Chubb Ltd Q3 FY2023 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chubb Limited Third Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. It is now my pleasure to turn today's call over to Ms. Karen Beyer, Senior Vice President and Director of Investor Relations. Ma'am, please go ahead.

Thank you, and welcome everyone to our September 30, 2023 third quarter earnings conference call. Our report today will contain forward-looking statements, including statements relating to company performance, pricing and business mix, growth opportunities, and economic and market conditions, which are subject to risk and uncertainties, and actual results may differ materially. Please see our recent SEC filings, earnings release, and financial supplement, which are available on our website at investors.chubb.com for more information on factors that could affect these matters. We will also refer today to non-GAAP financial measures, reconciliations of which to the most direct comparable GAAP measures and related details are provided in our earnings press release and financial supplement. And now I'd like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Peter Enns, our Chief Financial Officer. Then, we'll take your questions. Also with us to assist with your questions today are several members of our management team. And now it's my pleasure to turn the call over to Evan.

Good morning. As you saw from the numbers, we had another outstanding quarter. Our performance was marked by double-digit global P&C premium growth, world-class P&C underwriting results, including an 88.4% combined ratio, record net investment income, and strong life operating income, all leading to record operating earnings per share. Once again, our premium revenue growth was well spread and broad-based, with excellent results in our commercial and consumer businesses in both our North American and international operations. Our annualized core operating ROE was 13.5%, with a return on tangible equity of 21.2%. Core operating income of $4.95 per share was up 58% over prior year. And for the first nine months, we have produced record operating income of $5.9 billion, or $14.27 per share, up 27.5%. In the quarter, our underwriting performance was driven by a combination of strong earned premium growth, excellent underwriting margins, which included an ex-cat current accident year combined ratio of 84.3%, or 83% excluding agriculture, favorable prior period reserve development in both North America and Overseas General and relatively average catastrophe losses compared to our expected. P&C underwriting income of $1.3 billion was up almost 84%. Our positive reserve development speaks to the strength of our reserves and our reasonably cautious or conservative approach to reserving. As I've said for years, we generally strive to recognize bad news early and are slow to recognize good news. We're in a balance sheet business. Our loss reserves are the most important part of the liability side of our balance sheet. On the asset side, record-adjusted net investment income of $1.4 billion was up $361 million, or 34% over prior year. Our portfolio yield was 4.1% at the end of the third quarter versus 3.4% a year ago, while our reinvestment rate is currently averaging 6.2%. We have very strong liquidity, and our investment income run rate will continue to grow as we reinvest our cash flow at higher rates. We are growing income without a change to our invested asset risk profile. In the quarter, we increased our ownership in Huatai Group to 69.6% and now we're consolidating results, which were accretive to EPS and ROE. Earlier this month, we closed on additional shares and our ownership stands now at over 72%. I expect this to increase further and reach between 83% and 86%. A summary of the financial impact of Huatai is provided for you in the earnings release and the financial supplement. Now, turning to growth, pricing and the rate environment. Consolidated net premiums for the company increased over 9% in the quarter, made up of 8.4% growth in our P&C business globally and about 15% in our Life division. Global P&C premium growth, which excludes agriculture, was 12.3%, with commercial lines up almost 10.5% and consumer lines up about 17.5%. In agriculture, crop premiums were lower than last year due to the timing of when we recognized them. Year-to-date premiums are in fact up modestly. As to the higher combined ratio in agriculture this quarter, we simply recognized a quarter earlier than last year what we think is the likely development for the year based on what we know today about crop conditions and pricing. In terms of the commercial P&C rate environment, rates and price increases in property and casualty lines, in aggregate, remained strong in the quarter in both North America and our international divisions, while decreases in financial lines in North America continued. We remain vigilant and diligent about staying on top of loss cost inflation. Beginning with North America, commercial premiums, excluding agriculture, were up 8.7%. P&C growth was 10.5%, excluding financial lines, which were up 1%. Our very large middle market division had its best quarter of the year with premium growth of 16.3% and middle market financial lines up 1.5%. Our major accounts and specialty division grew 7.2% with P&C up 8.4% and financial lines flat. Overall, pricing for total North America commercial increased 9.3%, including rate of 5.9% and exposure change that acts like rate of 3.2%. Let me provide a bit more color around rates and pricing. Pricing for commercial property and casualty was up 13.9%. Property pricing was up 23%, with rates up 16.6% and exposure change of 5.5%. Casualty pricing in North America was up 11%, with rates up 8.7% and exposure up 2%. In workers' comp, which includes both primary comp and large account risk management, pricing was up 5.5%, with rates essentially flat and exposure up 6%. We are trending loss costs in North America at 6.7%, same as last quarter. And again, that compares to pricing of 9.3%. In general, we're trending loss costs in short tail classes at 5.8%. And long tail, excluding workers' comp, loss costs are trending at 7.1%, and our first dollar workers' comp book is trending at 4.7%. For financial lines, the underwriting environment remains aggressive, particularly in D&O. Rates have continued to decline. In the quarter, rates and pricing for North America financial lines, in aggregate, were down 4.8% and 3.8%, respectively. We're trending financial lines loss costs at 4.7%. Renewal retention for our commercial businesses in North America was 92.7%, and our new business grew 14%. On the consumer side, our high-net-worth personal lines business had another excellent quarter, with premiums up over 9.5%, with strong retention and new business growth. In our homeowners business, we achieved pricing of 15%, while our selected loss cost trend was similar to last quarter at 10.5%. Turning to our international general insurance operations. Net premiums were up about 21.5%, and this includes a 7.5% contribution to growth from the Huatai consolidation. Our international commercial business grew 17.5%, while consumer was up 28.4%. In our international retail business, growth was broad-based with all major regions producing double-digit growth. Latin America led the way this quarter with premiums up 23%, made up of commercial lines growth of 16% and consumer up more than 28%. Europe and Asia Pac had strong orders with growth of 14.2% and 10.2%, respectively. We continued to achieve improved rate to exposure across our international commercial portfolio, with pricing up 9.3%, rates up 5.7%, and exposure change of 3.4%. Property and casualty lines, pricing was up 11.7%, with rates up 7.1% and exposure up 4.3%. While financial lines pricing was up 2.3%. Loss cost inflation across our international commercial portfolio remains steady from last quarter, trending at 6.6%. Within our international consumer, our A&H and personal lines divisions both had strong quarters, with premiums up 16.5% and over 40%, respectively. Personal lines growth in Latin America rebounded sharply with premiums up 43% on the back of growth in our Mexican auto portfolio where we're taking significant rate actions to reflect the loss cost environment. In our international life business, which is almost entirely Asia, premiums were up nearly 20%, including the impact of the Huatai consolidation. Life segment income was up nearly 15%, $288 million. In summary, we had a simply outstanding quarter, contributing to outstanding year-to-date results. We are growing exposure in a thoughtful and balanced way, mindful of risk environment and underwriting conditions, which are favorable in many areas of our business. Looking forward, we are confident in our ability to continue growing revenue and operating earnings globally, which in turn drive EPS through the three engines of P&C underwriting income, investment income, and life income. I'm going to turn this call over to Peter, and then I'm going to come back and take your questions.

Thank you, Evan, and good morning. First, I want to note that we completed our first quarter with Huatai Group as a consolidated subsidiary. The results of Huatai are reported at 100% within our financials, with only certain key metrics reported at the company's 69.6% ownership interest, including consolidated core operating and net income, book and tangible book value, and ROE measures. Turning to our results, Chubb reached two milestones this quarter: invested assets reached $130 billion, and adjusted net investment income topped $1.4 billion. Operating cash flow was a record $4.7 billion, reflecting our record investment income and strong premium collections. During the quarter, Moody's affirmed and moved our outlook from stable to positive. And as you know, S&P affirmed our group's rating with stable outlook earlier this year. Core operating ROE on a deployed capital basis is approximately 15.5% and the related operating return on tangible equity is approximately 27%. Book value per share, excluding AOCI, increased 2.6% and 7% for the quarter and year-to-date, respectively, reflecting outstanding results for both periods. Tangible book value per share, excluding AOCI, decreased 4.2% for the quarter with 7.5 percentage points coming from the dilutive impact of consolidating Huatai. With the consolidation on July 1, Chubb had additional goodwill and intangibles of $3.5 billion pre-tax. In Q3, we already earned back almost two-thirds of that amount and expect to earn back the rest within this current fourth quarter. Huatai had a modest impact on results this quarter in line with expectations, adding $0.12 or 2.5% to core operating income per share, a third of which related to the favorable impact of purchase accounting adjustments in the quarter, which will decline over the next year. As previously noted, adjusted net investment income for the quarter was a record $1.415 billion or $140 million above the top end of our guidance, of which $100 million is related to Huatai, which was not included in our prior guidance. In the fourth quarter, we expect adjusted net investment income to be approximately $1.435 billion to $1.45 billion on a recurring basis, including Huatai, and to continue to grow from there. We remain consistent and conservative with our investments, with 83% of our fixed income portfolio rated investment-grade and an overall average credit rating of A. This quarter, we recognized an unrealized loss on our portfolio of $2.2 billion after-tax, reflecting rising interest rates. We also recognized a modest favorable $18 million recovery of expected credit losses net of an immaterial impairment charge in the quarter, which attests to the overall quality of our portfolio. Huatai's investment assets added $12.7 billion gross or $6.4 billion attributable to Chubb to our investment portfolio. With over two decades as a strategic partner with Huatai, we have deep insight into Huatai's portfolio, and it fits well with our overall conservative approach to investing. 87% of Huatai's investment portfolio is fixed income related, and is very high quality, with an average credit rating of A and with 98.5% rated investment-grade. Turning to our underwriting business. For the quarter, we had pre-tax catastrophe losses of $670 million, principally from weather-related events and wildfires in North America. Total catastrophe losses were split: 82% U.S. and 18% internationally. Prior-period development in the quarter in our active businesses was a favorable $261 million pre-tax. The PPD in our active businesses this quarter consisted of $316 million favorable development in short-tail lines and $55 million of unfavorable development in long-tail lines. Our corporate run-off lines had adverse development of $61 million, principally related to environmental exposures. Our paid-to-incurred ratio for the quarter was 73% and was 84% through nine months. This quarter reflects the impact of strong premium growth on reserves and the timing of our crop insurance payments. Our core operating effective income tax rate was 18.8% for the quarter, which is within our guided range of 18.5% to 19% for this year. I'll now turn the call back over to Karen.

Thank you. At this point, we're happy to take your questions.

Thank you. Your first question comes from Bob Huang with Morgan Stanley. Please go ahead.

Good morning. Congratulations on the quarter. My first question is actually on reserving. You obviously talked about recognizing bad news first and good news later. Curious about your thoughts on the recent development. European reinsurers have talked more about the cautionary view on the U.S. casualty reserves. Social inflation has been around for years, but this is clearly something that European reinsurers are talking more about now. Just given their recent renewed caution, so to speak, on the U.S. casualty side, are there any adverse trends that you're seeing across the industry that would justify this view? Any specific factors that you would like to call out? Curious about your view on this. Thank you.

This is not a new issue, and I won't revisit what we've discussed over the years. There's nothing new to add. If you review our past quarters and our approach to loss cost development, you'll see that reinsurers have lagged in their recognition of these issues and are just starting to align with our perspective. I don't have much more to say on this. There's no news for us, and I doubt there’s significant news for them either. Their delay in recognition has been problematic, especially when falling behind on casualty, as it creates a challenging situation they need to address.

That's very insightful. My second question is about cyber insurance. There have been significant cyber breaches in the consumer sector, including casinos and gaming, and more recently, a cybersecurity firm experienced a serious breach. Given that Chubb is a leader in cyber insurance and your recent partnership with SentinelOne, I'm interested in your perspective on how these recent events might affect the pricing environment and the industry overall. What are your thoughts on Chubb's positioning in cyber insurance moving forward?

Cyber insurance is a relatively new area in the industry. Although it has been around for several years, it is still considered a new type of risk compared to other lines of business, and it continues to evolve. The world today is more interconnected than it was three or five years ago, and it is a challenging environment due to geopolitical issues and criminal activities. Cyber can be exploited as a tool for wrongdoing and profit, and the methods used by these criminals are also changing. Meanwhile, the industry, including Chubb, is enhancing our risk management and underwriting abilities for these exposures. While criminals are acquiring more sophisticated tools, law enforcement and the insurance industry are also developing better tools and insights. This makes the landscape dynamic, with active discussions around loss frequency and severity. The industry's pricing and coverage need to adapt accordingly. I see this discipline reflected in some parts of the business, while other areas seem to need more rigorous oversight. The positive aspect of cyber insurance, in contrast to casualty insurance, is that it reveals its challenges quickly. If underwriting is too lenient and focused on gaining market share, it will likely result in consequences sooner rather than later.

Thank you very much for that.

Your next question comes from the line of Greg Peters with Raymond James. Your line is open.

All right. Good morning, everyone. Well, I assume it's good morning, Evan, unless you're in Singapore or in Europe.

I'm right here in New York City.

Well, awesome.

Thank you, Greg. Good morning to you as well.

I was listening to your comments, and you mentioned the Mexican auto business. You highlighted the success of your North American personal lines business. It seems like we're experiencing a once-in-a-generation hard market in the auto insurance sector. I know you have a specialty business for your personal lines in North America, but do you have any thoughts on expanding into other areas of the market given the current dislocations?

In general, the personal lines market in North America is not a focus for us. We don’t contribute anything meaningful to that segment, and honestly, it seems to be well served, if not overserved. We have a significant niche in high net worth insurance in the United States, and our unique capabilities and insights give us a true competitive advantage. This distinctiveness is what we aim for. Outside the U.S., the general auto and homeowners markets operate as commodities, with many pursuing volume over adequate underwriting returns. We are very selective about our approach. We continuously explore and analyze global environments to find opportunities that align with our underwriting strategy and allow us to create substantial franchises that hold competitive advantages. For various reasons, Mexico stands out for us; we insure over 2 million vehicles there and maintain a combined ratio that other companies in the industry envy.

Thank you for the insights. I'd like to shift to a follow-up question regarding the reinsurance business. I think I brought this up last quarter, but it stands out to me that your global reinsurance business doesn’t seem to be showing significant top-line growth. While I recognize that you're increasing your property exposures, there is much discussion in the market regarding the upcoming 1/1 renewals, particularly in relation to pricing and reinsurance. I'd like to hear your thoughts on how you foresee the pricing for reinsurance evolving over the next year. Based on your top-line results, it appears that you might not have an optimistic view, but I would appreciate your comments on this.

Last year, during the third quarter, we experienced significantly larger catastrophic events, which led to a substantial collection of reinstatement premiums that we did not see this year. When adjusting for that, our reinsurance business actually grew by 20% in the third quarter. To clarify, we are not moving away from reinsurance. However, I believe it is more beneficial for Chubb to expand our insurance property and catastrophe-related exposure rather than through our reinsurance operations. We have allocated more capital and increased our exposure on the insurance side, where we have excellent transparency, strong distribution reach, and underwriting expertise across various segments, from personal to small commercial and large industrial commercial, including excess and surplus lines across North America and globally. We are actively engaging in this area. We will assess the results from January 1 renewals, and if the risk-adjusted returns are favorable compared to insurance, we may increase our participation in the property catastrophe sector. However, we are not feeling pressured to invest hastily. As for reinsurance casualty, we are well aware of the situation and our team managing reinsurance has insights from Chubb’s insurance business. Therefore, we have approached this cautiously and have significantly reduced our market share. If the casualty market improves to a level that offers a reasonable risk-adjusted return, we will be open to increasing our involvement there. Other than that, we have many opportunities within Chubb, and we will continue to be patient and cautious. This approach is essential for long-term success in the insurance industry.

Got it. Thanks for the detail.

You're welcome.

Your next question comes from the line of David Motemaden with Evercore ISI. Your line is open.

Thanks, good morning. I just had a question on North America commercial and the growth there. Obviously, the net premium written growth is coming in just as you said it would, Evan, but I'm looking at the gross premium written growth and that decelerated a bit to 3% from 9% last quarter. I'm wondering if you could just walk through some of the moving pieces as to why that decelerated a little bit.

Thank you, David. It's quite straightforward. There were a few non-recurring deals that affected the results. When we adjust for those, the gross growth remained consistent. There’s no significant underlying trend or widespread issue; it was simply tied to a couple of specific deals.

Got it. Understood. Peter mentioned that overall ongoing reserve development remains strong across the business. He noted $55 million of unfavorable developments on long-tail lines, which is relatively small, but could you elaborate on the segments involved and what factors were driving that? Additionally, could you provide some details on what is happening?

There’s nothing new to report. It relates to auto and excess casualty, specifically the years from 2017 to 2019, with perhaps a bit from 2016 as well.

Got it. Makes sense. Thank you.

Yes, there aren’t additional words from me on this. We’ve been discussing it for several years, and it continues to evolve, so we make an effort to stay updated on it.

Your next question is from the line of Mike Zaremski with BMO Capital Markets. Your line is open.

Hey. Great. Good morning.

Good morning, Mike.

Good morning, Evan. I have a question about the North America commercial segment, which relates to reserves as well. Looking at the year-to-date performance, it’s clear that this isn't unique to Chubb, but I’ll use Chubb’s statistics. Reserve release levels are approximately 50% lower than last year and also 50% below Chubb's historical averages over the past five years. This suggests that something has shifted. The question we frequently hear from investors is, given the significant changes in reserve release levels, why haven't the assumptions regarding loss cost inflation changed notably? Would you like to address that?

Loss cost inflation, let me tee off of that for a second. I think your mental model may not be exactly right. Loss cost inflation over the last two years and maybe longer, you've watched it step up our disclosed loss cost inflation. And when it steps up, it first impacts your view and therefore your pricing and your loss ratios for your current accident year. You then have to apply it going back on your in-force reserves. But your in-force reserves continue to develop. And as they develop, if they develop with more inflation in the current calendar year than you imagined, and you think it has credibility, then you have to adjust those reserves going back. And then, that informs your inflation factor you're going to use in the current period. And that's why you see inflation as loss cost inflation has evolved over the last few years with the notion of increase of frequency of severity in particular. You had the pandemic and those who I think were smart were careful and didn't imagine that patterns had changed even though you couldn't observe them and kept trending the same. But you trended the same and if inflation was a little worse when you look back on it, then you have to keep adjusting for that. We have produced, what I can tell, $600 million through three quarters or more of prior period reserve, positive development. That's on a trend of a net $800 million. And we've had legacy run-off exposure, asbestos, environmental, molestation, all of that included in that. I think when you look back historically on Chubb, the reserve development is pretty steady and pretty prudent there.

That's very helpful. I appreciate you partially correcting the way I was thinking about it. I guess my quick follow-up is, you've talked more than some of your peers about exposure acting as rates. And maybe it's not fair, but some of your peers say that only some exposure act as rate. I don't know if that's a conversation you want to have or you want to delve into whether you think the vast majority of Chubb-specific exposure really does act as rate more so than others, or anything you want to add there? Thanks.

No, I think both comments are consistent. The specifics depend on the line of business being discussed. We adjust our exposure to reflect only that part that acts like a rate, which varies between different lines, such as general casualty compared to workers' comp. Property has its own way of being viewed as well. The percentages and components differ by line of business, and that is how we analyze it and present it to you. Additionally, depending on the line of business, we often show a net figure, which complicates things a little more, but it's manageable. We also have economic factors and insurance adjustments that can reduce exposure. For instance, in casualty, we may increase client retentions, and in property, we may raise deductibles, which effectively lowers exposure and gets reflected in our net calculations.

Very helpful.

Yeah, you can go back and chew on that one. Thanks, Mike.

Your next question is from the line of Paul Newsome with Piper Sandler. Your line is open.

Good morning. Congratulations on the quarter. I have a couple of follow-up questions. Regarding the crop business, was there anything that prompted the early recognition of the crop prices or yields, or was there anything specific that accounted for the slight change?

No, not really, Paul. We just had better information. By the nature of this growing season, for instance, winter wheat is under pressure this year relatively. And so that affects the loss ratio number. California experienced storm events that revealed losses earlier. We had better data this year in the quarter to make adjustments compared to last year, where issues emerged very late, at the tail end of harvesting.

Okay, that's great. And then different topics, a little bit on the reserve front. Some of your peers are talking about healthcare inflation being a good guy of late and helping out workers' comp reserves, in particular. Are you seeing some of the same effects there as well where the healthcare piece, which crosses all sorts of things in your business, is coming a little bit better than expected?

No, we have used this approach in the past, but not this quarter. We have noted a higher trend in medical inflation, acknowledging that overall medical inflation is more significant. The booking of an accident year is only somewhat relevant because both workers' compensation and medical costs have longer-term effects. Therefore, we consider this more carefully when assessing medical inflation for our loss projections.

Appreciate letting me ask questions. Thanks for the help, as always.

You're welcome.

Your next question comes from the line of Tracy Benguigui with Barclays. Your line is open.

Good morning. Real quick for clarification, your commentary about 13.9% pricing increases in North America commercial, that's ex financial lines, right?

Correct.

Okay. So keeping that in mind, it looks like we're seeing strong but sequentially less momentum in property pricing. Is there seasonality to keep in mind? Otherwise, can you shed some light on the competitive environment, writing capacity entering, ability to pass on higher reinsurance costs or, to some extent, more retention of risk by insureds to contain costs?

I don't square with that comment. I believe I gave you like 23% in property. Property pricing remains extremely strong. So, you're seeing something that we're not seeing.

No doubt. 23% is great. I was just comparing that to 31.5% in the second quarter.

There’s nothing significant to report. The volatility from quarter to quarter depends on our writings in various areas, such as commercial lines, middle market, E&S, and major accounts. However, when looking at similar groups, we do not observe any differences.

Okay. Very good. Also real quick, just a follow-up to David's question. Was there any sizable workers' comp offset to the $55 million adverse development you took for long-tail lines?

There was in middle market, workers' comp, not large account workers' comp. This is the quarter that we study middle market.

Okay. But was it large enough where it might have been a larger charge you took in auto and excess liability, you might have seen a nice offset?

We don't break things down into parts; instead, we look at the overall picture. There was more in the auto and excess lines combined on a gross basis, and other areas performed better as well. When you consider everything together, it balances out.

Your next question is from the line of Yaron Kinar with Jefferies. Your line is open.

Thank you. Good morning, everybody. First question. So, we're hearing from some executives that they're voicing concern about medical loss environment looking ahead. While it's currently benign, there is a concern that it may be picking up. So, how are you thinking about that with regards to both kind of prior accident year reserves and forward appetite? And honestly, I'll leave it to you whether you want to discuss this on a company basis or what your views are with regards to the industry and how it has to approach this? And maybe even touch on which lines other than workers' comp, that I think we're all aware of, could be most impacted by that shift?

Yaron, I think I just answered it. So, I'll repeat myself. We adjusted our loss picks to reflect in our inflation numbers we use. We adjusted to reflect our view of higher medical inflation already, and we did that a number of quarters ago. And we're steady in the use of that because we already raised it.

Okay. And do you think the industry is in a relatively similar position?

I don't underwrite for the industry. So, I don't see what the industry fix. I don't know what each company fix. I can only manage Chubb. If everybody wants to give me their's, I'll find on it, but I don't have much.

Well, I guess I could maybe phrase it a different way. Since you have adjusted for this already, I would think that your pricing is also accordingly adjusted. Are you finding that your prices are still competitive with the industries? Or is the industry still essentially pricing for a lower loss inflation?

I don't see how you're mixing two different issues. One is what companies actually charge in the market, and the other is their loss forecasts and what those charges represent. They might account for the same factors I do and be willing to underwrite to 100%, while I'm not. Therefore, I can't engage with that assumption you're suggesting.

Okay. Fair enough.

You're welcome.

Your next question comes from the line of Brian Meredith with UBS. Your line is open.

Hey, thanks. Good morning, Evan. First one, any green shoots at all and maybe the pricing environment for financial lines here? I mean, it's been pretty competitive here for a while. I know that we've talked about the cyber losses coming through. What are you seeing there?

No, I'm not seeing much. This industry sometimes engages in actions that seem quite foolish. Financial lines is a very broad category that includes everything from public D&O to private D&O, non-profit D&O, errors and omissions of all kinds, and cyber insurance. It's a complex mixture of various lines, each with its own dynamics. There are significant segments that appear stable or are being managed well. However, there are also areas where the number of MGAs is increasing significantly, along with an abundance of available capacity. Much of that capacity is essentially returning to the same sources, creating a sort of chaotic cycle. In those problematic segments, I don’t see any signs of improvement. The rest of the market seems to be behaving reasonably. So my first point is to avoid generalizing financial lines as a whole, and secondly, some areas seem quite mismanaged.

Makes sense. And then my second question, Evan, a little bigger picture here, just thinking about just generally, the general casualty lines here. As you kind of pointed out, really attractive combined ratios that you're printing and in the industry in general. And now we're also looking at long-term interest rates that are, gosh, decade high, right? Are we seeing any weakness at all from a pricing perspective? Do you anticipate that's going to start happening here in the next 12 months, just given the return profile of the business and how attractive it is?

I haven't seen it really, because higher interest rates are also a proxy for loss cost inflation. So, you've got an industry that I think is trying to stay on top of loss cost or has that impetus behind them to stay on top of loss cost in casualty. And other than in workers' comp, it hasn't been totally benign as you well know, and it's been around for a while. So, I think that higher yields are ameliorating. And by the way, if you do the math and you translate the higher yields to what it means to earn the same return, what combined ratio affect you would get to achieve the same return, it's modest in combined ratio relatively, 1 point here, 1 point there, it's not like, wow, I can raise my combined ratio as 5 points to achieve the same 15%, as an example, risk-adjusted return. No, you can't, and we run the math.

Makes sense. Thank you.

You're welcome.

Due to time constraints, your final question comes from the line of Alex Scott with Goldman Sachs. Your line is open.

Hi. I wanted to ask about the environment broadly in Asia, across the different countries. And just now that you've scaled up that business in a bigger way with the addition of Huatai being consolidated and so forth. What are you seeing in the environment? Where do you see the growth opportunities looking ahead?

We discussed this topic last quarter, and it hasn't changed in a couple of months, so I'll reiterate. We operate in 12 countries in Asia, with half of our business in the commercial sector and the other half in consumer. The consumer side includes both life and non-life insurance. We are the largest direct marketers of insurance in Asia, and our life and non-life operations collaborate closely. Our digital capabilities have expanded significantly. The trend in direct response marketing is shifting from phone-based methods to digital approaches, often combining both. Our distribution includes agency and brokerage operations, allowing us to target a range of markets from lower middle market to the largest corporate clients, carefully segmenting our distribution and products accordingly. I believe Asia and North America will be the two regions with the greatest economic growth potential in the coming decades. Excluding China, Asia is vibrant and dynamic, with North Asia having an aging population and Southeast Asia, home to over 700 million people, experiencing rapid growth and emergence. Look at the developments in Vietnam and Indonesia, as well as Singapore and Thailand, all of which provide significant opportunities, though navigating these markets requires in-depth knowledge and effort. We've taken the time to establish strong local capabilities over the years, and it's crucial to understand your position in each market, whether it's in Thailand, Vietnam, or elsewhere. Each market is distinct, necessitating local expertise, knowledge, and effective control of underwriting processes. I'm very optimistic about the outlook for our company in Asia, and I believe it will increasingly contribute to our overall business in the future. Thank you for your question.

Thanks.

At this time, I would like to turn the call back over to Ms. Karen Beyer.

Thank you, everyone, for joining us today. If you have any follow-up questions, we'll be around to take your call. Enjoy the day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.