, we have a strong balance sheet and a strong capital position.

The next question comes from Yaron Kinar with Mizuho.

And before I ask my questions, Pete, I want to wish you well as you begin your retirement. Regarding the expense ratio, I understand that part of the increase this quarter is due to variable compensation, which I believe has also been the case earlier in the year. This is obviously a positive issue to have because it reflects strong performance. However, as you look to build momentum, do you anticipate that this will continue to be a challenge in 2026 and beyond?

Yes. As we think about going forward, the annual targets that we use are reflective of what we think the environment is, Yaron. So this year, we had a great year across a number of dimensions. But as we look forward, we're constantly adjusting our annual plans and that moves our targets a bit. So I do hope it will always be a headwind. And I think as a headwind, if we have some variable comp because we've performed tremendously great for the shareholders in a particular 12-month period, if we have to put up some variable comp due to that, if we go above 11% because that's the reason, I think that would be, I'll call it, agreeable to the shareholders given that it would be good financial performance that they'd be receiving.

And Yaron, this is Vince. Welcome back. It's good to hear your voice. Please don't underestimate the leverage that I pointed to in Andrew's question inside the operating model. The number of persons that will be required to execute our financial plan, the increased productivity from the resources and the numerous teams that we brought into the organization, the reshaping of our general cost structure that extend beyond personnel costs, the increased fee income that's resulting from our various sources of underwriting fee income, both in our reinsurance and more recent in our insurance business, the mix shift that has dramatically taken fold with respect to the insurance versus reinsurance contribution and the continued portfolio reshaping going on in that business. Will it be an earnest effort? Everything has been earnest at AXIS. We've been leading quite a bit of a transformation. We're focused on the objective that we set forth. If we ever course correct, we'll certainly announce you but we are focused on our 11% in the manner that we described. And we feel very good, again, about the ability to monetize the numerous investments that we took in our operating platform, which has had a bearing certainly in our GA ratio in the reported results of year-end 2025.

And thanks for the welcome. It's good to be back. Just to confirm, though, on the expense ratio, we are also seeing, I think, a lot of talent movement right now and I think there's also maybe a bit of an increase in what talent is being paid right now. I just want to confirm, if you see the opportunity to grow in a geography or a line by investing more in personnel, you'd be willing to jump on that even if it means that the 11% target may be delayed by a bit even with the leverage and the other efficiencies that you mentioned?

Yes.

Okay. And one final quick one. The combined ratio, Pete, you said that you still feel comfortable with the 90%. That is reported, right, not underlying?

Yes. That – so you look at the fourth quarter at 90.4%. As we look going forward into 2026, somewhere in that range is what we would expect given the puts and takes that we'll have as we go into the year but still comfortable in that range.

The next question comes from Christian Trost with Wells Fargo.

Could you provide more details on the path to achieving the high single-digit growth guidance for insurance? Additionally, please share any assumptions regarding the rate environment and the expected growth boost from your new and improved product offerings. Lastly, do you have any early insights on the performance of the RAC Re vehicle and its impact on growth this quarter?

Christian, I'll start out and then Pete will come over the top. So as I mentioned in the third quarter, our insurance business enters 2026 without any material reshaping going on. Obviously, as a specialist, we'll always have pruning. Additionally, we indicated that we entered this year with a premium adequate portfolio. We have further leaned into our new and expanded lines, which we've been talking about now for the last couple of quarters and continued to realize material inroads. In fact, if you were to look at the growth in our insurance segment in the fourth quarter discrete, about $150-odd million of our growth came from the new and expanded classes. We view these classes in the aggregate as premium adequate. And what they've done for AXIS is create new revenue streams in terms of products, forms of distribution and customer segmentation. We have optimism around the runway that exists to continue executing the growth that we have produced in keeping with the range of estimate that Pete mentioned. As it relates to ACS, Pete, I'll ask that you come over the top in terms of the contribution but it was not a substantial volume contributor in the fourth quarter.

Yes. Overall, ACS, this was the first quarter we booked any gross written premiums to ACS in the quarter. It came in just around $20 million for insurance, very little net earned in the quarter, quite frankly, because it's going to earn over a long period of time. So it's just getting started. And again, we expect, as we've talked about in the last call, when you think about the RAC Re deal, you'll see most of the written come in over '26 and '27 and '28 because of the way that deal is structured. And again, the net earned is going to come in over '26, '27, '28 and '29 because of how that's going to earn. So it's a really good deal. We're excited about it and it's just started in this fourth quarter.

Got it. And then for my follow-up, just switching to the paid and incurred trends. They were a bit better sequentially and they did improve year-over-year when you adjust for cats. But it is still a bit elevated in the low 90s. And I know previously, you pointed out business mix. But can you maybe provide some more color of like what we should expect to see going forward as we continue to see that mix shift and any other drivers that could potentially improve those metrics?

Christian, in line with our previous statements, we are undergoing an underwriting transformation with significant changes, particularly in the claims mix. Our claims organization has received considerable investments in resources and capabilities. We have also seen an increase in large payment claims, which we evaluate along with various other factors. On its own, this information does not raise any alarms for us, and we maintain strong confidence in our reserve position. As you pointed out, there was a decrease in the outcome ratio, which is understandable when accounting for catastrophe losses. In the fourth quarter of 2024, we paid out around $80 million, highlighting the notable difference in the fourth quarter of 2025. We are focused on this matter and take it seriously, viewing it within a wider context. Overall, we are satisfied with how we are managing our underwriting results. We are confident in our reserve position and are committed to integrating our underwriting model, which combines insights from our claims organization, actuarial function, and underwriting, ensuring we remain attentive to our bottom line goals.

Got it. And if I could just sneak one more. Regarding G&A, can we assume that we will have a more normalized hiring pattern in '26 compared to '25? It seems like there have been significant upfront investments in some of the new underwriting teams. Is that a safe assumption?

I think we want to reserve the right to remain very strategic in how we go about hiring teams. We have some scheduled for the 2026 year. I don't really want to reveal how many or in what lines of business. But suffice to say, my business leaders are certainly active. AXIS' brand is sought after and we're going to use great discretion in making certain that we can optimize the productivity, enhance the alignment to our distribution strategy that has worked substantially well for our organization and make certain that it's aligned to our overall underwriting strategy.

The next question comes from Meyer Shields with KBW.

This is Jing, on for Meyer. My first question is on growth. You've mentioned like low middle market growth throughout the 2025, which significantly contribute to the property growth in for Q2. Can you add more details of what's driving the sustained momentum? And also, could you update us on the competitive landscape there?

Yes. The lower middle market remains a focused and new customer segment that we've been pursuing for the past couple of years. As you may remember, we have integrated most of our product offerings from our wholesale division, including our professional liability classes. We have been implementing a strategy that incorporates both wholesale and retail distribution. We are pleased with the ongoing development of our propositions by the North American team, which has created customized solutions for this customer segment. While the definition of this segment may vary, it collectively represents a transaction risk profile that is lower in complexity. We are satisfied with the sustained growth, and there is significant potential ahead. We acknowledge the presence of competition, but this is a known segment that offers good margins and retains the ability to foster long-term relationships. We are encouraged by the path we are on, the partnerships we've built, the product designs we have developed, and the critical investments we've made in technology to enhance the efficiency of straight-through processing and improve quoting productivity for our teams. Overall, we are happy with the momentum and believe we can continue to grow in this segment, especially given the substantial volume of submissions we are experiencing.

That's very helpful. My second question will be on the core loss ratio. I know you mentioned the pickup because rate and trend isn't fully aligned. Could you like unpack where you're seeing the loss trends running ahead of pricing?

Yes, this is Pete. I’ll start and then ask Vince to add some insights. We are observing significant pricing pressure primarily in our property lines, particularly with E&S Property and Global Property in London. This is where the pricing challenges are most pronounced. On a positive note, we are pleased that in the long-tail lines, we continue to see rates exceeding trends, which gives us confidence in that area. This aligns with Vince’s perspective that we are in a changing market rather than a soft market due to various factors at play.

Yes, Pete, I think that that's right. We continue to have strong observation, management control over the long-tail lines where we have acute watchfulness around trend. We continue to leverage our short-tail versus long-tail portfolio composition, which has obviously different trend assumptions. We have a vigilant accounting of trend quarterly with our actuaries, our claims organization, our underwriting organization. And as you know, over the last several years, this portfolio has shifted increasingly toward our short-tail lines. And finally, within the new and expanded classes, you'll recall, we estimated some 60-odd percent of our new and expanded classes were coming from the short-tail lines. And so that's how we would respond to you. Thank you for your question.

The next question comes from Joshua Shanker with BoA.

Circle to the Pete bandwagon. You're a real one man, so I appreciate it. Thank you.

Thank you, Josh.

How significant do you anticipate third-party underwriting will become as a percentage of the total by 2026? In terms of your current business segmentation by class, which areas do you expect to experience the largest increase from third-party underwriters? Additionally, could you provide a comparison of the expense and acquisition ratios between third-party business and in-house business?

Josh, let me break down your question about third-party underwriting. By the end of 2025, third-party underwriting, which we refer to as delegated, is expected to account for roughly 32% of our total production. Four main delegated relationships significantly contribute to that figure, which we've discussed in previous calls. These include our pet insurance partnership, our surety collaborations, our transactional liability book that is gaining importance due to the evolving risk environment, and our Portfolio Solutions team based in London, where we operate as a smart follow market, a term recognized in London. Regarding differences in acquisition costs, these are included in our overall estimates, but due to profit-sharing agreements, it's challenging to provide precise figures. I’ll have Pete assist with that. Lastly, I don't believe the delegated book will decrease for AXIS; I expect it to remain around 30%. It’s worth noting that in North America, delegated volume only comprises 14% of our total distribution, while a significant portion of our business in London comes from various forms of delegated underwriting. I hope that clarifies your question.

Nothing short of an excellent answer. And in terms of looking forward into '26, '27, '28 and beyond, are you thinking the industry is changing in a way that delegated underwriting is going to be an increasingly large proportion of the portfolio? Or is this a soft market strategy that will invert in 2029 when the markets change?

If I understand correctly, there has been a significant structural change in the delegated space. Specifically, looking at our strongest partnerships in U.S. wholesale distribution, we have invested heavily in the MGU entities within those organizations, and I believe this has long-term viability. I anticipate there will be some consolidation among the lines of business, but I can't precisely predict which MGAs will close. The competitive environment has changed notably in the past three years in terms of margins. The underwriting skill required from these entities will be under scrutiny, especially for those backed by private equity. In contrast, the wholesale dedicated MGUs appear to have lasting strength. As you may remember, when Pete and I implemented the reserve charge, we redefined the role of MGAs and delegated authority within our organization, a process that was difficult but necessary. We are pleased with the progress Mike and Sarah have made in our underwriting strategy. Our focus now is on the controls we've established, which are backed by significant investments in data and analytics, and the economic alignment we've achieved through profit-sharing agreements. Particularly with RAC Re, we've fundamentally altered our approach to interacting in the MGU space. I'm happy to take any further questions.

The next question comes from Andrew Andersen with Jefferies.

Pete, I think last quarter, you were saying within the Insurance segment, RAC Re could push growth into double digits but now you're kind of pointing to mid- to high single digits. So is there kind of a change in expectation on either organic growth or on RAC Re into next year?

I am consistent with what I said in the third quarter. Yes, I think Vince made some strong points. Excluding RAC Re, we are looking at mid- to high single digits for 2026. However, based on our expectations, RAC Re could push the insurance growth into double digits.

Okay. And then on reinsurance, kind of pointing to the potential for double-digit down, I suppose, on a gross basis. I do think maybe half of that segment, 40% to 50% is what could be short tail or specialty lines. Is that kind of more of a flattish expectation there? Or could we break apart the casualty and specialty within reinsurance, how you're thinking about that?

This is Vince. I think if you want to talk about the portfolio construct, you should reasonably expect in the long-tail lines for us to continue the reshaping that we've been talking about these past couple of years. A continued focus within our specialty lines. There's a variety of makeup between and among our definition of specialty reinsurance lines as respects short tail or longer tail but not long tail. But the bumper sticker that I hope you take is, while volume may be less than year-end 2025, we feel very good about the margin contribution of underwriting profitability that will be generated from our reinsurance business. And we continue to see a substantial alignment between the reward of our distribution partners and the capability set of our specialist reinsurance teammates. And so I'll leave it there.

The next question comes from Charlie Lederer with BMO.

Congratulations, Pete, and best of luck to you. I look forward to working with you, Matt. Regarding Christian's question on the attritional loss ratio in insurance, I appreciate that the new and expanded classes are adequately rated. Considering the increasing contribution from professional liability and the decreasing rates in property, could you discuss how this shift in mix might affect the attritional loss ratio in those two lines as we move toward 2026?

I’m not sure I can address your question exactly as you framed it, but I can provide a more helpful answer to the broader aspect of your inquiry. First, the strong growth in our professional segment was largely fueled by transactional liability and our newly expanded E&O classes, along with some contributions from our design professional business. Additionally, we've built a portfolio that has taken advantage of the anticipated growth from these new offerings. If you review the past few quarters, you’ll see consistent evidence of this. We have introduced AXIS Capacity Solutions to meet specific customer needs while utilizing third-party capital. Regarding Pete's comments about the headwinds, it’s clear that the pressure on our ex cat attritional loss ratio will be evident in the 2026 year, though we don’t expect it to be significant. If it’s about one point, that aligns with what I would reasonably anticipate based on the current information, but it won’t create a major impact. The strength of our short-tail portfolio and our balanced strategy in long-tail lines gives us confidence in our overall loss ratio performance. Pete, would you like to add anything else?

Yes, I think you made a good point, Vince. We have actually benefited from a change in our mix this year. As we move into next year, depending on market conditions, we may not see the same benefits from the mix. We anticipate that it might be around 1 point for the insurance side. Yes. This is Pete, Andy. Again, we're going to continue to be opportunistic with the share buyback. We do still believe at our current market price, we're undervalued. And so we did a fair amount of share buyback in the fourth quarter. But our #1, as we said in our prepared remarks, is organic growth. And with the opportunities we have in front of us, with who we've been dealing on, we think we'll have good opportunities for growth in this year in our insurance specialty side. And then based upon the earnings profile that we have, we'll look to put capital to use, still continuing to build out our data and analytics and our platforms. But then we'll look to share buyback in an opportunistic manner. I wouldn't give it a specific number per quarter or anything like that.

There is a follow-up question from Yaron Kinar with Mizuho.

Back for more. I want to emphasize the capital deployment issue. Your premium surplus is still below 1. You are growing, but with the growth targets you have and the lines of business you are expanding into, which are likely more capital efficient, you've shifted focus away from catastrophe exposures. Is it reasonable to expect the payout ratio to remain above approximately 60% even as you continue to grow?

Pete indicated that if you're considering a payout ratio that high, which includes a strong common dividend, it seems a bit excessive. Therefore, if you're thinking about modeling, it would be advisable to model below that number.

Yes. And I think the assumption on some of the capital use in certain of our specialty lines is perhaps larger than, Yaron...

This concludes our question-and-answer session. I would like to turn the conference back over to Vince Tizzio, CEO, for any closing remarks.

Thank you for joining today's call. As we look to the future, we believe AXIS is very well positioned in the marketplace and poised to continue to build on its positive momentum. We look forward to updating you on our continued progress in future quarters. Thank you very much.

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