Pelagos Insurance Capital Ltd Q3 FY2024 Earnings Call

Good morning, ladies and gentlemen. And welcome to the Fidelis Insurance Group’s Third Quarter 2024 Earnings Conference Call. As a reminder, this call is being recorded for replay purposes. Following the conclusion of formal remarks, the management team will host a question-and-answer session and instructions will be given at that time. With that, I will now turn the call over to Miranda Hunter, Head of Investor Relations. Ms. Hunter, please go ahead.

Good morning. And welcome to the Fidelis Insurance Group's third quarter 2024 earnings conference call. With me today are Dan Burrows, our CEO; and Allan Decleir, our CFO; and Jonny Strickle, our Chief Actuarial Officer. Before we begin, I'd like to remind everyone that statements made during the call, including the question-and-answer session, may include forward-looking statements. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties and emerging information developing over time. These risks and uncertainties are described in our third quarter earnings press release and our most recent annual report on Form 20-F filed with the SEC. Both are available on our website at fidelisinsurance.com. Although we believe that the expectations reflected in forward-looking statements have a reasonable basis when made, we can give no assurance that these expectations will be achieved. Consequently, actual results may differ materially from those expressed or implied. For more information, including on the risks and other factors that may affect future performance, investors should review the Safe Harbor regarding forward-looking statements included in our third quarter earnings press release available on our website fidelisinsurance.com, as well as those periodic reports that are filed by us with the SEC from time to time. Management will also make reference to certain non-GAAP measures of financial performance. The reconciliations to US GAAP for each non-GAAP financial measure and our definition of RPI, which is our Renewal Pricing Index, can be found in our current report on Form 6-K furnished with the SEC yesterday, which contains our earnings press release and is available on our website at fidelisinsurance.com. With that, I'll turn the call over to Dan.

Thank you, Miranda. Good morning, everyone. And thank you for joining us. As usual, I will make a few comments before handing it over to Allan to go through the quarter in more detail. In the third quarter, we once again demonstrated the strength of our business, our access to our underwriters and the steps we have taken to optimize our risk-adjusted returns through our resilient portfolio. We also continued our track record of disciplined capital management as we strategically executed against our share repurchase program. Despite an active quarter in terms of global natural catastrophes, we delivered strong quarterly results with robust top-line growth and sustained profitable underwriting. Gross premiums written increased by 25%, driven by the focused and disciplined execution by our team and the compelling value we offer to the market. Year-to-date, gross premiums written have increased 23% and for the full year, we remain on course to achieve premium growth of approximately 20% in line with last year. We continue to benefit from a strong rating environment across our portfolio with an overall RPI of 112% for the quarter as we leverage our position as a leader in a verticalized market to deliver preferential rates, terms, and conditions. This quarter marked our first period of transacting business through the new Lloyd's Syndicate 3123, which launched on July 1st. And as a reminder, we participate through both the direct investments and a variable quota share. The syndicate is creating new opportunities across all three segments, most notably within bespoke. Looking at our segments in more detail, in specialty, gross premiums written increased by 22% for the quarter with RPIs at 114%, which is driven by our leadership in major lines. Strong retention rates and new business resulted in growth of 35% in property direct and facultative. In marine, we continue to leverage our participation across marine subclasses and lean into areas of opportunity, such as new construction. And in aviation, where the market remains competitive, we have maintained our disciplined approach while still taking advantage of opportunities that meet our underwriting criteria and rating hurdles. In bespoke, we expanded our client base and delivered strong gross premium growth, closing a number of transactions in structured credit and political risk. And finally, reinsurance also saw strong growth in gross premiums written, again driven by both expanding existing client relationships and attracting new business. Reinsurance market discipline around rates remained following significant positive adjustments in prior years with RPIs of 105%. In addition to strong top-line performance, we delivered compelling bottom-line profitability with a combined ratio of 87.4% in the quarter and year-to-date, our combined ratio is 88.6%. Both are within our target of mid to high-80s across the cycle. We also delivered annualized operating ROAE of 16.4%, bringing year-to-date annualized operating ROAE to 13.3%. Finally, active capital management remains a cornerstone of our strategy. While our first priority is to reinvest into the underwriting business, our strong capital position has also allowed us to return excess capital to shareholders. Since we initiated our dividend and share buyback programs at the beginning of this year, we have returned $141 million to shareholders. During the third quarter, we continued to buy back shares, including the execution of a privately negotiated transaction with Platinum Ivy, a wholly owned subsidiary of ADIA, who remains one of our longstanding shareholders. Allan will go into this and our broader capital management strategy in more detail shortly. In summary, I'm very pleased with our third quarter results and the ongoing dedication displayed by our team. I'll now pass it over to Allan to walk through our financial results in more detail.

Thanks, Dan. I'd also like to welcome everyone joining our third quarter earnings call. We had excellent top-line growth compared to the same quarter last year, growing by 25% to $742 million. Against the backdrop of active global natural catastrophes, we generated operating net income of $105 million or $0.92 per diluted common share and an annualized operating return on average equity of 16.4%. We continue to grow our book value per diluted common share, which now stands at $23.43, an increase of 13% from year-end and an increase of 8% from last quarter. Building on Dan's comments, our growth of gross premiums written for the quarter was primarily driven by new business and rate increases with specialty increasing by 22% or $72 million, bespoke increasing by 15% or $24 million, and reinsurance increasing by 52% or $54 million. Consistent with our growth of gross premiums written, our net premiums earned increased by 24% versus the third quarter of 2023 to $635 million. Turning to the combined ratio. We delivered a strong ratio of 87.4% in the quarter. Looking at the components in more detail, our loss ratio was 37.5% for the third quarter in line with the prior year period even as gross premiums increased, underscoring our emphasis on delivering profitable growth. Our attritional loss ratio improved to 24.7% compared to 30.4% in the prior year period. This improvement is attributable to a lower level of losses across all three segments consistent with the trends we discussed in the second quarter. Notably, the third quarter was particularly benign in terms of attritional losses compared to the prior year. Catastrophe loss activity in the third quarter was impacted by several events generating catastrophe and large loss ratio of 14.4% or $92 million of losses in the quarter. Of this, specialty accounted for $63 million, bespoke $13 million and reinsurance $15 million. The most notable events were Hurricane Helene with losses of $34 million and European Storm Boris with losses of $24 million, which impacted both our specialty and reinsurance segments. We had net favorable prior year development of $10 million for the quarter versus $43 million in the prior year period. Of the $10 million for the quarter, bespoke was $11 million and reinsurance was $13 million, driven by benign attritional experience. Specialty experienced adverse prior year development of $14 million during the quarter, driven by increased estimates in our Aviation and Aerospace line of business in the context of ongoing Russia, Ukraine litigation in multiple jurisdictions, including the US, the UK and Ireland. This was partially offset by better than expected loss emergence in our property direct and facultative line of business. Turning to expenses. Policy acquisition expenses from third parties were 31 points of the combined ratio for the quarter compared to 29.6 points in the prior year period. The increase is primarily driven by an increase in our specialty segment, which had higher variable commissions in the quarter. The Fidelis Partnership commissions were 15.3 points of the combined ratio for the quarter, of which 2.1 points related to their variable accrued profit commissions. These commissions increased from 13.9 points in the prior year period, reflecting the full impact of earning these commissions since the agreement went into effect. And finally, our general and administrative expenses were 3.6 points of the combined ratio for the quarter or $23 million compared to 4.3 points of the combined ratio in the prior year period or $22 million. Our net investment income increased to $52 million for the third quarter of 2024 compared with $33 million in the prior year period, reflecting a higher yield fixed income portfolio and an increase in investable assets compared to the prior year period. We continued the selective rotation of the portfolio started in the first quarter of 2024 by selling a portion of the fixed income portfolio and reinvesting the proceeds into longer dated and higher yielding securities. Specifically, we sold $203 million of securities with an average book yield of 1%, resulting in a realized loss of $6 million. We reinvested $438 million from those proceeds along with positive cash flows into securities with an average purchase yield of approximately 4.6%. At September 30th, the average rating of fixed income securities remains very high at AA minus with a book yield of 4.9%. Duration is consistent with the second quarter at 2.7 years, which is an increase since year-end as a result of purchasing longer dated securities. We continue to work towards optimizing our overall investment portfolio and look for opportunities to generate superior risk-adjusted investment returns. Building on Dan's comments regarding our ongoing focus on capital management, we continue to pursue value accretive opportunities. Our first priority remains reinvesting in the business by deploying capital into attractive growth initiatives. Additionally, we continually seek to optimize our outward reinsurance purchasing. And when we have excess capital, we look to return it to shareholders through a combination of dividends and opportunistic share buybacks. On our last earnings call, it was mentioned that we had completed the previously announced $50 million share repurchase program. Additionally, we announced that our Board had approved a new program authorizing the purchase up to an aggregate of $200 million of common shares. Year-to-date, we have repurchased 6.6 million common shares at an average price of $16.06. This is approximately 69% of our current diluted book value per share and is highly accretive on both the book value and earnings per share basis to our shareholders. The total includes 3.25 million common shares that we repurchased from Platinum Ivy, a wholly owned subsidiary of ADIA, who remains one of our longstanding shareholders through a privately negotiated transaction completed during the quarter. I will now turn it back to Dan for additional remarks, including thoughts on market outlook.

Thank you, Allan. Looking ahead, we continue to see areas of opportunity across the market. Significant year-on-year pricing adjustments across multiple lines of business have led to one of the best sustained rating environments we have seen in years. Although the acceleration of rates might not continue at the same pace, we remain focused on maintaining our discipline and utilizing our scale and positioning to seek out new opportunities. And as we have mentioned, in a verticalized market, being a leader is a competitive advantage as it provides a first look at business opportunities and enables us to achieve better rates, terms, and conditions. Delving deeper into the dynamics within each of our underwriting segments, in specialty, looking at the fourth quarter, attractive opportunities for growth remain, particularly in property direct where rates remain attractive, client retention levels are high and we continue to see increased demand. Certain sectors such as marine and aviation are experiencing some pressure as rates begin to moderate. However, we believe our line size, multi-product leverage, flexible underwriting strategy and ability to cross-sell products provides us access to the best price and most compelling risks in each class. This enables us to find attractive opportunities while maintaining our underwriting integrity. In bespoke, as we've discussed, given the custom and direct nature of this product line, we lead substantially all our deals. While the highly tailored profile of these policies results in variable deal flow, as we look to the fourth quarter and into 2025, our pipeline remains strong and is currently tracking with the previous year. In structured credit and political risk, in particular, we continue to see attractive opportunities from a risk-return perspective. We are actively pursuing these new opportunities, while also pushing for higher allocations as we leverage our track record of support and strong relationships in the industry. Finally, in reinsurance, market dynamics remain favorable and we expect discipline to persist, especially in relation to prior year market corrections around attachment points, terms, and conditions. Certain regional loss impacted accounts should see price adjustments and we believe that recent weather catastrophes, including Helene and Milton will reinforce market discipline. Based on events to date, our current view is that rates for 1/1 should be consistent with what we saw this time last year. We continue to optimize our reinsurance portfolio in line with our view of risk. The big event post-quarter end was, of course, Hurricane Milton and we expect net losses from this storm to be manageable for our book, which reflects the targeted approach we have taken. At this point, we have a preliminary range of between $50 million to $100 million of pretax losses net of reinsurance. This is based on an industry range of $20 billion to $50 billion. Outward reinsurance remains a key part of our strategy. We spend significant time building long-term relationships with our reinsurance partners. This ensures their engagement across the breadth of our portfolio, which we see as a strength of our outward strategy. Looking ahead to 2025, our aim remains to maintain our core credit share relationships and we are currently in the process of shaping our outward reinsurance program. This includes negotiations around catastrophe bond products and discussions on the traveler's quota share for 2025. Our objective remains to build an outward program that provides robust portfolio protection. Overall, across our portfolio, we continue to pursue accretive opportunities for growth. As we work through our annual planning process with the Fidelis Partnership, we are finding a number of opportunities to leverage new distribution channels and markets as well as opportunities to cross-sell products. For instance, we believe that our participation in Lloyd's Syndicate 3123 and the Brook's initiative, both will provide opportunities for growth with new clients and into new markets. To broaden and enhance our portfolio, we also continue to evaluate new opportunities to provide long-term capacity to best-in-class underwriters. To that end, we are excited to announce a new strategic partnership with Euclid Mortgage. Through this collaboration, Fidelis Insurance Group alongside other reinsurers, will provide capacity for Euclid Mortgage on a reinsurance basis. This partnership, commencing on January 1, 2025, is estimated to produce approximately $35 million of gross premiums written in 2025. While the Fidelis Partnership remains our cornerstone partner, this opportunity to support a new partner with proven expertise and an attractive line of business is a natural evolution as we continue our journey to diversify and strengthen our portfolio. Given the strong credentials of the Euclid Mortgage team, we anticipate this partnership will contribute to our overarching goal of sustained growth and profitability. In conclusion, we are pleased with the momentum in our business. We continue to successfully execute on our strategy, optimizing our risk-adjusted returns and leveraging our scale and lead positioning to generate underwriting output. This is reflected in our strong third quarter results. As we look ahead, we remain focused on continuing to deliver very strong performance and creating value for our shareholders. I'll now hand it back to the operator. We look forward to your questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from the line of Matt Carletti from Citizens JMP.

Dan, I was hoping you could elaborate on the adverse situation in the aviation business that you mentioned earlier. I have two questions: First, what was the dollar amount of the adverse impact in aviation? I know the net figure, but I'm curious about the breakdown. Second, I recall you mentioning a probabilistic model that you've developed to determine how you set reserves for such a unique event. What changes occurred in that process to arrive at a new figure?

When we think about these issues, it's quite a complex market event when we think about Russia, Ukraine, in particular. So I'm going to pass over to Allan and Jonny to talk about that in more detail.

As I mentioned in my prepared remarks, the adverse development in specialty was driven by increases in aviation and aerospace in the context of the Russia, Ukraine litigation in multiple jurisdictions in the US, UK and Ireland. This was offset by better than expected loss emergence in our property D&F line of business. Year-to-date, we have seen favorable development in our specialty portfolio of $35 million and across our entire portfolio, we've seen favorable development of $146 million. There has been no change in our approach. We continue to employ a robust reserving methodology, maintaining a consistent approach from quarter-to-quarter and we don't change our philosophy based on a couple of quarters of lighter or heavier experience. Specific to Russia, Ukraine, again our methodologies remain the same as in the past and there's been no change in that process.

Can you provide the net impact, which was a $14 million adverse effect? Specifically, in Aviation, how much did you add to reserves before considering the offsets from D&F and other areas?

As you can appreciate, Matt, it's a complex event. We're not able to comment further in detail and we don't disclose by that level of detail.

I have a follow-up question for you, Dan. Earlier in the reporting season, one major competitor hinted at the London market being very competitive. However, that doesn't seem to align with your perspective. You mentioned aviation, but I would like to hear your thoughts beyond that. Given your extensive knowledge of London, could you share your insights on the market and the level of competition?

So I think as we said before, we take lead positions across the portfolio. We think that's very important to use the leverage that comes with that scale in terms of capacity that you offer to your clients. So we don't all start in the same place as insurers and reinsurers. As a leader in the best of both market, you do get preferential terms and conditions. So if you're putting a $1 million line out on a D&A program on a primary layer, you have a very different experience than someone that has substantial capacities on the excess layers, say, specifically in D&F. So I think we are seeing a lot of opportunity in that direct property side. We've grown 35% in the quarter. We take a very disciplined approach. Anything that doesn't meet our kind of underwriting hurdles, we're not going to compromise the integrity. When we think about the growth in the quarter and year-to-date, 25% is something we're very proud of, very good combined ratio. So we do see a lot of opportunity out there. But I think it's about being nimble, it's about the service you deliver, it's about working harder and it's about the leverage that comes from being a leader in the market. So it's just important to remember, we don't all start in the same place. And I'd also say we do know London very well but we are a global business.

Your next question comes from the line of Meyer Shields from KBW.

Over the course of 2024, you've talked about, I guess, preferring the returns in property D&S compared to catastrophe reinsurance. And I'm wondering whether that still holds given what we're seeing in pricing for those two different lines?

So I think what we have seen, we talked about D&F, the margin in D&F, we felt was superior. But what we have seen in reinsurance over the last 12 months is a significant uptick in not only pricing, attachment points, coverage, terms, and conditions. So you have in the UMCC or underwriting called daily, sometimes as many as 3 times a day. In real time, we're able to compare and contrast. And what we have seen on the reinsurance side is many more opportunities that compare favorably that have appropriate margins that we can execute on and that's why we've grown the business. And we've done that whilst only moderately increasing our exposures. So I think the two things complement each other very well. We have a very strong approach to our D&F portfolio. And again, as a leader, we're able to leverage transition there. So I think it's about being nimble. We've seen a lot of opportunity. As I said, we've been able to grow 36% year-to-date but only modestly increasing exposures.

And then sort of switching gears. Should we think of the loss ratio expectations for the Euclid relationship as similar to primary mortgage insurers or to the mortgage reinsurers at this point?

I'll take that one. I think a bit different to primary mortgage players, but I would say that it's something that fits well within our bespoke portfolio as a whole. And as we've said on all opportunities that we look outside of the Fidelis Partnership, there's a high bar that's set and we'd expect them to meet or beat where the Fidelis Partnership is seeing similar types of business.

Your next question comes from the line of Lee Cooperman from Omega.

I need a little bit of help. I'm not an expert in this business, but you guys seem very analytical and which is good. I'm just curious how you stack up the relative attraction of stock repurchase versus writing more business? And as you extract things now, what kind of top-line growth would you anticipate in 2025 versus 2024? Do you expect higher revenues, low revenues, will there magnitude of change?

We approach this from a couple of angles. First, when considering our strong capital position, we want to support profitable underwriting growth. Recently, we've gone through our planning process and have seen a 25% growth this year with positive results. Additionally, on the capital management side, we’ve been able to grow our book value by 25% while returning approximately $141 million to shareholders through dividends and share buybacks. Moving forward, our focus will be on aligning these two aspects: maintaining our strong capital position and effectively utilizing our excess capital. It’s too early to forecast next year's growth, but we believe we can sustain our target ratios. Our combined ratio is expected to remain in the mid-80s to high-80s, with a return on equity of about 13% to 15%, or even 14% to 16% in a strong market. We believe recent catastrophic events will bring discipline to the market, and we expect pricing and terms to be consistent with what we observed last year. We like to say we're at the peak, where there is plenty of opportunity, and we plan to remain in this advantageous position for the foreseeable future. This will support both profitable growth and effective capital management with our surplus capital.

What would you deem your amount of excess capital is currently?

We don't disclose that publicly.

Excuse me? I didn't hear that response…

Lee, we don't actually disclose that publicly.

I believe the buyback intentions you announced are in the range of a couple hundred million. My concern is that for most companies, those earning between 14% and 16% on equity tend to trade at a premium to book value, which seems to be a significant discount to your book value. Do you share this perspective, or is my understanding flawed?

No. We look at it exactly the same way. We think the business is undervalued. We appreciate we have to deliver quarter-on-quarter of good performance. But we see an opportunity, an accretive opportunity, managing capital by buying back shares without any excess capital that we've got. But first off, in a great market where there are very favorable terms and conditions, we want to grow profitably with our cornerstone partner.

Your next question comes from the line of Pablo Singzon from J.P. Morgan.

This is Kevin on for Pablo. So G&A this quarter was a little light whether in terms of percentage of earned premium or in terms of growth over last year. Was there anything unusual about this quarter whether seasonal factors or otherwise, and what is your outlook for this line item?

No, I think that we bifurcated in early 2023, our G&A has stabilized to a large extent. Nothing unusual this quarter. It's sort of the run rate plus or minus some inflation going forward. But I think we are kind of at where we expect to be going forward.

And then given the commentary in the earnings release about the timing of certain renewals being a negative this quarter on gross premiums written. Are you implying a pickup in GPW going into 4Q '24?

No, I don't specifically think that there is anything unusual; there's just some timing issues between Q2 and Q3. In our bespoke segment and our specialty segment, there can be some variability. Therefore, there isn’t a consistent expectation for the premium each quarter. Some deals will occur in different quarters compared to last year.

And some of this is very much driven by seeing. But I think if you look at growth last quarter, think about 25% growth this quarter then we're moving in the right direction.

Your next question comes from the line of Michael Zaremski from BMO Capital Market.

This is Dan on for Mike. First, if I could just start on the private share repurchase transaction. Can you provide any additional color on how that deal came about, whether the seller will sell more? And then if just any of the shares repurchased in the quarter were done in the open market?

As we mentioned in prior calls and again this quarter, we continue to evaluate opportunities to repurchase shares where it's accretive and value added to our shareholders. Platinum Ivy remains one of our longstanding shareholders and we were pleased to reach a mutually beneficial transaction with them. We can't speculate on their motivations from our perspective. We viewed it, as I said, as an accretive transaction. Our shares repurchased in the quarter were $4.3 million of which $3.25 million were from ADIA. So there were some open market purchases as well.

And then I'll just follow-up on going back to aviation and aerospace a little bit. Just also on maybe this quarter's GPW there hurting because of the hurdles and underwriting criteria. Is that particularly related to Russia, Ukraine or is there anything else going on in that line that we should be thinking about?

So no, that's not in relation to Russia, Ukraine, that's more just the general market dynamics in that line of business. In particular, at the start of the year, we had a view that we might see some rate increases in the aviation line of business from other events that happened over recent periods. Some of that's not come through over the year. Therefore, some of those opportunities haven't hit the hurdles that we set and we haven't run the business.

I think it's important to stress that we are nimble, that's a real advantage of this business and we're not going to compromise underwriting integrity just for growth. But certainly, there wasn't the new business within the aviation sector that the market was expecting earlier this year.

Your next question comes from the line of David Motemaden from Evercore.

And Dan, great to have you back on the call. My question, I guess, first is just to Allan on the acquisition ratio. It looks like that was a bit higher. Looks like it was driven by the specialty segment. I think you had mentioned some variable commissions. I was wondering if you could elaborate on that a little bit. And just wanted to know has your view on the acquisition ratio changed going forward?

Yes, the increase in policy acquisition costs this quarter was driven by the specialty segment. Commissions payable to the Fidelis Partnership amounted to $122 million, which represents 32.9 points on the combined ratio for the quarter. This rise compared to previous quarters is attributed to higher variable commissions associated with the underlying ceding and underwriting business. There are certain contracts that include cost commissions, and when the results are very profitable, a profit commission is applied. This illustrates the connection between loss ratios and acquisition ratios. Consequently, there are higher variable commissions. I would consider these commissions somewhat irregular rather than indicative of our ongoing run rate. Additionally, we have seen significant changes in our business written over the past year or two, leaning more towards specialty lines, especially in property D&F, which can influence our commission ratio.

And so I guess for the total company, I guess we shouldn't be thinking about a 31 acquisition ratio going forward. But I guess, should we be looking at the first half of the year sort of like a decent run rate?

That's exactly it, David. I would say that sort of the first six months, first nine month rate of 28 to 29 is the right ratio in the specialty segment and across the portfolio.

And then Dan, I think you had mentioned just stable combined ratio expectations for next year. Should I also take that to mean the 14% to 16% ROE is also how you guys are thinking about 2025 as well?

We still have six weeks left in this year, so we will provide an update during the Q4 call. Our focus remains on that return within the established range, and we don't believe it's time to change that. This aligns with our current views.

Your next question comes from the line of Robert Cox from Goldman Sachs.

Dan, it looks like pricing was able to stay roughly flattish quarter-over-quarter, while many of your peers were talking about significant property pricing decreasing, at least in the US E&S market. So it seems like Fidelis is benefiting from the leadership position in many of these lines. But I'm curious if there's other nuances to be thinking about relative to the quarter and how you're able to achieve that or if it's that simple?

I think it's a number of things. That leadership position we talked about it really does make a difference. But I think cross-selling across product line is also really important, leveraging with a client and a broker. Service is really important just being available, which I know sounds like a very obvious thing, but trust me it's not necessarily true of everybody, and I'm just working harder. So I know they sound like throwaway lines but it is true. I don't think anyone works harder than the Fidelis Partnership in sourcing new business. So we are the beneficiary of that and we look to them as our cornerstone partners continue to deliver. But yes, I think it's a mixture of those things but it starts with being a leader with the ability to cross-sell. It also gives you much greater leverage.

And then on the net investment income, I just had a follow-up. Looks like the yield is still improving pretty well. It seems like you made some good trade-offs in the quarter and continue to reinvest at higher rates. I was just curious if you could talk about sort of the puts and takes to the NII trajectory from here and if there's still room to extend duration?

As I said in my prepared remarks, we're always looking to optimize our overall investment portfolio. But yes, we're very pleased with what we've done this year. And again, specifically in the quarter, we decided to sell and realize the loss on those securities that we purchased back in 2020, 2021 when yields were 1%. Yields are jumping around a little bit given the Fed intervention but we still managed to purchase new securities this quarter at 4.6%. And we have 4.9% average book yield. Right now we think that's the glide path going forward. We've extended duration a little bit as well to get to where we need to be in terms of investment income but we think we're pleased with where we are. We're going to maintain a high quality book but we'll continue to optimize our portfolio where needed.

Your next question comes from Yaron Kinar from Jefferies.

This is Charlie speaking on behalf of Yaron. Could you provide some discussion, either quantitative or qualitative, regarding the relationship between large and attritional losses and how you differentiate between them?

We don't really view them differently, to be honest. We look at the overall combined ratio as the key metric to judge the profitability of business within the portfolio. If I start from there and work back then the first thing that we don't really distinguish between is loss ratio and acquisition costs. And that's because if you look at something like the bespoke segment, it runs at a lower loss ratio but has a higher acquisition cost due to the extra expense in sourcing some of that business in comparison to say specialty, which has got a bit of a lower acquisition cost on much of the business in there but slightly higher loss ratio. Then breaking it back to step to loss ratio, we show it that you guys have got the information here but I don't really draw much of a distinction between attritional and large and cat losses. The reason for that is if you have a couple of losses that are just over your threshold that can make the attritional look particularly good because its two largest losses have moved over to a different bucket and it can make the large look particularly poor for a single individual quarter. So we take a much more holistic view of the overall position and don't look too much into granularity beyond that.

I guess maybe how should we think about that in the context of your commentary during the prepared remarks about more benign attritional activity year-over-year?

I think that's still true. There is a benign attritional activity over the year when we compare to where we were last year, but it's also impacted by a couple of losses this year going just over the threshold and therefore going into larger cap bucket. So those have been say a couple of million dollars less than the attritional would look slightly higher year-to-date, for example. So it's true. There is a benign experience over the period. But keep in mind that the attritional can look artificially too low or too high in any one quarter if those medium events just creep over or under.

Your last question comes from the line of Lee Cooperman from Omega.

Just a question. The fully diluted share count at the end of the quarter, not the average, but the actual share count?

And as in the financial statements we published at the last evening, we have share count of 111,726,363.

So as I listen to this conversation, we have to make a judgment about the quality of your decision-making regarding the relative attraction of writing new business versus buying back stock. I would just say that your stock is totally mispriced in my opinion. If you could do 14% to 16% return on equity, you deserve to sort of premium to book value. So I would encourage you to buy back as much stock as you can, particularly as you can get to a discount to the market. But thank you for your performance.

Thank you very much for your support, Lee. We really appreciate it.

Thank you. That concludes today's question-and-answer session. I'd like to turn the call back to Dan Burrows for closing remarks. Please go ahead.

Thank you, everyone for joining us today. We truly appreciate your interest in the company. And we are pleased with our results this quarter and the strategic initiatives that position us well for continued success. Our unwavering commitment to delivering value to our shareholders remains at the forefront of our operations. And if there are any follow-up questions, we are here to take your calls. We appreciate your ongoing support. I'll now pass it over to the operator to end the call. Everyone, please enjoy the rest of your day.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.