Beazley PLC

LSE:BEZ

Earnings Call Analysis

Company Plans to Boost Net Growth in 2024

In the wake of a stronger balance sheet and capital base, the company intends to diminish its Cyber and Specialty Risks reinsurance in 2024, aiming to surpass gross growth with higher net growth. While the property growth is anticipated to decelerate next year due to lower expected rate increases, the company is not constrained by diversification or risk appetite at present. The management team is open to employing third-party capital to support growth opportunities that exceed their balance sheet capacity. The executive has assured that concerns regarding their long-tail back book and potential inflation impacts on reserves are unfounded, citing their strategic underwriting and hedging practices. Moreover, the company does not primarily engage in lines most affected by social inflation. The combined ratio is projected to be better than anticipated, with no plans to modify loss picks this year, adhering to IFRS 17 protocols.

Seizing Opportunities Amid Market Dynamics

Adrian Cox, CEO of Beazley, was pleased to report on a successful first nine months of 2023, highlighting the company's grasp on the property market and a solid foundation built in the cyber war sector. Beazley has capitalized on hardening markets, retained more net business at a strategic point in the cycle, and benefited from a positive claims experience. Despite such progress, the CEO remains vigilant in navigating softening market cycles and increasing competition. He underlines Beazley's philosophy of prioritizing underwriting profitability over growth.

Financial Performance and Strategic Adjustments

Beazley experienced a 9% gross year-to-date growth by Written Premium (WP), maintaining stability despite a flat quarter. Influential factors for net growth included a reduction in reinsurance purchasing and an IFRS 17 accounting detail regarding Hurricane Ian's reinstatement premiums, which artificially lowered the previous year's net IWP, contributing to an inflated growth figure. Overall rate changes remained steady at 5%, with variations across divisions. For instance, property rate increases accelerated while specialty risks and cyber saw further softening. The company also reported a satisfactory year-to-date investment return of 2.1%, with a notable 5.5% yield on fixed income portfolios. Nevertheless, given it is the first year of IFRS 17 reporting, Beazley is cautious and refrains from revising combined ratio guidance at this time.

Divisional Insights and Outlook

Beazley's Cyber division faces a competitive U.S. market, with growth challenged in the SME space by insurtech entities. However, the company sees opportunity abroad and is executing a partnership strategy for expanded risk access. The Property division remains promising for 2024, and despite accelerated rate increases, exposure is managed carefully. Specialty Risks confronts market softness, leading to proactive shrinkage, while the Marine, Aviation, and Political (MAP) division forges ahead of expectations. The digital segment's growth is tempered by market dynamics, but Beazley remains optimistic about its evolving capabilities and broker partnerships.

Preserving a Strong Capital Position

Beazley stands by its consistent capital management strategy, with an unwavering focus on aligning capital deployment with profitable growth. The raised capital in November 2022 has been pivotal in mitigating risks without compromising the balance sheet. Looking ahead, surplus capital generated beyond what's needed for growth may be returned to shareholders, with the company considering dividends and share buybacks based on its evaluation of shareholder value enhancement.

Maintaining Discipline amid Softening Markets

Beazley is revising its full year gross guidance to align with the current year-to-date growth, while net growth guidance remains in the mid-20s. This revision may influence growth opportunity assessments for 2024. The fluctuations in the market, particularly the competitive conditions in the Directors & Officers (D&O) segment and the U.S. cyber market, underscore the company's commitment to disciplined underwriting, even if it implies curtailed growth in certain areas.

Outlook and Strategic Directions

Despite market challenges, Beazley is poised for growth, especially outside the property sector, thanks to its diversified business model. The company is set to reduce reinsurance in Cyber and Specialty Risks in 2024, augmenting its net growth, while remaining open to utilizing third-party capital to manage growth in the property division. Beazley is confident in the stability of its long-tail liability book, not foreseeing prior year deterioration risks.

Closing Remarks

Cox concluded the earnings call with appreciation for engaging questions and looks forward to further progress. Beazley's disciplined approach in managing business and capital, paired with its strategic growth targets, reflects a prudent and agile response to a dynamic and sometimes irrational market.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, and welcome to Beazley's Q3 Interim Statement Call. Today's call is being recorded. [Operator Instructions]. At this time, I would like to hand over to Adrian Cox, CEO of Beazley.

[Adrian Cox, executive]

Good morning, everyone, and thank you for joining us for the Beazley third quarter 2023 IMS. I am Adrian Cox, the CEO, and I'm here with Sally Lake, the CFO. I'm going to cover the key elements of our trading statement, and then we will open up for questions.

I'm very pleased to report that we've had a successful first 9 months. We've seized the property opportunity with [indiscernible] and are excited about its prospects for the next few years. We've led the market to a more responsible and sustainable position on Cyber War and are leading the way in building out that business across the globe.

We're retaining more business net at the right time in the cycle and our positive claims experience this year is reflective of our underwriting discipline and our confidence in making the most of the hardening markets over the last 5 years.

At the same time, we're managing the softening market cycle across parts of our business, and the market is getting increasingly competitive, so this action is accelerating. We are an underwriting first company. Elevated growth is nice to have, but underwriting profitability always comes first.

On to the metrics then. All the numbers in the press release are IFRS 17, we are no longer discussing all disclosing in IFRS 4. So our year-to-date growth by WP is 9% gross. This means we were essentially flat year-over-year in the third quarter. And as we go through the divisions, I will discuss why that is.

On a net basis, we did grow, and this was helped by 2 factors: one, we've discussed before and one that we have not. The first one, of course, is that the reduced reinsurance purchasing across the Cyber and Specialty Risks divisions, continues to drive growth as planned. And secondly, is an IFRS 7 idiosyncrasy. So the reinstatement premiums that we received after Hurricane Ian last year are not counted as revenue under IFRS 17.

So this has reduced the 2022 net IWP, so generating a smaller denominator, hence the higher growth. Whilst this had an impact both gross and net, it is more noticeable on the net. So on an IFRS 4 basis, our net growth would have been a little lower.

Rate changes held flat at 5% overall. At a divisional level, there has been some movement, so rate increases continued to accelerate in property from '22 at the half year to '24 year-to-date now, MAP from 6% to 7%, and that's offset further rate softening in specialty risks, which is reduced from minus 1 to minus 2 and Cyber, which is reduced from minus 3 to minus 4.

Our year-to-date investment return is 2.1%, impacted a little by further rising yields in the quarter. The rate on our fixed income portfolio as at the end of September was 5.5%, which is encouraging for future yields. Claims activity both catastrophe and attritional in Q3 and indeed, year-to-date has been better than anticipated at the start of the year, which is encouraging.

We are not revising our combined ratio guidance at this stage, given that this is year 1 of IFRS 7 reporting, and we want to go through a full cycle, but I thought it was worth sharing that claims experienced this year has been positive. We've taken a careful look at likely premium generation in the fourth quarter. And given the market conditions, I'm about to go through, are revising our full year gross guidance to be around the level of year-to-date growth.

Net growth guidance remains at mid 20s for the reasons I've explained a couple of minutes ago. This will probably have an impact on our assessment of growth opportunities for 2024, about which we will provide more detailed guidance at year-end. However, to reiterate the capital strategy we outlined in September, if we conclude this year, we have generated more capital to our profitable growth in the last 5 years that we will not need, we will return it to our shareholders.

But I would like to highlight that we would not have been able to do what we did this year without the capital that we raised in November 2022, as it would have exposed our balance sheet to excess tail risk that we were not comfortable with.

If we look at the divisions in a little more detail, starting with Cyber, the dynamics we discussed in September persist the U.S. market continues to get more competitive. And whilst we're comfortable with the pricing environment, growth is more difficult particularly in the SME space, where there are a number of insur techs fighting very hard for their future.

The main opportunity, therefore, remains outside North America which is where we're concentrating our investments. However, the distribution strategy is a little different. We are accessing Cyber business through our wholesale platforms in London, Singapore and Miami and our European platform in France, Germany and Spain. But given that limited geographic footprint covering the rest of the world, we're augmenting our local access to business with our underwriters with a partnership strategy banks, utilities, insurance companies, MGAs and brokers getting us local access to risk.

And so underwriting business that way, whilst on an underwriting year, our business continues to grow, because on an IFRS 17 basis, we recognize that premium more slowly. This has been a drag on our Q3 revenue.

I would like to reiterate that although we are executing our partnership strategy, we are using our forms, our underwriting, our rating, our claims and our services, but getting that local access to risk is important and our assessment of the medium and long-term opportunities in Cyber are unchanged. I can also share that our claims frequency in Cyber has remained stable this year, which is an encouraging endorsement, I think, of the ecosystem that we have built to access and manage Cyber Risk.

Moving on to Property. The opportunity, as I mentioned, continues. Given the North American bias to the book, we write a lot less business in the second half than the first but rate increases continue to accelerate, and I remain very excited about the prospects for 2024 and beyond. We've added more exposure in the third quarter, whilst keeping the one in 10 and one in 250 risks to percentage profit and equity flat, which seems a sensible approach.

On Specialty Risks, as we've discussed previously, whilst demand remains subdued when financial markets are depressed, the D&O world will continue to get more competitive which is what has happened this last quarter. And given where rates are now, our cycle management action is increasing so that we're shrinking our business at an accelerating rate. This has impacted Q3 writings, will also impact Q4 and our plan for next year. And our expectation is that just as for interest rates, financial markets will remain more closed for longer.

However, there are opportunities for growth in other areas within Specialty Risks over the medium to long term, and we continue to work on diversifying that mix. Nevertheless, we expect the division as a whole to be roughly flat to slightly down through this year. And as I emphasize wherever I can, we are an underwriting first company, we will always choose underwriting profits over premium growth.

Moving on to MAP, the team remains ahead of plan to date and demand growth continues to be strong for many of our products, particularly in political risks, political violence, war and cargo. On a net basis, this division is ahead of plan. But to reiterate, that the apparent reduction in the gross premium is because we are no longer upfronting for capital that supports our Beazley's Smart Tracker Syndicate 5623.

And lastly, on to digital, the lack of discipline of the flailing insurance techs in the cyber market is impacting our digital business. As ever, we've made a conscious decision to prioritize profitability and thus, the market dynamic has impacted overall growth in that division, and we'll continue to do so until this has played out. I'm very pleased with the digital capabilities we are building, the reception they've had from our key broker partners and the prospects for this division over the medium term.

And with that, over to questions.

[Operator]

[Operator Instructions] And our first question today comes from Kamran Hossain of JPMorgan.

[Kamran Hossain, analyst]

Two questions for me. The first one is on capital management. Just interested in how we should think about kind of more active capital management at Beazley. I think today from your statement, kind of from your remarks, it sounds like this is something you really consider more active this year. I think last -- the half year results, you talked about the Solvency II ratio being lower than the full year '22. Do you still think that's the case based on kind of where you're going to deploy capital? Just trying to get some parameters about how we should contextualize kind of capital return for the group and what that might look like?

And also any preferences, if you do to anything on share buybacks or specials just some philosophical views. The second question is on cyber frequency. I think your comments around frequency, you're not really seeing a pickup in frequency is very encouraging. My -- the first half in the combined ratio, you're fairly cautious. Do you think you needed to be as cautious at the half year in Cyber and kind of what's happening or why is your book seeing less lower frequency than the market maybe?

[Adrian Cox, executive]

Super. Thanks, Kamran. So to start with your first question around capital management, are we considering it more actively? No. I think our capital management strategy is unchanged. So we're always thinking about how we should deploy or not -- deploy capital. And I think in the trading statement, we have outlined the major things that we look at. And we will need to look at that at the year-end.

I think the changes for the half year -- from the half year is that we expect to write less business than we had originally given the dynamic market that we're in. As we've mentioned, our profitability looks strong this year. We'll take a careful look at year-end on what we think the prospects are for next year. But we note that capital generation so far this year looks strong. Our growth will be slightly less. So we'll do those calculations at the year-end.

We do get asked a reasonable amount about the fact -- we do get also a reason amount if we've got surplus capital that we're not looking to deploy, will we look for ways to return that to shareholders, and our consistent answer to that is, yes. And we just thought that was worth emphasizing today because we've asked the question, a reasonable amount.

If there will be capital management actions next year, do we have a preference for dividends versus share buybacks? We have done both in the past. And both are open to us. I think the -- whether we choose one or the other, we'll be about which way we think, it enhances value for shareholders more. I think that's partly a factor of what the share price looks like next year and what we think our earnings capability looks like.

On to your second question around Cyber frequency. Given the market share that we have in Cyber, our expectation has always been at some point, our frequency will be more reflective of the overall market. And so we're very pleased that our frequency hasn't moving up despite the fact we know there is more activity this year, as the Cyber crime has increased, as the hacker spend less time on the war in Ukraine, and that's a mixture, I guess, of fortune and the underwriting ecosystem that we have in our cyber book and the fact that we are very concentrated on making sure that we ensure clients with appropriate levels of control. And I think given how long our type of frequency has remained flat, that must play some part in, I think.

[Operator]

And up next, we have Freya Kong from Bank of America.

[Freya Kong, analyst]

So just to be clear, are you stepping away from the mid-20s net growth target for 2024. And I guess what between early September with your half year update and now has led to this departure from guidance so quickly, which parts of the market have negatively surprised you? Yes, that's my question. .

[Adrian Cox, executive]

Okay. Thanks, Freya. I think we had pointed to net growth next year of about 20% rather than mid-20s. We haven't figured out what we think the target rate for net growth will be for next year yet. We're going to have a look at that at year-end. I do think the jumping off point is going to be lower given that we've brought down our growth rate and that our net growth rate, although is going to be in the mid-20s, probably, again, it's off a lower jumping off point because we've taken the reinstatement premiums away on the IFRS 17, 2022 comparator. So we'll have a look at that at year-end. I think we were -- when we think about what's happened between the summer and now, I think the D&O market has continued to soften more than we were anticipating.

And I think that there are more competitive conditions more generally, not that we are outside of D&O, not that we're bothered by the risk order, just makes growth a bit harder. And I think the cyber market, particularly in the U.S., has continued to get more competitive.

And as you can see, although that hasn't impacted rates too much because our cyber overall -- cyber rate change hasn't changed that much. It has made growth more difficult than we had anticipated, and that's what's led to the change that we highlighted today.

[Operator]

And we're moving on to our next question, which comes from Tryfonas Spyrou of Berenberg.

[Tryfonas Spyrou, analyst]

I've got a question again on capital. Can you maybe comment as to whether you consider a higher payout ratio when it comes to your ordinary dividends and not just excess capital given the starting point now, it looks a very high utilization. So the company is very low. So it looks like you're not getting rewarded with a growth as much so I was sort -- of maybe a higher payout ratio could help solve that. .

And then the second question relates to sort of the better-than-anticipated profitability and you said earlier in your comments, Adrian, the Cyber, it looks like it's one driver. Can you maybe comment on -- with regards to address, is it property? And I guess, any comments on to how your losses shape up this year given the kind of environment we've seen over the summer. That was my 2 questions.

[Adrian Cox, executive]

Okay. Brilliant, thanks, indeed. So I'm not going to try to predict the conversations we'll have in the Board next year around how we return capital to shareholders. I will note that when we've had surplus capital in years prior, we have not adjusted the rate of growth of the ordinary dividend. We've rather done some special dividends or some share buybacks.

So if we look at our historic behavior, that's what we've done. Not to say that we wouldn't -- we'd never increased the ordinary dividend by more than we usually do, but it's not something we've done in the past. And that's been relatively clear strategy from us. On a claims experience, yes, I mean, when we look across most of our business, claims experience has been better than anticipated across most of it and that includes the property business and includes pretty much all the divisions actually, which is pleasing.

And it is reflective, I think, of what's happened to prices over the last 5 years. And that better-than-expected claims experience is attritional and nat cat so far.

When we think about the sort of geographic footprint of our property business, our North America -- insurance business is mostly North American, and it's all E&S business. And I think the team has done a pretty good job of using the freedom of the E&S market to be able to price properly, adjust terms and conditions, deductibles and so on and so forth to be able to underwrite around the items in nat cat activity that we've had, which has enabled us to not use all of our margin, which is good.

I think on the reinsurance side, it is more of a global exposure, but we, alongside the rest of the market, have worked quite hard on making sure that we're attaching at appropriate levels on the reinsurance side now and that has insulated our reinsurance team from much of the cat activity that's gone on this year. And that's why we had the experience that we've had.

[Operator]

And we're moving on to our next question now, which comes from Ashik Musaddi of Morgan Stanley.

[Ashik Musaddi, analyst]

Just a couple of questions. So first of all, any color you can provide on where you sit on the capital at the moment compared to first half? We're just trying to get a bit of sense as to how much above you are versus your 170%? And how can we think about capital management, given that your profitability, as you mentioned on the press release is looking very strong. .

So do you need to eat into your capital to do any capital management? Or would earnings be sufficient to do capital management? So that's one question I have. Second one is with respect to New Year's growth outlook, 2024, I mean, I agree it's a bit early to jump the gun, but any visibility you have as to how much property and risk appetite you have either on the primary side or on the reinsurance side?

And would -- is it fair to say that D&O and Cyber, probably the premiums are still going backwards next year as well just because the market continued to remain very tough based on whatever market commentary we are hearing. So more or less, what I'm trying to get a sense is it feels like you will continue with what has happened in third quarter where property grows and D&O and Specialty keeps on going down. So net-net, the growth will be lower, but any color on that would be very helpful.

[Adrian Cox, executive]

Thank you, Ashik. So we don't discuss our capital surplus in the first and third quarters. So I can't share where we are now on our capital surplus. But I think you got the major drivers, right? So our growth at the end of the -- our growth by the end of the year will be less than we had originally anticipated at the beginning of the year.

Our capital generation is higher, which is why we're having the discussion that we're having this morning. If we're going to do some capital management actions, it's because we've got surplus capital. So we won't be eating into anything in order to do capital management actions if that kind of makes sense.

When we think about growth for next year, the opportunity is not just in property. There is good opportunity in property. I think we are going to have to do some cycle management in things like D&O, but there are opportunities for growth elsewhere. We are confident that our cyber business has got some growth ahead of it for a long time to come yet.

We're excited about MAP. We're excited about digital, and we're excited about some things in Specialty Risks that can offset the D&O. So whilst I expect Specialty Risks as a whole to be roughly flat for a little bit I think there are enough growth opportunities next year to make life interesting for us. The constraints to property growth are that we want to make sure that we remain a diversified business overall.

But as I said, I think there are enough growth opportunities outside of property to be able to allow property to do what they want to do. And the other constraint is our risk appetite at the one in 10 and one in 250, but again, we're building enough on our balance sheet so that not to be a constraint for us next year, I don't think.

[Operator]

And up next, we have Abid Hussain from Panmure.

[Abid Hussain, analyst]

Just a couple of questions from me. I think in the capital position, you just outlined, is quite clear. So I'll move on to a couple of questions I had. The first one on Cyber pricing, would it still be fair to say that the reduction in the Cyber pricing that we've seen -- the 4% that we've seen year-to-date is less than the reduction in the coverage of the policy itself.

So I guess what I'm asking is are the margins unchanged for Cyber lines? Or are they, in fact, even better given that there's been a tightening of coverage? So that's the first question. Second question is on the combined ratio. So just looking forward to the fourth quarter, if claims are in line with your budget, your assumptions, would that imply that the full year '23 under this kind of the combined ratio will still be in the low 80s? Or would the impact be better than the low 80s?

[Adrian Cox, executive]

Thank you for asking the question. Anyway, yes, so Cyber pricing. I think the minus 4% we're comfortable with. I think it's better than it could have been because of the distribution of business that we have, particularly the business outside of North America, which is useful. Is the 4% less than the coverage that you mentioned and the clarification that we've got now around what is covered and what isn't covered under all conditions?

We haven't factored in the clarification around war into our rate change. And it's very difficult to figure out what nets off. We're not trying to restrict coverage. We're just trying to clarify under what conditions we are providing coverage and under what all conditions that we are not. But I think that clarification is very, very helpful and it's an interesting point.

And if we think about the likely vectors of very large systemic events, hostile nation state is certainly one of the more likely ones, isn't it? As we think about our combined ratio, we haven't updated our combined ratio this year. As I said, we want to go through a full cycle for IFRS 17 before we start doing that. The claims activity is a big driver of the combined ratio.

And so the fact that claims activity has been better than we anticipated is a signal. It's obviously not all the risk to the combined ratio. And so -- but it is one of the essential drivers of it. So we thought it was worth highlighting.

[Operator]

And from Goldman Sachs, we have Anthony Yang with our next question.

[Anthony Yang, analyst]

The first one is actually just a follow-up on the growth -- the premium growth guidance into 2024. So I think I remember at half year '23, I think you indicated property will remain a key driver. But just kind of understand more whether should we think as that's more primary or that's going to be more reinsurance, just given the hard market in reinsurance we see?

And then the second question is just on the Middle East exposure that's disclosed. I think it's really helpful maybe could you give some further examples on what specific lines that potentially basically has exposure there?

[Adrian Cox, executive]

Great stuff. Thank you, Anthony. So when we think about the growth prospects for property next year, as you mentioned, we have an insurance and a reinsurance book. And what we've done this year is to grow exposure on the insurance book and essentially to take the rate increase on the reinsurance, but without growing exposure.

If the reinsurance market remains roughly flat next year, on a risk-adjusted basis, we'll probably do the same sort of thing. If the risk rewards meaningfully improves next year on the reinsurance side, we may well grow exposure. But I think the default prices to grow exposure on the insurance side where we think the better long-term prospects are.

But one of the reasons why we've got those 2 businesses in the same division is that we can actively shift risk appetite where the risk rule is better. So we will remain quite agile on that, but I think that's our expectation at the moment. What sort of business do we have in the Middle East? A number of the MAP lines have exposure there across political risk -- political violence in the marine classes and write some Cyber business there, we write some D&O business there. So there's a reasonable sprinkling of business in the Middle East, as we mentioned in the trading statement we don't have a huge amount of exposure with conditions as they are now.

[Operator]

And up next, we have Nick Johnson from Numis.

[Nick Johnson, analyst]

Question really on net growth of '24. Just wondering how much scope there is to reduce quota share reinsurance in Cyber and Specialty next year? Trying to get a feel to what extent low reinsurance could contribute to net growth next year. And so on the other side of that equation, wondering whether you would consider using or increasing quota share reinsurance in property so you could grow gross income, but maintain the net balance?

[Adrian Cox, executive]

Got it. Thanks, Nick. So we have been in discussions with our reinsurers about our plans for next year. And given the bigger balance sheet that we have now and the bigger capital base we have now, we are planning to reduce the amount of Cyber and Specialty Risks reinsurance again in [ 2024 ]. So I think there's one more set for us to do that.

So that is in the plans, which will, again, I think, mean that the net growth is higher than the gross growth in 2024. As I mentioned on the property side, given what the team wants to do and they'll grow less next year than they did this year because we're not expecting rate increases to be quite as high next year as they are this year overall. Given what the property team wants to do, there aren't any constraints around diversification or risk appetite at the moment.

But yes, Nick, if we do find that there's a bigger opportunity for us than we can or we want to keep on our own balance sheet, we will absolutely think about different ways of getting third-party capital into supporters. We've done that several times before. It's a useful tool for us. We get paid for it. Our partners enjoy it. And so that certainly is open to us, yes. And as I think I've mentioned, we've hired someone this year to run that third-party capital business because it's an important part of our overall strategy. And It gives us a lot of flexibility, and it's very useful.

[Operator]

And our next question comes from Derald Goh of RBC.

[Teik Goh, analyst]

Just one for me, please. So it looks like going on the front book, that's reaching on quite nicely [indiscernible] trend. But I guess maybe you could share some comments on how comfortable you are with the back book. So I'm thinking about your Specialty, your D&O, any kind of casualty-related lines in particular just given we're getting a lot more questions in scrutiny around a potential pickup in whether it's social, general inflation and whatnot on the reserves there.

[Adrian Cox, executive]

Yes, good question. Thank you. So our back book from a long tail side is fine. So we're not concerned about the potential for prior year deterioration, and that's a mixture of the way that we've been underwriting through the soft cycle and the way that we've been doing our hedging.

So there are obviously things going on within some of the longer-tail classes. But overall, our back book is behaving fine. There is a lot of conversation going on, isn't there about the impact of social inflation, et cetera, on casualty business. And we don't really write casualty business, right?

So a lot of the discussion about a hardening casualty market is really based of our own -- on general liability, products liability, excess casualty, umbrella, commercial auto, all the things that we don't really do.

Our long tail, our liability book is around financial and professional lines and cyber, medical practices and so on and so forth. And the big driver of social inflation within the lines that I mentioned is bodily injury, people getting hurt. And so there are elements of that in our book. It's not really the focus of what we do. And so although we have been very vocal about social inflation and how to manage it and we do have some of that in our book, it's not -- it hasn't had the same sort of levels of exposure that the casualty business has.

And it's all written on a claims-made basis pretty much. So we don't have the sort of latency current exposure that are impacting the casualty market as a whole. So I'm not trying to play the risk in our liability book, but we're not front and center of the sort of casualty discussions that they have been in the market.

[Operator]

And our next question comes from Will Hardcastle of UBS.

[William Hardcastle, analyst]

Some of it was slightly touched on there, actually, I guess. But just thinking about -- it's a bigger picture industry question on the D&O line, I guess. What do you think is driving the industry pricing pressure? I get the extent of price increases we've experienced in recent years have been massive.

But companies don't seem to be printing the bump of profits yet on the line, particularly with the inflationary pressures you just touched on as well. And is this just timing or is there an element of investment return assumption being baked in, do you think? So I appreciate it's not BC specific. It's more of an industry question.

[Adrian Cox, executive]

The D&O which is a curious one, isn't it, and it's attracting quite a lot of attention because it's a high-profile part of business. And I don't think it's an investment income thing. I think it is purely that when push comes to shove, demand supply dynamics really do dominate pricing when they are extreme. And what we had, I think, is, as you mentioned, quite a severe correction in D&O pricing in '19, '20, which attracted companies to increase their appetite for D&O and attracted some new capital into the D&O world. .

And they were attracted not only by the pricing, but the fact that as we think back in 2020 and 2021, there was a lot of activity as well. A lot of stacks, a lot of IPOs, a lot of M&A, lots and lots of new business for the market to get stuck into. And when the financial markets shut the day after Russia invade Ukraine, you had a massive demand shock. And so you've got excess supply on very, very flat demand, and that hasn't picked up yet.

And I think it's that supply-demand imbalance that is causing the market to behave as it is. And I think until either companies start visibly losing money or demand picks up, it's difficult to influence that, and that's what we're seeing. And it's frustrating and gets all sorts of different things by different commentators. But at the end of the day, when you get that level of demand and supply balance, that's what happens.

[Operator]

And next, we have Faizan Lakhani of HSBC.

[Faizan Lakhani, analyst]

In the past, you've mentioned that property is a multiyear opportunity and growth has been very strong this year and potentially next year. At what point does business mix will balance across the portfolio become a constraint for growth in property? My second question is on the combined ratio. It sounds like it's going to be better than expected. Is there an opportunity? Or would you look to maybe increase your loss picks and maybe release that later on? Or would you show the full benefit this year? And the final one is just a simple question. Could you give us the quantitative numbers for the impact of the RIPS, please?

[Adrian Cox, executive]

So when will property growth become a constraint? I think that is -- that's a function of 2 things. At what point does the property growth outpace the growth of the rest of the business to a point where it becomes uncomfortable, that's a little way off yet. But as and when that does happen, we will highlight it. And to go back to an earlier question, as we've done before, we will look to utilize third-party capital so that we can manage that business mix net.

And so it's not an issue for us yet. On a combined ratio basis, will we increase our loss picks this year? I think the answer to that is no. And to sort of go back to some of the IFRS protocols that there are principles that there are the loss picks we have are a function of the pure loss ratios, which are the best estimate ones that we have. And then a risk adjustment lay on top of that, which is formulaic so unlike an IFRS 4, where essentially what matters is that your prudence is consistent year-over-year.

Once you set this up in IFRS 17, it's much more mathematical and mechanical. So I think things will just play through as the mechanics work out and will flow through to the P&L that way. What is the impact of the RIPS on the net growth? I think on an IFRS 4 basis, it would have been a few -- 2 or 3 points lower I think than it is under IFRS 17.

[Operator]

As there are currently no further questions in the queue, I'd like to hand the call back over to Adrian Cox for any additional or closing remarks.

[Adrian Cox, executive]

Thank you very much indeed. Thanks very much for calling in this morning. A good set of questions, and enjoy the rest of your day. Thanks very much indeed.