Everest Re Group Ltd

LSE:0U96

Earnings Call Transcript 2024-Q1

[Matthew Rohrmann, executive]

Good morning, everyone, and welcome to the Everest Group Limited First Quarter of 2024 Earnings Conference Call. The Everest executives leading today's call are Juan Andrade, President and CEO; and Mark Kociancic, Executive Vice President and CFO. We are also joined by other members of the Everest Management team.

Before we begin, I'll preface the comments on today's call by noting that Everest SEC filings include extensive disclosures with respect to forward-looking statements. Management comments regarding estimates, projections and similar are subject to the risks, uncertainties and assumptions as noted in these filings.

Management may also refer to certain non-GAAP financial measures. These items are reconciled in our earnings release and financial supplement.

With that, I'll turn the call over to Juan.

[Juan Carlos Andrade, executive]

Thank you, Matt. Good morning, everyone. Thank you for joining us. We had a strong start to 2024. Our first quarter results included record underwriting profit and significant increases in operating income, net income and investment income. This resulted in a total shareholder return exceeding 18% and an operating return on equity of 20%.

We drove margin expansion through rate increases that are meaningfully in excess of loss trend, targeted risk selection, portfolio and cycle management, exposure growth and with underwriting discipline. We accomplished this while consistently and purposely maintaining conservatism in our loss space. We are confident in how we have shaped our portfolio.

In reinsurance, we built on our preferred lead market position at the January 1 renewals and continue to distinguish Everest in the accelerating flight to quality. Our Reinsurance portfolio is well positioned and driving strong risk-adjusted returns.

In Insurance, we advanced our disciplined expansion in targeted markets while remaining focused on prudent risk selection and the bottom line. We are focused on our primary objective of delivering consistent, leading financial returns. With the 3-year strategic plan, we laid out during November 2023 Investor Day, Everest has entered a new chapter of profitable growth and opportunity, and we are well positioned for the future with a focused strategy and great talent.

Now I'll turn to the first quarter financial highlights, beginning with our group results. We delivered $709 million in net operating income, a 60% increase from the prior year. Gross written premium increased by over 17% in constant dollars. Our growth in the quarter was broad-based and reflects Everest's diversification by segment, geography, business line and distribution. Growth was supported by best-in-class execution and our ability to take advantage of market conditions in Reinsurance and Insurance, particularly in property and specialty lines.

Our underwriting performance was strong in the first quarter. We delivered $409 million in underwriting profit. The group combined ratio was 88.8%, a significant improvement from last year. This is despite the industry incurring approximately $20 billion in catastrophe losses in the quarter.

For Everest, pretax catastrophe losses, net of estimated recoveries and reinstatement premiums were $85 million or just 2.3 points, a year-over-year decrease directly resulting from our portfolio optimization efforts. Everest catastrophe losses were primarily driven by the Francis Scott Key Bridge Collapse in Baltimore.

With regard to investments, we generated net investment income of $457 million, a new quarterly record.

Now turning to our Reinsurance business. Reinsurance delivered significant top and bottom line growth. Our success at the January 1 renewal gave us a running start to the year, delivering a higher quality, higher-margin portfolio. We grew the Reinsurance business in the first quarter, over 20% on a constant dollar basis, with $3.2 billion in gross written premiums.

We increased underwriting profit to $345 million, with an 87.3% combined ratio. The attritional loss ratio and attritional combined ratio also improved to 57.2% and 84.4%, respectively. This quarter included pretax catastrophe losses of $80 million, net of estimated recoveries and reinstatement premiums. Both rate and terms and conditions remained at attractive levels, resulting in a portfolio that should continue to achieve excellent risk-adjusted returns.

We grew our total property portfolio significantly, building on meaningful increases in 2023. We expanded our portfolio in attractive specialty lines of business, particularly marine and aviation. We remain disciplined and surgical in our approach to certain casualty lines. Our responsiveness, creativity and constructive approach to the market once again set Everest apart. We deepened relationships with top-tier clients globally while capturing incremental demand and growing share on oversubscribed deals.

We continued this positive momentum through the April renewals, resulting in high-quality, broad-based growth, particularly in property lines and excellent overall risk-adjusted returns. We capitalized on strong demand, expanding with core cedents, while also growing with targeted new partners. Consistent with the January renewal, we maintained discipline in certain casualty lines, nonrenewing business that did not meet our thresholds.

Overall, the market remains disciplined and trading conditions continue to be favorable, particularly in property and specialty lines. We continue to see incremental demand from cedents, and we are leaning into these opportunities. We expect risk-adjusted returns to remain attractive through upcoming renewals and into 2025.

Now turning to insurance. We continue to unlock value in our primary insurance business, making solid strides in bringing our capabilities to new markets globally. We grew the Insurance segment by 10% in constant dollars and generated over $1.2 billion in premiums for the quarter. Growth was diversified with 37% growth in property and 36% in specialty lines such as aviation, energy, surety and marine. We see strong rate and terms and conditions in these lines.

Also, due to strong rate increases, we saw modest growth in some casualty lines. With a consistent emphasis on profitability, we focused on lines of business with favorable pricing and strong profit trajectories. We achieved a 12% rate increase across the portfolio, excluding workers' compensation and financial lines. Loss trends in casualty remain elevated but they're stable and pricing continues to meaningfully outpace that trend.

We continue to see rate acceleration across casualty lines excluding financial lines. This was most pronounced in commercial auto liability, general liability and excess casualty lines. The rate increases in these 3 lines average mid-teens overall. The combined ratio at 93.1% resulted in an underwriting profit of $64 million. The attritional loss ratio was 64%, reflecting our discipline and continued loss pick conservatism in casualty lines of business.

We also continued our proactive shift or short-tail lines, which we expect will benefit underlying margins throughout the remainder of the year. As I've said in the past, we will recognize bad news quickly, and the good news from our positive portfolio rate actions will season over time. We are focused on profitably growing in geographies and lines of business we find attract while continuing to drive rate in excess of loss trend.

Our first quarter continued to demonstrate the strength of Everest franchise and the results of our actions over the past 4 years. We see significant opportunities for our underwriting businesses globally, and trading conditions remain favorable. I'm excited about the journey ahead for our business and our ability to continue delivering leading financial returns.

With that, I'll turn it over to Mark to review the financials in more detail.

[Mark Kociancic, executive]

Thank you, Juan, and good morning, everyone. Everest is off to a strong start to 2024. We delivered significant growth in underwriting income, net investment income, operating income and net income for the first quarter. This drove operating EPS of $16.32, and an operating ROE of 20%. The annualized TSR or total shareholder return was strong at 18.1% despite modest foreign exchange headwinds. The company's strong performance in the first quarter was led by our team's high level of execution and ability to capitalize on attractive opportunities. We have significant momentum behind us across both of our franchises driven by excellent outcomes at recent renewals and our disciplined insurance expansion into target global markets.

Looking at the group results. Everest reported gross written premiums of $4.4 billion, representing 17.2% growth in constant dollars and excluding reinstatement premiums. The combined ratio was 88.8% for the quarter, driven by an improved underlying loss ratio and lower Cat losses. The CAT losses in the quarter were largely driven by the Baltimore bridge collapse, which contributed $70 million to Cat losses.

The group attritional loss ratio was 58.9% and a 90 basis point improvement over the prior year's quarter with both segments contributing to the improvement. The group's commission ratio was 21.4%, consistent with the prior year. The group expense ratio improved 30 basis points to 6.1% in the quarter, an excellent result as we continue to invest in talent and systems within both franchises.

Moving to the segment results and starting with Reinsurance. Gross written premiums grew 20.4% in constant dollars when adjusting for reinstatement premiums during the quarter. Growth in the quarter was consistent with the trends seen throughout the prior year with strong and broad-based growth in property and specialty lines, while we continue to remain disciplined in certain casualty lines.

Property lines grew 31% in the quarter, while casualty lines grew 11% in the quarter, and we continue to see the written premium mix shift towards property and short-tail lines, which now stands at 54% property and 46% casualty versus 50% property and 50% casualty in the prior year. Growth will continue to favor short-tail business as we trend throughout the year, which will be more pronounced on an earned basis.

The combined ratio was 87.3% an improvement of 350 basis points from the prior year. The attritional loss ratio improved 80 basis points to 57.2% as we continue to achieve more favorable rate and terms particularly in property and specialty lines. The attritional combined ratio improved 150 basis points to 84.4% during the quarter.

Both the commission ratio and underwriting expense ratio improved modestly to 24.6% and 2.6% in the quarter, respectively.

Moving to Insurance. Gross premiums written grew approximately 10% in constant dollars to $1.2 billion. We continue to methodically scale our primary franchise globally while proactively focusing our North American portfolio towards the most accretive lines of business, led by retail property and short-tail specialty lines. The growth in casualty and professional lines was driven by rate increases as a number of lines saw continued price acceleration in the quarter.

The attritional loss ratio stood at 64% this quarter, an improvement of 40 basis points from the prior year. The commission ratio was consistent with the prior year, while the underwriting related expense ratio increased to 16.6%, driven by the continued investment in our global platform.

Moving on to investments. Net investment income increased nearly $200 million year-over-year to $457 million for the quarter, driven primarily by higher assets under management and higher new money yields versus maturing assets. Alternative assets generated $74 million of net investment income, an improvement from the prior year as equity markets have continued to rebound.

Our overall book yield improved from 3.8% to 4.7% year-over-year and our reinvestment rate remains north of 5%, which is in excess of maturing security yields. We continue to have a short asset duration of approximately 3.4 years given the attractive level of short rates.

The investment portfolio remains well positioned for the current environment and is supported by the compounding effect of strong underwriting income and cash flow. Our high-quality portfolio is built to generate strong returns on a consistent basis.

For the first quarter of 2024, our operating income tax rate was 12.2%, which was broadly in line with our working assumption for the year. Our capital strength gives us ample capacity for 2024 and positions us well for profitable organic growth. We opportunistically repurchased 90,000 shares in the quarter, amounting to $35 million with an average of $387.64 per share. Shareholders' equity ended the quarter at $13.6 billion or $14.5 billion when excluding net unrealized depreciation on available-for-sale fixed income securities.

At the end of the quarter, net after-tax unrealized losses on the available-for-sale fixed income portfolio equates to approximately $876 million, an increase of $153 million as compared to the end of the fourth quarter, resulting from interest rate increases. Cash flow from operations was $1.1 billion during the quarter. Book value per share ended the quarter at $313.55, an improvement of 3.6% from year-end 2023 when adjusted for dividends of $1.75 per share year-to-date. Book value per share, excluding net unrealized depreciation on available-for-sale fixed income securities stood at $333.70 versus $320.95 per share at year-end 2023, representing an increase of approximately 4%.

Net debt leverage at quarter end stood at 15.8%, modestly lower on a sequential and year-over-year basis.

In conclusion, Everest had an excellent start to the year. Market fundamentals remain attractive and we have strong momentum across both underwriting franchises.

And with that, I'll turn the call back over to Matt.

[Matthew Rohrmann, executive]

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

[Operator]

[Operator Instructions]

Our first question comes from David Motemaden from Evercore ISI.

[David Motemaden, analyst]

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

[James Williamson, executive]

Sure, David, this is Jim Williamson. Thanks for the question.

First of all, just on the property Cat XOL growth that you're seeing printed in the quarter, that's really a premium recognition timing phenomena. And so if you look back at the June 2023 property Cat renewal, which was the Florida renewal, that was really the only renewal last year that we did not grow. And so you're seeing that roll through the numbers in this quarter. All of the other renewal dates that we've experienced recently have shown strong growth.

And just to give you some of that perspective, at the January 1 renewal of this year, we grew our property Cat business by 24%, which was just excellent. We did that at outstanding risk-adjusted returns. And then we were able to continue that growth at the April 1 renewal, where we grew globally just about 10% and in our North America property business, we grew property Cat by 76%, again, at outstanding risk-adjusted economics.

So it's a little bit of a blip that way. My expectation, obviously, is it will work itself out as we go forward.

In terms of the property pro rata part of your question, it's really not a matter of saying, okay, we now like property pro rata better than property Cat XOL for the reasons I just described. What it is, is it's starting really in the back half of last year, we saw just terrific economics in the primary property market, particularly in the E&S space in North America. We leaned into that with our core clients and wrote bigger lines with some of the best underwriters in the market, and that's now flowing into our financials, and we're picking it up in meaningful growth this quarter.

And then the other major contributor to pro rata property growth is the expansion of our business in Asia, where we've traditionally been underweight. We're growing very nicely again with best-in-class underwriters in that market. And that market does tend to be more of a pro rata market and very much a property market. And so you're seeing the effects of selecting some really outstanding deals in the Asia market.

[David Motemaden, analyst]

Got it. Understood. Thanks for that clarification on the property Cat growth. I appreciate it.

And then maybe, Juan, just on the attritional loss ratio in the Insurance business. So I caught that you're expecting that to come down over the course of the rest of the year as you shift to more short-tail lines or that should benefit underlying margins throughout the remainder of the year.

Could you just elaborate on that a little bit and just maybe talk about what drove the 64% this quarter? I think you mentioned conservatism, but I was just wondering if you could just talk about that and maybe also what sort of impact that has on your view of the 2020 through 2023 accident year, if at all?

[Juan Carlos Andrade, executive]

Yes. This is Juan. Let me start and then I'll ask Mark Kociancic to add some color as well.

I think the most important thing is, really start with sort of the framework, right? So we have been essentially running between the 63% and 64% attritional loss ratio in insurance over the past 2 years. And so there's a couple of things. One, in every quarter, you're going to have some timing and mix noise, but the fundamentals to our approach have remained consistent. And that's really the fact that we have been very disciplined underwriters and we continue to remain conservative with our loss picks for casualty lines in both divisions, not only in Insurance and this is something that we have talked about in prior venues.

So we're holding our loss picks longer across all lines of business even if we see favorable loss experience in any given quarter and we're going to continue to do that in a very disciplined and systematic manner. And so that's basically what you're seeing as far as the 64% here in the quarter. But let me ask Mark to add a little bit more on that.

[Mark Kociancic, executive]

Yes. Juan, just a couple of things to add to the equation. So in addition to the conservatism and the prudence of the lost fix, we feel very good about the margin that we're building in the lines that we're writing. We're obviously tracking loss trend, give you a couple of high-level points on that. Essentially, it's been elevated for a while, for several quarters, but stable, broadly stable, and rate has been meaningfully in excess of trends. So we feel good. No issue on our side to have the extra, what we would call, level of prudence in those loss picks given the loss environment that Juan spoke about and I spoke about during the Investor Day.

I do think mix of business will eventually push the loss ratio mechanically lower as we had a bit more short-tail lines to the mix overall. And that should happen throughout the year and a little bit more over time over the 3-year plan.

[Operator]

Our next question comes from Brian Meredith from UBS.

[Brian Meredith, analyst]

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

[Juan Carlos Andrade, executive]

So sure, Brian. Let me get started, and I'll ask Jim to give you a little bit of extra color on all of this.

Look, I think as we've said, both in my prepared remarks and in Jim's question -- answer to David a few minutes ago, we had a terrific 1/1 renewal and we had an excellent 4/1 renewal. So at this point in time, we got close to 70% of our book that's been renewed at what we believe are excellent risk-adjusted returns. The market for us continues to be pretty good. If you think about it from a pricing perspective, you would expect some of the pricing to moderate, given that we've had rate on rate on rate, particularly in some of these geographies over time. But I think more importantly is the fact that attachment points and terms and conditions have continued to hold. And I think that is a critical point to keep in mind going forward for the future.

The other thing is what I said in my prepared remarks, which is our competitors remain disciplined. So the trading conditions from that perspective continue to be favorable. But let me ask Jim to give a little bit more color on how he views Florida at 6/1, and then some of the 7/1 renewals as well.

[James Williamson, executive]

Sure, Brian. Thanks for the question. Just to maybe reinforce some of the points Juan made, which I think are spot on. We have seen really terrific results from the most recent renewals, including April. And you would certainly have expected, given how much rate the market took last year, that more underwriters are going to be interested in writing the business. And while that's true, we've also seen just a floor under the discipline that people are applying to this market, which is what's sustaining terms and conditions, keeping risk-adjusted rate on the upward trajectory, which is resulting in the economics that we find so attractive.

The other thing to keep in mind is we're still experiencing elevated losses around the world. And while we had a terrific Q1 Cat result, the fact is Cats remain elevated, whether it's weather, earthquake, man-made disasters, et cetera, those things are happening, and I think that's keeping a focus on the discipline that the market is pursuing.

And then the other factor to keep an eye on is we see some really strong increasing demand from some of our best clients. And given Everest's position as a preferred and lead market, we have opportunities to deploy incremental capacity at really attractive rates. And I think that's happening both at the major renewals but also between those renewals. And there's a lot more in that pipeline that I think will help to sustain the market.

And so our perspective is, as we roll into the rest of 2024 with Florida renewal in June and then the 7/1 renewal, primarily driven by Australia, we expect discipline to be maintained, risk-adjusted economics should be terrific. And then I would further say that our expectation remains that, that will continue into 2025.

[Brian Meredith, analyst]

That's really helpful. And then I just wanted to pivot back to the Insurance underlying, call it loss ratio just quickly here. I know that last year, you had some mid stop loss one-offs. So year-over-year, it looks like about 150 basis points up year-over-year.

But I'm just curious, how much of maybe that conservatism you've built in is due to perhaps financial lines and workers' comp? I know you gave us a rate of 12x financial lines and comp. I'm curious, was that your -- you put everything all in. And if that is one of the contributing factors to the year-over-year increase?

[Mark Kociancic, executive]

Yes. Brian, it's Mark. I don't think it is. I think workers' comp is broadly stable in the last few years. So that's not driving it.

You're right, we had 100 -- roughly 150 basis points of delta last year because of A&H. There is a bit of mix that drove the delta from last year down to something that was sub-63% attritional loss ratio. But I'd say our run rate is more in the 63% to 64% range. And I think what you're seeing here is just a mix of business that is skewed a bit more to longer-tail casualty, and we're keeping those loss picks at a healthy level, a prudent level on our side.

[Brian Meredith, analyst]

Do you have the all-in number for kind of what rate looked like in the first quarter when you include financial and comp?

[Juan Carlos Andrade, executive]

Yes, that would be about a little bit over 7%.

[Operator]

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

[Michael Zaremski, analyst]

Follow-up on the primary insurance pricing. I think you might have answered part of this, but so the rates have accelerated in social inflation, I guess, associated lines and the decelerated in property, I think, is how -- what kept the kind of the math flat at 12%.

On the social inflationary lines, do you feel that there's still kind of momentum in the marketplace potentially as the year progresses? Or is kind of the jump up into the low to mid-teens, is that a kind of -- is that a very healthy level to kind of protect against what looks like to be an inching higher of social inflationary trends?

[Juan Carlos Andrade, executive]

Yes, Mike, this is Juan. So let me give you a little bit of perspective, and I think you can break it down sort of into different lines.

If I look at, for example, commercial auto liability, we have seen essentially rate trend up over, frankly, the last 5 quarters or so with a pretty consistent basis. General liability has done the same for about the last 4 quarters, [ umbrella ] and excess for about the last 3 quarters, right? So that gives you a sense that this is -- it's a trend, right? It's not a fluke, per se, just 1 quarter over the other.

And look, I think the issues in the industry are well known. It's something that, obviously, we have discussed with all of you, competitors have discussed with all of you. So I would expect that, that continues through the rest of 2024. Again, it's 4 to 5 quarters, depending on the line of business that you continue to see that momentum.

When I look at property, there's certainly been a bit more capacity that's come in, particularly into the E&S market, and we saw that in the first quarter. But the pricing is still good and it's still significantly adequate in an excess of loss trend. So we still feel very good about the property business on the primary side of things as well.

[Michael Zaremski, analyst]

Okay. Got it. An encouraging trend on the liability side, given what we're seeing. I believe my follow-up in the prepared remarks, I think, Jim Williamson said that property Cat grew by 24%, I believe. Is that -- I feel like when we're looking at the disclosure in the earnings release, we see a much lower number for Cat XOL? Am I thinking about something incorrectly?

[James Williamson, executive]

Yes, Mike, this is Jim. Yes, the -- an earlier question was about the fact that we had printed a lower Cat growth number. You would have seen about a 4% growth number on Cat XOL. And what I had indicated is that's really the impact of the recognition of written premium flowing through the first quarter financials, which included a renewal last year, the June 23 renewal where we actually chose to step back a bit on Florida because of the stringent -- our own stringent financial underwriting approach. And so now that's kind of flowing into the financials.

What I further commented on is that at the January 1 renewal, we grew our property Cat XOL business by 24% for the renewal at really terrific risk-adjusted economics. And then further said, we did also very well at the April renewal, growing about 11% overall, we grew our North America property business at 4/1 by 76%. And so just outstanding growth rates and you'll see that show up in future quarters.

[Operator]

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

[Joshua Shanker, analyst]

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

[James Williamson, executive]

Sure, Josh. This is Jim. So a couple of things. One, if you look at our gross PML and then further our net PMLs as they've trajected over the last several renewals, they're up modestly. I would say that's being driven more by taking advantage of the property Cat XOL market. We've been pretty cautious on how much Cat exposure we're taking in the property pro rata book. Obviously, it exists, but we're being thoughtful about that balance.

I would further say, there's no constraint, given our available capacity, where we are relative to our risk appetite, as you would have seen in the investor presentation, we still have plenty of room to maneuver. And so there's not going to be a point where -- the fact that we've taken advantage of some really exciting opportunities in the property pro rata space, where we then can't go and grow where we want to with key clients on the property Cat XOL, that is definitely not a trade-off we're making. And we would not disadvantage the Cat book for any other opportunity.

[Joshua Shanker, analyst]

And capital utilization?

[James Williamson, executive]

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

[Joshua Shanker, analyst]

Yes. As you've grown that book, does that -- obviously, more efficiently, I guess, it is capital. Does that -- is there a binding constraint on how much of this property pro rata you can write?

[Mark Kociancic, executive]

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

[Joshua Shanker, analyst]

And then switching gears to casualty reinsurance. Can you talk about what you're seeing in terms of incurred loss activity versus claims as disclosed by your customers on the reinsurance side for the older accident years as they deal with social inflation? Have they taken their picks up enough? Or are you -- do you think that they're playing a game of sort of catch-up based on picks that you've set in the space?

[James Williamson, executive]

Yes, Josh, it's Jim again. Look, I'm not going to comment on the approach that other companies are taking to lost pick selection. What I would say is -- and this is true of older accident years and more recent accident years. We take a very prudent approach to ultimate loss ratio selection. We certainly did that over the last few years as we've strengthened reserves in reinsurance casualty. You saw us do that. We took a very conservative approach to how we set those ultimate loss ratios and put ourselves in a position to ensure that, that's in the rearview mirror.

And then we do the same thing on more recent accident years, which, in some cases, means that we have a different view of the ultimate loss ratio that our clients have. And you would have heard us describe in the last earnings call that we stepped back from some casualty in the -- at the January 1 renewal. We reduced our expiring book by about 15% due to portfolio management actions. And in many cases, that was due to the fact that we had our own independent view of the expected loss pick, and that may have been higher than what our clients expected.

So we're absolutely applying our own disciplines and analytics to what others are reporting, whether they're reporting in their financials or reporting it to us in their submissions and we think that puts us in good stead.

[Operator]

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

[Elyse Greenspan, analyst]

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

[James Williamson, executive]

Yes. Sure, Elyse. It's Jim. Yes, we've recognized written. We don't recognize written premium on a reinsurance contract the way you might on a primary insurance contract where you recognize all of the written premium in the period that you originally incepted the deal. Instead, the written recognition of premium is spread out. In the case of property Cat, it would typically be over a 4-quarter period, whereas something like casualty pro rata is typically recognized over an 8-quarter period and you don't recognize all the premium in a straight line, particularly for casualty pro rata.

And you may recall earlier in the year and last year, we talked a lot about this relative to the recognition of growth from the Jan 1, 2023 renewal relative to casualty.

And so there are going to be these effects. But as I indicated earlier, we're seeing -- we've seen strong growth pretty much at every renewal since January of 2023 and actually going back into June of '22, as the market started to correct. The only renewal that we've had in that entire time that showed a reduction was the June 2023 renewal because we stepped back a bit in Florida because a lot of smaller clients weren't able to meet our quite stringent financial underwriting approach.

So to give you some statistics, we talked about January '24, July '23 almost 25% growth, April '23, 30% growth. Jan '23, almost 50% growth. And it was only June '23, where we actually reduced the book by about 2.3%. So it just gives you a sense of the fact that we are delivering strong growth at terrific economics at all of these renewals. Got a little bit of a blip in this quarter and we expect that to correct.

Now the other thing I would indicate, of course, as you'll see in the financials is earned premium for Cat XOL was up almost 20%, which is much more consistent with what you might expect.

[Elyse Greenspan, analyst]

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

[Mark Kociancic, executive]

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

[Operator]

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

[Charles Peters, analyst]

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

[Mark Kociancic, executive]

So it's -- Greg, it's Mark talking. Let me kind of split this into 2 pieces of PMLs and TSR, ways of getting there. So back in the Investor Day, one of the points that I made during the presentation was that we had lots of different avenues to achieving leading financial returns as measured by total shareholder return.

So it doesn't matter really from our standpoint, if there's pluses and minuses coming from different underwriting markets, pricing and rate. We have a very well-developed and diversified set of franchises to manage cycle management, portfolio management and really drive growth of the franchise, combined with strong investment income. That's unchanged in terms of achieving the target that we set out.

PMLs, I'll hand it over to Jim and maybe I'll add a little bit of color at the end.

[James Williamson, executive]

Yes. Greg, it's Jim. So referencing your question and the PMLs that you would have seen in the investor presentation. So a couple of things. One, look, the peak zones that are represented there, we certainly have seen a little bit of growth in our net PMLs from July of last year to 1/1 this year.

That's a couple of factors. One, we've taken advantage of the market as I've talked about on this call, and we've grown our portfolio at great economics, which is fantastic. We've also optimized our hedging and we're taking more of our Cat risk on a net basis, and that's contributed to the growth in the net PMLs.

Now those particular peak zones that are featured in the investor presentation. We'll see a little bit more growth, I would expect in Southeast wind through the June renewal, assuming that Florida pricing terms and conditions hold, which we expect. California quake is pretty much in the bag for the year, where you will see us continue to lean into the market at the 7/1 renewal is outside of our peak zones. And so we have plenty of capacity, both in our PMLs and our capital and really any other way you want to think about risk to continue to grow. And I think that's best illustrated by the other exhibit on that page, which shows our earnings and capital at risk and our current position. And you see there that we're -- we have plenty of room to maneuver within our stated risk appetite to take advantage of great market conditions and grow where we need to.

[Juan Carlos Andrade, executive]

Greg, this is Juan. And I would just essentially reinforce 2 points that Mark and Jim have made. So number one, we absolutely see no change to the 17% target. And you see where we started the year at the 18.1%.

But I think the second point is probably more critical one, which is the one Jim just made that we are well within our Cat underwriting appetite. And so that gives us confidence to be able to maneuver and frankly keep growing the property Cat book, given the, frankly, the excellent risk-adjusted returns that we're seeing in that book right now.

[Charles Peters, analyst]

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

[James Williamson, executive]

Sure, Greg. It's Jim again. Yes. So in terms of facultative, we had a terrific quarter in our facultative business. We were able to grow that business very nicely, about 14% over prior year. And that's really on the back of significant demand by our cedents. And in particular, in short tail lines where they had to increase their Cat XOL attachment points last year to manage the market cycle. That means that, in some cases, they're feeling exposed on larger risks. Their per-risk limits might be uncomfortable. And so they're coming to Everest to try to manage that exposure. And so we're getting really great results that we're excited about and I expect we'll continue to lean into.

That said, like all parts of this business, we need to be very thoughtful in our risk management approach. And so there are parts of the portfolio, none of this would surprise you, where we're being very cautious and very prudent. And certainly, commercial auto would be an area where we're being prudent. We've pretty much exited or significantly reduced any exposure to professional or financial lines. We're being very careful about limit deployment in excess casualty. So we are writing some terrific deals there, but we're being careful about limits, obviously, ensuring we're getting paid adequately.

So like any business, whether it's reinsurance or primary insurance, need to manage the cycle carefully, but we continue to see really strong opportunities in fact.

[Operator]

And our next question is coming from Bob Jian Huang from Morgan Stanley.

[Jian Huang, analyst]

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

[Mark Kociancic, executive]

Bob, it's Mark. So we did do our Q1 quarterly review process. It's quite comprehensive. You're right, no real reserve studies to go through in the first quarter, but plenty of anecdotal data that we're looking at, all kinds of information.

And so after we did a review of not only those years, but really across the board, we don't see anything that's altered our view of our reserve portfolio. So steady as she goes.

[Jian Huang, analyst]

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

[Mark Kociancic, executive]

Bob, it's Mark again. So I think it will be elevated for several quarters. So we're adding talent, technology. The premium, as you can see, is growing meaningfully. The earned is trailing and obviously earns in over time. And so we're still in a process of scaling. And you can see, just in the Q1 comparatives, we're coming in for the insurance division of 16.6% expense ratio versus something closer to 15% a year ago.

So our North American operations are fairly stable in the expense ratio. The international is what's got this trailing effect. The good thing on our side is the -- I think the growth is quite accretive. We're seeing very nice technical ratios from the business that we're writing there, diversifies well, good margins that are embedded. So -- and we like the pace that we're going at. So I can see that being elevated for several quarters, but eventually trending down as the scale starts to catch up with the size of the foundation we're building.

[Juan Carlos Andrade, executive]

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

[Operator]

And next in question is Yaron Kinar from Jefferies.

[Unknown Analyst]

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

[Mark Kociancic, executive]

Yes, Andrew, it's Mark. The short answer is yes. I think there are several factors that are going towards that. You heard me in the previous question speak to some of the scaling benefits that we expect to get, particularly from the insurance franchise. So there are several factors, tailwinds that we have that I think will help us achieve that range.

I would start with -- we've got a mix that's going to trend a little bit more short-tail in terms of its proportion to the overall book that will come with lower combined ratios. You're still seeing very strong margin that's being added to the portfolio across the board as we cycle manage through the different opportunities that we have.

The expense ratio, really the 2 points. So the earned is going to grow more quickly on the international side as it trails the gross written. So that's going to help mechanically when you do the math. And then the expenses as a whole, I think given the fact we've spent over a year, well over a year building the foundation, those benefits are going to start to pay off and expenses will start to level out as an overall ratio.

So those factors overall are what's going to drive us back into that 92%, 90% range.

[Unknown Analyst]

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

[Juan Carlos Andrade, executive]

Yes. So let me start, and then I'll turn it over to Jim. This is Juan, Andrew.

So I think 2 things drove particularly that casualty pro rata. Again, some of it is the timing of the business that was written at 1/1/23 last year. And I think Jim has talked a little bit about how the earnings pattern on that business works. So I think that's an important part of that. And we felt good about the pricing for that business as well.

The second part of it is we saw some attractive opportunities in both Canada and Europe, outside of the United States where you don't have the social inflation issues that you have in the U.S. But Jim, maybe you can provide a little bit of additional color?

[James Williamson, executive]

Yes, I think that's right. It is on the pro rata side, it is largely timing of recognition. As we had indicated after the January 1, 2023 renewal, we earn casualty pro rata or I should say, recognized written premium over 8 quarters. And it's really in the middle of that period that you see the largest recognition of premium. And so we're in that period. We had really strong printed numbers last quarter on Cat's pro rata, same this quarter, et cetera. And there have been incremental opportunities, as Juan indicated. And in particular, when those are taking place outside the U.S. and in a very balanced way, we're more than happy to lean in to those opportunities.

On the XOL side, not an entirely different story. I mean, we have chosen to grow in a targeted way with some of our top cedents. But the other thing that you'll see in that line, in particular, which is a relatively small part of our portfolio is that the amount of rate that will be flowing through in that line is going to be elevated. That's our expectation, and that certainly helps to support the growth numbers that you're seeing in the quarter.

[Operator]

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

[Unknown Analyst]

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

[James Williamson, executive]

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

[Juan Carlos Andrade, executive]

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

[Unknown Analyst]

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

[Juan Carlos Andrade, executive]

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

[Unknown Analyst]

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

[James Williamson, executive]

Yes. Sure. It's Jim Williamson again. Yes, we've been a pretty consistent buyer of reinsurance for our Insurance business. There are a lot of good reasons to procure reinsurance, obviously, it helps us to manage volatility within that line. In a number of cases, particularly our pro rata treaties in North America are quite accretive from a ceding commission perspective. So I think that strategy of using reinsurance strategically to manage our exposure and our economics will continue.

I would expect, as the business matures both in North America and then, of course, over time in our international business, you could expect our net to gross ratio to increase as we retain more of our business. But I think those changes will be modest and will occur gradually over time. So I wouldn't expect any near-term changes in our approach that way.

[Operator]

And this concludes our question-and-answer session. I would like to turn the conference back over to Juan Andrade for some closing remarks. Please go ahead.

[Juan Carlos Andrade, executive]

Great. Thank you for all the questions and the excellent discussion. And I'll end really where I started, which is we're off to a very good start in 2024, with an 88% combined ratio for the quarter and a 20% ROE. And from the prepared remarks and the commentary that we found over the past hour, you see that we are still in a market with strong trading conditions, generating that 17% growth that you saw overall for the first quarter. And then you certainly heard about the opportunities we see in both Reinsurance and Insurance for the remaining part of the year.

And lastly, we're very focused on delivering our 3-year plan. And I think you've heard from Mark and from us pretty clearly that we still see that ability to generate excess of 17% TSR on an ongoing basis.

So with that, thank you very much, and we'll talk in the next quarter.

[Operator]

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