Everest Group, Ltd. (EG) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary reveals mixed signals. The financial performance and product development updates are generally positive, with strong international growth and share repurchases. However, the combined ratio indicates ongoing pressure from losses, and there are concerns about expense ratios and the impact of tariffs. The Q&A section did not provide clear answers on critical issues, such as tariff impacts and expense improvements. The lack of clarity and mixed results suggest a neutral sentiment, with no strong catalysts for significant stock movement.

Key Financial Performance

Net Operating Income $734 million, an annualized operating ROE of nearly 20%. This was driven by contributions from underwriting and investments.

Underwriting Profit $385 million on a combined ratio of 90.4%. This reflected light catastrophe experience and $39 million of favorable prior year development in the Reinsurance attritional property book.

Gross Written Premium (GWP) $4.7 billion, a 0.7% decrease year-over-year in constant dollars. Reinsurance GWP rose 1.1%, while Insurance declined 3.1%. Growth excluding deliberate U.S. casualty portfolio actions in both divisions was 11% and 7%, respectively.

Net Investment Income $532 million, supported by favorable private equity performance.

Reinsurance Underwriting Profit $436 million, up $133 million from prior year. The combined ratio was 85.6%, reflecting improvements in business mix and minimal catastrophe losses.

Insurance Underwriting Loss $18 million with a combined ratio of 102% and an attritional loss ratio of 68.7%. This was due to lower earned premium and investments in the global platform.

Casualty Premiums Decreased 27% in the quarter. 47% of casualty business in the quarter was not renewed. This was partially offset by strong rate increases averaging 16% for retained casualty business.

Specialty and Accident & Health (A&H) Premiums Specialty grew 40% and A&H grew 24% year-over-year.

Property Premiums Global premiums increased 5% with 21% international growth, offsetting a 2% decline in North America.

International Insurance Business 23% growth rate this quarter with improving margins. Mature operations like U.K. wholesale and European retail achieved low 90s combined ratios.

Share Repurchases $200 million worth of shares repurchased in Q2 2025. Year-to-date, $400 million returned to shareholders, repurchasing approximately 1.2 million shares.

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Operating Highlights

Everest Evolution: Expanded industry specialization and new offerings, driving growth in targeted higher-margin segments of the market.

Specialty and Accident & Health (A&H): Specialty grew 40% and A&H grew 24% year-over-year, showcasing strong performance.

International Insurance: Achieved a 23% growth rate this quarter with improving margins.

Geographic Expansion: Expanded in U.S. property, Asia, and Latin America while reducing U.S. exposed casualty business.

Florida Tort Reform: Beginning to see benefits, which have not yet been factored into pricing.

Reinsurance Underwriting Profit: Generated $436 million in underwriting profit, up $133 million from prior year, with a combined ratio of 85.6%.

Insurance Portfolio Reshaping: Implemented 1-Renewal Strategy in North American casualty, reducing casualty premiums by 27% and improving portfolio quality.

Net Investment Income: Strong performance at $532 million, supported by favorable private equity returns.

Capital Management: Repurchased $200 million worth of shares in Q2, totaling $400 million year-to-date.

Risk Margin Building: Focused on building risk margin in U.S. casualty lines to address elevated risk environment.

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Risk or Challenges

Gross Written Premium Decline: Gross written premium declined slightly year-over-year, with Insurance declining 3.1%. This decline was driven by deliberate actions in the U.S. casualty portfolio, which could impact revenue growth.

Casualty Premiums Reduction: Casualty premiums decreased 27% in the quarter, with 47% of casualty business not renewed. This reduction reflects a strategic shift but could lead to short-term revenue challenges.

Aviation Losses: Losses associated with the recent U.K. court aviation ruling added 3.2 points to the combined ratio, impacting profitability.

Social Inflation and Legal System Abuse: Persistent social inflation and legal system abuse are influencing conservative approaches in casualty underwriting, potentially increasing costs and limiting growth.

Competitive Property Market: The primary property market in North America is becoming increasingly competitive, which could pressure margins and limit growth opportunities.

Expense Ratio Increase: Higher expense ratios in the Insurance division were driven by lower earned premiums and investments in the global platform, which could impact profitability.

Intellectual Property Business Loss: A $20 million loss provision for the intellectual property business, which is in runoff, negatively impacted the Other segment's combined ratio.

Foreign Currency Bond Yields: The fixed income portfolio's book yield decreased slightly due to foreign currency bonds with lower yields, which could impact investment income.

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Guidance & Outlook

Reinsurance Business Outlook: The company expects continued growth in property reinsurance, with premiums up approximately 8% year-over-year. Property Cat XOL grew over 15%, and Property pro rata increased by over 8%, driven by attractive risk-adjusted returns. Casualty premiums are expected to decline further as the company reduces targeted exposures, but opportunities in global specialty platforms, particularly in engineering, renewable energy, and parametric business, remain attractive.

Insurance Business Outlook: The company is reshaping its insurance portfolio, with a focus on improving the quality of its U.S. casualty portfolio through its 1-Renewal Strategy, which is expected to be completed in Q3 2025. Casualty premiums decreased by 27% in Q2, but retained business saw strong rate increases averaging 16%. Growth is expected in Specialty, Accident & Health, and International business lines, with Specialty and A&H growing 40% and 24% year-over-year, respectively. International insurance is expected to continue its 23% growth rate with improving margins.

Market Trends and Conditions: Property Cat rate changes met expectations, with risk-adjusted returns remaining attractive. Terms and conditions are holding steady, and the company is beginning to see benefits from Florida tort reform. The primary property market in North America is becoming more competitive, but international growth opportunities remain strong.

Capital Management: The company repurchased $200 million worth of shares in Q2 2025 and $400 million year-to-date. Share repurchases are expected to resume in Q4 2025 and into 2026 after a tempered approach during the wind season.

Investment Income Outlook: Net investment income increased to $532 million in Q2 2025, supported by strong private equity performance. The reinvestment rate remains above 5%, and the company maintains a short asset duration of approximately 3.4 years with an average credit rating of AA-.

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Shareholder Return Plan

Dividends per share year-to-date: $4

Share repurchases in Q2 2025: $200 million worth of shares

Year-to-date share repurchases: $400 million, approximately 1.2 million shares

Average repurchase price per share in Q2 2025: $344.30 per share

Future share repurchase plans: Tempered approach in Q3 due to wind season, expected to resume pace in Q4 and into 2026

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Key Q&A

Q:The underlying loss ratio insurance about 69% and if we look at year-over-year about 6-point increase which is essentially the risk margin put in place. Over the next kind of 1 to 2 years, should we think of that 6% staying in place, but perhaps there's some benefit on mix shift to international and short tail?

A:Mark Kociancic explained that the risk margin is in place due to uncertainty, and while 2025 might be heavier due to older unremediated portfolios, the mix of business, including international and short-tail lines, will impact the overall loss ratio positively. He also noted a reduction in casualty percentage by 7 points to 22% in the second quarter.

Q:On the expense, I think I heard you say some international investments. Were they maybe a little bit lumpier this quarter? And perhaps you could just talk about how you're thinking about the pace of international investments in insurance?

A:Mark Kociancic confirmed that international investments were lumpier this quarter due to faster growth internationally compared to North America. He emphasized leveraging infrastructure and scaling premium to reduce the expense ratio over time.

Q:I wanted to ask about the Accident & Health growth. Certainly, in some areas of A&H like stop loss, I think it's a harder market. And so maybe there's a good opportunity there. On the other hand, I think some of the health insurers have been experiencing medical cost inflations pressuring their businesses. So I'm just interested if you could provide a little more color on what you're doing there, any nuances to the way you're approaching that market and growing just given a little more uncertainty for loss cost trend?

A:James Allan Williamson stated that they have significantly reduced the health portion of A&H and are focusing on accident business, such as business travel accident and participant accident. These lines are low severity, frequency-driven, and have shown strong performance, which is why they are expanding in this area.

Q:Follow-up question, I guess, just on reinsurance and the renewals. Can you talk a bit more about what you saw in terms of the terms and conditions and the competitive environment on that front? And just how you're seeing the trade-off between the growth and returns you can get versus capital return? And pretty attractive stock price to be buying that?

A:James Allan Williamson noted that June 1 renewals were flat in pricing, and July 1 renewals saw rates down slightly but with stable terms and conditions. He emphasized the discipline in the Property Cat market and stated that they are pursuing both growth and capital return, with Property Cat returns exceeding the attractiveness of stock repurchase.

Q:I'm going to focus my first question on just the continuation on the pricing commentary. Listening to the broker calls and some of the other companies that have reported so far, we're hearing of pricing -- more pricing pressure than it seems to be that you're conveying that happened in your renewal. Maybe it's more focused on the facultative market as opposed to the treaty market, but maybe you can just unpack why we're hearing about more pricing pressure, specifically on the 7/1 renewals than maybe you're talking to us about?

A:James Allan Williamson explained that the 6/1 renewal rates were flat, while 7/1 renewals were down 5-10%. He attributed differences in pricing pressure to the diverse nature of 7/1 renewals, competition in high layers, and differences between treaty and facultative markets. He also noted that their positioning as a lead market helps mitigate pricing pressure.

Q:Just using the same format on the Insurance segment, I think your business mix skews to the larger side of the market versus the small and midsized market. And in insurance, we're hearing and seeing some pressure on rate there. I understand you're 1-Renewal position on casualty. I've seen the growth in Accident & Health. Just trying to help -- if you could just help us sort of understand the moving pieces against what we feel like is increasing price competition in the larger end of the Insurance segment?

A:James Allan Williamson acknowledged increased competition in the larger end of the property insurance market but emphasized that embedded margins remain strong. He noted that they are becoming more selective in North America while seeing growth opportunities internationally and in other specialty areas like engineering, marine, and energy transition.

Q:I want to continue on the theme of, I guess, maybe not pricing, but cat a little bit. So PMLs were up in the quarter. They're up year-over-year. I think that's possible to say that maybe you could have and should have deployed more capital at risk a year ago, but hindsight 50-50 or 20-20. Can you talk a little about your desire to increase your PMLs into what some people are describing as softening markets?

A:James Allan Williamson refuted the notion of a soft market, emphasizing that Property Cat rates remain strong and attractive. He explained that PML increases are driven by pricing dynamics and attractive returns, and they remain within risk guidelines. He also highlighted the optimization of hedging and growth in assets under management.

Q:By extension, is it wrong to say that maybe last year, you should have put more capital to work in PMLs and you're leaning into something that you've identified as an opportunity that was actually there last year? And two, the only other thing on the PML, the PMLs currently are higher, I think, they were after the Katrina peak. I'm just wondering, look, the system is very different at Everest. But I mean -- you're talking about how hard the market is, maybe scout and say, this is the real opportunity because a lot of people will say, oh, things are soft at this point in time right now, and you're actually deploying more capital, it looks like than you would have as a percentage of equity than 15 years ago?

A:James Allan Williamson reiterated that the current market is not soft and that Property Cat rates are strong. He stated that the risk/reward trade-off justifies the current PML levels and emphasized disciplined growth. He also noted that client acceptance of increased line sizes takes time and is part of a gradual process.

Q:Just two of them here. One just following on the PMLs a little bit here, Jim. It looks like that where you did see some meaningful increase in exposure was kind of at the 1 in 20 and 1 in 50 year, particularly for the Southeast. Is it that you were kind of writing below the FHCF? Is that where the opportunities were? And is that also why maybe a rate that you guide was maybe better than the market because it's clearly where rate is probably better, down low? And then also, should we expect potentially more susceptibility to call it, lower-sized hurricanes here this season?

A:James Allan Williamson clarified that 1 in 20 and 1 in 50 layers are not considered 'down low' and represent the heart of cat programs. He stated that their positioning in these layers offers the best risk-adjusted returns and does not increase susceptibility to lower-sized hurricanes.

Q:And then just pivot over to the Insurance segment. Just curious, Jim, were there any changes or have you made any changes as far as the build-out of the, call it, European or International Insurance kind of business? I mean, we're still seeing it obviously. But any changes under your leadership and what do you think -- where are we in that process? I know that can be quite expensive to build out an International Insurance operation.

A:James Allan Williamson highlighted the success of their International Insurance build-out, which has grown significantly and turned an underwriting profit. He stated that they are focusing on deepening their presence in existing markets rather than expanding geographically, which will help manage expenses while continuing to grow.

Q:I want to start with the Reinsurance segment, specifically of the reserve releases. You talked about the book of business being well seasoned property. And given the tail typically associated with property, is it reasonable to assume that unless there's some sort of inflection in loss trends that this sort of reserve release is sustainable as more of your reserves enter that well-seasoned stage?

A:Mark Kociancic confirmed that the reserve releases are sustainable as reserves season, given the significant embedded margin in the Reinsurance division. He emphasized their prudent approach to reserving and the consistent margin contribution from property lines.

Q:On the International segment, if you -- can you talk about, I guess, the books exposure to deflation outside of the United States as a result of U.S. tariffs? I mean, on the premiums and on the loss side?

A:James Allan Williamson stated that deflation is not a significant concern and that they are focused on gaining market share by delivering value to clients. He noted that tariffs have not impacted loss cost trends in the U.S. or their international growth strategy.

Q:Follow-up on the expense ratio tick up. I believe the commentary for Mark and you all has been that we should be thinking about operating leverage. So once, I guess the 1-Renewal Strategy concludes, we should start seeing some improvement. In terms of the casualty growth, nonrenewal strategy, once that's over, would that book start growing at kind of low doubles because that's where pricing is? Or how do we think about kind of juxtaposing the growth versus the expense ratio over the coming year?

A:James Allan Williamson explained that the casualty remediation will conclude in Q3, and growth in other areas like Specialty, Accident & Health, and international markets will drive future growth. He emphasized that they will only grow casualty where pricing and terms are adequate, focusing on building a sustainable and profitable portfolio.

Q:My follow-up is just on the London Court decision. Is this now behind us? Or is there still some limit or, I guess, potential for movement there? And I guess also just you guys added a lot of risk margin on the casualty side. Was this not contemplated when you took the actions earlier this year to kind of add to the [indiscernible] issue?

A:James Allan Williamson stated that the London Court decision is considered final barring unexpected legal shifts. He clarified that the aviation loss reserve was not related to earlier risk margin actions, as it was based on new legal clarity.

Q:Just had a question on the attritional loss ratio in the Reinsurance business. So I did see, obviously, the releases there on the property side. You mentioned mix shift and that was driving the 30 basis points improvement there. Did you make any changes to your forward view of loss picks on that property business as well as the -- just given the releases that you experienced?

A:James Allan Williamson stated that their view on property loss picks remains consistent and prudent. He noted that the mix shift in earned premium will continue to improve the attritional loss ratio over time.

Q:And then just another question just on the growth in property on the Reinsurance side. We're hearing a little bit more on -- from some broker reports a little bit more appetite to write aggregates. Just wondering what your view is on that and if you guys deployed any capacity in aggregate covers more so at midyear than you did in the past?

A:James Allan Williamson stated that they are not deploying capacity in aggregate covers, as the bid-ask spread remains wide. He emphasized their focus on disciplined underwriting and solving client problems without taking on excessive risk.

Q:I wanted to follow up on the discussion of the reserve release in the Reinsurance segment. I think at least in recent years, we have become accustomed to really only seeing changes in your reserve assumptions at the end of the year. So I guess I was curious as to whether we can expect to see a more common cadence to attritional property reserve releases. And then sort of tagging on to that, interesting to see that the reserve release on the reinsurance property lines wasn't quite enough to offset the charge on the Russian aviation losses. Any additional color that you can give for us on that?

A:Mark Kociancic stated that they aim to establish a quarterly cadence for reserve releases, supported by data. He clarified that the Russian aviation loss charge is independent of property reserve releases and emphasized confidence in the embedded margin in the Reinsurance segment.

Q:Very significant reacceleration in financial lines Reinsurance growth this quarter, great to see. Could you give us a little bit more detail on your outlook for the line going forward over the next 12 to 18 months? And if you expect to continue to grow at a similar clip?

A:James Allan Williamson explained that the growth in financial lines was driven by mortgage transactions, but rate pressure in the mortgage reinsurance market makes sustained growth at this pace unlikely.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer or lacked clarity on the following topics: 1. The specific impact of U.S. tariffs on international premiums and losses, as the response was broad and lacked detailed data. 2. The exact timeline and quantitative impact of expense ratio improvements post-casualty remediation and international investments, as the response was general and lacked specific figures.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

EG Transcript

Everest Group, Ltd. (EG) Q3 2025 Earnings Call Transcript

Positive10-28

The earnings call reflects strong financial metrics with record investment income and strategic growth in reinsurance and specialty insurance. Despite some areas of decline, such as casualty premiums, the company is optimizing its portfolio, expecting growth in several lines, and maintaining attractive risk-adjusted returns. The Q&A indicates confidence in reserve management and strategic divestments, with plans for capital repatriation. Share repurchases and a favorable investment outlook further support a positive sentiment. However, cautious guidance and a competitive market temper expectations, suggesting moderate stock price appreciation.

Everest Group, Ltd. (EG) Q2 2025 Earnings Call Transcript

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Everest Group, Ltd. (EG) Q1 2025 Earnings Call Transcript

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The earnings call presents mixed signals. Financial performance shows increased losses and flat premium growth, but net investment income is strong. The Q&A reveals potential growth in Florida and specialty lines, but competitive pressures and management's reluctance to provide guidance raise concerns. Share repurchases are positive, but the attritional loss ratios and catastrophe impacts are negative. Overall, the sentiment is neutral, with no strong indicators for significant stock price movement.

Everest Group, Ltd. (EG) Q3 2024 Earnings Call Transcript

Positive10-31

The earnings call summary shows strong financial performance with increased operating earnings per share, improved combined ratio, and robust cash flow. Share repurchase and dividends indicate shareholder confidence. However, concerns about catastrophe losses and cautiousness in casualty lines were noted. The Q&A revealed management's confidence in achieving targets and firming pricing, despite some vague responses. Overall, the positive financial metrics and strategic shareholder returns outweigh the risks, suggesting a positive stock price movement.

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