Everest Re Group Ltd

LSE:0U96

Earnings Call Transcript 2022-Q1

[Operator]

Good morning and welcome to the Everest Earnings Conference Call.

I would now like to turn the call over to Jon Levenson. Please go ahead.

[Jon Levenson, Head, IR]

Good morning, and welcome to the Everest Re Group Limited 2022 first quarter earnings conference call. The Everest Executives leading today's call are Juan Andrade, President and Chief Executive Officer; Mark Kociancic, Executive Vice President and Chief Financial Officer. We are also joined by other members of the Everest management team.

Before we begin, I will 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 turn the call over to Juan Andrade.

[Juan Andrade, President & Chief Executive Officer]

Good morning everyone. Thank you for joining us today.

Everest is off to a strong start in 2022 with first quarter results to reflect our relentless focus on profitability and margin expansion. Excellent performance across our underwriting businesses and investments contributed to a $406 million in net operating income and a 16.2% annualized operating ROE. Our discipline and resilience standout in a challenging and complex environment.

We are a source of strength and stability in unprecedented times. The world is facing distorted volatility with the effects of the pandemic compounded by a web of macroeconomic, geopolitical and societal issues. Adding to this are climate-driven industry catastrophe losses. The first three months of 2022 were active, with estimated economic losses over $30 billion and insured losses over $14 billion. Significant events occurred in the quarter in Western and Central Europe, Australia, Japan, and the United States. The historically quiet first quarter, has not been quiet for the past six years.

According to the National Oceanic and Atmospheric Administration, January, February, and March of 2022 were each in the Top 10 warmest months in the official observed record dating back to 1880.

Amplifying these challenges is the brutal Russian invasion of Ukraine, and the upheaval, death and destruction facing the Ukrainian people. It is heartbreaking to witness the inhumanity and the cruelty that is unfolding in Europe. This war destabilizes global economic systems and financial markets and threatens democracy, peace and decades long efforts towards share prosperity, ever stands in solidarity with the Ukrainian people.

As underwriters, the protection and stability we provide has never been more important. This turbulent time is when our unwavering focus on consistent disciplined execution is most important. Our focus was evident across our underwriting businesses in the first quarter. Both performed well and continue to lead with expanding margins and highly relevant, diverse risk solutions across lines and geographies.

In the insurance business, our focus on delivering profitable growth, expanding margins, and best-in-class products and services, advanced our mission to be the markets global diversified insurer of choice. In reinsurance, we strengthen our global leadership position and maintain a laser-focus on diversification, reducing volatility and maximizing profit. This deliberate cloning of our portfolio is an ongoing strategy; we successfully applied to the April 1st renewal.

We brought the same discipline to our investments which continued to perform well in the quarter. Our portfolio is diversified and well positioned for the current rising interest rate environment.

During the quarter, we continue to embed technology in our underwriting processes, and to increase our capabilities, productivity and efficiency. Our momentum is powered by the extraordinary efforts of our people. They are the bedrock of our inclusive culture, and they drive our success.

As we announced last week, we lost a very special colleague, with the passing of Don Mango, our Chief Risk Officer and Chief Actuary. Don was a legend in our industry and at Everest. I had the privilege of working with him to evolve our enterprise risk management framework to what it is today. He's going to be greatly missed by all of us.

To carry Don's vision forward, we have appointed Ari Moskowitz, as Everest Group Chief Risk Officer. Ari is an accomplished leader with deep actuarial expertise. In his former role as our Reinsurance Chief Operations Officer and Chief Pricing Actuary, Ari played a key role in integrating risk discipline across the business and embedding it into everything we do. He has also helped to advance our culture of diversity, equity and inclusion as a founding member of our DEI Council. I look forward to working with Ari to continue advancing our risk management agenda.

Let's turn to our financial results for the first quarter of 2022, beginning with our Group results. In the first quarter, we delivered $406 million in operating income with a 16.2% annualized operating ROE. This includes over $235 million in underwriting income, a significant improvement over prior year and $243 million in net investment income.

Our combined ratio of 91.6% is a six-and-a-half point improvement over last year. The attritional combined ratio was 87.4% and our attritional loss ratio was 60%, a 70 basis point improvement over prior year.

We also posted a competitive operating expense ratio of 5.8%.

Rate continued to outpace expected loss trends in the first quarter, and our margins continue to expand. In addition to rate, we are also benefiting from additional premium on lines of business with inflation sensitive exposure bases, such as general liability, property, and workers compensation. And we also continue to benefit from intentional underwriting actions, to manage limits, and granular segmentation of our portfolio to ensure we are writing the most profitable business. Our focus on profitability and expanding margins is clear.

We grew gross written premiums by 9%, 15% in our insurance division, and 6% in reinsurance. This growth was solid and broadly diversified in both of our underwriting divisions. Diversification allows us to target higher margin opportunities in each geography and line of business. We are not reliant on one geography or line to drive our growth and profitability.

With regards to the Russian invasion of the Ukraine, the war is an ongoing and evolving event. There are significant uncertainties regarding actual and potential losses and on whether health coverage would apply. We have completed a detailed coverage review of our businesses, and we have limited exposure to this work. To-date, we have received only one loss notice for a de minimis amount.

Based on what we know at this point in time, we expect that any potential financial loss to Everest, as a result of these events, would be a manageable earnings item. But due to the high degree of uncertainty around both exposure and coverage, a reasonable estimation of potential loss is not credible at this time. We are continuing to work with our brokers and seasoned partners to assess any potential exposure.

To sum, our Group results in the first quarter were strong and created meaningful momentum for the year ahead. The combination of our financial strength, capital position, outstanding market reputation, global offering, and deep relationships, uniquely positions Everest to capitalize on market opportunities.

Let's turn now to our reinsurance results. In the first quarter, we grew gross written premiums by 6%. Growth was strong in casualty and financial lines globally, particularly casualty pro rata, which continues to be supported by strong underlying rate and underwriting and increased Everest participation on treaties. This is offset by deliberate and targeted reductions in our property/catastrophe exposed business as we further reduce the volatility in our portfolio. These actions resulted in significantly improved economics.

The combined ratio was 91.4%, a 6.1 point improvement from last year and includes 110 million of pre-tax catastrophe losses net of reinsurance and reinstatement premiums from Australia floods, European storms, and tornadoes in the U.S. Our attritional combined ratio was 86.2%, including an attritional loss ratio of 58.9%, which is a 60 basis point improvement over last year's first quarter.

Additionally, our expense ratio was 2.4% during the quarter. This continues to be a strategic advantage for Everest.

We achieved excellent underwriting profit of $177 million. Driving this result is our priority on maximizing profits, while managing volatility. We successfully executed on this strategy during the January 1 renewal season, and continue to make meaningful progress throughout the first quarter. Specifically, we continue to grow our targeted classes of business and geographies. Our international treaty business grew by over 22% in the quarter. We expect this to become a bigger share of our business over time.

Global facultative grew by 10%. We are making targeted investments to expand our facultative capabilities around the world, including industry-leading talent to our team. Those investments are already paying off.

Casualty grew globally with our pro rata book up 48% year-over-year, and our casualty XOL book was up 8%. We continue to be measured and selective in our property and specifically in cat-exposed property. In the quarter, those lines decreased year-over-year. And we further owned our portfolio to maximize expected profit, while reducing volatility.

We continued this strategy during the 401 review in property, total written premium, limits exposed, AAL, and our PMLs were all reduced and expected profit and dollars increase. This resulted in more profit for less exposure by any account that's an outstanding trade.

We also achieved growth in our casualty book with higher participation alongside some of the industry's best primary underwriters. We expect conditions for upcoming reinsurance renewals to offer targeted opportunities for Everest to deploy capacity at superior margins.

We move forward with the underwriting discipline and expertise to write profitable margins and we have the tools, talent and capital solutions to build continued profitability.

Now let's to our Insurance division. We continued our thoughtful intentional long-term build with the insurance franchise with an absolute focus on underwriting profitability. Our combined ratio of 91.9% was excellent representing an eight point improvement from last year. The attritional combined ratio of 90.9% improved 130 basis points from a year-ago and including attritional loss ratio of 63.1%, a 120 basis point improvement from prior year. These improvements resulted in strong underwriting profitability of $59 million in the first quarter, a new record for the quarter.

Our focus on profitability and margin expansion is clear. We have improved the attritional combined ratio by over five points since the end of 2019. We also have delivered robust and diversified growth in the quarter, up 15%, with gross written premiums once again over $1 billion. It's important to note that excluding strategic and intentional underwriting actions taken this quarter to reduce volatility and optimize the portfolio; our growth rate is higher at 25%.

As we have said, Everest Insurance remains long-term growth mode. But we will reduce exposure where it makes sense as we continually reshape the portfolio to maximize profitability. Growth in the first quarter reflects our relevance in the commercial insurance market, and was driven by exposure increases, rate, strong renewal retention, and new business across our core segments, lines and geographies, most notably across our long tail lines. In the quarter, we achieved a rate increase of 9% excluding workers compensation and a total increase of 6% in our core P&C portfolio, notably, financial lines were up 15%, Umbrella Excess was up 10% and Commercial Auto was up 9%.

Rate continues to exceed expected loss trends across all lines, with the exception of monoline guaranteed cost workers compensation, which now represents only 7% of our portfolio in the quarter. We made excellent progress against our objectives for the insurance business and we remain vigilant in driving and improving margins as we scale this business. There's a significant runway ahead of us to grow profitably in the global P&C market, and we're capitalizing on it.

As we strategically expand our offerings, we continue to build out our global platform from underwriting to claims. This includes leveraging key technology and analytics to improve productivity, speed and accuracy and enhance the customer experience. We are finding new ways to innovate with improved structures and new offerings directly addressing gaps in the market. We continue to diversify and deepen our relationships with distribution partners globally. We are infusing analytics to take a more quantitative and metrics based approach to sales that brings the entirety of adverse to customers where, how and when they need us.

As our first quarter performance shows, we've built the runway to advance our objectives, supported by our profitable underwriting operations, investments, market relevance, strong balance sheet, and our values based culture, all powered by a world-class global team. I am fully confident that Everest's ability to create exceptional value and deliver returns for our shareholders.

As I said at the top of the call, more than ever, the world needs a partner it can depend on with the breadth of experience, capabilities, and dedication Everest brings to the market. In times of uncertainty, we are a source of strength and stability for our customers, shareholders, colleagues and the global community.

Now I will turn the call over to Mark Kociancic to take us through the financials in more detail. Mark?

[Mark Kociancic, EVP & CFO]

Thank you, Juan and good morning everyone.

Everest had an excellent start to 2022 as we continue to make progress towards the objectives in our three year strategic plan. We had strong underwriting income, and another good quarter of good investment returns, leading to a 16% annualized operating return on equity. Most of our underwriting businesses and our investment portfolio contributed to the strong result this quarter.

Now for a review of the first quarter results. For the first quarter of 2022, Everest reported gross written premium of $3.2 billion representing 9% growth over the same quarter a year-ago. By segment, reinsurance grew 6% to $2.2 billion reflecting a 32% year-over-year growth in casualty, and an 11% reduction in property. Insurance grew 15% to an even $1 billion with notable growth in specialty casualty offsetting intentional underwriting actions to reduce exposure in property and optimize the profitability of our portfolio.

Everest reported net income of $298 million equal to $7.56 per diluted share and a total shareholder return of 8.6%. On an operating income basis numbers are $406 million for the quarter, and $10.31 per diluted share, with an annualized operating return on equity of 16%. Included in net income and consistent with the 5% reduction in the S&P 500 during the first quarter, Everest experienced $109 million after-tax unrealized loss on our common equity portfolios. Note that these are not realized losses rather fair value declines, which flow through net income, thus lowering our total shareholder return during the first quarter.

We incurred $115 million of pre-tax CAT losses net of reinsurance and reinstatement premiums in the quarter. The Australian floods in the first quarter represent the largest flood loss on record for the Australian insurance industry at just over $3 billion U.S.

Our CAT provision includes $75 million for this event. The other CAT events in the quarter were the European storms at $30 million and late March U.S. winter storms in the amount of $10 million. Of the total $115 million of CAT losses incurred in the quarter $110 million are in the reinsurance segment with $5 million from the late March U.S. winter storms within insurance.

We also note that there is no net prior year development in CAT losses this quarter. We continue to see improvement in the attritional loss ratio across the Group, along with the lower expected CAT low given our emphasis on volatility reduction, and we reconfirm our assumptions for the Group combined ratio in the range of 91% to 93% for the full-year 2022 as well as for 2023 as noted in our strategic plan.

Our first quarter 2022 GAAP combined ratio was 91.6%, which includes 4.1 points of CAT losses and no net prior year development. Our attritional loss ratio of 60% was a 70 basis point improvement over the first quarter of 2021, with improvements in both the reinsurance and insurance segments. The reinsurance attritional loss ratio decreased by 60 basis points and in insurance it was 120 basis point improvement. In both segments, we continue to see rate outpace loss trend.

Turning to commissions. The overall Group commission ratio was 1.2 percentage points higher year-over-year, largely driven by the 1.9 point increase in reinsurance commissions. The 24.9% acquisition ratio in reinsurance for the quarter is broadly in line with our expectations for 2022 and reflects the underwriting actions we've taken over the past few quarters notably the increased ratings of casualty pro rata business. The first quarter 2021 reinsurance commission ratio of 23% benefited from approximately a 120 basis points of non-recurring commission adjustments. The balance of the year-over-year variance is primarily due to changes in business specs.

For the insurance division, the acquisition cost ratio of 12.5% improved from the year-ago figure of 13.2% largely driven by increased ceding commissions.

Everest continues to have a very competitive operating expense ratio of 5.8% for the quarter, versus our target of approximately 6% for the Group. Year-over-year the reinsurance expense ratio is lower 2.4% versus 2.9% driven by favorable operating leverage as we continue to scale the business. The insurance expense ratio is marginally higher 15.3% versus 14.8% and within our expectations as we continue to expand our global footprint.

Regarding the impact from Russia's war on the Ukraine and in terms of reinsurance and insurance losses as Juan described, Everest has gone through an extensive analysis of exposures and coverages and at the present time, we simply do not have enough information to make a credible estimate of losses.

Our investment portfolio is the one area where we have enough information for an initial assessment of losses. Given the repricing of Russian corporate securities Everest total direct exposures to these instruments is $15 million on a book value basis. And as of March 31, we booked a $9.5 million impairment with $5.5 million remaining in fair market value.

During the first quarter of 2022, Everest continue to generate strong operating cash flow in the amount of $846 million. Our strong cash flow also has the benefit of allowing us to invest into the rising rate environment, increasing overall portfolio yield.

Investment income for the quarter was $243 million, a strong start to the year with good balance between fixed income of $148 million and $100 million from alternative investments. Overall, our expected fixed income reinvestment rates are close to the 3% level. Everest's investment portfolio is well positioned for the rising interest rate environment. In addition to a high-level of operating cash flow within the existing core portfolio, we have a short passage duration of 3.1 years, and also nearly 20% of our fixed income investments are in floating rate securities.

For the first quarter of 2022, our net income tax rate was 8.3% benefiting from the geographic distribution of our income streams and thus outperforming our working assumption of 11% to 12% for the year.

Shareholders equity ended the quarter at $9.5 billion driven primarily by the first quarter rise in interest rates and negative impact on the value of fixed income securities, particularly those towards the short end of the yield curve. Two year treasuries rose 160 basis points, and 10-year treasuries rose 83 basis points during the quarter, resulting in an $811 million after-tax fair market value reduction. A relatively low asset duration of 3.1 years means that this change should amortize towards a more neutral balance over the next few years, and we hold our available-for-sale securities to maturity for the most part, and we benefit from strong profitability, underlying operating cash flow, and balance sheet liquidity. Therefore, I don't view this transitory decrease in book value as a constraint on our ability to grow or upon our financial strength.

The resulting book value per share ended the quarter down at $241.52, a decrease of 5.9% adjusted for dividends of $1.55 per share. The book value per share excluding unrealized appreciation and depreciation of securities stood at $256.01 per share versus $252.12 at year-end, representing an annualized increase of 6.2%. Debt leverage at quarter end stood at 21.2%, an increase in the leverage ratio driven by the unrealized fixed income market value declines noted previously.

In conclusion, Everest ended the first quarter of 2022 in an excellent financial and strategic position. We have ample capital to operate in the current environment. And we continue to see good opportunities to invest in the platform and scalability of our company.

And with that, I'll now turn it back to Jon.

[Jon Levenson, Head, IR]

Thanks Mark.

Operator, we are now ready to open the line for questions. We do ask that you please limit your questions to two or one question plus one follow-up and then rejoin the queue if you have any remaining questions.

[Operator]

Thank you. [Operator Instructions].

Your first question comes from Yaron Kinar from Jefferies. Please go ahead.

[Yaron Kinar, Jeffries]

Thank you. Good morning. Mark, maybe going back to your comments on the investment portfolio. So you gave us the new money rate, where do you see the current fixed maturity yield and what -- how much of the portfolio turns over in the given year?

[Mark Kociancic, EVP & CFO]

So I say going -- thanks Yaron. Going back to the reinvestment rate, we're roughly at 3%. I see that increasing over time certainly with pressure upwards on interest rates; I see that only going up for us. On a current basis, the market value or the market yield is greater than the core and so there's upward momentum on that side.

In terms of the portfolio itself I'd say roughly one-ninth to one-eighth converts to cash for 2022 and then when you combine approximately we would expect something around the $3 billion operating cash flow level for the year that's a significant amount of investable funds. And I'd also make reiterate the point that I made in my opening remarks that we've got roughly 20% of the fixed income portfolio in floating rate securities which will help that reinvestment yield.

[Yaron Kinar, Jeffries]

Thank you. That's very helpful. And then my second question maybe for Juan, in your prepared remarks, you talked a little bit about the cat loss this quarter. Can you maybe help us think about where, how you see catastrophes in this particular first quarter relative to expectations for the first quarter? Were they above normal, in line?

[Juan Andrade, President & Chief Executive Officer]

Yes, Yaron. Thanks for the question. As I said in my prepared remarks, it was an active quarter, right, and we did end up as an industry having over $14 billion in cat loss. That translates to about $30 billion in economic loss. So I would say this is elevated for first quarter. And as I said, look, I looked at the data going back a number of years and all of this. And as I said that first quarter that typically is quiet hasn't been quiet right. So I would expect that $14 billion is definitely more active than what you normally would see.

[Operator]

Your next question comes from Joshua Shanker from Bank of America. Please go ahead.

[Joshua Shanker, Bank of America]

Yes, thank you. Looking at pro rata casualty business, prices are up for the underlying business from where they were a year-ago. But ceding commissions are also up, is the profitability between those two timeframes basically neutralized by the ceding commission. And has the ROI and capital being put into that part of the reinsurance business going up the same or is it lower than it was a year-ago?

[Jim Williamson, Group COO]

Yes, Josh. This is Jim Williamson. Thanks for the question. And it's a good one. Look, what we've seen and what we've been reporting is two factors that you described. There's a tremendous amount of margin creation happening in the primary casualty market driven by rates, but also by changes to limit re-underwriting, et cetera. And that's definitely playing through. And we're seeing that in our data. At the same time, cedings are looking to recapture some of that margin creation, the increased ceding commissions, and we've seen that dynamic play out. And what I would tell you broadly speaking, really only to Everest portfolio, our view is that trade is resulting in improving economics for us, meaning the improvement in the underlying market is exceeding growth rates and ceding commissions.

Now, that's not true on every deal across the market, which is why the thoughtfulness and the selectivity of our underwriting is so important. And we measure each and every deal. And what we're looking for in this environment is margin expansion. And in those situations, where we see ceding commissions running ahead, and deteriorating margins, we're choosing not to participate. I would say broadly at this point, overall it's still a pretty rationale market out there that way. And so we see some real good growth opportunities continuing.

[Joshua Shanker, Bank of America]

And then on the property and property/cat side, if you lower your volatility to cat exposures, but the capital that you are, isn't really being freed up because of that capital, obviously you're using for other items. Isn't there a possibility that the capital charges are low for the additional business, that you might be leaving money on the table as you trade volatility? I mean, I guess maybe not referring but that seems like you did that, you could use $1 of capital that's associated with casualty business, also to underwrite property and that yes, you've lowered your volatility, but you've also lowered your long-term earnings power.

[Jim Williamson, Group COO]

Yes, Josh, it's Jim again. Look we have a very robust capital modeling and risk management process that we operate at the Group level and we are really evaluating capital deployment across all of our lines at a very granular level between both reinsurance insurance and our investment portfolio. And we certainly take into account, total capital usage and optimization when we're making those decisions. So when we talk about deploying relatively more capital to casualty versus property, we're accounting for the fact that you do get diversification benefits, and you do get opportunities to deploy capital, in some cases, multiple areas. And so we're not seeing any area in the portfolio where we're failing to deploy capital at the most efficient level, when you look at the growth.

[MarkKociancic]

Josh, it's Mark. Let me just add one remark to that. I think in addition to what Jim said, it's really more of a marginal movement. What we're seeing here with slightly reduced property/cat and an expansion on the casualty side. So as Jim pointed out, the portfolio is still very well diversified and we're very focused on accretive return expectations for everything we write in excess of our TSR. So for us, it's still highly efficient to proceed in this way.

[Operator]

Your next question comes from Ryan Tunis from Autonomous Research. Please go ahead.

[Ryan Tunis, Autonomous Research]

Hi, guys. Good morning. I was hoping on the insurance side, you can talk a little bit more about some of the re-underwriting actions you're taking. And whether or not we expect that to potentially impact the growth rate in that segment over the remainder of the year?

[Juan Andrade, President & Chief Executive Officer]

Yes, Ryan, it's Juan Andrade. And let me start. And then I'll ask Mike Karmilowicz to join. Look, I think the first point is, we still feel very bullish about the growth opportunities in insurance, as I said in my opening remarks. I think in some ways, we're only scratching the surface of the potential that's out there. And it's one of the reasons why we now have international expansion underway and frankly, while we continue to gain traction in the U.S. market. We're good underwriters. And what you saw us do this quarter is what any good underwriter does. You're looking at your portfolio, you analyze it. In some cases, there's going to be things that you like, and then have a good economic return and there's things that we don't like. And so therefore, you exit them, because we see better opportunities to deploy capital and move in that direction.

So if you think back at that 15% growth rate for the quarter, some of that was impacted by the fact that we did reduce volatility as well in the insurance side similar to our strategy in reinsurance. And the other part of it was driven by one specific account that we decided to non-renew and move away from it. But that's the general theory. But we do feel very bullish about the growth rates in insurance. And I would ask Mike to maybe jump in and add some additional color.

[Mike Karmilowicz, President & CEO, Everest Insurance]

Sure. Thanks, Juan. Thanks for the question. A few things I would say. First off, as you know, our focus is basically always has been focused on underwriting with underwriting companies as Juan pointed out, and I would reiterate to you guys we've had 29 straight consecutive quarters of growth, most of those sales have been double-digit. We are very focused on cycle management, you see us talk about it with workers comp. We've taken actions to Juan's point on property in other areas. But I don't see this anticipating slowing us down. We see ample opportunity in the marketplace. We are well positioned with a lot of capital and a lot of trust. And so we will continue to execute that and where we see opportunity, we'll take advantage of it. But we don't foresee any of that changing anything we do every day.

[Ryan Tunis, Autonomous Research]

Got it. Then on the reinsurance side, obviously a good margin quarter there. Just maybe a little more insight into, what specifically drove that. Was it a lower loss pick, as you're recognizing for portfolio's less volatile and better underwritten, or was there anything one-time in nature that helped?

[Jim Williamson, Group COO]

Sure, Ryan, this is Jim Williamson to give you some of that detail. Look, I think a lot of this is the result of some of the conversations we've been having with you over the last few quarters, which is we've seen very consistently, strong margin improvement in the underlying primary casualty market. That's rate that's limits, that's terms conditions, et cetera. And we've been very prudent in how we've revealed that improvement in our loss picks. And we've said, we've waited, and we've been waiting for that data to prove itself to start to see it in our numbers, et cetera.

And so I think what you're seeing this quarter is the result of that prudence. And it's the result of that underlying improvement. And so on a year-over-year basis, we have seen an improvement in casualty pro rata in particular, and underlines as well, that have allowed us to basically settle on lower loss picks for those lines. We're still being prudent. We're still being disciplined. And we're still not taking full credit for the trends we see. But we are starting to flow through some of that margin.

To give you a sense of quantum. On a year-over-year basis, we saw about a 140 basis point of margin improvement due to lower expected loss picks. And that was then partially offset by the change in mix, because if you look at Q1 2021 versus 2022 there is a dramatic change in our mix. We were about 60:40 property casualty this time last year. It's closer to 50:50 now, and that's certainly an offsetting factor as casualty carries a higher loss pick. But I think all of this is a result of the market trends we've been discussing. And we see those trends continuing as we head into the year and we continue to see pricing in excess of even elevated loss trends.

[Ryan Tunis, Autonomous Research]

Thanks. I really appreciate that level of detail, Jim. Congrats.

[Jim Williamson, Group COO]

Thanks, Ryan.

[Operator]

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

[Elyse Greenspan, Wells Fargo]

Hi, thanks. So my first question, if I look on a Group consolidated basis, right your -- the underlying combined ratio actually did deteriorate a little bit year-over-year. So I was hoping you could just give us a sense of just kind of an outlook for the accident, your ex CAT combined ratio. And then it seems like a big chunk of that deterioration wise was because the acquisition ratio ticked up around 120 basis points. Can you just give us a sense of the outlook for that acquisition ratio over the balance of this year?

[Mark Kociancic, EVP & CFO]

So Elyse it's Mark. A few points that you asked there. So first of all, let me just start with the CAT and then we'll get into the acquisition ratios.

On the CAT, I made this point last quarter that our expectations for 2022 with the CAT ratio for the Group of less than 6%. And so that's, I think, a meaningful reduced expectation versus last year, and definitely on a historical basis. So there is some reduction that that's expected there.

On the acquisition ratio, I would say, a couple of points. We have, if I start with reinsurance. I would say it's broadly in line with last year, probably a little bit higher, you're seeing us trend at 24.9% here. Last year, I think we were in the low 24. That's principally because of mix of business. I did mention some of the one-offs we had in Q1 last year that would drive it.

On the insurance side, we still see a declining net acquisition ratio. And that's a combination of things. You've got both ceding commissions coming in on certain lines of business, depending on the mix. And then just lower broker commissions versus our expectations on some of -- some other lines as well. But I'd say there's probably downward pressure in general on the primary side for acquisition ratio.

[Elyse Greenspan, Wells Fargo]

Okay, great. And then my second question, on the reinsurance side, a little bit of a follow-up to Ryan's question, he talked about right, reflecting, just more of the improvement on the casualty side. And as we think about the mix shift to casualty and we also think about, like the impact that that can have on your margins, as we're thinking about going forward. I'm assuming that you guys still see right, the line of sight into kind of hitting, getting that segments that 91% to 93% combined ratio target.

[Jim Williamson, Group COO]

Yes, Elyse this is Jim Williamson. We would definitely reiterate our commitment to that target, and we're very confident in it. And it's a combination of factors. One, while casualty does carry a higher attritional loss ratio, and a slightly higher attritional combined ratio. Those numbers are coming down year-over-year, you see the improvements that we were talking about earlier flow through the book, and we began to reflect that in our loss picks. And while I cited a 140 basis point improvement year-over-year to our pick based on improved loss picks. It's higher than that for casualty. And so we're seeing that happen. And so that's critical.

And then the other part, when you think about the total combined ratio to what Mark just said, which is for the Group, our targeted CAT loss ratio went down and that's also true of reinsurance. And so, when you ladder all that up, our expectation is, certainly that those won't be headwinds to achieving our goals. We're very confident on that.

The other thing I would just say, and this is particularly important, I think, as we roll through the summer. We're still very much a leader in the property CAT market. And we take meaningful lines. We've been doing that in improved economics that 401 as Juan indicated in his opening remarks. We were able to take less risk by any measure, whether it's PML, AAL, et cetera. But we're going to getting paid more profit dollars, more expected profit dollars will flow to the bottom-line. And that will certainly have an impact on our traditional and ultimate combined ratio. And we see good opportunities through the rest of the year to continue to execute that strategy. So I think all of that comes together to give us a lot of confidence in the targets we set out.

[Operator]

And your next question comes from Mike Phillips from Morgan Stanley. Please go ahead.

[MikePhillips]

Thanks. Good morning everybody. Juan, given the pretty positive comments and kind of trajectory of insurance segment, margins expanding and rates still at a loss cost trends. What's your appetite for kind of keeping more of the gross business over the next couple of years in the Insurance segment it's been pretty consistent for quite a while. Any thoughts on kind of moving that up over the next couple of years?

[Juan Andrade, President & Chief Executive Officer]

Yes, Mike, thanks for the question. And it's obviously something that we look at on a pretty regular basis, particularly as we go through all of our ceded reinsurance renewals on all of this, and we have made changes in our different treaty protections, et cetera, et cetera. The way we tend to look at this from a philosophical standpoint is, as we get additional rate, additional terms as we continue to feel very good about our own underwriting, then by definition, we would want to keep more of that net with a company and you see us doing that in certain lines of business. But we balance that against the volatility and the appetite that we want to have on any particular line of business at the same time.

So the short answer is we are constantly making tweaks to that depending on our line of business, depending on the geography, et cetera. But we feel pretty good about where we are right now. And I would invite maybe Mike Karmilowicz to add a little bit of color as well.

[Mike Karmilowicz, President & CEO, Everest Insurance]

Sure, thanks. Yes, I would only add to that, that we continue as we continue to scale up a lot of our existing businesses and get more critical mass. To Juan's point you'll see his take on that we've done that already in a few different pockets. And I see that continuing as we continue to grow and gain scale.

[Mike Phillips, Morgan Stanley]

Okay, thanks. Thanks for that. And then sticking with the insurance, Juan, you talked about, again rate over loss trend, I think you said 9% rate ex-comp ahead of kind of the long-term loss trends, can you share with us how you're viewing that long-term loss trend, what number you're looking at there? And how is that changed given recent times and the world in increased risk? What do you use in for your long-term loss trend right now, is that 9% range?

[Juan Andrade, President & Chief Executive Officer]

Yes, thanks Mike. Good question. Look, we feel pretty good about where we are, as I said that, I would actually say that rate is outpacing expected loss strength comfortably for us across the board. Right, so you're right, excluding comp, it's a 9% increase in rate that we saw in the quarter. And it's hundreds of basis points lower on that, where the trend would be basically. I would tell you that we have consistently updated our loss trends assumptions, really since 2019, 2020, 2021 upward reflecting higher loss trends in our pricing models and exit year loss trends. So we monitor that pretty closely. But I can tell you, we're comfortably above loss trend right now really, across all lines of business, with the exception of workers comp, which is the only one that I flagged earlier.

[Mike Phillips, Morgan Stanley]

Juan, sorry just to jump in and make sure I understood you. You said something about hundreds of basis points. Can you say that again of what you meant there?

[Juan Andrade, President & Chief Executive Officer]

Yes, so look if you're running at a 9% increase in rate, our loss trend is lower than that by several 100 basis points, basically.

[Operator]

Your next question comes from Brian Meredith from UBS. Please go ahead.

[Brian Meredith, UBS]

Hey, thank you. Juan, I was just curious, I appreciate the color you gave on Russia, Ukraine exposure. And there's a lot of uncertainty, I know right now and your exposure gets diminished. But I'm just wondering, as you think about your portfolio business, where are you kind of looking at where you're focused at? Where could there potentially be some exposure?

[Juan Andrade, President & Chief Executive Officer]

Yes, no absolutely, Brian, I'm happy to give you a little bit more coloring and context and all of that. Let me reiterate though, something that I said in the earlier comments. We don't see this event as changing our profit objectives for the year. And I think that's probably the most important thing to take away.

The other part of that is any loss estimate that we can give you or frankly, any of our competitors give you at this time is really purely speculative, right. And the reason for that is the worse ongoing physical damage and economic disruption are uncertain. It's changing in the investigation application of key coverage is still in its infancy, right. So that's essentially kind of where we are with all of this.

As we have done that very detailed assessment of coverage that I talked about earlier in my remarks, I can tell you that for instance, on the primary side on insurance, we would have close to zero exposure in any event, very, very little. On the investment portfolio, Mike I'm sorry, Mark certainly talked about that. And you saw the impairment that we did in the quarter as well. And on the reinsurance side, we would have limited exposure and the way I referred to that is, we have very few like one or two former Russian scenes that are no longer clients of ours. So that's a very little exposure from that perspective.

And then when we look at sort of lines that could be exposed to all of this, you certainly look at the some of the aviation lines that could be exposed. Although that's a relatively small business for us in the quantum of overall reinsurance. You could also look at potentially some marine lines that could be exposed. You could look at some trade credit, political risk type stuff. But we're much less concerned about that. And then you would look at some of the political violence covers as well. But we're also relatively small on that. So let me ask Jim Williamson to actually even go deeper into that, and just give you a little bit more granularity.

[Jim Williamson, Group COO]

Yes, sure, Brian, this is Jim. And I'll repeat a little bit of what Juan said and give you a little bit more detail. Because obviously, these topics have been heavily covered, there's a lot of speculation happening in the media around potential losses.

On an aviation basis as Juan mentioned a relatively small, there's one small part of our book. There is significant uncertainty around the extent of potential loss, in terms of actual units of aircraft exposed and that numbers been changing. The application of coverage notwithstanding some of the posturing that you've seen, I think there are real questions related to which coverage will apply, and to what amount. We've also taken very significant actions in our own aviation book over the last two years, to position it to withstand shock losses in a much better way. And so that gives us a lot of confidence.

On a marine basis, particularly given when you look at haul, we do have, and we know that there are trapped vessels in the Black Sea, for example, there's a lot of uncertainty about -- around the size of those vessels, whether they'll ultimately losses on those vessels, or on land cover, cold war et cetera, can also be in the marine area. There are properties in the Ukraine, obviously, that could potentially be exposed. As we've evaluated our book though, we don't really have concentrations of property in the area where the conflict is ongoing. And so it's both uncertain, but also at this point appears very manageable.

On a trade credit and political risk basis I think our teams have done an outstanding job of managing that exposure. On the terms of those contracts, as you likely know give primary insurers a lot of options when there's dislocation in the market, there's been a lot of cancellation activity and so that exposure, that potential exposure has been shrinking by the day. We've also seen a lot of payment activity continuing in those contracts that haven't been canceled. So that's a good sign.

And then, lastly, on political violence, again, that'll probably apply primarily to property exposures. In the Ukraine, there's a time limit on those covers. And again, as we've evaluated potential exposures, we don't have heavy concentrations in the major cities that have been subjected to the conflict in a meaningful way. We haven't had any reported losses other than one, which was less than $300,000, of potential loss from a political violence perspective. So you know, looking very, very manageable at this point, and tremendously uncertain. And so we're just continuing to have dialogue with our team. We're assessing it and we'll keep a very close eye on it.

[Brian Meredith, UBS]

Thanks, that was really thorough. And then Mike, my second question, I'm just curious on your stock actually had a point this quarter where it's dropped pretty significantly, and I was little surprised that we didn't see more share price -- buyback in the quarter. Maybe just remind us kind of your thoughts on kind of capital here and Mark and kind of managing it? And do you have like, ability to kind of really go in the market and buyback some stock when we get this market volatility?

[Juan Andrade, President & Chief Executive Officer]

Yes, Brian. So let me start and then I'll ask Mark to add. So the short answer to your question is, yes, we absolutely have the capability to go in and do buybacks. As you saw us do last year as well. Frankly, our stock was trading at a pretty good level. During the first quarter, there certainly had a bit of a dip as the war started sudden and you saw us come in, and we did have some buying activity, even though it was relatively small. But when you think about how we think about capital management, that philosophy hasn't changed in from what we have been articulating. Frankly, since I've been the CEO of this company. And we reiterated on our Investor Day last year, which is our number one priority, really is to privilege our underwriting businesses, as we see accretive growth opportunities and everything that we have been sharing with you this quarter and in past quarters, is that journey that we have to continue to expand margins improve the underlying profitability of this company, and you've seen us do that. So from our perspective that really is sort of priority number one. Beyond that absolutely we will consider share buybacks. We will consider other things at the same time. But let me ask Mark here to jump in.

[Mark Kociancic, EVP & CFO]

Brian, not too much more to add to that. Although I will say that we see excellent opportunities on organic expansion right now within both insurance and reinsurance. Doesn't mean we can't do both. But there's a really nice marketplace for us in our view. And so I'd say capital is really being privileged for that right now.

[Operator]

And your last question comes from Meyer Shields from KBW. Please go ahead.

[Meyer Shields, KBW]

Thanks. So I want to start with one question on reserving. And I'm not quite sure how to phrase this. But if we break down reserving in sort of like a mathematical analysis, and then the judgments associated with that, can you break down I guess, the absence of enormous or significant reserves development into those categories? Another way that it is, are there indications of redundancies, that you're just hesitant because of elevated risk? Or are the indications not there?

[Jim Williamson, Group COO]

Sure, Meyer, it's Jim Williamson. Wanted to step back, just to reiterate our reserving process, which is very robust and has been strengthened meaningfully over the last few years. We're taking a very disciplined approach to reviewing all of our carried reserve positions every quarter. We've implemented a number of automated tools to allow us to do that. We are closely monitoring IBNR consumption at a very granular level across both reinsurance and insurance, by line, by accident year, et cetera.

And then, of course, we have our ground-up reserve studies that were conducted, none were actually completed in the first quarter, but we will start getting completed reserve studies in Q2, and that's on an accelerated schedule, accelerated over last year, which was also accelerated from the prior year. So a lot of eyes on our carrier position.

Now, when you look at you start slicing our IBNR, and our very reserved position in the all those pieces I described. You're clearly going to see movement on redundancies in some areas, deficiencies in some others, et cetera. But overall, I would reiterate what we've said in prior calls, which is we're very confident in the strength of our carrier reserve position. And we have seen no information, really, since the end of 2020. That would cause us to take any action, any meaning material action one where the other from a reserve change perspective. And so and that's certainly through this quarter. And so again, we'll continue to monitor it. And if that changes we'll certainly, you'll be the first to know.

[Juan Andrade, President & Chief Executive Officer]

Meyer, the other thing. This is Juan Andrade. The other thing that I would add to what Jim has just said is keep in mind the discussion that we've been having about rate in excess of loss trend. And we have been saying that very consistently, really, for the past three years, essentially. And so by definition, you are building margin, and you are extending margin there. As we have also said before, we haven't taken that to the bottom line mainly because of all the issues that we're talking about with regards to inflation and severity, and all these other things at the same time.

But from our perspective, and as Jim alluded to in his answer to Ryan with regard to the casualty loss pick, we do look at this. And we do change it, we do tweak it right. So it's only a matter of time, as we get the data as we examine things as things season that you're going to start seeing that coming into the bottom line. So I think that probably gives you also a more forward perspective. And again, bring it back to the rate versus trend discussion.

[Meyer Shields, KBW]

Okay, that's very helpful. A second unrelated question, we're in an environment of at least, I think probably expected continued interest rate increases and your liability duration, have you set the mix towards casualty and also extending, when is the right time to really significantly increase your investment portfolio duration? Do you do it now; do you wait for further interest rate increases?

[Mark Kociancic, EVP & CFO]

So it's Mark, Meyer. I think as long as we're broadly within alignment of asset and liability durations we're in a good spot. I don't think there's a lot of benefit when you look at where the yield curve is right now in terms of the short end and the flatness of really going long. So for us, it's really looking for kind of a mix of things. So you're obviously looking one, to match generally the duration of between or the ALM matching, in essence; two, yield credit quality, liquidity of the securities and the actual alpha you think you can capture in the securities that you're looking at specifically any specific asset classes. So we look at it probably more granularly. I wouldn't get hung up on for example; we got an asset duration of three, one this quarter and a liability of four. That yield curve is really not appealing to stretch it out for the extra basis points that we see.

[Operator]

And there are no further questions. At this time, I will turn the call back over to management for any closing comments.

[Juan Andrade, President & Chief Executive Officer]

Great, thank you for all your questions and the excellent discussion. I think as you can tell from our tone, we are optimistic about the opportunities before us. We definitely see a trajectory for continued growth and expanded profitability. We're continuing to build this company, accelerate the progress and create greater value for our investors, our clients in all of the markets that we serve. So thank you for your time with us today and we look forward to seeing you at the next earnings call.

[Operator]

This concludes today's conference call. You may now disconnect.