Everest Group, Ltd. Q1 FY2025 Earnings Call

Good morning and welcome to the Everest Group, Ltd. First Quarter of 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Matthew Rohrmann, Head of Investor Relations. Please go ahead.

Thank you, Jason. Good morning, everyone, and welcome to the Everest Group, Ltd. first quarter of 2025 earnings conference call. The Everest executives leading today's call are Jim Williamson, President and CEO; Mark Kociancic, Executive Vice President and CFO. We're also joined by other members of the Everest management team. Before we begin, I'll preface the comments by noting that today's call will include forward-looking statements. Actual results may differ materially, and we undertake no obligation to publicly update forward-looking statements. Management comments regarding estimates, projections, and similar are subject to the risks, uncertainties, and assumptions as noted in Everest's SEC filings. Management may also refer to certain non-GAAP financial measures. Available explanations and reconciliations to GAAP can be found in our earnings release, investor presentation, and financial supplement on our website. With that, I'll turn the call over to Jim.

Thanks, Matt, and good morning, everyone. Let me first acknowledge the significant catastrophic events from the first quarter. Beyond their financial impact, Everest recognizes the human toll. My team and I are proud to work in an industry and for a company that exists to support communities and businesses in their time of need. As expected, given the California wildfire and aviation losses in the quarter, our combined ratio is elevated at 102.7%. Our actual losses from these various events are within our expected ranges. In the case of California, particularly, our share of loss given Everest's size and scale in the U.S. market demonstrates superior underwriting and risk selection. Total group written premium was $4.4 billion, similar to Q1 2024. You will hear a consistent theme across our divisions. We're growing at healthy rates where risk-adjusted returns meet or exceed our thresholds. Where pricing is weak relative to risk, we are intentionally shrinking, in some cases rapidly. Excluding the cat and aviation losses, our attritional loss ratios are on track, reflecting disciplined underwriting with conservative risk margins layered on top of our loss picks in both businesses. Moving on to reinsurance. Total premiums increased from the prior year, driven by approximately 16% growth in property lines or 8% excluding reinstatement premiums, offset by ongoing actions in our casualty book. As I mentioned in the Q4 call, at the January 1, 2025 renewal, our overall book shrank marginally, reflecting 6% property growth, offset by cutbacks in casualty. At the April renewal, the book grew by 5%, again led by property growth of 15%. Of note, given our strong value proposition, we continue to grow with our valued Japanese clients at attractive margins despite many programs being oversubscribed. We expect moderate cat pricing pressure for the remainder of 2025, but anticipate ample opportunities to deploy capital at attractive expected returns. We said it before, and it bears repeating, rate of price change is important, but expected returns determine our willingness to deploy capital. In property cat, expected returns are excellent. Moving on to casualty, pro-rata written premium was down almost 22% in the quarter, driven by the portfolio actions we've taken since the January 1st, 2024 renewal. Capacity in the casualty quota share market is abundant, with many markets taking up risks we view as unprofitable. We believe seeding commissions have been unjustifiably sticky. Barring a change in the environment, our book will continue shrinking. Our aviation losses in the quarter were consistent with our expectations. Out of prudence, we added 2.4 points to our overall reinsurance division loss ratio in the quarter to account for our full expected loss. Excluding that, our attritional loss ratio would be 57.4%, in line year-over-year. This reflects improvement as our book shifts towards property, offset by the conservative risk margin assumptions I noted earlier. Cat losses net of recoveries and reinstatements were $461 million, driven by $440 million from the California wildfire. This is consistent with our original expectations and does not account for potential subrogation recoveries. Moving on to insurance, written premium in the quarter was down 1.3% from the prior year. Property lines grew 19%, while our specialty businesses grew 16%. This was offset by a 15% decline in our third-party book, driven by the remediation of our U.S. casualty portfolio. That remediation is proceeding according to plan and as I laid out on prior calls. In Q1, 50% of casualty written premium with renewal dates in the quarter was not renewed. This is more than prior quarters, but we are not budging on the changes needed to reach target profitability in one renewal cycle. Casualty rate increases averaged approximately 20% across commercial auto, GL, and excess umbrella, consistently above our conservative assumption for loss trend. Q4 2024 through Q2 2025 are what I would consider peak remediation. As I said on prior calls, this process will be completed by Q4. Property pricing in the U.S. is declining from previous highs. Despite this, we believe market pricing is adequate and will continue to be for the foreseeable future. Our international insurance business is developing in line with our expectations with strong growth in key markets at attractive loss ratios. The international business turned a modest profit in the quarter despite continued meaningful investment in people and technology. Excluding the aviation loss, our attritional loss ratio in the insurance business was 67.9% in the quarter, similar to our Q4 results. This was driven by an improving underlying loss ratio due to mix, offset by the ongoing prudent risk margin we apply to our picks. Moving on to reserves. Everest's overall reserve position improved since the end of 2024. It's still early days in insurance, but our international business shows clear signs of strength, driven by excellent underwriting and prudent loss picks. In North America, our loss experience is in line with our actuarial central estimate. As I said earlier, our 2025 loss picks will include a significant risk margin above actuarial central estimates, which should yield additional reserve strength over time. In reinsurance, our analysis suggests robust, favorable loss development in property lines. In casualty, loss activity remains in line with expectations. As I've said before, we will not take credit in our loss picks for underwriting actions until we know those actions are having the intended result. Respecting group capital management, we repurchased $200 million of shares in the quarter at an average price just over $348 per share. This is consistent with the comments we made on the fourth quarter call and with Everest's commitment to delivering value to shareholders. Given our excess capital position, growth rate, and valuation, share buybacks are a priority and will continue to be if those conditions persist. I'll end with a brief word on the external environment. Everest has completed a thorough assessment of our exposure to the new tariff regime, and we believe prolonged tariffs at current levels would put modest upward pressure on loss cost trend. Our frequent analysis of trend assumptions will allow us to respond quickly, should inflation creep upward. And with that, I'll turn it over to Mark.

Thank you, Jim, and good morning, everyone. Everest delivered $276 million of operating income despite significant industry catastrophe loss activity in the first quarter. Our reinsurance franchise continues to perform strongly, with successful January 1st and April 1st renewals. As expected, returns remain very attractive. We continue to progress on our one-year one-renewal strategy in U.S. casualty lines within our insurance division, and we remain on track to complete this strategy later this year. Starting with the group results, Everest reported gross written premiums of $4.4 billion, representing a 2% decrease in constant dollars, and excluding reinstatement premiums, the combined ratio was 102.7% for the quarter. Catastrophe losses contributed 13.9 points to the combined ratio, largely driven by the California wildfires. And I would note the prior year quarter had a much lower level of cat activity. The Group attritional loss ratio was 62.2%, a 330 basis point increase over the prior year's quarter. The increase was largely driven by aviation losses of $70 million, net of recoveries and reinstatement premiums, which contributed 2 points to the attritional loss ratio. As well as our conservative approach to setting initial loss picks in U.S. casualty lines, primarily within our insurance segment. The Group's commission ratio was 21.4%, consistent with the prior year. The Group expense ratio was 6.2% in the quarter as we continue to invest in talent and systems within both franchises. Moving to the segment results and starting with reinsurance, reinsurance gross premiums decreased 1.1% in constant dollars when adjusting for reinstatement premiums during the quarter. Consistent with prior quarters, double-digit increases in property lines were offset by continued discipline in growing casualty lines. The combined ratio was 103.3% in the first quarter of 2025 and included 18 points of catastrophe losses. The prior year first-quarter combined ratio of 87.3% included 2.9 points of catastrophe losses. This quarter's CAT losses were largely driven by $442 million of losses from the California wildfires, net of recoveries and reinstatement premiums. Reinstatement premiums were $62 million in the quarter, while the prior year first quarter was not impacted by reinstatement premiums. The attritional loss ratio increased 260 basis points to 59.8%, which includes aviation losses of $61 million, net of recoveries and reinstatement premiums, contributing 2.4 points to the increase. The attritional combined ratio increased 270 basis points to 87.1%. The commission ratio and underwriting-related expense ratio each improved slightly to 24.3% and 2.4%, respectively. Moving to insurance, gross premiums written were relatively flat in constant dollars at $1.1 billion as we continue to improve the balance of the portfolio and shed underperforming U.S. casualty business. We made meaningful progress this quarter with property and specialty lines, each growing in the high teens, and this growth was offset by the aggressive underwriting action we are taking in specialty casualty lines centered around U.S. GL commercial auto, and excess liability. As a result, Specialty Casualty gross premiums written represent 25.1% of the insurance segment mix, a decrease of nearly 5 points from the prior year quarter. The attritional loss ratio increased to 68.8% this quarter. Aviation losses of $6 million contributed 0.9 points to the segment's attritional loss ratio. As we discussed last quarter, we are being very disciplined in setting and sustaining prudent loss picks based on underlying loss trends and our view of the U.S. casualty risk profile. In U.S. casualty lines, rate increases of nearly 20% on average remain well in excess of trend. Our Q1 U.S. casualty loss experience is consistent with our actuarial central estimate, which, as a reminder, is meaningfully below management's best estimate. Overall, we remain comfortable with the reserve position of our insurance division, and we're on track to publish our global loss triangles in June of this year. The combined ratio also included 1.1 points of catastrophe losses, primarily driven by the California wildfires. The prior year fourth quarter benefited from a relatively benign level of cat losses. The commission ratio increased 40 basis points, largely driven by business mix. The underwriting-related expense ratio was 18.1%, with the increase largely driven by the continued investment in our global platform and slower earned premium growth as we rationalize our U.S. casualty portfolio. Our recently formed other segment is performing in line with our expectations. The segment's gross written premiums reflect a limited number of renewed and new policies written on Everest paper by the acquirer of the sports and leisure business, which will continue for a finite period post-closing. We booked this business very conservatively and expect the segment's contribution to the Group's results to be de minimis. Moving on, net investment income increased to $491 million for the quarter, driven primarily by higher assets under management. Alternative assets generated $55 million of net investment income, a decrease versus the strong returns from the prior year quarter. Overall, our book yield was relatively stable at 4.7%, and our reinvestment rate remains north of 5%. We continue to have a short asset duration of approximately 3.3 years, and the fixed-income portfolio benefits from an average credit rating of AA minus. As economic uncertainty has increased globally, our high-quality conservative portfolio remains well-positioned for the current environment with a relatively small exposure to investments that are meaningfully impacted by tariffs. For the first quarter of 2025, our operating income tax rate was 16.1%, which was slightly lower than our working assumption of 17% to 18% for the year, driven by the jurisdictional mix of our profits in the quarter. Shareholders' equity ended the quarter at $14.1 billion or $14.7 billion, excluding $561 million of net unrealized depreciation on available-for-sale fixed-income securities. The unrealized change was a decrease of $288 million as compared to the end of the prior year fourth quarter, and this was driven by interest rate decreases. Cash flow from operations was $928 million during the quarter. Book value per share ended the quarter at $332.39, an improvement of 3.5% from year-end 2024 when adjusted for dividends of $2 per share year-to-date. Book value per share, excluding net unrealized depreciation on available-for-sale fixed-income securities, stood at $345.57 versus $342.74 per share at year-end 2024, representing an increase of approximately 80 basis points. Our annualized total shareholder return was 5.6%. Net debt leverage at quarter-end stood at 15.4%, slightly lower from year-end 2024. Everest's strong capital position and earnings power continue to provide us the ability to pursue profitable growth and opportunistically repurchase shares. We repurchased 574,000 shares in the quarter, amounting to $200 million or an average of $348.43 per share. Assuming normal catastrophe activity, we expect to continue meaningfully repurchasing shares throughout 2025. And with that, I'll turn the call back over to Matt.

Thanks, Mark. Jason, we're now ready to open the line for questions. We do ask that you please limit your questions to one question plus one follow-up, and then rejoin the queue if you have additional questions. Jason, over to you.

And our first question comes from Andrew Andersen from Jefferies. Please go ahead.

Hi, good morning. You mentioned some modest cat pressure for the rest of the year. Could you maybe just talk about the opportunity within Florida at midyear and how you're thinking about growth from either Florida domestics or more nationwide carriers?

Sure. Andrew, it's Jim. Thanks for the question. Yes, I mean, our expectation is that the 06/01 renewal should be pretty attractive. Obviously, we'll have to see what terms and conditions look like, but I wouldn't be surprised if we take the opportunity to grow. And I think that would cut across both the domestic tech companies, where we've had really terrific results, and we have great relationships as well as our more nationwide partners. We are seeing, I will note, some pretty meaningful increase in demand. And so a number of our clients are talking to us about buying more limit, which I think should be a favorable move around price, and obviously that's offset by the fact that people have done incredibly well in property cat, and people want to keep growing into the market. So I think it will be overall quite attractive.

Specific to reinsurance? And can you maybe just talk about the competitive market there, because it seems like it is getting increasingly competitive within Lloyd's.

Yes. Well, so on the reinsurance side, and by the way, I think specialty lines are attractive across both of our divisions, both in reinsurance and insurance. For reinsurance, you did see just such a strong correction to most of the specialty lines after the beginning of the war in Ukraine. Some of that's definitely come off, and you've seen people who have earned outsized profits are now looking to write more of that business. So it's becoming incrementally more competitive, but the bottom line is we still see tremendous opportunity across a number of our specialty underwriting areas. And I would say, areas like engineering, our parametric business look terrific, and marine and aviation still look pretty good. So I think we have incremental growth opportunities there at really attractive margins. And then I think the same thing applies to insurance, and certainly both in North America and in our international markets, we've seen strong growth in our specialty lines businesses. And it looks like, although there is a little bit of pricing give back in a few areas, overall, rates are still well above what we would consider adequate, which is our trigger point for deciding to continue to grow.

Thank you.

The next question comes from Alex Scott from Barclays. Please go ahead.

Hi, good morning. You mentioned growth and also highlighted the importance of the buyback for the rest of the year. I would like to know your overall perspective on the capital capacity available, specifically how it affects your plans for growth midyear and whether you are considering repurchases at the same level as this quarter or potentially increasing that amount.

Yes. Alex, it's Mark. I think we have the capacity to do both. When you take a look at how we're growing in the company, we're pretty much unconstrained with what we'd like to do in the operating plan for 2025. You've seen us grow meaningfully in property, in particular on the reinsurance side, pulling back in treaty casualty and growing in certain spots of our insurance division, and obviously shedding on the casualty side. So, no issues there in supporting the growth or any of the opportunities that we see. We also view the share price as quite attractive in terms of share buybacks. So in Q1, we printed $200 million of buyback, and we think that's a meaningful number for the quarter, and I continue to see opportunities to deploy meaningful amounts of share buyback for the remainder of the year.

That's helpful. My second question is about the casualty reinsurance business. Are you seeing the primary insurers taking sufficient action on pricing that will result in adequate retention for you? As an outside observer, I've noticed that some indices have stayed stable while many others have declined, but they haven't shown significant upward movement. I'm interested in your perspective on whether you might need to take more action than you initially planned if primary prices do not improve.

Yes. Sure, Alex, it's Jim. It's a good question. I mean, look, if you look at what's happening in the underlying market, pricing is obviously strong. I don't really see anybody slowing down in terms of price achievement, but it's way more than price, right? It's portfolio management, it's claims handling, it's distribution strategy. I mean, all of those things contribute mightily to expected results. And so when we're evaluating the books of our quota share partners, we're looking across all those dimensions. And where we feel like the stars aren't aligning and where we think expected loss ratio exceeds the available economics in a deal, that's when we're walking away. Now I think we've done a lot of the heavy lifting. I mean, this process, as I've indicated a couple of times, started back in January of '24. We've moved away from about $800 million in casualty premiums that are exposed to North America. We've also, by the way, grown in some areas where we see people doing a really terrific job. And so my expectation for the outlook is probably more of the same with continued underlying discipline, rate achievement, I think will stay at elevated levels as long as people are concerned about social inflation. And for us, it's really then about how do you pick the best cedents to ensure that your loss picks hold and hopefully reveal margin over time.

Got it. Thank you.

The question comes from Gregory Peters from Raymond James. Please go ahead.

Good morning, everyone. I'm going to go back to your comments on the moderate pricing pressure you're seeing in cat versus your comment about expected return. Yes, I guess, I'm trying to reconcile your targets with what you're hearing in the marketplace, especially like on the larger property schedules, excuse me, where we're hearing about pretty substantial rate rollbacks. Maybe it's embedded in what's going on in the facultative market versus excess of loss market. But just trying to reconcile the pricing pressure we're hearing about versus your desire to grow. So, I know you've already provided some answers to it, but maybe some additional clarity would be helpful.

Yes. Sure, Greg. This is Jim. Before I answer your question, I just want to clarify because it feels a little bit like you're talking reinsurance, but also insurance. So, which one are you focused on in your question?

Actually both, but primarily reinsurance.

Okay. So, look on the reinsurance side, you know, starting at the 1/1/2023 renewal, we saw a sharp upward correction in pricing. I mean, we achieved a 50% rate increase at 1/1/2023 in our U.S. treaty property book. And so the fact that rates are now coming off, and you would have seen the 4/1 renewal in Japan, maybe that was down 10%, 1/1/2025 was down a bit. Yes, it's coming off a little bit. There's a lot of interest, I think, among a number of carriers to grow in that business because rates corrected to such a point that expected returns are still very, very healthy. And so as long as that's true, those return expectations sustain themselves. I'm willing to continue to deploy capacity and capital to our best clients, and we've done very well with that strategy, and I expect that to sustain itself through 2025. I mean, there's no sign in my mind that property cat in the reinsurance business is decreasing at a rate that would make it less attractive. It's still the ROEs are still well in excess of my threshold for wanting to continue to deploy capital there. In the insurance market, so I would say sort of a similar set of facts insofar as we're coming off multiple years of rate-on-rate increases in property. So when you start to see decreases, you can still have situations, and I think we were there now where, yes, rates are down, but it's still very attractive. So you want to continue to grow. The only other thing I would add, if you look at our growth in the insurance business in the first quarter, we grew in both North America and international, but our growth is weighted toward international. And while property there's some property pricing pressure internationally, it is not to the same extent as what you're seeing in some of the U.S. market. So, bottom line, everywhere we're growing, all the points that I made in my prepared remarks around growing short tail, we're doing it because expected returns are exceptional, and that's really the only decision factor that is in our mind when we make those choices.

Okay. I guess I'll have a follow-up on that, but I'll just delay and just pivot to the wildfire loss you reported. The Edison International is pretty much acknowledging that they're going to have some capability in the event of the Eaton Fire. So I'm just curious how reimbursements from the California wildfire fund might flow through and ultimately come through Everest's financials if it were to happen.

Most of our wildfire losses are tied to reinsurance. If our clients receive recoveries or subrogation recoveries, those would benefit us. I want to emphasize that we are not claiming credit for that. These processes usually take a long time, and subrogations can take several years to resolve. Therefore, we are taking a wait-and-see approach, although we do see potential opportunities for subrogation and recoveries over time.

Just to clarify, you would never sell your subrogation rights, correct?

Who wouldn't say we would never do it? I'm not really thinking about it for this particular situation. We have in the past, it really depends on the circumstances.

Great. Thanks for the detail.

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

Yes, my first question in the insurance segment, flat premium year-over-year. Obviously, you're doing the one renewal plan to correct the book? A lot of that was price offset by some policy losses, but what about new business? Are there areas where you haven't had a big role before that you're taking a share in right now?

And Josh, this is Jim. Are you talking specifically about casualty or the whole panoply?

I'm interested in how you've managed to keep the insurance growth flat despite implementing your one renewal strategy, which I consider a positive achievement. I'm curious about the composition of your business that enables you to maintain a steady premium.

Yes, I understand your point. In terms of U.S. casualty, about half of the premium up for renewal this quarter was not renewed, which amounts to approximately $150 million, making it quite significant. However, this loss will be offset by a substantial increase in rates, which I estimate to be around 20%. Additionally, while new business in U.S. casualty is lower than last year, we are focusing on high-quality accounts. These accounts are loss-sensitive, belong to the right industries, and are well-priced, often involving clients with whom we work across multiple lines of business. That’s a positive outcome. In North America, specialty lines are growing robustly, over 20% this quarter, and property growth is strong as well. Looking ahead, our Accident and Health business is performing exceptionally well, which has been a great highlight. On the international front, we are gaining significant traction across all areas, especially in the U.K., Europe, and Asia, where we are securing top-tier accounts in property, accident and health, specialty lines, and casualty. The only area where we’re seeing a contraction is U.S. casualty, with some minor declines in workers' compensation and financial lines; however, the rest of our portfolio shows great opportunities. Our broker partners are supporting us in writing new business despite the challenges, and we are confident in the quality of the business we are adding to our portfolio. So, there are many positive developments in the insurance sector.

And then on the repurchase, there's nothing wrong with $200 million, but it's only about 2% of the daily volume in your shares over the past quarter. You could be doing more. It looks like you made a hard stop at $200 million. Can you talk about the math and given where the shares trade right now, about how you came to that number, and what you're thinking?

Josh, it's Mark. As we consider share buybacks, it's important to note that in January we were constrained due to a reserve charge and had material non-public information, which limited our time to execute buybacks during the quarter. Despite this, we were comfortable with the $200 million figure for the first quarter, and I view it as a starting point for the remainder of the year. The company's growth rate has slowed for various reasons related to casualty, reinsurance, and insurance, but we should still be able to generate additional retained earnings that can be allocated for buybacks. Our capital position remains strong, but we are mindful of the upcoming hurricane season. I anticipate that we will remain proactive with buybacks throughout the year, though we may pause a bit in the third quarter. Overall, I see a significant commitment to buybacks going into 2025.

Okay. Thank you for the candor.

The next question comes from Meyer Shields from Keefe, Bruyette & Woods. Please go ahead.

Great. Thanks so much and good morning. I wanted to ask a quick question about tariffs because I think you mentioned the ability to respond. And I just want to understand the mechanics of responding in time. Like if tariffs kick in on Day X, you're still exposed to policies that were written in contracts that were written before that. So is there another piece of that that you're missing just in terms of the timing? I understand that it can be resolved over time.

Yes, Meyer, it's Jim. Good question. You know, during the last bout of inflationary pressure that we saw, and this is both the social inflation and material inflation during the last administration, we obviously saw an uptick in that. And one of the things that we did to enhance our disciplines in response to that was we increased the frequency with which we assess our loss trend assumptions. And so now it's very much quarterly and in some cases, we're testing within the quarters to make sure that if there's any sign that you're seeing an uptick in expectations, you respond immediately to it. I mean, that's what I'm really talking about when I talk about response. Now to your point, you know, obviously, inflation can affect really any open claim, including a prior year open claim. And that's one of the reasons why we've been so focused on when we talk about how we book our loss picks, how we made reserve decisions for 2024 in prior years, how we're thinking about the go-forward business with respect to layering on a very robust risk margin to our picks. All of that is in service of the idea that you could see some inflationary pressure, whether it's because of tariffs or any other factor, and you need to be able to absorb that. So I feel pretty good. Everything that I've seen relative to what's been announced so far, what expectations are, I think we're in a really good spot relative to both the back book as well as how we manage the go-forward.

Okay. Fantastic. That's very helpful. And then shifting to the mid-year renewals, you talked about anticipating an uptick in demand, and between depopulations and maybe existing companies that are growing. Is there any way of sort of ballparking how much of the increase in demand is at the lower layers, where I guess pricing is holding up better, and higher layers, where returns are still good, but we're not seeing the same pricing dynamics?

Yes, Meyer, it's Jim again. That's a good question. I think it's challenging to answer with certainty because it's a dynamic situation. The amount people are willing to buy at any specific level is greatly affected by costs. Generally speaking, many of our cedents, whether they're in Florida, the Midwest, or other regions, would prefer to buy at a lower level, but the pricing required to finalize those deals is higher than what most are willing to pay. As a result, you typically don't see that additional demand fulfilled. Based on this, I would expect, as we've seen in previous renewals, that more of the demand will be at the higher end, where people want to protect against the upper limits of their programs, but we'll need to wait and see how it all unfolds.

Okay. Great. Thank you so much.

Got it.

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

Hi. Thanks. Good morning. My first question was just on the aviation loss in the quarter. I was hoping to get a sense of the industry loss. And then what kind of premium did you guys write associated with that loss?

Sure, Elyse, it's Jim. Most of the industry loss estimates I’ve seen are around $1 billion. It's not like a major hurricane with multiple companies modeling it, so it’s more of a ground-up analysis. I would adjust my expectations accordingly. Our reinsurance portfolio, which absorbed the majority of that loss, amounts to a few hundred million dollars. As I mentioned in my prepared remarks, it has performed exceptionally well for us over the last several years, especially following the Boeing losses, which is when we began to grow as the market corrected sharply. I believe we still have a path to turning a profit for that portfolio in 2025, even with the significant loss we've experienced at the start of the year.

And then thanks. And then my follow-up question is, I guess, on both insurance and reinsurance, with the attritional loss ratios. And I guess, you know, excluding the aviation losses, are those the levels that we should think about in terms of modeling for the rest of the year in both insurance and reinsurance? Just given your view of price as well as the loss trend?

Elyse, it's Mark. We are not providing guidance for the future, but I want to emphasize that we are incorporating a significant risk margin on the U.S. casualty lines in our insurance division. One important trend to note is the considerable decrease in casualty premiums on the reinsurance side. There has been a substantial drop in gross written premiums. However, the net earned premiums from casualty pro rata are declining at a slower pace. We are seeing about a 25% to 26% reduction in top-line premiums, while the net earned reduction is around 11%. This difference helps cushion the impact of the changing mix relative to the written premiums over time. Therefore, the improvement in our business mix will be gradual due to the gross writings of the company.

That's helpful. And if I can just squeeze one more in, because I did have a follow-up on the aviation. So you guys, I think the math comes to like a 7% to 8% share. Is that typical where you guys obviously, it's like a little bit of an extreme event. Are you guys just maybe a little bit overexposed there?

Yes, Elyse, it's Jim again. First of all, I wouldn't say we were overexposed. I believe we have the best aviation underwriters, both of whom are based in London, covering the reinsurance and insurance sides. They are highly skilled. In reinsurance, we have been very careful to primarily build an excess of loss portfolio, focusing on that aspect. We are a leading reinsurer in a market that is heavily reinsured. Therefore, when there is a catastrophic aviation loss, such as a major airline crash with over 60 fatalities, it will be a reinsurance event and classified as excess-of-loss. As I mentioned in my prepared remarks, there is nothing about our loss that catches us by surprise, and unless there are significant changes in the market, there is nothing that would prompt us to alter our portfolio or strategy. This outcome is what you would anticipate from such an event.

Thanks. Appreciate the color.

Got it.

The next question comes from David Motemaden from Evercore ISI. Please go ahead.

Good morning. I have a question for Mark regarding the reinsurance attritional loss ratio. I understand your point about the lag in written versus earned, but it seems to me that the shift toward short-tail should have sped up this quarter. The attritional loss ratio has been improving, but it has plateaued, excluding the aviation loss. Can you explain what else is happening with the reinsurance attrition? Is it primarily conservatism on the casualty side?

Yes. That's the lion's share of the issue there. There's really no other meaningful losses we highlighted the aviation, that's obviously, when you normalize for that, you get to the 57% and change attritional, but it's really the risk margin on the casualty side that's driving any difference.

Got it. Understood. And then Jim, I heard you loud and clear that the property cat business, even though the pricing is moderating, it's not moderating at a rate that would make it less attractive. I guess, I don't even know if I'm thinking about this right, but what sort of reduction do you think the market can bear while still generating attractive returns on the property cat side?

I prefer not to answer that question directly to avoid giving anyone ideas. There are strong return profiles available right now. The reinsurance market has learned from the past few years, especially since the end of 2022, that to achieve reasonable returns over the long term while accepting volatility—like we saw with the California wildfire at the start of the year—we need to maintain pricing. It's essential to have discipline in the market. My message to my peers is that with current pricing levels, we can perform well, and I believe our clients are well-supported and sustainable. The market can adapt to economic developments and climate change, among other factors. My hope is that we maintain reasonable pricing levels to support the industry without having to test the limits of the fundamentals.

Okay. Great. Thank you.

The next question comes from Michael Zaremski from BMO Capital Markets. Please go ahead.

Hi, good morning. Thanks. A follow-up. I think, Jim, in response to a question earlier, you talked about doing reserve reviews on a, I thought I heard a different cadence than ever since then, historically. I thought historically, you do a ground-up on each line of business once per year. I wasn't sure if you were in your response earlier to Meyer's question, you kind of were talking about changing that for certain lines of business, or am I thinking about it incorrectly?

Well, I think you may have just misheard where Meyer started with his question. He was asking about updates to our loss trend assumptions in response to tariffs and what gave us confidence, et cetera. And we had indicated that we've increased the frequency of reviewing loss trend assumptions. Our reserve deep dives are still conducted on an annual basis, with obviously our quarterly process still in place. And I don't know, Mark, if there's anything you would add on reserve process, but that's where we began.

There's no difference in the cadence of the reserve reviews. I would just say there's a heightened awareness and alertness on the U.S. casualty lines, in particular for all sources of data that can go into helping us on a quarterly basis of establishing best estimate liabilities. So I feel comfortable with that. And as I mentioned in my prepared remarks, in the first quarter, we're quite comfortable with our insurance reserves considering the issues we had in 2024.

Thank you for the clarification. My follow-up question is about the higher-than-expected share repurchases. Is any part of that being funded with the recent federal home loan bank borrowings, which have increased somewhat over the past year? Additionally, could you clarify what the FHLB borrowings are being used for? Thank you.

Yes. So, no, that's the funding for the buybacks is strictly out of excess capital. That's just the FHLB is just a spread trade that we established pretty much after I started back in 2021, or 2020, actually, the fourth quarter. And so that's essentially borrowing for a fixed-rate term, investing at a higher set of yielding securities, posting the collateral, and earning a spread. And that's something that we've been doing for several years. It's a modest amount of the FHLB for capacity that we have, and the two are mutually exclusive, nothing to do with each other, the buyback or the spread trade.

Okay. So that's running through investment income, correct?

Yes, that's right. Yes.

Our next question comes from Katie Sakys from Autonomous Research. Please go ahead.

Hi. Good morning. I wanted to circle back on the property cat portfolio. I think last quarter, you folks mentioned that you're seeing the need to charge a little bit more for the European cat exposures and increase your average model loss cost by about 10%. Just kind of curious, realizing that we're only a quarter in, how that's holding up, and if you could perhaps extrapolate that shift in loss trend assumption to the global property cat portfolio.

Sure. Katie, it's Jim. It's, you know, well, first of all, our view on European cat was specific to Europe, and it's really just a phenomenon of - put insured and reinsured losses aside. The actual frequency and severity of the underlying weather pattern has changed dramatically and consistently over the last several years. And so our view was that whether it's the available models or market pricing hadn't responded to that correctly, we are not going to take risk, we're not getting paid for. And so we raised the bar on what we wanted to get paid for European cat, and the net result of that is our European cat business got smaller, and that's okay. And so that was a European phenomenon. I don't think that necessarily applies to other parts of the world, other than to say that, it's just so important in our business that we stay on the forefront of any developments in the underlying, whether it's weather or development patterns, which is why we maintain and invest in such a robust internal and proprietary modeling capability. And so we're making sure that we always have the latest view of loss costs, expected losses, so that we can price our business appropriately.

Okay. So to clarify, like no significant changes you guys are seeing to modeled loss expectations going into mid-year renewals?

No, nothing dramatic. I mean, we're always, I mean, it's an always moving reality. I mean, we're always adjusting our models based on the latest data. But in terms of a dramatic move like what I described in European cat, there is nothing that comes to mind in other parts of the world.

Okay. Thank you. And then to follow up on the question about sort of the timing of reserve reviews. I mean, I appreciate that Q1 isn't necessarily a significant time for reserve studies, but I mean, anecdotally, is there any additional color that you guys can give us as to how you think the charges from last year's reserve review are holding in?

Yes, Katie, it's Mark. The bookings we made are performing well. As I mentioned in my earlier comments, we are doing better than the actuarial central estimate. The risk margin is currently above expectations, and we are seeing good performance in other property lines, particularly in some shorter-tail areas, which are contributing positively to our portfolio. At this point, after three months since the charge, I feel very comfortable with our progress.

The next question is a follow-up from Brian Meredith from UBS. Please go ahead.

Hi, Jim. Just a quick question here. As you look at the mid-year renewals, maybe any changes you're anticipating or seeing with terms and conditions on any of the property reinsurance, and maybe attachments points slowing down or anything?

No, I don't expect any changes that way, Brian. One of the things that I've been gratified to see, I referred earlier to the need for discipline, and maybe the area where we've seen the absolute most discipline has been on terms and conditions. That's been a major contributor to, I think, creating a more sustainable market, and people are not giving up on whether it's hours clauses, attachment points, or other contractual terms, and I don't expect any at the mid-year renewal.

Great. That's helpful. And then just one follow-up. I know there's been a lot of questions about declining property rates and a bunch of stuff, a lot of moving pieces right now at Everest. If I think about your book of business, and as you look at it, factoring in all that's going on, would you say that the returns on capital in your business are getting better, getting worse, or staying the same? Just thinking about the whole picture as we kind of look out here.

Yes. I mean, look, I would say, if you look at the economic fundamentals, put aside the risk margin for a minute because obviously that's going to affect the printed financials. I would say that the return on capital of both our businesses is improving. And I think that's a very good thing, and that's driven both by really attractive things that we can do in the market, as well as just the fundamentals around mix, which is sort of where you started your question.

There are no more questions in the queue. This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.