Everest Group, Ltd. Q1 FY2024 Earnings Call

Good morning, everyone, and welcome to the Everest Group Limited First Quarter of 2024 Earnings Conference Call. The Everest executives leading today's call are Juan Andrade, President and CEO; and Mark Kociancic, Executive Vice President and CFO. We are also joined by other members of the Everest Management team. Before we begin, I'll preface the comments on today's call by noting that Everest SEC filings include extensive disclosures with respect to forward-looking statements. Management comments regarding estimates, projections and similar are subject to the risks, uncertainties and assumptions as noted in these filings. Management may also refer to certain non-GAAP financial measures. These items are reconciled in our earnings release and financial supplement. With that, I'll turn the call over to Juan.

Thank you, Matt. Good morning, everyone. Thank you for joining us. We had a strong start to 2024. Our first quarter results included record underwriting profit and significant increases in operating income, net income, and investment income. This resulted in a total shareholder return exceeding 18% and an operating return on equity of 20%. We drove margin expansion through rate increases that are meaningfully in excess of loss trend, targeted risk selection, portfolio and cycle management, exposure growth, and with underwriting discipline. We accomplished this while consistently and purposely maintaining conservatism in our loss space. We are confident in how we have shaped our portfolio. In reinsurance, we built on our preferred lead market position at the January 1 renewals and continue to distinguish Everest in the accelerating flight to quality. Our Reinsurance portfolio is well positioned and driving strong risk-adjusted returns. In Insurance, we advanced our disciplined expansion in targeted markets while remaining focused on prudent risk selection and the bottom line. We are focused on our primary objective of delivering consistent, leading financial returns. With the 3-year strategic plan we laid out during the November 2023 Investor Day, Everest has entered a new chapter of profitable growth and opportunity, and we are well positioned for the future with a focused strategy and great talent. Now I'll turn to the first quarter financial highlights, beginning with our group results. We delivered $709 million in net operating income, a 60% increase from the prior year. Gross written premium increased by over 17% in constant dollars. Our growth in the quarter was broad-based and reflects Everest's diversification by segment, geography, business line, and distribution. Growth was supported by best-in-class execution and our ability to take advantage of market conditions in Reinsurance and Insurance, particularly in property and specialty lines. Our underwriting performance was strong in the first quarter. We delivered $409 million in underwriting profit. The group combined ratio was 88.8%, a significant improvement from last year. This is despite the industry incurring approximately $20 billion in catastrophe losses in the quarter. For Everest, pretax catastrophe losses, net of estimated recoveries and reinstatement premiums were $85 million or just 2.3 points, a year-over-year decrease directly resulting from our portfolio optimization efforts. Everest catastrophe losses were primarily driven by the Francis Scott Key Bridge Collapse in Baltimore. With regard to investments, we generated net investment income of $457 million, a new quarterly record. Now turning to our Reinsurance business. Reinsurance delivered significant top and bottom line growth. Our success at the January 1 renewal gave us a running start to the year, delivering a higher quality, higher-margin portfolio. We grew the Reinsurance business in the first quarter over 20% on a constant dollar basis, with $3.2 billion in gross written premiums. We increased underwriting profit to $345 million, with an 87.3% combined ratio. The attritional loss ratio and attritional combined ratio also improved to 57.2% and 84.4%, respectively. This quarter included pretax catastrophe losses of $80 million, net of estimated recoveries and reinstatement premiums. Both rate and terms and conditions remained at attractive levels, resulting in a portfolio that should continue to achieve excellent risk-adjusted returns. We grew our total property portfolio significantly, building on meaningful increases in 2023. We expanded our portfolio in attractive specialty lines of business, particularly marine and aviation. We remain disciplined and surgical in our approach to certain casualty lines. Our responsiveness, creativity, and constructive approach to the market once again set Everest apart. We deepened relationships with top-tier clients globally while capturing incremental demand and growing share on oversubscribed deals. We continued this positive momentum through the April renewals, resulting in high-quality, broad-based growth, particularly in property lines and excellent overall risk-adjusted returns. We capitalized on strong demand, expanding with core cedents while also growing with targeted new partners. Consistent with the January renewal, we maintained discipline in certain casualty lines, nonrenewing business that did not meet our thresholds. Overall, the market remains disciplined and trading conditions continue to be favorable, particularly in property and specialty lines. We continue to see incremental demand from cedents, and we are leaning into these opportunities. We expect risk-adjusted returns to remain attractive through upcoming renewals and into 2025. Now turning to insurance. We continue to unlock value in our primary insurance business, making solid strides in bringing our capabilities to new markets globally. We grew the Insurance segment by 10% in constant dollars and generated over $1.2 billion in premiums for the quarter. Growth was diversified with 37% growth in property and 36% in specialty lines such as aviation, energy, surety, and marine. We see strong rate and terms and conditions in these lines. Also, due to strong rate increases, we saw modest growth in some casualty lines. With a consistent emphasis on profitability, we focused on lines of business with favorable pricing and strong profit trajectories. We achieved a 12% rate increase across the portfolio, excluding workers' compensation and financial lines. Loss trends in casualty remain elevated, but they're stable, and pricing continues to meaningfully outpace that trend. We continue to see rate acceleration across casualty lines, excluding financial lines. This was most pronounced in commercial auto liability, general liability, and excess casualty lines. The rate increases in these 3 lines average mid-teens overall. The combined ratio at 93.1% resulted in an underwriting profit of $64 million. The attritional loss ratio was 64%, reflecting our discipline and continued loss pick conservatism in casualty lines of business. We also continued our proactive shift to short-tail lines, which we expect will benefit underlying margins throughout the remainder of the year. As I've said in the past, we will recognize bad news quickly, and the good news from our positive portfolio rate actions will season over time. We are focused on profitably growing in geographies and lines of business we find attractive while continuing to drive rate in excess of loss trend. Our first quarter continued to demonstrate the strength of the Everest franchise and the results of our actions over the past 4 years. We see significant opportunities for our underwriting businesses globally, and trading conditions remain favorable. I'm excited about the journey ahead for our business and our ability to continue delivering leading financial returns. With that, I'll turn it over to Mark to review the financials in more detail.

Thank you, Juan, and good morning, everyone. Everest is off to a strong start to 2024. We delivered significant growth in underwriting income, net investment income, operating income, and net income for the first quarter. This drove operating EPS of $16.32, and an operating ROE of 20%. The annualized TSR or total shareholder return was strong at 18.1% despite modest foreign exchange headwinds. The company's strong performance in the first quarter was led by our team's high level of execution and ability to capitalize on attractive opportunities. We have significant momentum behind us across both of our franchises driven by excellent outcomes at recent renewals and our disciplined insurance expansion into target global markets. Looking at the group results, Everest reported gross written premiums of $4.4 billion, representing 17.2% growth in constant dollars and excluding reinstatement premiums. The combined ratio was 88.8% for the quarter, driven by an improved underlying loss ratio and lower catastrophe losses. The catastrophe losses in the quarter were largely driven by the Baltimore bridge collapse, which contributed $70 million to catastrophe losses. The group attritional loss ratio was 58.9% and a 90-basis point improvement over the prior year's quarter with both segments contributing to the improvement. The group's commission ratio was 21.4%, consistent with the prior year. The group expense ratio improved 30 basis points to 6.1% in the quarter, an excellent result as we continue to invest in talent and systems within both franchises. Moving to the segment results and starting with Reinsurance. Gross written premiums grew 20.4% in constant dollars when adjusting for reinstatement premiums during the quarter. Growth in the quarter was consistent with the trends seen throughout the prior year with strong and broad-based growth in property and specialty lines, while we continue to remain disciplined in certain casualty lines. Property lines grew 31% in the quarter, while casualty lines grew 11% in the quarter, and we continue to see the written premium mix shift towards property and short-tail lines, which now stands at 54% property and 46% casualty versus 50% property and 50% casualty in the prior year. Growth will continue to favor short-tail business as we trend throughout the year, which will be more pronounced on an earned basis. The combined ratio was 87.3%, an improvement of 350 basis points from the prior year. The attritional loss ratio improved 80 basis points to 57.2% as we continue to achieve more favorable rates and terms, particularly in property and specialty lines. The attritional combined ratio improved 150 basis points to 84.4% during the quarter. Both the commission ratio and underwriting expense ratio improved modestly to 24.6% and 2.6% in the quarter, respectively. Moving to Insurance. Gross premiums written grew approximately 10% in constant dollars to $1.2 billion. We continue to methodically scale our primary franchise globally while proactively focusing our North American portfolio towards the most accretive lines of business, led by retail property and short-tail specialty lines. The growth in casualty and professional lines was driven by rate increases as a number of lines saw continued price acceleration in the quarter. The attritional loss ratio stood at 64% this quarter, an improvement of 40 basis points from the prior year. The commission ratio was consistent with the prior year, while the underwriting related expense ratio increased to 16.6%, driven by the continued investment in our global platform. Moving on to investments. Net investment income increased nearly $200 million year-over-year to $457 million for the quarter, driven primarily by higher assets under management and higher new money yields versus maturing assets. Alternative assets generated $74 million of net investment income, an improvement from the prior year as equity markets have continued to rebound. Our overall book yield improved from 3.8% to 4.7% year-over-year and our reinvestment rate remains north of 5%, which is in excess of maturing security yields. We continue to have a short asset duration of approximately 3.4 years given the attractive level of short rates. The investment portfolio remains well positioned for the current environment and is supported by the compounding effect of strong underwriting income and cash flow. For the first quarter of 2024, our operating income tax rate was 12.2%, which was broadly in line with our working assumption for the year. Our capital strength gives us ample capacity for 2024 and positions us well for profitable organic growth. We opportunistically repurchased 90,000 shares in the quarter, amounting to $35 million with an average of $387.64 per share. Shareholders' equity ended the quarter at $13.6 billion or $14.5 billion when excluding net unrealized depreciation on available-for-sale fixed income securities. At the end of the quarter, net after-tax unrealized losses on the available-for-sale fixed income portfolio equated to approximately $876 million, an increase of $153 million compared to the end of the fourth quarter, resulting from interest rate increases. Cash flow from operations was $1.1 billion during the quarter. Book value per share ended the quarter at $313.55, an improvement of 3.6% from year-end 2023 when adjusted for dividends of $1.75 per share year-to-date. Book value per share, excluding net unrealized depreciation on available-for-sale fixed income securities stood at $333.70 versus $320.95 per share at year-end 2023, representing an increase of approximately 4%. Net debt leverage at quarter end stood at 15.8%, modestly lower on a sequential and year-over-year basis. In conclusion, Everest had an excellent start to the year. Market fundamentals remain attractive, and we have strong momentum across both underwriting franchises. And with that, I'll turn the call back over to Matt.

Thanks, Mark. Operator, we are now ready to open the line for questions. We do ask that you please limit your questions to 1 question plus 1 follow-up, then rejoin the queue if you have additional questions.

Our first question comes from David Motemaden from Evercore ISI.

I just had a question on the premium growth in property Cat. I was a little surprised at the 4% growth, I thought it would have been more than that, just given how attractive market conditions are. Could you elaborate on what you're seeing? It looks like you may have shifted a little bit more towards property pro rata. Maybe just talk about why you chose to grow that instead of a property Cat.

Sure, David, this is Jim Williamson. Thanks for the question. First of all, just on the property Cat XOL growth that you're seeing printed in the quarter, that's really a premium recognition timing phenomenon. If you look back at the June 2023 property Cat renewal, which was the Florida renewal, that was really the only renewal last year that we did not grow. So you're seeing that roll through the numbers in this quarter. All of the other renewal dates that we've experienced recently have shown strong growth. Just to give you some perspective, at the January 1 renewal of this year, we grew our property Cat business by 24%, which was just excellent. We did that at outstanding risk-adjusted returns. Then we were able to continue that growth at the April 1 renewal, where we grew globally just about 10%, and in our North America property business, we grew property Cat by 76%, again, at outstanding risk-adjusted economics. So it's a little bit of a blip that way. My expectation, obviously, is it will work itself out as we go forward. In terms of the property pro rata part of your question, it's really not a matter of saying, okay, we now like property pro rata better than property Cat XOL for the reasons I just described. What it is, is it's starting really in the back half of last year, we saw just terrific economics in the primary property market, particularly in the E&S space in North America. We leaned into that with our core clients and wrote bigger lines with some of the best underwriters in the market, and that's now flowing into our financials, and we're picking it up in meaningful growth this quarter. The other major contributor to pro rata property growth is the expansion of our business in Asia, where we've traditionally been underweight. We're growing very nicely again with best-in-class underwriters in that market. That market tends to be more of a pro rata market and very much a property market. So you're seeing the effects of selecting some really outstanding deals in the Asia market.

Got it. Understood. Thanks for that clarification on the property Cat growth. I appreciate it. And then maybe, Juan, just on the attritional loss ratio in the Insurance business. So I caught that you're expecting that to come down over the course of the rest of the year as you shift to more short-tail lines or that should benefit underlying margins throughout the remainder of the year. Could you just elaborate on that a little bit and just maybe talk about what drove the 64% this quarter? I think you mentioned conservatism, but I was just wondering if you could just talk about that and maybe also what sort of impact that has on your view of the 2020 through 2023 accident year, if at all?

Yes. This is Juan. Let me start, and then I'll ask Mark Kociancic to add some color as well. I think the most important thing is, really start with sort of the framework, right? So we have been essentially running between the 63% and 64% attritional loss ratio in insurance over the past 2 years. There are a couple of things. One, in every quarter, you're going to have some timing and mix noise, but the fundamentals to our approach have remained consistent. That's really the fact that we have been very disciplined underwriters and we continue to remain conservative with our loss picks for casualty lines in both divisions, not only in Insurance and this is something that we have talked about in prior venues. So we're holding our loss picks longer across all lines of business even if we see favorable loss experience in any given quarter and we're going to continue to do that in a very disciplined and systematic manner. That's basically what you're seeing as far as the 64% here in the quarter. But let me ask Mark to add a little bit more on that.

Yes. Juan, just a couple of things to add to the equation. In addition to the conservatism and the prudence of the lost fix, we feel very good about the margin that we're building in the lines that we're writing. We're obviously tracking loss trend, to give you a couple of high-level points on that. Essentially, it's been elevated for a while, for several quarters, but stable, broadly stable, and rate has been meaningfully in excess of trends. So we feel good. There is no issue on our side to have the extra, what we would call, level of prudence in those loss picks given the loss environment that Juan spoke about and I spoke about during the Investor Day. I do think mix of business will eventually push the loss ratio mechanically lower as we add a bit more short-tail lines to the mix overall. That should happen throughout the year and a little bit more over time over the 3-year plan.

Our next question comes from Brian Meredith from UBS.

Juan, I was hoping you could talk a little bit more about your expectations for midyear renewals. We're hearing some signs from brokers that there's ample capacity and maybe we're seeing property Reinsurance pricing kind of peaking out. Is that your perspective on things?

Sure, Brian. Let me get started, and I'll ask Jim to provide some additional insights on this. As we've mentioned in my prepared remarks and in Jim's response to David earlier, we had a strong 1/1 renewal and an excellent 4/1 renewal. Currently, we have nearly 70% of our portfolio renewed at what we consider to be excellent risk-adjusted returns. The market continues to perform well for us. From a pricing standpoint, we anticipate some moderation, especially since we've experienced consistent rate increases in certain regions over time. It's crucial to note that attachment points and terms and conditions are still holding steady. Additionally, as I mentioned earlier, our competitors are maintaining discipline, and trading conditions remain favorable. Now, let me turn it over to Jim to talk more about his perspective on Florida at 6/1 and some of the 7/1 renewals.

Sure, Brian. Thanks for the question. Just to maybe reinforce some of the points Juan made, which I think are spot on. We have seen really terrific results from the most recent renewals, including April. You would certainly have expected, given how much rate the market took last year, that more underwriters are going to be interested in writing the business. While that's true, we've also seen just a floor under the discipline that people are applying to this market, which is what's sustaining terms and conditions, keeping risk-adjusted rate on the upward trajectory, resulting in the economics that we find so attractive. The other thing to keep in mind is we're still experiencing elevated losses around the world. While we had a terrific Q1 Cat result, the fact is Cats remain elevated, whether it's weather, earthquake, man-made disasters, et cetera, those things are happening, and I think that's keeping a focus on the discipline that the market is pursuing. The other factor to keep an eye on is we see some really strong increasing demand from some of our best clients. Given Everest's position as a preferred and lead market, we have opportunities to deploy incremental capacity at really attractive rates. I think that's happening both at the major renewals but also between those renewals. There's a lot more in that pipeline that I think will help to sustain the market. Our perspective is, as we roll into the rest of 2024 with the Florida renewal in June and then the 7/1 renewal, primarily driven by Australia, we expect discipline to be maintained, and risk-adjusted economics should be terrific. Our expectation remains that this will continue into 2025.

That's really helpful. I wanted to return to the Insurance underlying loss ratio briefly. Last year, you had some mid-stop loss one-offs, and it seems there was about a 150 basis points increase year-over-year. I'm curious about how much of that conservatism you built in relates to financial lines and workers' compensation. You mentioned a rate of 12 times for financial lines and compensation. Did you incorporate everything into that, and is that one of the factors contributing to the year-over-year increase?

Yes. Brian, it's Mark. I don't think it is. I think workers' comp is broadly stable in the last few years. That's not driving it. You're right, we had roughly 150 basis points of delta last year because of A&H. There is a bit of mix that drove the delta from last year down to something that was sub-63% attritional loss ratio. Our run rate is more in the 63% to 64% range. What you're seeing here is just a mix of business that is skewed a bit more to longer-tail casualty, and we're keeping those loss picks at a healthy, prudent level on our side.

And our next question is coming from Michael Zaremski from BMO.

Can you provide an update on the main insurance pricing? I believe you've addressed some of this already, but it seems that rates have increased in lines affected by social inflation while slowing down in property. Is that why the calculation remained steady at 12%? Regarding the lines influenced by social inflation, do you see continued momentum in the market as the year moves on? Or is the rise into the low to mid-teens a solid level to safeguard against what appears to be a gradual increase in social inflationary trends?

Yes, Mike, this is Juan. Let me provide some perspective, which can be broken down into different segments. For example, in commercial auto liability, we've observed a consistent trend of rate increases over the past five quarters. General liability has experienced similar growth over the last four quarters, while umbrella and excess have shown increases for approximately three quarters. This indicates that we are seeing a sustained trend rather than a one-time occurrence. The challenges in the industry are well understood, and we have addressed these in discussions with everyone, including our competitors. I anticipate this momentum will continue throughout the rest of 2024, with a duration of four to five quarters, depending on the specific line of business. Regarding property, there has been some additional capacity entering the market, particularly in the E&S sector, which we noted in the first quarter. However, pricing remains strong and continues to be adequate in terms of excess loss trends. Therefore, we maintain a positive outlook for the primary property business as well.

Okay. An encouraging trend on the liability side, considering what we're observing. I think Jim Williamson mentioned that property catastrophe grew by 24%. However, when reviewing the earnings release, it seems like the Cat XOL number is much lower. Am I misunderstanding something?

Yes, Mike, this is Jim. The earlier question was about the lower Cat growth number, which showed about 4% growth on Cat XOL. I mentioned that this reflects the recognition of written premium in the first quarter financials, which included a renewal from last year, specifically the June 23 renewal, where we decided to be more cautious in Florida due to our strict financial underwriting approach. This is now being reflected in the financials. I also noted that at the January 1 renewal, we increased our property Cat XOL business by 24% with excellent risk-adjusted economics. Additionally, we performed well at the April renewal, achieving an overall growth of about 11%, and our North America property business grew by 76% at the 4/1 renewal. These are remarkable growth rates, and you'll see the effects in upcoming quarters.

Our next question comes from Joshua Shanker from Bank of America.

A lot of property questions. So on the big pro rata growth, can you talk about what that means for your exposures and how that affects your capital utilization?

Sure, this is Jim. A couple of things. First, if you examine our gross PML and our net PMLs over the last several renewals, they have increased modestly. This growth is primarily due to our strategic approach to the property Cat XOL market. We have been cautious about the amount of Cat exposure we are taking in the property pro rata book. While it does exist, we are being careful to maintain a good balance. I would also say there is no limitation based on our available capacity. As reflected in our investor presentation, we still have ample room to operate within our risk appetite. We are not in a situation where the exciting opportunities we've pursued in the property pro rata space will hinder our ability to grow with key clients in the property Cat XOL area. We are committed to ensuring the Cat book is not compromised for any other opportunity.

And capital utilization?

Are you referring in terms of how we put the capital to work?

Yes. As you have increased that portfolio, I assume it has become more efficient in terms of capital. Is there a limit to how much of this property pro rata you are able to write?

No. Josh, it's Mark. The answer is no. Despite the large level of growth, very manageable, full degrees of freedom to underwrite as we see in the market going forward. No issue on that side.

Can you discuss the current situation regarding incurred loss activity compared to claims reported by your customers in the reinsurance market for older accident years, particularly in relation to social inflation? Have they adequately adjusted their picks, or do you believe they are trying to catch up based on the picks you have established in this area?

Yes, Josh, it's Jim again. I'm not going to comment on how other companies approach loss pick selection. What I want to emphasize is that we take a very cautious approach to selecting ultimate loss ratios for both older and more recent accident years. We have certainly done this over the last few years by strengthening our reserves in reinsurance casualty, which you have seen. We adopted a very conservative method for setting those ultimate loss ratios to ensure we are looking ahead. We apply the same discipline and analytical process to what others report, whether in their financials or submissions to us, and we believe this positions us well.

And now we have a question from Elyse Greenspan from Wells Fargo.

Sorry to follow up again on the property Cat question, but just going back to the 4% reported growth. Jim, I know you said that the property Cat XOL book grew 24%, sorry at 1/1. I understand that debt premium earn lags as you write business. I just didn't, I guess, appreciate that there's a lag on a gross or net premiums written basis on business that you would have written in the middle of last year. Can you just, I guess, just kind of explain that just that concept to me, just like the lag on the written that would, I guess, flow through 6 months later?

Yes. Sure, Elyse. It's Jim. Yes, we've recognized written. We don't recognize written premium on a reinsurance contract the way you might on a primary insurance contract where you recognize all of the written premium in the period that you originally incepted the deal. Instead, the written recognition of premium is spread out. In the case of property Cat, it would typically be over a 4-quarter period, whereas something like casualty pro rata is typically recognized over an 8-quarter period, and you don't recognize all the premium in a straight line, particularly for casualty pro rata. You'll recall earlier in the year and last year, we talked a lot about this relative to the recognition of growth from the Jan 1, 2023 renewal relative to casualty. So there are going to be these effects. As I indicated earlier, we've seen strong growth pretty much at every renewal since January of 2023 and actually going back into June of '22, as the market started to correct. The only renewal that we had in that entire time that showed a reduction was the June 2023 renewal because we stepped back a bit in Florida due to many smaller clients unable to meet our stringent financial underwriting approach. To give you some statistics, we talked about January '24, July '23 almost 25% growth, April '23, 30% growth. Jan '23, almost 50% growth. It was only June '23 where we actually reduced the book by about 2.3%. Just gives you a sense of the fact that we are delivering strong growth at terrific economics at all these renewals. Got a little bit of a blip this quarter, and we expect that to correct. The other thing I would indicate, as you'll see in the financials, is earned premium for Cat XOL was up almost 20%, which is much more consistent with what you might expect.

Okay. And then on the capital side, you guys started to buy back a little bit of your stock this quarter. I think you used the word opportunistic around that. So can you just give us a sense of just kind of capital return thoughts from here, just balancing growth? I guess, obviously, as we get closer to win season?

Elyse, it's Mark. So you're right. We did start some modest share buybacks in the first quarter, really no change from what we've been saying all along. We're privileging organic growth, no reason we can't do capital management actions like share buybacks. At the same time, we demonstrated that in March, and there's no reason it won't continue going forward. It's an attractive level.

And our next question comes from Gregory Peters from Raymond James.

So for the first question, I'm going to pivot back to the TSR target that you guys have rolled out. I'm just curious if there's been an updated view on the risks to hitting your TSR target. In that regard, I was looking at your slide deck, and I noticed you disclosed your 1:100 PMLs. I'm wondering how that might look when we get to 7/1/24?

So Greg, it's Mark talking. Let me break this down into two parts: PMLs and TSR, the ways to achieve them. During the Investor Day presentation, I emphasized that we have numerous paths to deliver strong financial performance as indicated by total shareholder return. From our perspective, it doesn’t really matter if there are ups and downs from various underwriting markets, pricing, or rates. We have a well-established and diverse set of franchises to effectively manage cycles and portfolios, driving the growth of the franchise along with robust investment income. This has not changed regarding the targets we've set. Now, I'll pass it over to Jim, and I may add some additional insights afterward.

Yes. Greg, it's Jim. Referencing your question and the PMLs that you would have seen in the investor presentation. A couple of things. One, the peak zones that are represented there, we certainly have seen a little bit of growth in our net PMLs from July of last year to 1/1 this year. That's a couple of factors. One, we've taken advantage of the market as I've talked about on this call, and we've grown our portfolio at great economics, which is fantastic. We've also optimized our hedging and we're taking more of our Cat risk on a net basis, and that's contributed to the growth in the net PMLs. Those particular peak zones that are featured in the investor presentation. We expect a little bit more growth, I would assume in Southeast wind through the June renewal, assuming that Florida pricing terms and conditions hold, which we expect. California quake is pretty much in the bag for the year, where you will see us continue to lean into the market at the 7/1 renewal outside of our peak zones. We have plenty of capacity, both in our PMLs and capital and any other way you want to think about risk to continue to grow. I think that's best illustrated by the other exhibit on that page, which shows our earnings and capital at risk and our current position. You see that we have plenty of room to maneuver within our stated risk appetite to take advantage of great market conditions and grow where we need to.

Greg, this is Juan. I would just reinforce 2 points that Mark and Jim have made. Number one, we absolutely see no change to the 17% target. You see where we started the year at the 18.1%. The second point is probably more critical, which is the one Jim just made that we are well within our Cat underwriting appetite. That gives us confidence to be able to maneuver and frankly keep growing the property Cat book, given the excellent risk-adjusted returns that we're seeing in that book right now.

I guess, my follow-up question is just more specific. Can you talk a little bit about how the facultative market is evolving because sort of hearing mixed messages out of the market, and I value your perspective on that.

Sure, Greg. It's Jim again. Yes, we've had a terrific quarter in our facultative business. We were able to grow that business very nicely, about 14% over the prior year. That's really on the back of significant demand by our cedents. In particular, in short-tail lines where they had to increase their Cat XOL attachment points last year to manage the market cycle. That means that, in some cases, they're feeling exposed on larger risks. Their per-risk limits might be uncomfortable. They're coming to Everest to try to manage that exposure. We're getting really great results that we're excited about, and I expect we'll continue to lean into. Like all parts of this business, we need to be very thoughtful in our risk management approach. There are areas of the portfolio, none of this would surprise you, where we're being very cautious and prudent. Certainly, commercial auto would be an area where we're being prudent. We've pretty much exited or significantly reduced any exposure to professional or financial lines. We're being very careful about limit deployment in excess casualty. We are writing some terrific deals there, but we're being careful about limits, ensuring we're getting paid adequately. Like any business, whether it's reinsurance or primary insurance, we need to manage the cycle carefully, but we continue to see really strong opportunities in fact.

And our next question comes from Bob Jian Huang from Morgan Stanley.

So first question is on reserving. Looking at last year's reserve charge, a large portion of that came from the accident year 2016 to 2019 cohort. I understand that you will probably do more reserve studies later on in the year. But just curious if there are any new developments or update at this particular point regarding the current reserving positions and as well as that 2016 to 2019 cohort.

Bob, it's Mark. So we did do our Q1 quarterly review process. It's quite comprehensive. You're right, no real reserve studies to go through in the first quarter, but plenty of anecdotal data that we're looking at, all kinds of information. After we did a review of not only those years but across the board, we don't see anything that's altered our view of our reserve portfolio. So steady as she goes.

Got it. That's very helpful. The second one is more of a modeling question. I understand that your expense ratio for the Insurance segment was elevated a little bit due to international build-out. How should we think about maybe a near-term run rate on this? Is this something that will persist for the next few quarters, next few years? Is there a good way to think about the expense element on the Insurance segment?

Bob, it's Mark again. I think it will be elevated for several quarters. We're adding talent, technology. The premium, as you can see, is growing meaningfully. The earned is trailing, and obviously earns in over time. We're still in a process of scaling. You can see just in the Q1 comparatives, we're coming in for the insurance division at a 16.6% expense ratio versus something closer to 15% a year ago. Our North American operations are fairly stable in the expense ratio. The international is what's got this trailing effect. The good thing on our side is the growth is quite accretive. We're seeing very nice technical ratios from the business that we're writing there, diversifies well, good margins that are embedded. We like the pace that we're going at, so I can see that being elevated for several quarters, but eventually trending down as the scale starts to catch up with the size of the foundation we're building.

Bob, this is Juan. Let me add a couple of comments as well to what Mark just said. I think one important thing to keep in mind is really the hallmark expense discipline of Everest. If you look at the group expense ratio really at that low 6% range, 6.1%, 6.2%, we've been able to maintain that throughout the entire build-out of that international component because of our expense discipline and our ability to prioritize things that matter and say no to things that don't. You can expect for the company going forward that we continue to have one of the most competitive expense ratios in the industry, and that, frankly, is not going to change as we invest and build and grow the international component.

And next in question is Yaron Kinar from Jefferies.

This is Andrew on for Yaron. Within Insurance, it sounds like there could be some benefit on the underlying loss ratio for the remainder of the year. But does the guide of 90% to 92% for reported combined for full year '24 still stand, considering the reported 93% this quarter?

Yes, Andrew, it's Mark. The short answer is yes. There are several factors that are going towards that. You've heard me in the previous question speak to some of the scaling benefits that we expect to get, particularly from the insurance franchise. There are several factors, tailwinds we have that I think will help us achieve that range. I'd start with we have a mix that's going to trend a little bit more toward short-tail in terms of its proportion to the overall book, which will come with lower combined ratios. You're still seeing a very strong margin that's being added to the portfolio across the board as we cycle manage through the different opportunities that we have. The expense ratio, really the 2 points. The earned is going to grow more quickly on the international side as it trails the gross written. That's going to help mechanically when you do the math. Given we've spent over a year building the foundation, those benefits are going to start to pay off, and expenses will start to level out as an overall ratio. Those factors overall are what's going to drive us back into that 92%, 90% range.

And maybe on Reinsurance, some strong growth within casualty pro rata and casualty XOL. Could you talk about some of the opportunities there this quarter?

Yes. So let me start, and then I'll turn it over to Jim. This is Juan, Andrew. Two things drove particularly that casualty pro rata. Again, some of it is the timing of the business that was written at 1/1/23 last year. Jim has talked a bit about how the earnings pattern on that business works. I think that's an important part of that. We felt good about the pricing for that business as well. The second part of it is we saw some attractive opportunities in both Canada and Europe, outside of the United States where you don't have the social inflation issues that you have in the U.S. But Jim, maybe you can provide a bit more additional color?

Yes. I think that's right. It is largely timing of recognition. After the January 1, 2023 renewal, we earn casualty pro rata, or I should say, recognized written premium over 8 quarters. It's really in the middle of that period you see the largest recognition of premium. We're in that period. We had really strong printed numbers last quarter on Cat's pro rata, same this quarter, et cetera. Incremental opportunities as Juan indicated. In particular, when those are taking place outside the U.S. and in a very balanced way, we're more than happy to lean into those opportunities. On the XOL side, not an entirely different story. We have chosen to grow in a targeted way with some of our top cedents. The other thing you'll see in that line, in particular, which is a relatively small part of our portfolio is that the amount of rate that will be flowing through in that line is going to be elevated. That's our expectation, and that certainly helps to support the growth numbers that you're seeing in the quarter.

And next we have a question from Meyer Shields from KBW.

It's Jean on for Meyer. I have a question on the professional line growth, kind of accelerated from 9.9% in 4Q to 11.7%. You mentioned rate acceleration. Are you guys expecting more if rates continue? Can you give more color on that, please?

Yes, it's Jim Williamson. Thanks for the question. Actually, for the most part, the acceleration you would have seen in the quarter in our Insurance business was really related to one large fronting arrangement in our Canadian operation. So it's not really a general trend that you can apply to the rest of our business.

Yes. The only other comment I would make, and this is Juan, is freight also had some implications into that as well. But the growth you're seeing is really what Jim has described, that fronting deal in Canada.

Got you. So we don't expect that to continue for the rest of the year?

No, I don't think we would expect that to continue for the rest of the year. That was due to just one specific deal in Canada.

Okay. Got it. Just one more question, just a broad question on Reinsurance. Just curious, can you share any plans for buying reinsurance for the Insurance segment?

Yes. Sure. It's Jim Williamson again. Yes, we've been a pretty consistent buyer of reinsurance for our Insurance business. There are a lot of good reasons to procure reinsurance; it helps us to manage volatility within that line. In a number of cases, particularly our pro rata treaties in North America are quite accretive from a ceding commission perspective. I think our strategy of using reinsurance strategically to manage our exposure and our economics will continue. I would expect, as the business matures both in North America and then, of course, over time in our international business, you could expect our net to gross ratio to increase as we retain more of our business. I think those changes will be modest and will occur gradually over time, so I wouldn't expect any near-term changes in our approach that way.

And this concludes our Q&A session. I would like to turn the conference back over to Juan Andrade for some closing remarks. Please go ahead.

Great. Thank you for all the questions and the excellent discussion. I'll end really where I started, which is we're off to a very good start in 2024, with an 88% combined ratio for the quarter and a 20% ROE. From the prepared remarks and the commentary that we found over the past hour, you see that we are still in a market with strong trading conditions, generating that 17% growth that you saw overall for the first quarter. You certainly heard about the opportunities we see in both Reinsurance and Insurance for the remaining part of the year. Lastly, we're very focused on delivering our 3-year plan. You've heard from Mark and from us pretty clearly that we still see that ability to generate excess of 17% TSR on an ongoing basis. So with that, thank you very much, and we'll talk in the next quarter.

And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Have a great day.