Skyward Specialty Insurance Group Inc (SKWD) 2024 Q1 法說會逐字稿

Good day and thank you for standing by, and welcome to the First Quarter 2024 Skyworks specialty Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Natalie Schoolcraft, Head of Investor Relations.

Please go ahead.

Well, good morning, everyone, and welcome to our first quarter 2024 earnings.

Today.

I am joined by our Chairman and Chief Executive Officer, Andrew Robinson, and Chief Financial Officer.

Mark Oswald will begin the call today with and then we will open them.

Comments today may include forward-looking statements, which, by their nature, involve a number of risk factors and uncertainties which may affect future financial performance.

Such risk factors may cause actual results to differ materially from those contained in our projections or forward-looking statements.

Important factors are discussed in our press release as well as in our 10 K that was previously filed with the Securities and Exchange Commission and each of metal containing reconciliations of certain non-GAAP measures, along with other supplemental financial information are included as part of our press release and available on our website, erieinsurance.com under the Investors section.

With that, I will turn the call over to Andrew.

Andrew?

Thank you, Natalie.

Good morning, everyone, and thank you for joining us.

We started 2024 strong reporting Q1 adjusted operating income of $0.75 per diluted share.

Gross written premiums grew 27%.

Our continued strong growth is a direct reflection of our strategy to have a well-diversified portfolio of underwriting divisions that allow us to allocate capital to those areas we believe offer the best opportunity for profitable growth and shareholder returns.

I'll remind our analysts and investors that growth during 2023 was not the byproduct of writing new property cat.

We see limited property cat opportunities that fit with our rule or any strategy in which we aim to build defensible positions that allow us to deliver top-quartile underwriting profitability across all market cycles.

Our combined ratio was 89.6%, and our annualized adjusted return on equity and tangible equity for 18.3% and 21.1%, respectively.

Altogether, these massive these metrics reflect the power of our real R&D strategy and our outstanding execution across all lead underwriting divisions and the functions that support our underwriters.

Operationally rate retention and submission flow in the quarter continued to be strong, and we continue to find opportunities to profitably grow our business.

I'll talk more about these later in the call.

With that, I'll turn the call over to Mark to discuss our financial results in greater detail.

Mark.

Thank you, Andrew.

For the quarter, we reported net income of $36.8 million, or $0.90 per diluted share compared to $15.6 million or $0.42 per diluted share for the same period a year ago.

On an adjusted operating basis, we reported income of $31 million or $0.75 per diluted share compared to $15.5 million or $0.42 per diluted share for the same period a year ago.

In the quarter, gross written premiums grew by approximately 27%.

All of our underwriting divisions contributed to the growth.

And our captives transactional E&S, surety, professional lines, global property and agriculture divisions were each up over 20%.

Turning to our underwriting results.

The first quarter combined ratio of 89.6% improved 0.6 points compared to the first quarter of 2023.

The half-point improvement in the current accident year non-cat loss ratio to 60.6% was principally driven by changing mix of business.

During the quarter, catastrophe losses were minimal and accounted for less than half a point on the combined ratio compared to the first quarter of 2023, which was impacted by 1.8 points of cat losses, excluding the deferred benefit of the LPT, there was no net impact from prior year development in Q1, as has been the case in the quarters, leading up to being a public company.

And since going public we increased our conservatism to an already strong loss reserve position.

The expense ratio increased 1.3 points compared to the first quarter of 2023 and was in line with the full year 2023.

We've talked in prior quarters regarding our business mix shift and investing in the business.

So this is in line with our expectations and target of a [sub-30] expense ratio.

Turning to our investment results, net investment income was $18.3 million in the quarter, an increase of $13.7 million compared to the same period of 2023.

During the quarter, you will note we changed how we disclose our investment portfolio and the net investment income results.

We will speak to the portfolio in four categories, short-term investments in cash and cash equivalents, fixed income equities and alternative and strategic investments did this change was driven by a couple of factors.

Our desire to simplify how we talk about the portfolio, more traditional present presentation in line with the industry and more reflective of our strategy and the underlying risk characteristics of the portfolio, consistent with our investment strategy to deploy all free cash flow to fixed income.

In the first quarter, we put $98 million to work at 5.4%.

The net investment income from our fixed income portfolio increased $5 million from $7.4 million in the prior quarter, driven by improving portfolio yield and the significant increase in the invested asset base our embedded yield was 4.7% at March 31, versus 4.0% a year ago and 4.6% at December 31.

At March 31, we had approximately $298 million in short-term investments, and our yield on short-term investments continued to be north of 5%.

Lastly, April 1, is when we renew our property reinsurance programs.

All these renewals were orderly and we are satisfied with the terms and structure of these programs.

We increased our property cat treaty net retention from $12 million to $15 million and the cover increased from $28 million to $36 million.

We were able to improve the terms of the treaty while retaining the same model return period as the expiring treaties.

With that, I will turn the call back over to Andrew for concluding remarks.

Thank you, Mark.

Operationally, we had another strong quarter and continue to realize pure pricing increases in the high mid-single digits, which is above our estimated loss cost trends.

Our new business pricing was up again over our in-force book and indicated that the new business profitability is attractive and should contribute to margin expansion.

We also continue to see strong submission activity, which was up over 30% from the prior year quarter.

Retention dipped into the [70s] driven by business mix shift towards lower retention divisions such as transactional E&S, as well as some continued trimming of our commercial auto portfolio, which in Q1 was 14.7% of our writings compared to 18.3% in the prior year quarter.

Let me turn to the competitive marketplace for a moment.

From our vantage point, it is most certainly an increasingly nuanced market for capturing profitable growth.

But we continue to identify and invest in market segments that are attractive and where execution of our strategy allows us to profitably grow and deliver attractive returns for our shareholders.

In Q1, we launched a new media liability unit within Professional Liability within professional lines with a team of expert underwriting and claims professionals, each of whom has a distinct standing and broker following in the marketplace.

We remain confident in our ability to continue to attract the very best talent and our most professionals with advanced technology and data analytics that is proven to be the winning formula for our success as our results in Q1 further reinforced, and it's visible in our results, whether it be the talent adds this past year in surety or transactionally in U.S. for the launch of global ag or inland marine, our investments are clearly paying off for our shareholders.

Finally, we recently published our first ever annual people report.

Our people are the lifeblood of our success, and it is what makes Skyworks truly unique.

The report provides a wonderful view into our Company, and we encourage our investors to visit our website to access this report or contact Natalie, if you'd like to have a printed copy.

I'd like to now turn the call back over to the operator to open it up for Q&A.

(Operator Instructions) Mark Hughes, Truist Securities.

Yes, thank you.

Good morning.

Morning, Mark.

On Andrew, you mentioned 30% submission growth was very strong

--

over over 30% .

Over the 30% to get even stronger on any way to break that out.

I kind of I assume there's underlying submission growth.

You're expanded underwriting capacity presumably is contributing to that is there any way to kind of break that out maybe compare to what you had been seeing in earlier quarters?

Yes.

If you're asking for a sort of a same-store sales versus kind of like new capacity?

We don't share that, but I let me just say that there's no question that that obviously us bringing on talent that has a marketplace following inevitably leads to a business falling those in some cases, the in-force books that that those underwriters had in their in their in their prior their prior roles.

What I can tell you is that if you look across our businesses by and large, same-store sales are up pretty materially.

If you think about same-store sales, meaning our same underwriters and then growth is also a contribution of the underwriters we've had, and I think they're an appropriate sort of balance, but we're not going to go further than disclosing just because what's important here is are we investing in a way that's sensible for our business that's driving profitable growth, and we're seeing that data correspond to expand.

When you say Nuance, I think you touched on a lot of interesting point on what do you what do you mean when you say Nuance?

So if you could expand on that would be great.

Well, you know, all of us, obviously, as you've taken the sort of various things that are being discussed around the marketplace, this particularly this time of year, right or during during earnings reviews and so forth, and I think there's it's almost like sort of very general views put out there.

You know about what's happening in different parts of the market, what's happening casually versus what's happening in property.

And I have to tell you that, you know, it is it is just very specific to a circumstance, right?

So you know, we have I would describe it at least three, if not four, quite discrete points of focused in property, right?

We have global property, inland marine and then our transactionally in U.S. I would describe a portion of our book as sort of highly technical and a portion that's closer to sort of general property.

And I can tell you that each of those four areas are behaving very differently and so that's what we mean by nuance.

At the same time, you know, onboard unreliability, Cytori's pharma like for casualty, could it be an attractive market because prices are moving and prices are moving because people are recognizing that loss cost inflation and maybe the starting point in the loss cost relative to price may not be as favorable as people think Meanwhile, like when we think about our business, I'll take transactionally and us as an example, okay, in the last month, a carrier that was in some life guard services pulled out of the market, right?

Well, of course, we write like cards in our E&S business will suddenly we're seeing this like dramatic flow of life guard services.

And instead of that, the market had pulled out that is a $75 minimum premium.

We have a $30,000 minimum premium instead of the possibility of providing, you know, a few small station and its own battery.

We have absolute exclusions on those things.

And so their pull out allows us to then go pick the business the way that we want.

And we see those opportunities happening all the time, but it's not like that is a indicative sort of window into everything.

It's a very specific in underwriting category category by category.

And it's a kind of market that plays to great underwriters, which which I believe we have.

And so when I talk about Nuance, that's what I mean.

And I think it's a market that's a hell of a lot more favorable to a company like us than many of the other guys that are out.

We are very good.

I'll ask you the Blanco, simple question, and there's talk about casualty accelerating as a general matter.

Do you see that in 2024?

Yes.

So I what I'd say is when we look across our casually occurrence from ex workers' comp, you know, sort of all the various touch points.

Again, I don't think there's one overriding theme, but what I can tell you is that we definitely see prices moving in our case, we took some actions here over the last couple of quarters to start to price it to start to tighten terms in very specific areas and also to pull back limits and we've been able to do that.

We're making sure that the retention is holding, but we think that we found the balance of that to me feels like at least amongst the competitors that we see and the competitors in a lot of those cases, I consider to be very, very good competitors there that are amongst the better the best seem to be operating in a similar way.

So I think that's promising.

That said, look, you know, I think hard-working casually is all relative, right.

Anything you have to you have to believe that your day technically strong starting point and then that you're then your price is in excess of loss cost trends.

And I don't think that's uniform, right.

I think I think there are places and there's certainly plenty of opportunities that we see.

I just gave you one earlier, but I don't believe it's a uniform market then that is very much what I mean by by Nuance.

And I think again, I think it's a it's a great market for the best underwriters.

Appreciate the details.

Thank you.

(Operator Instructions) Paul Newsome, Piper Sandler.

Good morning, and we'll be in a little bit more detail about investment income and just trying to get to some sort of run rate of costs.

Some there's a lot of changes happening, obviously, with some new money moving around and feeling a little bit of options, the fixed-income portfolio.

So continue to add to kind of help us get a sense of where that may be long term, the trend will be run rate will be once everything done.

And Mark, let me let me see if I can translate that you're looking for a run rate of investment income in the future, assuming that we've received the flows from opportunistic, I just want to make sure I understand what you're asked.

Yes, that's right.

I mean, assuming that you got the flows or the opportunistic plus kind of where is it what's going on with new money rate and what you're putting into the traditional fund.

And it's always been a challenge to kind of figure out where exactly right.

Mid point slash run rate is for investment income?

Well, I mean, it's the way I think about it is pretty simple.

If you look at the invested asset base for core fixed income, you know what our embedded yield is I think the yield, I don't know what interest rates are going to do.

We've been investing at over [five] for the better part of the year and all of our cash flow will continue to go to fixed income.

That's where it's going.

Does that answer your question, but I can take it offline too, as well.

Maybe come back to the sort of competitive environment.

Question on, I think the concerns have been primarily that E&S.

He's on his to where the softening is and but especially is not necessarily E&S.

So maybe you could talk a little bit further about sort of what is really current to you and ask that might be some of a concern, if at all, or what could be it's really not even in that Boxer.

Tom, I don't know if I want to proper on the entire industry and we've said it before we start.

I'll say it again, what we write in the surplus lines market, I would consider to be true surplus lines.

So I've heard some of the questions about what's happening with the admitted carriers as business unit and you know, we don't write the stuff that CNS like.

It's just that just as in US, we're writing stuff that's in the US market for a reason.

That's certainly if there's less flow coming into the US market than our part of the market becomes more competitive, right?

Because that's where the surplus lines writers would look.

And I also get all the same data that you guys get about the early views on the major states and so forth.

But you hear the fair the facts, Paul, and we grew 43% in transactionally in U.S. in this quarter, and we grew 27% in professional lines.

Those those two areas are pure surplus lines areas.

And so I would say that that's a pretty good indicator that regardless of what's happening in the market.

And I'll just reinforce that our strategy is a very specific strategy, and we seem to be executing well and it seems to be paying off to I believe that 27% growth is just like last year's 28% growth.

Is that is that a number you can sort of take to the bank?

No, absolutely not.

I mean, let's just a it just speaks to the excellent execution of our organization and our ability to sort of pick off opportunities like the example I gave earlier, but I would just tell you I feel I feel like we're in a market where where we can continue to win.

We can take and continue to grow the profitability and the shareholder returns.

And we can continue to grow at a level that is meaningfully enough different than sort of the cross-section of the competitors that we're competing with in the market, and I've highlighted for you in the past few, those are some of the pure-play specialty carriers plus the primary insurance or specialty arms of the larger sort of multi-line for meetings.

And so I feel good about where we're at.

And I think the market, it's still conducive for us.

I think that's that's great color.

So I appreciate the help is all.

(Operator Instructions) Charles Peters, Raymond James.

Good morning, Greg and Greg.

Yes, yes, QUARTER, sure.

Sort of integrate that with your Scott.

Yes or Sure it or.

Yes, sure.

Curious if the profile is changing there.

Yes.

No, it's a great question, and thanks, Greg.

The on.

Let me let me just start and say something about the tree because I think it's important.

So last year we had an attachment point at 12 and we move that to $15 million on a model basis than that.

So one in 10 year attachment points.

So we effectively kept our same attachment points.

Our absorption point where we added $8 million of cover is in excess the same sort of point, it's in excess of a one and two 50 event.

And so what that tells you that we've added some exposure from last year, which is no surprise because we we grew property or properties been at 25%-plus of our book pretty consistently.

And so as our book grows, property has grown.

And so unsurprisingly, we're adding exposure.

And where all we're doing is we're keeping our cat cover roughly in line on a return period basis.

And of course, that tower that we buy is relatively small to the size of our property portfolio to your point, and we write a well diversified book apart of property.

So look, I don't think anything is going to change in terms of frequency or severity of exposure to storms.

And yes, I think you already saw that in the first quarter was, you know, there's a lot of convective activity, again, a relatively light quarter for us.

There's still a lot of convective activity going on.

We'll see how Q2 turns out.

And I think as we get into the hurricane season, booking a lot of that is just what has things take and so forth.

But I can say pretty confidently right now in Q1 that if we were to have a material event or set of material events to the industry.

I think that what we see in terms of our results would be very favorable on a relative basis in general and then of course, since we buy a an attachment point, that's a relatively conservative attachment point.

I think our net results would be very good as well.

So I feel good about all that you had you had asked some questions about market, so let me before I say anything more.

Did I do that address your question on frequency and severity and growth in exposure and wondering if you wanted to just comment on the property market.

Okay.

So it's an interesting market right now.

I don't think everything falls into the line of this narrative.

Well, you know, property pricing is attractive across the board and you casually maybe the new opportunity.

I again, I think it's much more nuanced.

I'll take our global property as an example, we lost a very large account in Q1.

Actually, we chose not to write it.

This is a large global company, and we had the largest line on the primary insurance above their retention.

So think about the primary $100 million that sits above a retention that is measured in tens of millions of dollars.

A great example, the broker did a great job, which is split out the international exposure from the U.S. exposure.

International exposure made up about 40% of the insured values, yet debtors and international exposure was primarily inside of their retentions.

Well, a bunch of competitors came in and provided pricing at a 40% lower rate because theoretically exposure went down.

Well, that was just simply it's just like I would detail this approach.

And so there's an example of hungry hungry companies out there, writing things in ways that I just don't think are sensible.

And we just let that capital and whether we have that account for a very long.

And so that's an example where you're like, okay, people are basically putting putting out lines on I'm on big accounts, trying to basically grow quickly.

And that's okay, that's fine.

We expect a little bit of that.

We've won a few global property over the over the quarter as well to offset that for sure.

And then I look at places like marine, we steer clear of things like the stock throughput stuff because it's just it's a commodity area and there's way too many MGAs in there.

And so we found in Marine is that we're competing against the same competitors who seem to be very sensible, um, you know, maybe a little bit change in terms and conditions, which were incredibly tight on.

But by and large, the market feels pretty darn good.

When I look at our property, E&S, transactionally and S & Property submissions, we're just absolutely booming like booming still.

And so we're still seeing plenty of opportunity there for us on the hard technical stuff, if you're, let's say, writing risks related to something in the wood sector, which is a very low frequency, but very high severity like we're not backing up a bit.

And so we have our line.

We haven't really seen a lot of lot of companies who are sort of poaching into that line.

So a lot of that's sticking.

And then the general property part of our book, I'd say pricing is pretty darn rich.

And so if you get a little bit of competition there to be able to give up some price, you can do that and still feel great that you're able to drive a very attractive return from that portfolio.

And so those four examples are things that should give you a sense that not everything is behaving in kind of one uniform way.

And again, we set up our business, Greg, as you know, to have an incredibly well diversified portfolio so that so that we're not stuck in single market cycles and that we can push down where we see the opportunities.

And I think that there are results follow-up to sort of the benefit of that strategy.

Yes, of course.

Sure what your company is.

Let me just sort of remind us what.

Yes, important segments.

Yes.

So so in property, generally speaking, our max net limit is about $3.5 million.

So yes, so that applies across the entire piece.

And the other segments too?

Yes, that would that would apply that would apply everywhere.

So that would apply when we write property and industry solutions in inland marine in certainly in E&S and then within global property, I think I've explained in the past that what we've had is long term quota share support that allows us to be one of the largest ones in the marketplace in writing the the primary of those programs and those that long-term support.

You know, obviously we're keeping a very considerable portion of that.

Is it aligned to sort of the $3.5 million.

Thanks for the detail, sir.

Thanks, Eric.

Matt Carletti, Citizen's JMP.

Thanks.

Good morning.

Good morning, Matt.

Morning.

And there's been a lot of focus at the industry-wide right on reserves the past several quarters and you guys are in kind of a shrinking group of company, a rare company that's showing a lot of stability there.

And I think in your opening comments, I picked up a comment about even kind of increasing the conservatism.

Could you just kind of go behind the scenes a little bit and update us on what you're seeing there, kind of what some of the indications are and how you might be reacting to those?

Well, I'll start and Mark, Mark and Mark can jump in.

But I look just to be very specific in this quarter and to Mark's comment in the prepared remarks and our emergence in the quarter was favorable and yet we didn't recognize any of that.

And I think probably the simplest way to describe how we think about things is of course, we are looking at the level of reserve redundancy in our in our in our books, and we're also looking at the maturity of that redundancy.

Right.

So you can have redundancy.

But the question is, is that redundancy showing up in greener years or more mature years.

And so we're constantly watching those two things.

And we've been asked probably since we started engaging with you and the and the other analysts and our investors from pre IPO to today, when will you release reserves?

And our answers are the same, which is we're not going to tell you and quite often we don't know right, because we are we have any we have a bias, as we have said all along to build a conservative position and then to demonstrate to ourselves that that conservative position is consistent and predictable along the lines of what we're expecting.

I think we've done a really good job, but we also think that that we're able to to deliver attractive results for our shareholders well, while not sort of stretching ourselves on the liability side of the balance sheet in any way.

And so I would just say to you, I feel like it's a good news story and that our hope, as I've always said, and our belief based on everything that we're seeing is that our actual results are better than our reported results and at some point that should inure to the benefit of our investors.

That makes a lot of sense from maybe as a follow-up.

Just shifting gears, I want to go back to the net investment income discussion of Bill's question.

Jerry, maybe if I could take a different look at it.

I mean, I look at this quarter and the new disclosures, right?

And the alternatives, it didn't really have an impact relative to of

[$100,000].

I mean.

So I look at that $18 million you reported, it looked it looks pretty clean to me and I know you're thinking about like that's a very sustainable number and going forward and that obviously, the changes from there would be some more cash flow coming in at higher yields and that works over time.

But at least as a leaping off point, there's no reason to think that that's not going to be paid off.

And Matt, thank you.

I agree.

I think that's a good way to look at it.

I would I would highlight the fact that short term rates could change quickly, right over short term.

So yes, I look at that $17 million in the quarter as pretty consistent.

But again, it depends on what happens with short-term rates.

And look, we've been focused on deploying the cash in short term.

We've got a pretty good situation where we're generating more cash that that we're putting to work, our plan is to be fully deployed by the end of '24.

Yes, Matt, I'll just add one thing.

You know that our invested assets grew by $400 million year over year.

So this point last year, [$400 million] to Mark's point, like I don't know how many times you said.

Our plan is to fully deploy our cash by debt and we generate so much cash.

We've not been able to put it to work.

And in this case, Mark made the point, which is we've been and we've been blessed with, you know, with short term rates that are really great if that changes.

That's one.

That's one variable here that's uncertain.

But the fact is is that the invested assets are growing at a pretty a pretty attractive clip.

And and that that, of course, is something that we're trying to respond to.

But you can only deploy so quickly within sort of the bounds of how it is that we've set our near term investment strategy.

Yes, very, very a very high-class problem.

So yes, thank you for the color.

Appreciate it.

Thank you, Matt.

Meyer Shields, KBW.

Critics.

Good morning.

One quick question

--

Good morning there.

I'm surprised you're away because you're cranking them out early in the morning.

I saw So well done to Beer Club.

Thank you.

My bloodstream is 95% coffee right now.

Are you seeing any change in the inflation rate for claims on short-tailed lines like property or in the marine.

No.

Second question just on comments you made earlier, Andrew, with regard to nonrenewals in commercial auto.

So definitely hearing a lot of talk of sustained or accelerating commercial auto rate increases.

And I was hoping you could talk to at least conceptually why non-renewal made more sense than just jacking up rates.

Okay.

So I know that certainly at this exact same call last year and maybe even maybe even the call before that, I kept making the point that as it relates to commercial auto if we are seeing know high single digits, 10-ish loss cost inflation.

And now we kind of see that on abating.

And I can I can give you a granular kind of view as well a moment there, but but I like that and that feels unsustainable.

When you keep saying that over and over and over right so.

Okay.

So what are you going to get 11% or 12% rate per year in a 10% loss cost inflation environment?

That is not the kind of marketplace that we want to grow into.

And I think that what has happened here with elements of the plaintiff bar and social inflation, finding its ways into different things.

I give you a simple example a week sorry, this week, we received our first-ever first notice of loss with eStara demand at a time on that demand attached to the first notice of loss right and by the way.

It was a pretty heavily prepared document from from a plaintiff lawyer like that just feels like a different day now whether there's validity to it or not just the effort to move onto a first notice of loss like that is in itself a heavy lift, but it is an indication as to what's happening in this marketplace and we just on the personal injury as part of the market, you know, if we can, if we can lean up on the accelerator and tap on the brake, we're going to do so.

And then ultimately, it's up to the states as to whether they can reform the legal environment, the tort environment to make it more reasonable because it is just it is it's out of control.

And you know and everybody, everybody who's close to it, understands it viscerally.

And so we've been studying it and studying and studying it.

And I think I indicated that we were going to ease up on exposure and we have an easing off on exposure and that premium doesn't even fully reflect the lower exposure because the rate that we've been getting for each each unit that we write is higher than the average rate for the rest of our business.

So so that's the thinking behind it.

Okay, perfect.

That's very helpful.

And one last quick one, if I can.

Our updated expectations maybe for the net to gross written premium ratio for 2020 for first quarter came in a little higher than expected?

No.

I mean, it merits markets in line with where we were in the first quarter.

A low 60s is what we're looking for.

So I think it's I think it's right where we thought it would be more.

And I'd remind you there's a little bit of noise for you and others as well.

There's a little bit of noise.

Last year, we had a we had a quota share contract at that and ran through first and second quarter that we that we unwound in the third quarter.

And so there's there are some geography issues that play through.

But I also do think that when we set guidance for the full year, we were quite explicit saying that our full year '23 gross to net is a reasonable planning assumption for your models?

Yes.

Perfect.

And once you lap it, that's very helpful.

Thank you.

Thank you, Graham.

Yaron Kinar, Jefferies.

Thank you and good morning.

Good morning.

Good morning.

Good morning, V.

I just want to start with maybe a quick one.

The Baltimore bridge collapse.

Do you have any exposure to that?

No.

None.

And then maybe a broader conceptual question with regards to the mix shift obviously benefited the underlying loss ratio, but we also see that coming back a little bit through a higher expense ratio.

So gain maybe talk through in a more holistic sense, like what the benefit of that mix shift is maybe beyond the underlying combined ratio, is that a better capital efficiency?

Is that a better long-term risk profile?

What do you see about feed that mix that that is?

Well, look I great question by the way, and the answer is it's parts of all the things that you talked about.

So if you really look at a lot of where the growth has been coming from.

We've driven a lot of growth from a from surety.

We've driven it is certainly a lot of growth from our transactionally in U.S. You are correct there are higher expense ratio business.

Part of that is there or in the case of Aeon assets, it's a wholesale.

So your commissions are higher there.

Surety is obviously the highest commissions and yes, we're comfortable with that trade-off.

We think that we think that both are our sort of belief that, that that sort of profile of risk exposure and then ultimately loss has less of some of the things that we, for example, we were just talking about, which is, you know, and kind of uncertainty around loss inflation on personal injury.

And that's included by the way in our budget for what we write in our in our general liability within transactionally and as I would characterize that same way.

And then and then that by the way, in the case of surety, others are there incredibly good applications of our capital, very diversifying.

And quite honestly, one of the reasons that I believe that we're able to sort of achieve the kind of capital leverage that we've been able to achieve.

So and so it is all those things.

I think the other part of it is we keep just coming back to it, we want to have a well-diversified portfolio, right?

So for example, if we could if we could press down faster and harder in A&H because for us.

It's great diversification.

We would there's boundaries to our ability to grow profitably from there at maybe the same speed we can in certain areas that may change a year from now, but that's what we're seeing right now.

Thanks.

That's helpful.

If I could also sneak in one common flash question and forgive if I missed.

This did not see disclosure of premiums by division and now the press release last night on and if you chose to remove those, I just curious as to why just considering that so much of the story I think at Skyworks is exceptional premium growth and understanding be the drivers for that you're on.

Hey, it's Mark.

A good question.

We will be discussing.

We will be including in the press release going forward, the Q will be out tomorrow.

So it's there.

There was just a matter of it will be in the Q. We'll have it in the press releases going forward, you'll see in the Q tomorrow.

And just I mean just just for your benefit, not to sort of throw a bunch of numbers at you, but industry solutions grew 16%, global property and ag, 35%, programs, 7%, A&H, 14%, captives, 49%, professional lines, 27%, surety, 37%, and transactionally in S. 43%.

Thank you so much.

And apologies for the oversight.

We will we will correct that.

Thank you for that.

You're right in that observation,

Bill Carcache, Wolfe Research.

Thanks.

Good morning, Andrew.

Mark, as investors analyze the interplay between your growth and returns, how much of that is an outcome versus something that you're actively managing to.

I appreciate your comments around the nuanced market with attractive opportunities for the best underwriters.

It seems like you're focused on identifying those areas we you're competing beyond just price, but it would be helpful if you could sort of address how important of a lever pricing is as you manage to your target.

Yes.

I mean, implicitly, you're quite Thank you.

By the way, it's a great question.

I think implicit in your question, if I if I'm if I'm correct, is just the hey, what happens if you got double the price, but you know, you got less growth.

How does that look?

And I think our general philosophy is as follows, which is that we've we've stated it unambiguous terms that we're targeting a 15 plus percent return on equity.

And I think that what and by the way, we've been consistently kind of showing up at or above that number.

And I our sense here is as long as we can add units and we believe the units kind of fit with our strategy, that our ability to sort of capture value in some in some of our businesses, keep that value for a long time, right?

Surety be a great example of that that that's a good proposition for our shareholders, right?

Areas like transactionally in U.S. are more transaction, whether it's sort of a lower retention business.

You might we might write an account for a couple of years and then you might not write it again.

And so it could happen.

But I just will tell you that the watermark for us is you trying to make sure that we're writing above a 15% return.

And if we can add more units there, we generally will do so.

And you know, and then the good news is if we do that well, you might get some expense leverage, you might get some capital leverage that ends up giving you a bit more juice in terms of your ROEs that kind of our formula.

That's very helpful.

Thank you.

And then following up on your success onboarding underwriting talent enjoying incremental business that's come with that.

How concerned are you about competitors?

You're potentially poaching some of that talent talent in the future.

Have you seen evidence of that maybe speak to your success rate in retaining the talent that you have onboarded.

Actually, it's a really excellent question Tom, what I can tell you is that our voluntary attrition last year was 7% and we share data with a consortium of other insurers, not just on retention, but on a range of people, HR matters.

And by our measure, that's kind of close to the best, if not the best out there.

So I think as you get into the specialty space.

I think the war for talent is much greater than, for example, if you're in personal lines or small commercial.

So because there's just there's a dearth of talent and it is specialty, right?

Which means that generally speaking, people are good, narrow technical focus areas and so forth, they're harder to come by.

And so so I feel very good about our attritional?

Yes, I think the war for talent continues and yes, we are concerned.

It is one of the reasons.

And listen, we beat the drum on this all the time.

It's one of the reasons that we are.

So so focused on the people dimensions of our business, it is borne from like a genuine interest starting with me and the other members of our ELT that this is the kind of company that we want to have a company that is very people centric.

But I also think there's just like a practical competitive consideration, which is if we create a culture that people feel genuinely part of and connected to and personal owners in that is probably the best defense that we possibly can have and and I will say there's always I mean, the MGAs are just it's crazy, right?

There's just spot market sort of pricing for talent that's not rational.

When you look at the economics of our industry.

And you know, that's just the nature of the beast.

If there's a dearth of talent that's going to happen.

And then ultimately, you know, we rely on the ecosystem that we've built.

And I will say to you, I really do encourage this go look at our annual people report.

It is if you're not part of our organization.

It's the best way to have a window into our organization.

And I think that from that, you will understand why we're certainly not done.

It's not a topic that we're ignorant of.

But we've done the things that we should be doing, put ourselves in a great position as it relates to that.

Thank you.

That's very helpful.

And then if I could squeeze in one last one on how focused are you on downside risk to estimates from a lower rate environment?

Is there a point maybe if you could share your any thoughts with us where you look to protect yourself from lower rates, any actions that you take at potentially lock in a relatively more attractive higher?

So Bill, just for our clarification you're talking about on the asset side investments, correct?

Yes.

Yes, sorry.

But yes, you know, Bill, we look we kept our duration right at about four, no real interest in extending it, and we'll see how rates move during the year.

But I think where we are in our duration, I like it and I think the returns are fine and we're not going to react immediately, and we'll just see how interest rates play out.

And Bill, I'd add one thing.

You know, we've had we've been blessed with the interest rate environment that we're in.

So as Marcus commented, every time we put our free cash flow to work in our in our in our core fixed income, it's going to very, very, very high quality, very high quality assets.

And so like if the if the rates start to back up, the first place that we would look is can we start to blend in slightly lower credit and that we're not talking about like jumping into John, just moving down the investment grade credit and having a bit more of the lower end of that.

And then you know, if we ever and God forbid find ourselves in that like 0% interest rate environment where new money yields were 2%.

I think at that point you both have to reconsider how you think about the way that you talk about your returns on capital because obviously, it's a different cost of capital environment, but also you kind of reevaluate your investment strategy in a different context, but I feel like we have a long way to go before that.

And we keep growing our embedded yield.

And even if interest rates were 4%, you know, in the medium term, that's still an attractive place for us to continue to have an allocation to the high-quality core fixed.

That's very helpful color.

Thank you for taking my questions.

Sure.

Michael Zaremski, BMO.

So thanks, Tom.

I think I can ask one more a lot of good questions.

So just given given the majority of our questions are on casualty inflation, you've given us some good color.

I know, Andrew, you talked about kind of, um, I think and it might be your prepared remarks, but pulling back some limits and putting some terms.

I believe that I'm assuming you guys have had excellent margin experience and reserve experience that's more in the commercial auto side.

But maybe or maybe you could clarify that or maybe it is just in all all casualty.

And just also maybe more broadly from a macro standpoint, are, are there maybe certain states that you guys feel are more social inflationary if that's a word and you're you've looked us on pull back on or on any other gauges you guys kind of look at that chart, a key key key key social inflation in check.

Yes.

No, Greg, great question.

I think for us from my comments on the the terms and limits, actually, we're principally around the general liability and excess and of course, excess you'll pick up both auto exposure as well as I general liability employers' liability as well exposure.

And so a lot of this is around, you know, some things like additional insured's and where that comes into play.

And so we've taken just we're obviously like every good underwriter, right.

You watch you see you look for early indicators.

You're trying to turn the crank if you see something that's popping that you're like.

Well, I want to make sure that we're moving on that before everything is fully baked.

And so that was really more of a reference to that.

You know, I think relative to auto, we've we've gone pretty far down the down the path of and even down to things like in one part of our business, if you're not using telematics, has not turned on and an accident occurs that you get knocked back to the statutory minimum limited available?

We had things around reporting times and the deductible to the insured mean some some.

Yes, because we write we write that on an E&S basis.

So and so I think we've done pretty much what we can do in auto outside of risk selection and price as it relates to venue, look I think that in theory, every venue could be a political or could be a judicial whole, right, as opposed to the ones that are always publicized this judicial holes and look very few of our claims end up in a in front of a jury box.

I think the truth is that there is there's certainly great exposure to juries, not being representative of how a particular jurisdiction is viewed on its level of conservativism.

That said, I mean, it's all case yesterday where you say what it was this week.

I can't remember the specifics, but I'll pull it out for you where the jury did like a crazy or like a $30 million award and the judge basically pulled back to $1 million to the to the to the coverage level of $1 million, right, to the contrary, went wild and the judge kind of stuff that was in Pennsylvania.

And so the There's certainly reasons to say that kind of the conservative conservativism of the jurisdiction can really make a difference.

And that's an example.

What I will say to you is that it's not a state by state.

It's a county by county kind of thing at this point.

And so it would be hard to enumerate it.

But this is something that we absolutely watch and we're trying to do to address in terms of where it is that we are taking on exposure.

That's helpful color, Saia.

Thank you.

Thank you, Mike.

That concludes today's question and answer session.

I'd like to turn the call back to Natalie Schoolcraft for closing remarks.

Thanks, everyone, for your questions and for participating in our conference call and for your continued interest and support of fire specialty.

I'm available after the call to answer any additional questions that you may have in order to begin with you again on our second quarter earnings call.

Thank you and have a wonderful day.

This concludes today's conference call.

Thank you for participating.

You may now disconnect.