More cat profit, less exposure = an outstanding trade: Everest CEO Andrade

As Everest Re hones its portfolio, to lower its property catastrophe exposure in a firming market, the company is finding this trade of more profit, for less exposure, to be an outstanding one, according to CEO Juan Andrade.

Speaking during the Everest Re first-quarter 2022 earnings call last week, CEO Andrade explained that his company has been working hard to become more diversified in reinsurance and to lower its catastrophe PML’s.

Like many others, after recent challenging catastrophe loss years and with growth opportunities in the firming insurance and reinsurance markets, Everest Re has taken the opportunity to lower its exposure to peak peril events.

As we explained a few days ago, this pull-back from catastrophe exposure continued in the first-quarter, with Everest Re’s writings of catastrophe excess-of-loss reinsurance business falling to just 16% of its first-quarter book.

That’s down from around 26% of Everest Re’s underwriting back in 2017.

Andrade noted that growth in casualty lines has been helping to add more diversification to the Everest Re reinsurance book.

Commenting on Q1 underwriting, Andrade said, “In reinsurance, we strengthened our global leadership position and maintained a laser-focus on diversification, reducing volatility and maximising profit.

“This deliberate honing of our portfolio is an ongoing strategy that we successfully applied to the April 1st renewal.”

While growing in casualty risk, Andrade said that the company is still managing-down peril exposures which are, “Offset by deliberate and targeted reductions in our property catastrophe exposed business, as we further reduce the volatility in our portfolio,” adding that “These actions resulted in significantly improved economics.”

He said the company intends to continue with this selective approach to property catastrophe risks, with reductions made again in Q1, but on the basis of optimising the portfolio to deliver more profit, while reducing exposure.

“We continued this strategy during the 4/1 renewal,” he explained. “In property, total written premium, limits exposed, AAL, and our PMLs, were all reduced and expected profit and dollars increased.

“This resulted in more profit for less exposure. By any account that’s an outstanding trade.”

It will be interesting to see how Everest Re leverages third-party capital alongside this, to help the company in maintaining its important position in property catastrophe markets, while shifting exposure off balance-sheet.

Jim Williamson, Chief Operating Officer, Everest Re, continued to explain the portfolio honing, but was keen to stress that it doesn’t mean Everest Re is pulling-back completely from catastrophe risks.

“This is particularly important, I think, as we roll through the summer, we’re still very much a leader in the property cat market,” Williamson said.

Continuing to say, “We take meaningful lines and we’ve been doing that with improved economics.

“At 4/1 as Juan indicated, we were able to take less risk by any measure, whether it’s PML, AAL, etc. But we’re getting paid more profit dollars, more expected profit dollars will flow to the bottom-line, and that will certainly have an impact on our attritional and ultimate combined ratio.

“We see good opportunities through the rest of the year to continue to execute that strategy. So I think all of that comes together to give us a lot of confidence in the targets we set out.”

Everest Re’s third-party capitalised and collateralized sidecar-like structure Mt. Logan Re is likely playing an important role here, as it enables the company to put out these larger lines, to remain useful to its clients, while continuing to manage exposure.

At the same time, Everest Re still has some $2 billion plus in catastrophe bonds outstanding through the Kilimanjaro Re program, with these likely to also remain an important capital contributor to its property catastrophe reinsurance business.

Despite the steady rebalancing of the mix between primary and reinsurance, as well as increasing diversification on the reinsurance side of its business, global player Everest Re is still “very much a leader” in property catastrophe underwriting, Williamson said.

Asked about the Everest Re strategy and how the company has been de-risking its overall book, to reduce volatility to catastrophe loss events, Williamson explained that there is no intention to stop writing property cat business, just that Everest wants a more balanced business mix.