Good day and welcome to the Everest Re Group First Quarter 2018 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ms. Beth Farrell, Vice President of Investor Relations. Ma’am, please go ahead.

Thank you, Derek [ph]. Good morning, and welcome to Everest Re Group’s First Quarter 2018 Earnings Conference Call. On the call with me today are Dom Addesso, the company’s President and Chief Executive Officer; Craig Howie, Chief Financial Officer; John Doucette, President and CEO of Reinsurance Operations; and Jon Zaffino, President and CEO of Insurance Operations. 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 Dom.

Thanks, Beth. Good morning and welcome to the call this morning. As noted in the published financials, the core attritional results of the company continue to be quite favorable. And despite the prior year catch reported this quarter, the operating ROE of 10.5% is quite strong. Our reinsurance book produced a $96 million underwriting profit in the quarter and our insurance franchise more than double this underwriting profit to $12.5 million for the quarter. This reflects a continuing diversification effort due to classes of business that have adequate margins. With respect to the reinsurance segment, the underwriting profit is a consequence of improving margins in our property book, which I’ll get back to in a minute, but also expanded writings in casually, mortgage and structured products. While mortgage and structured products have generally had excellent margin, we’re finding the general casualty market is now firm perhaps in part due to less than expected improvement in company’s margins on property business. However more prominent in the casualty market is the demand side. As underwriting income and primary market has been under pressure due to the property results, buyers have become more tuned to reducing volatility generally across their entire portfolio, driving more demand for casualty and whole account solutions. Industry consolidation oddly plays a part in that due to large buyers needed capacity and quality markets that can support that. With respect to the property market in general, the renewal season for reinsurance offered a better terms, but was somewhat below our expectation. This resulted in us reducing our participation in certain areas. However, our first quarter premiums were above the prior year due to rate and select new opportunities. These two factors, of course, need to increase margin per dollar of PML year-over-year. April is a key renewal for the…

Thank you, Dom, and good morning everyone. Everest had another solid quarter of earnings with net income of $210 million for the first quarter of 2018. This compares the net income of $292 million for the first quarter of 2017. The 2018 results represents an annualized net income return on equity of 10%. Net income included $19 million of net after tax realized capital losses compared to $32 million of capital gains in the first quarter last year. The 2018 capital losses were primarily attributable to fair value adjustments on the public equity portfolio. After tax operating income for the first quarter was $220 million compared to $267 million in 2017. As previously announced, the company’s reporting of operating income now excludes foreign exchange gains and losses. The overall underwriting gain for the group was $108 million for the quarter compared to an underwriting gain of $183 million in the same period last year. In the first quarter of 2018, Everest saw $100 million of catastrophe losses related to the 2017 California wildfires compared to $20 million of catastrophe losses reported during the first quarter of 2017. In comparing reported losses against our prior year catastrophe loss estimates and the impact of aggregate covers on attachment to specific events, we revised the ultimate loss estimates by event and by segment with no change in the overall loss estimates except the California wildfires as previously announced. No other events breached our $10 million threshold in the first quarter of 2018, therefore any losses arising from these events were more than covered in our attritional loss estimates, which include a little for events less than $10 million. The overall current year attritional combined ratio was 87.1%, up from 84.5% in the first quarter of 2017, primarily due to changes in business mix…

Thank you, Craig. Good morning. The Reinsurance Division delivered a strong first quarter with $96 million of underwriting profit premium growth of 22% and a better risk adjusted portfolio as compared to Q1 2017. After the record loss activity in 2017, rates were up as we indicated last quarter. At this pivotal 1/1 renewal, we focused on improving the quality of our portfolio, including its diversification by line of business and geography. To this end we were successful. Our clients and brokers increasingly gravitate to Everest as an enduring, relevant, long-term trading partner. Against this backdrop of increasing uncertainty for some of our competitors who are distracted by M&A activity, Everest provides stability and focus to the customer. Our growing global reinsurance franchise with broad product and distribution capabilities and industry-leading expense advantage and sophisticated capital and hedging capabilities, position us to maximize opportunities born from the continued disruption and evolution of the reinsurance market. This is further enhanced by the growing number of strategic partnerships that we are adding and developing across our entire organization. Our deepening relationships continue with our core clients and partners and extend beyond the traditional P&C landscape. These strategic relationships come in various forms, including global clients, quality upcoming underwriting organization. Staffed with underwriters we know well and respect cutting edge insurers, brokers with specialized distribution capabilities, niche businesses accessing unique and diversifying risks, highly specialized MTAs and asset managers and alternative capital investors. Combining the accompanying, enhanced capabilities derived from these partnerships with our nimble execution, we are better positioned to thrive where the continuum of asset risk and insurance risk is blurred. Before I comment on recent renewals, here is an overview of the Reinsurance Division’s results. Overall, Reinsurance premium showed strong growth at $1.4 billion, an increase of 22% from the…

Thank you, John, and good morning. We’re pleased to report solid start of the year for our global insurance operations. As measured across numerous metrics, we are beginning to realize the benefits of the many strategic and tactical actions taken over the past several years to completion our insurance operations for sustainable success. This of course, include the achievement of consistent underwriting profits across our steadily expanding portfolio. Globally growth written premium was $505 million for the quarter, 16% increase over the first quarter of 2017 and as strong as first quarter production we have experienced in the history of Everest Insurance. We continue to invest in thoughtful only focused growth within our chosen product segments across our global operations and this quarter’s results are a testament to that. Most importantly in the quarter, this growth resulted in underwriting profit of $12.5 million more than double the $5.1 million underwriting profit from the first quarter of 2017. Further, our attritional loss and loss adjustment expense ratio improve 1.7 points to 66.1%, reflecting the continued migration toward the higher value and diversified specialty books of business in the earned premium impact of these businesses into the P&L. These more recently establish portfolios accounted for a record 22% of our net earned premium in the quarter and will continue to expand in the quarters ahead. We remain confident that our vision to organically build a world class specialty diversified insurance organization is being realized. As we have reported in prior calls, our leadership and underwriting teams in place across the globe continue to execute on their individual and collective mandates. Our teams remain focused and our opportunity set measured by our robust submission flows across lines of business continues to grow. We will look to build on this momentum throughout the year.…

Yes, Travis, we are now open for questions.

Yes, ma’am. [Operator Instructions] Our first question comes from Joshua Shanker, Deutsche Bank.

Yes. Thank you very much. Post tax reform, I would have thought in my mind that this means that more reinsurance business we were in onshore in the United States. The way you’re stagnant reporting work, it’s seems that the greatest on growths in international and Bermuda. I’m wondering if there is a weakest than U.S. reinsurance. I’m wondering if there’s something to that, maybe you can disabuse me of some facts that they have that are incorrect or what not.

Josh, this is Craig Howie. Technically the tax rate is based on the operating tax, based on geographic region and where that income is coming from. What we have done throughout this year and that includes by the way catastrophes and any reserve development as well. But what you saw in the first quarter and the reason for a lower tax rate is the fact that we had the catastrophe losses were emanating from the United States and the majority of those releases were coming from the other segments, including the Bermuda segment.

Well and not so much on tax which is about where clients put their reinsurance business is more business can be written in the United States going forward just in general post tax reform. Or is that incorrect way of thinking about things.

Hi, Josh, this is John. I think it really – I don’t know if we can speak for other people, because I think part of it’s going to be a function of the capital. What the capital structures of different reinsurers are. But a couple of things, we have a fair bit of capital both in the U.S. and outside the U.S. and we’re going to continue to try to access the business in the most advantageous way that we see based on our underwriting expertise, based on our connection to brokers and clients and things like that. And that will – so it really is opportunity dependent as to where we’re going to write the business, whether it’s going to be in the U.S. reinsurance segment, the Bermuda reinsurance segment or the international segment

Okay. And as we had into mid-year renewals compared to what you saw at the beginning of the year. What is the trend on International property and U.S. property, I guess, do we think that will be about the same. Do we think that that one-one deployment was the way to go? What’s sort of your thing on the year at this moment?

So as we talked about last quarter, I think it really depends on geographically, where the business is and what the loss impact was by the specific business. That would drive a lot of what the rate discussions are going forward. So no surprise areas that had been affected by the HIM losses or the California wildfires saw more rate increase at one-one. As we mentioned earlier in our script, when it came to April 1, which is a big Asia renewal particularly Japan, it was a lot closer to stable. And, but we did see rate increases in some of the Caribbean areas that did have the losses. So I think it does follow the loss events, in terms of where it’s going to go at the upcoming renewals, we think that would also hold directionally true that the areas that had more losses would have upward pressure on rates. And we’ll see what happens and we’re positioned to take advantage of it based on what the rating environment is and what products that we think is most attractive. And as we talked about and you saw in this quarter, sometimes that’ll be excess or loss sometimes that will be proportional, sometimes it’ll be reinsurance, sometimes it will be retro. And we try to really capture where we think we’re getting the best risk adjusted return, irrespective of the product. And so that results in some of the changes you saw in this quarter. But we are comfortable that, no matter where the rate changes and the rate pressures are or not. And trends will be able to capture that.

And I’ll add to that, as I mentioned as well in our opening comments that there’s an improving trend in casualty as well. So increased opportunity there to meet our margin requirements.

Thank you very and good luck for the rest of the year.

Thank you, Josh.

Our next question comes from Kai Pan, Morgan Stanley.

Thank you, and good morning. So I just wonder, could you break down the impact from both mix change as well as the retro – high retro cost. The deterioration of attritional combined ratio about 260 basis points year-over-year. Just wonder, what are the sort of onetime impact or this could be dragging on for the rest of the year.

The onetime impact from the change in the attritional.

Yes.

Well I mean, as my colleague’s comment as well, but let me just first make the comment that the change in the attritional is largely due to mix of business. And influx of pro-rata business in the first quarter was driving at the attritional. But remember that overall that our premium will be coming in for the balance of the year and will served increase our overall margin. But even though the ratios might be going up, because of pro-rata business has a lot more premium on the books and therefore that will contribute to an increased underwriting margin. So we have to be careful about whether we’re talking about ratios or margin. So…

Okay.

Wonder that John may have a comment here as well.

Yeah, Kai. just a little more color on that. We also – we alluded to it a couple of times, but if you recall in Q2 2017, we won – we issued what was called Kilimanjaro II catastrophe bond. So that was in from second quarter last year and it remains in effect now. It was not in Q1 2017 and that’s part of the elevated, because of that additional issuance of catastrophe bond back in the second quarter, but not in the first. That’s why that Q1-to-Q1 comparison reflects that.

And that’s about one full point in the quarter.

So, the second thing in quarter year-over-year comparison will be one point easier?

It would be more comparative in the second quarter, because it was issued in April of last year.

Okay. Got it.

In the second quarter of last year.

Okay. So the point is that the revenue will grow faster, but the ratio, attritional commodity ratio would go higher, because of mix change, but the net, the dollar amounts margin, underwriting margin, expiry margin will be higher.

That’s our belief.

Okay, great. And then can you talk about that the loss cost trend, especially in the cash utilized.

I’ll ask Jon Zaffino, because that’s heavily impacted in the insurance book. But of course, it’s a direct carry-over to reinsurance. So Jon, maybe you can highlight some of the trends we’re seeing.

Sure, Dom. Thanks. Good morning, Kai. As of the usual sort of caveat, loss cost trends do vary widely from a line-to-line, from geography-to-geography, from program structure-to-program structure. And I’ll tell you in general, we see a relatively consistent picture over the prior few quarters. If we would aggregate our book based on premium weightings, the short, medium, long tail lines, I think we feel we’re in about that 3% range, 2.5% to 3% could be higher and it’d be lower in certain areas. For instance, commercial auto, we think is running above that. Some of the comp lines depend on geography territory; it could be a little bit below. But it’s been relatively what we expected and anticipated, we are certainly looking at various frequency and severity trends quarter-to-quarter each one of our various books of business studies that we conduct throughout the year and keeping an eye on that. So, as we expected at this point based on our – what we thought pricing would be based on where we reserve our books, it’s been kind of in line for our early expectations.

So, I think the way to summarize that would be really nothing in excess or out of bounds relative to what we see as general inflation across the entire economy.

Okay, great. And last one if I may just on the industry consolidation, do you see any opportunities for Everest Re?

This comes up frequently, and I think I’ve mentioned many times, we look at probably all of the opportunities that are around in the marketplace, and generally a bit while there will potentially be opportunity certainly nothing that we can speak to today. but generally, we have included in all of these that relative because of – in part, because of the price of many of these properties. And probably more importantly, the integration challenges in particular and the expense challenge of integrating operations. We tilt towards an organic build. And I think we’ve demonstrated that we can do that successfully and organic build you end up knowing exactly what you’ve got and you can shape and mold the operation to your liking as opposed to having to tear something apart. So that’s our preference, but it doesn’t mean if something wouldn’t come along that would – that would fit strategically for us in an area that move not yet fully developed, so that’s how I think about it.

It’s great. Thank you so much.

Just to add a little more color, outside of the M&A question, the fact that there is a lot of M&A, and activity and discussion, we think does present opportunities for us particularly on the reinsurance side. And as Dom alluded to in his opening comments, some of the consolidation results and some of that we’ve seen the large global buying more, and they want to buy from companies like Everest that have a strong balance sheet, and right P&C lines of business all over the world. And so their capacity demands are increasing and we’re seeing some of the large global insurers buying more and buying more in the casualty and professional lines. And so that was part of the reason why we had the growth that we had in Q1.

Thank you, John.

[Operator Instructions] Our next question comes from our Meyer Shields, KBW.

Thanks. good morning. I want to dig in a little bit to John Doucette’s comment on relevance. Am I oversimplifying if I interpret that as implying sort of a desire to more rapidly increase your casualty book in reinsurance?

In reinsurance or insurance?

In reinsurance.

So Meyer, I think it we – I don’t think it’s – I don’t think that’s, we don’t start with, we want to write more causality business. We start with where can we build the footprint that makes the most sense on a diversified global portfolio across as many lines of business, and make the best risk-adjusted portfolio we can. We are seeing opportunities in the causality space more than we had. We have been fairly negative on casualty and professional liability for the last several years and maybe a little bit ahead of the curve. And we think that was the right call, and we are now seeing more opportunities. So, it’s more a function of what we think the risk-adjusted pricing is. But the point of the relevance is that we have the ability, we have the underwriting expertise, we have the market expertise in local markets all around the globe. And we have the relationships with the brokers and clients to be able to deploy the capacity in any property and casualty line as we see, witness our clients need to buy. And we think that helps us along with the alternative capital that we can use to deploy in the property space. We think helps us be more and more relevant to our clients.

But it doesn’t necessarily suggest that we’re riding business at any cost. I mean, again, get back to whether it’s in the reinsurance of operation or the insurance operation, the heavy emphasis on cycle management and that applies line-by-line. At the same time, we are trying to achieve greater diversification too. So these are all things that I think have led to a more stable result for the group, and we’ll continue to do so.

Okay. I didn’t mean to just you were accepting on the price business, I just wanted to know whether strategically clients recognize that there’s maybe more underwriting expertise in Everest than premium volumes themselves would suggest?

Well, I think that’s absolutely the case, and even more importantly, that’s clearly the case in insurance, where the brand is being fully – more fully developed.

Okay, that’s helpful. And second question if I can, just looking at the comments on larger global insurers looking for more reinsurance, are they a tougher customer to deal with maybe because of an additional specification?

This is John; I think you know there’s pluses and minuses with every type of client that we trade with. They have they bring stability, they bring diversity, they bring again, to our point of trying to have a diverse portfolio they are buying from us in Latin America, in Asia, in Europe and obviously in North America and Bermuda and London. And so it allows us to across that relationship have a more stable relationship. But again, there’s – some of them are more or less reinsurance dependent than if you go to the other end of the spectrum of much, much smaller clients that are very reinsurance dependent given their capital structure and their writings. So there’s pluses and minuses of all types of clients that we trade with.

Meyer, this is really – I don’t believe it’s a negative to have a sophisticated trading partner. In fact, I think it would be quite a positive, because they are more easily recognized the strength and the value that Everest can bring to the transaction. So I view it as a positive and as John was really highlighting, I think we find that having those broader and larger relationships tends to overtime; we tend to have a more stable margin. in any one area, you might be tilted the sideways a bit, but across the entire account, you tend to have greater stability.

Okay, that’s very helpful. Thank you so much.

Thanks, Meyer.

Our next question comes from Elyse Greenspan, Wells Fargo.

Hi, good morning. A couple of questions. my first question in terms of premium growth, I guess this is tied specifically to reinsurance, do you see – you guys being able to maintain the same growth level that we saw in the first quarter. As you think about these new opportunities that you’re seeing for the balance of the year. And then also if we could just get the color from most of your segments, you really highlighted where you’re growing geographically. a little bit more color by line and how much more crop and even credit mortgage business is within the growth that we saw in the first quarter?

Good morning, Elyse. It’s John. So in terms of the growth, I mean, so a part of the growth is kind of a two-pronged issue. We rode business including proportional business at one-one and we rode more, and we would see that earn-in over the next several quarters. So we will see some growth tied to that, in terms of whether we see new business that incept when we put on the books. in future quarters, we think so, we don’t know if it’s going to be at the same rate that we’ve seen so far. it’s a lot harder for us to predict that, but there is the embedded growth that we’ve had from the business we’ve already put on the books. We do think that we have been expanding our opportunity set for example, developing political risk and trade credit in our Zurich operation; it’s just one of the many examples around the group that we’ve been doing to try to build out our opportunities that expand that. and therefore that gives the opportunity to grow more. you mentioned crop. crop was fairly flat. So their growth isn’t really coming there. We are seeing more both in the U.S., Bermuda and in our Bermuda operation in London, we are seeing more casualty professional and some whole account opportunities, and we continue as we’ve said on the last several quarters. We are writing the mortgage business that’s up a little bit or close to flat, but we do continue to see new opportunities in the mortgage space and I think we’ll be able to deploy capacity on an attractive risk adjusted basis there, and as you may recall, a lot of the mortgage deals that are done with the GSEs or multi-year deals. So, we have effectively IBNR premium coming in over the next many years for deals that we’ve already put on the books.

How much mortgage businesses within the Reinsurance segment today?

We have a run rate of about a $150 million to $175 million give-or-take that shows the new business origination.

And that’s an annual number?

Yeah.

Okay. And then in terms of – you guys didn’t see any reserve development quarterly from the cat. Was there any movements or was just kind of net neutral within all the segments in the quarter?

Elyse, we – as you know, we do our reserve studies that the bulk of our reserve studies in the latter part of the year in the fourth quarter. But of the other metrics that we use to develop to evaluate reserves along the way are at each quarter-end. Something we call actual versus expected were all trending favorable. But it’s a consequence we don’t – and we don’t make reserve adjustments based on those metrics. We wait for the reserves that’s quite – but the trends, the metrics that we use are all favorable.

Okay, great. And then one last question in terms of the primary insurance business, Don, when you – in your initial remarks, you said that the expense ratio and loss ratio would improve as the year progresses. I guess is the goal, should we think about modeling for the back three quarters that you guys will be in kind of that low 90s overall underlying margin within the primary insurance business.

We have said in last quarter’s call, low-to-mid 90s is kind of what our target is. It’s a little difficult to give you a precise number, but it would certainly be an improvement over – a measurable improvement over the last year.

Okay, great. Thank you very much.

Thank you, Elyse. Thank you.

Thank you. We have no further questions in the queue.

All right. let me thank you very much. Let me conclude with just a few thoughts. We’re up to a great start for the year. The changing mix, which we’ve talked about already will certainly impact being the attritional ratios, will in fact produce an overall increase to the total dollar margin as the year develops. We fully expect as you’ve heard from my colleagues rates to be improving both property and the casualty areas in certainly sufficient quantity and difficult, class of the business, who will allow us to increase our overall returns here and again, we are confident about our ROEs. Finally, if you just give me one second, I’d like to close with a tribute to our colleague Beth Farrell, who is retiring in early May after 15 plus years with Everest. I know she has been a valuable resource to those on the call. I certainly appreciate the support she is giving me. We will miss her, but wish her and her husband a full and enjoyable retirement. Thank you so much, Beth.

Thank you.

And again, thank you all for your interest this morning and look forward to our future discussions over the weeks ahead. Thank you.

Thank you, ladies and gentlemen. This concludes today’s teleconference. You may now disconnect.