Everest Re Group, Ltd. (RE)
Q1 2009 Earnings Call Transcript
April 30, 2009 8:30 am ET
Elizabeth Farrell – VP, IR
Joseph Taranto – Chairman and CEO
Ralph Jones – President and COO
Tom Gallagher – Vice Chairman and Chief Underwriting Officer
Craig Eisenacher – EVP and CFO
Matthew Heimermann – JPMorgan
Arthur Winston [ph] – Pilot Advisors
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At this time, I would like to turn the conference over to your host for today, Ms. Beth Farrell, Vice President of Investor Relations. Please go ahead, ma'am.
Thank you, Sara. Good morning and welcome to Everest Re's first quarter 2009 earnings conference call. With me today are Joe Taranto, the company's Chairman and Chief Executive Officer; Tom Gallagher, Vice President and Chief Underwriting Officer; Ralph Jones, our President and Chief Operating Officer; and Craig Eisenacher, our Chief Financial Officer.
Before we begin, I will preface our comments by noting that our SEC filings include extensive disclosures with respect to forward-looking statements. In that regard, I note that statements made during today's call, which are forward-looking in nature such as statements about projections, estimates, expectations and the like are subject to various risks.
As you know, actual results could differ materially from current projections or expectations. Our SEC filings have a full listing of the risks that investors should consider in connection with such statements.
Now, let me turn the call over to Joe.
Thanks, Beth. Good morning. The reinsurance and insurance marketplace continues to transform itself very much as we had expected. Reinsurance rates for catastrophe products have gone up and are continuing to rise. Consequently, retro rates are up, energy rates are up and cat excess of loss rates are up.
The supply and demand curves dictate that this process will continue as buyers need to protect their capital with reinsurance and reinsurance providers will demand better and better prices to provide these protections.
In the next couple of months, most part of business will renew and we anticipate meaningful rate increases over last year’s rates. As reported last quarter, insurers that write property business would have to raise rates or be faced with the losing proposition of reinsurance costs they cannot pass on. Our underwriters are reporting this change has finally started. In April, we have seen a serious change in property insurance terms and conditions, and our property facultative department and property insurance operation in Florida experienced the best month that they’ve had in the long time.
Casualty reinsurance and insurance rates and terms are not changing as meaningfully as property with the exception of isolated pockets such as D&O for financial institutions. It’s unclear how this part of the market will respond as 2009 progresses. We stand ready to write more business if market improvements bring additional business up to our underwriting standards. Ralph and Tom will provide more color on this sector, including the California workers’ comp market.
Meanwhile on a macro level, the flight to security was more intense than ever before. This has been true both at the reinsurance level and at the insurance level and has greatly benefitted Everest. It has allowed us to attract new business and increased shares on existing deals. On the reinsurance level, some of our bigger competitors suffered loss of business from concerns about their economic status or ownership. At the insurance level, our A+ Best rating and financial stability has buyers putting us on the top tier of their preferred list.
All of these changes resulted in gross written premiums being up 14% in the first quarter with reinsurance premiums being up 19% despite foreign currency devaluations relative to the dollar. I expect top line production to remain robust for the remainder of the year.
Our underwriting result was solid with a combined ratio of 89.7 which affirms the underlying quality of the portfolio. Our investment results were disappointing as losses on limited partnerships significantly reduced overall investment income. Craig will later provide more color on investments.
Surplus grew $79 million in the quarter and their ROE was 8.3%. I would hope and expect to achieve a much higher ROE in succeeding quarters as I anticipate premiums to remain strong, underwriting results continuing to be solid and investment income beginning to normalize as the world economy stabilizes.
Thank you, Joe. As you can see from the first quarter results, we had a very strong January 1 renewal season with premiums up nearly 14% in the quarter. Much of the growth emanated from our overseas business that now makes up nearly half of our reinsurance premiums. We benefitted from opportunities in just about every region in which we participate.
Our Latin American business was up substantial, partly due to the new Office in Brazil, which we expect will write over $60 million in premium this year. Much of our strength overseas comes in the first party lines where catastrophe exposed property treaties show the most demand. We also benefitted from the uncertain future of several large competitors. Overall, rates for the overseas business were up between 5% and 10% during the first quarter.
Our Bermuda and UK book was up 14% coming from good opportunities presented in London and Brussels. Some of the growth came from quota share contracts written for two Lloyd syndicates that are looking for capital support partly due to the weakness of the pound versus the dollar. We see a distinct trend in clients focusing more on reinsurance for capital support.