Good day, ladies and gentlemen, and welcome to the Everest Re Group, Ltd First Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would now like to turn the conference over to Mr. Jon Levenson. Please go ahead, sir.

Thank you, Nadia, and welcome to the Everest Re Group, Ltd. 2020 first quarter earnings conference call. The Everest executives leading today's call are Juan Andrade, President and Chief Executive Officer; Craig Howie, EVP and Chief Financial Officer; and John Doucette, EVP and President and CEO of the Reinsurance division. We are also joined today by other members of the Everest management team. Before we begin, I will preface the comments on today's call by noting that Everest's SEC filings include extensive disclosures with respect to forward-looking statements. Management comments regarding estimates, projections and similar are subject to the risks, uncertainties and assumptions as noted in its filings. Management may also refer to certain non-GAAP financial measures. These items are reconciled in our earnings release and financial supplement. With that, I'll turn the call over to Juan Andrade.

Thank you, Jon, and good morning, everyone, and thank you for joining the call. First and foremost, I hope you, your families, your friends and your neighbors are all staying healthy and safe. On behalf of our company, I want to offer our heartfelt condolences to all of those, including many in the Everest Re family who have lost loved ones during this difficult time. Our sincere thanks go to those medical professionals and first responders who are putting themselves at risk to keep everyone safe. Also, to all of those who are working hard to keep the supply chains going: the truck drivers, delivery drivers, grocery store employees and everyone else, thank you. I also want to thank all of Everest employees for their spirit and their unflagging commitment to serve our customers. We took early, proactive and decisive actions to protect the health and safety of our employees, their families and our stakeholders. As a result, Everest continues to successfully operate remotely. We are doing our part in support of the global economy by serving all of our customers and stakeholders without interruption. Our move to remote work was planful with a well-executed organizational resiliency plan and an underlying technology infrastructure that performs seamlessly and an information technology organization that has performed admirably. Our employees have been flexible, resilient and productive. We have received accolades regarding our responsiveness and our stability. We also continue to support our local communities around the world in their pandemic relief efforts. These are leadership moments for people and companies. Our culture of collaboration, thoughtful assumption of risk, humility and relentless execution are at the bedrock of our performance. I am incredibly proud of our people and our company. Our diversified global platform, with its broad mix of products, distribution and geography, remains…

Thank you, Juan, and good morning, everyone. Everest reported net income of $17 million for the first quarter of 2020. This compares to net income of $355 million for the first quarter of 2019. Net income included $172 million of net after-tax realized capital losses compared to $74 million of capital gains in the first quarter last year. The 2020 capital losses were primarily attributable to fair value adjustments on the public equity portfolio. Operating income for the quarter was $164 million driven by strong underwriting results across the group, stable net investment income and lower catastrophe losses, offset by a COVID-19 pandemic IBNR loss estimate of $150 million. The overall underwriting gain for the group was $29 million for the quarter compared to an underwriting gain of $196 million in the same period last year. In the first quarter of 2020, Everest saw $30 million of catastrophe losses related to fires and hailstorms in Australia and a tornado in Nashville, Tennessee. This compares to $25 million of catastrophe losses reported during the first quarter of 2019. Overall, our prior year catastrophe loss estimates continue to hold. The combined ratio was 98.6% for the first quarter of 2020 compared to 88.7% for the first quarter of 2019. Excluding the catastrophe events and the impact of the COVID pandemic, comparable combined ratios were 89.9% for the first quarter of 2020 and 87.4% for the first quarter of 2019. Excluding the pandemic IBNR loss estimate, the attritional loss ratio was 61.5%, up from 60.2% for the full-year 2019 primarily due to the continued change in business mix. For the Reinsurance segment, the attritional loss ratio, excluding the pandemic loss estimate, was 59.8%, up from 58.2% for the full year of 2019. This increase was related to the continued business mix shift toward…

Thank you, Craig. Good morning. As Juan did at the start of the call, I would like to add my sympathies to our reinsurance trading partners and their families affected by the coronavirus pandemic. Like the rest of the group, the Reinsurance division, supported by our dedicated IT colleagues and our newly completed next-generation global underwriting platform was able to transition to 100% work from home without missing a beat. We are reviewing submissions, quoting and binding facultative and treaty business and settling claims. Now I will review the quarter. During Q1, the Reinsurance division increased our gross written premium to a record of $1.8 billion, up 16% from last year. Q1 growth was driven by January rate increases in loss-exposed areas and retro and writing more PURPLE products and casualty business due to improving conditions there. Growth was widespread, spanning territories and lines, including the U.S., international, casualty and property and short- and long-tail facultative reinsurance. Excluding COVID-19 losses, our underlying reinsurance loss ratio was up by two points largely due to more pro rata premium written over the last year. Pro rata business directly benefits from an improvement in original rates while ceding commissions have generally been stable and, in some cases, improved. Those improved original rates will take some time to be recognized in our loss picks. Note that the volatility associated with $1 of pro rata premium is generally lower than $1 of excess premium, and combined ratio alone can obscure risk-adjusted returns. We are pleased both with our progress at building a more diversified, profitable, sustainable gross portfolio and that we are seeing some tailwinds in the reinsurance market in casualty, property, retro, specialty and fac to help us achieve a stronger, more profitable portfolio. Everest's facultative operations continue to see an increase in demand.…

Great. Thanks, John. We would like to open-up the call for questions. We would ask today, if you could please limit to one question. And then if you do have a follow-up with another question, you could please rejoin the queue. We are hoping to get a lot of questions today. Nadia, could you please open up for Q&A?

Absolutely. [Operator Instructions] We will take our first question from Mike Zaremski from Credit Suisse. Please go ahead.

Hey, good morning and thanks for all the commentary in the prepared remarks. My first question, I will go with mortgage insurance. I think many investors feel that ultimately, the vast majority of mortgage borrowers who defer or miss payments will ultimately cure. But it would be helpful if maybe you can help us size up kind of where your excess layers kind of kick in from maybe a loss ratio standpoint, but some kind of framework to understand if you guys kind of play in the 100% combined ratio and up on, when we're looking at the mortgage insurers or kind of how to frame your exposure there.

Yes. Thanks, Mike. And this is Juan Andrade. Look, I think to echo some of the comments that John Doucette made in his opening remarks, from our perspective, I think there's really three things to consider. Number one is where we play as a reinsurer; and number two, the fact that we see this more as a frequency driven event essentially driven by unemployment. And so that certainly helps our view of all of this. The other part of that is that unlike the 2008 financial crisis, I think as we look at the mortgage products, the better original underwriting, I think, here will pay off. There's also much earlier intervention by the government, much tighter supply of housing, too. We also believe we have some very conservative loss picks on this. But let me ask John to answer your question more specifically on structure. John?

Yes. Thanks, Juan, and good morning, Mike. Thanks for the question. So again, I think you need to think of the world in two different buckets. One is on the mortgage insurance side, and one is on the GSE side. So on the GSE side, that's really more like a credit mortgage catastrophe. And so it's hard to map that to a loss ratio because as Juan said, there is frequency and severity tied to different percentages of default. So it's not really a loss ratio. On the mortgage insurance side, these are typically quota share deals. But then as I mentioned, given the profit commissions that go back, it roughly -- it's effectively like an excess deal that it catches at about an 80 combined ratio.

Okay. And on the GSE side, is there a way to frame maybe what -- is it a cumulative loss of like 2.5%, or any numbers you could put around on the GSE side that could help us?

Yes. And it will vary by layer. I would just go back to the point I did say, which is -- so some of the GSEs have broad layers that they offer one layer, so -- and a much bigger stretch. Other ones have various layers. And where we had the opportunity, we'd typically play higher up on the -- further remote away from risk. But it's hard to map it to -- there's a lot of moving parts to the answer as to what the default rates are and things like that. And it's very much a function of -- because the GSEs also have the benefit of an earned cover from the MI. So if there is MI insurance on it, so there's -- it's not a -- there is no simple linear answer on that about what the default is. It depends on the type of the default, the frequency, severity, what drove it.

Understood. My last question, switching gears to primary insurance. I think one of the most frequent questions we receive is trying to understand whether each insurer has a material amount of policies, property-related business interruption policies that may not have a virus exclusion specifically. And I know -- I think part of the IBNR charge you took included business interruption, but is there any way you could frame whether you -- a portion of your book doesn't have a virus exclusion and whether you are reserving or making some reserves for those policies?

Yes. Thanks, Mike. And I would go to -- this is Juan, and I would go back to my prepared remarks where I basically said that the majority of the property policies in the primary insurance book do contain a virus exclusion. And we only have a very small -- frankly, it's a very, very small segment where we do offer sub-limited coverage and I mentioned that it's less than $25,000 with very short gaps on duration. And all of that is included in the estimate that we put up for the quarter.

That’s helpful. Thank you.

Thanks, Mike.

Thank you. We will next go with Yaron Kinar from Goldman Sachs. Please go ahead.

Thank you very much. First question, probably for Juan. I think in your opening comments, you said that you had limited exposures in the Insurance segment to workers' comp among others. I was hoping that maybe you could help us -- or maybe explain how you come to that determination in the context of workers' comp premiums, I think, account for about 1/5 of the segment GPW?

Yes, I would be happy to talk to you about that. I would say, number one is we really don't have exposure to frontline first responders and very minimal exposure to the frontline health workers, the health care workers in the portfolio. So that essentially is how we come to that conclusion. So as we went through this very thorough process that I mentioned, we looked at industry profile for businesses that we deemed essential. And that's where the IBNR provision really was put up for those kinds of businesses. But again, when you look at those industries that would be most affected, health care workers, first responders, etcetera, we’ve very minimal exposure in the portfolio.

Okay. And if you broaden that -- the more broad category of essential workers, how would you think about that?

Yes, and that’s essentially the provision that is included in the IBNR that we put up for the quarter. So if you look at our total workers' compensation book, again, the exposure to health care workers, first responders is not there. When it comes back to what we consider to be essential workers, that is really the provision that was taken for the quarter. So we believe that we've already accrued for that.

Great. That’s very helpful. I appreciate. I will queue up for more questions. Thank you.

Thanks. Thank you, Yaron.

Thank you. We will next go with Brian Meredith from UBS. Please go ahead.

Yes. Let me just follow-up on that one. I noted today that California came out and, I guess, officially expanded presumption of coverage for employees there. So I'm assuming that your estimate actually included the expanded presumption of coverage for workers' compensation?

No, it does not. So that’s recent information, right? Look, our point of view on presumption of coverage is that it's something that needs to be taken very seriously obviously. Any broad sweeping presumption measures, frankly, can cause long-lasting harm to the industry and don't make a lot of sense for a number of reasons. Retroactively restructuring the underpinnings of the workers' compensation system to shift the burden of proof of cost to employers and their insurers really undermines the spirit of the workers' compensation system. And that's not something that companies have underwritten or priced for, and thus, it materially weakens the system. And so that is something that needs to be considered. It also violates well-established principles for workers' comp law that the claimant has the burden of proving his or her claim was a workplace injury and is a covered claim. And so that’s the way we tend to view this, but our estimate does not include an expansion of presumption at this point in time.

Thank you.

Thanks, Brian.

Thank you. We will next go with Ryan Tunis from Autonomous Research. Please go ahead.

Hey, thanks. Good morning. My first question, we were given this stat on another call this morning about the percent of the exposure to personal lines or homeowners-type businesses versus commercial lines within the property cat book. By client, do you have a -- could you provide us with that breakdown?

Thanks, Ryan. Let me ask John Doucette to jump in and help me answer that question.

Yes. Good morning, Ryan and hope you’re doing well. Look, that's a -- we write $6.5 billion of premium around the world, a good chunk of that’s property. It's going to vary all over the place. By territory, within property, we write quota share per risk and catastrophe. And there's a mix, and it will vary within region in the U.S. as well. So there's no simple answer to that.

Got it. And then my other one, I guess, is trying to think about -- I guess what I'm trying to think about is if there is like a second wave later in the year, whether or not that would constitute a second event. So maybe trying to get some clarification. I'm not sure how to ask the question, but some clarification on, like, what would a conservative reading be of the end of this as an event from a reinsurance standpoint? Like what conservatively would, I guess, close the book on the losses associated with this first lockdown?

Yes. Ryan, this is Juan. Let me jump in there, and I will ask John to supplement my answer. I think this is where you come back to my comments that this is not a follow-the-fortunes event for Everest, right? When you start looking at event definition, including hours clauses, limiting duration of an event, outlining the radius or the contiguous environment that’s involved, this is where all of that is going to come in into play for us, right? And so John, maybe you can more specifically answer that also.

Yes. Thanks, Juan. And I think it's important to point out that not only is the event going on, but we have rolling inception dates that are happening all the time. And we just finished 4/1s. We had some 5/1s in the U.S., May 1. Florida is coming up June 1. And in July, we’ve a lot of renewals kind of all over the world, and facultative is ongoing throughout the year, many times a year. We have inceptions. And one of the things to point out that I think is important is that we are pursuing terms and conditions that help narrow or exclude pandemic risk. And that will ripple into some of the things you're saying about the go-forward. And that will help mitigate, limit or exclude the potential losses going forward. And we're certainly not alone doing that. Other -- while we're leading the charge, many other reinsurers are doing it as well. And I think that will help narrow whatever the scope of this turns out to be. But there's a lot of economic facts and things to come in terms of -- to answer your question better than that.

Thank you.

We next go with Meyer Shields.

Can you hear me?

Yes, Meyer, we can hear you.

Okay, great. Good morning. I have a question on business interruption. I'm hoping you can explain the position and maybe the reserving stance on the question of whether commercial property policies that don't include a virus exclusion but require direct physical damage, is it Everest's position that, that is still an absolute event, or are there some reserves that -- or some reserves that you established for that?

Yes. No, Meyer. So this is Juan. Look, I think as I said in my opening remarks, we absolutely believe that physical damage absolutely is unambiguous in the coverage of this, right? If you think about it, there's double triggers, right? Number one, there has to be covered physical damage, which, again I believe is pretty unambiguous in the wording. And secondly, we also have virus exclusions on the portfolio. So I think that's the other trigger. So the answer would be yes to your question, do we believe it would hold?

Okay. Thank you. The second question, I was just hoping that given the comments that Craig had made about moving up the credit quality curve since the end of the quarter, can you give a sense as to new money rates?

Sure. Craig, can you take that, please? Craig?

Craig maybe on mute.

Thank you. Sorry. Meyer, I saw on your -- or I mentioned in my prepared remarks that our new money rate for the investment-grade portfolio was about 2.7% on average for the quarter. What we did see was due to some of the widening of the credit spreads and some of the actions that we took in the quarter, we actually saw better rates in March than we did for the overall quarter. So they were higher and closer to the 2.9% range. On average, we saw -- across investment-grade and some below investment-grade, we saw a purchase yield of about 3.2% for the quarter.

Okay. That covers April in essence as well?

I'm sorry, I didn't hear that?

Yes, I was wondering whether that covers the sort of April yield as well.

Well, the April yield is probably -- as I said to you, it's closer to the 2.7% on the investment-grade portfolio. And then some of the high yield that we are seeing so far is still over 5%.

Okay, fantastic. Thank you very much.

Sure.

Thank you. We will next go with Elyse Greenspan from Wells Fargo. Please go ahead.

Hi. Thanks. My first question, going back on the business interruption and COVID discussion and just on the reinsurance side, I recognize -- I think someone else asked about the commercial versus personal breakdowns as well. Maybe you can give us those percentages, but is there a way for you to give us a high level view of what policies could be at risk in terms of accounts that have virus exclusions so they don't -- just as we kind of think about this being an ongoing event and what additional losses would come to Everest on the catastrophe reinsurance side?

Sure, Elyse. And this is Juan and let me start off with that. Look, I mean this is still obviously a fluid and ongoing event. And we put a pretty thorough process in place in the first quarter that, as I mentioned in my remarks, is ongoing as far as how we're going to be able to continue to refine the estimates as we go-forward. On the reinsurance side, that basically involved spending time with clients, brokers, essentially looking at some of the underlying contracts, etcetera, to be able to get a handle on that. And what we know is that the underlying business that we're protecting, the vast majority of that requires physical damage before providing any cover on the business interruption side of things. And also in the U.S. specifically, most of the underlying policies in those portfolios that we're protecting also will include the virus exclusion. But let me turn it over for John Doucette to give you maybe a bit more additional color on that.

Yes. I would -- I don't really have that much to add. As we've said, we're also -- our top down bottom up review, we looked internally, externally, talked to a whole lot of brokers, clients looking at our -- not just our catastrophe book, but our contingency book just across all lines of business. We did a kind of first principles review of everything that helped us get to the number that we got to and, again, trying of factor in retentions, deductibles, hours clauses, radiuses, contracts, some on a named peril basis and other provisions that vary. And we -- again, we looked and -- across, did a very thorough review, had a lot of people looking at it and are comfortable, based on what we know today, that we’ve put up a reasonable provision for that.

Thanks. And then my second question is on the retro side. If you could just give us a more update view of the pricing within that business. And then this is more specific to your outbound purchases. Would you guys look to potentially buy less retro and keep more business net? And can you just have a current view of the pricing that's going on in the retro market?

Thank you. John, can you take that?

Yes. Thanks, Juan. Yes, thanks, Elyse. Good question. And so retro is predominantly not exclusively January 1. A lot of it covers -- a very solid majority happen at January 1. And so we’ve seen a few that have come up the summer off-cycle and do it at March, April, May, June. And I think -- so we’ve seen increased pricing there. And I think that the alternative capital that I talked about in my prepared remarks, we are seeing and hearing a lot of noise about redemptions and, again, frustrations with the losses and kind of a comparison to other places to deploy the capacity. So I think there is a lot of noise there that we think will continue for a while. And that will have a direct impact on the retro market. In terms of our hedges, we look at a whole suite of hedges and really try to build a holistic program that has different attachment points, different product types, different geographic coverages, different durations of how long they are in place. And as you will recall, we renewed our catastrophe bonds. We have almost $3 billion in catastrophe bonds in place. We renewed them in November, December. The ones that had expired, we bought lower down. And again, in hindsight, we are glad we took the capital that was available to us then, even though it had been a slight increase in rates. And those are multiyear deals, and they will be in place for the next several years. And because the pricing's already locked in, the cost of that capital, the cost of that or the rate change embedded in that on a go-forward basis is 0. We also have Logan, our strategic partner and continue -- Logan is about flat from January to now and continue to use that as a very important hedging mechanism. And the cost of that goes basically, Logan rides up and down with us as they take quota shares of different layers of and build -- we build portfolios for them where they help us hedge. We do buy traditional reinsurance in retro. We will remain pricing sensitive to using that as a form of hedge. And we also buy ILWs, and we've been in the ILW market since January, looking and buying up ILWs as another way for us to hedge.

Okay. Thank you for the color.

Thank you. We will next go with Ron Bobman from Capital Returns. Please go ahead.

Hi. Thanks a lot. Glad to hear everyone sounds well. I had two questions. One, trying to get some handle around sort of the reinsurance buying demand from the market. I guess that would be sort of directed to John principally. John, with primary property companies presumably having some affirmative BI exposure and losses and presumably some amount unknown, the sort of tail risk, whether it be sort of judicial decision, litigation-oriented, etcetera, and the unknown and significant amount of that, what should a primary company be thinking and sort of doing now, if at all, as far as buying additional reinsurance? And what I’m really sort of thinking about is sort of third event cover if some amount from COVID is going to tap their first tower.

Thanks. Appreciate the question. So look, we are seeing a lot of interesting things about demand out there. But I would broaden it beyond people are buying specifically for COVID. People are looking because it's been a bumpy few years for the industry. And I think people's view, whether it's wildfires, Japanese wind, different exposures that happen and the development that we saw, so I think that overall, there's a view of derisking and a lower risk appetite. And that was around and building before COVID. And I think that today, people will be looking not just to how do I protect against COVID, but how do I use reinsurance to help manage volatility in my earnings from typical covers, typical perils as well as consider more capital protection. So -- and I think -- so we are seeing demand from larger buyers. We are seeing demand from smaller ones that are rating-sensitive or have ratings pressure. And a lot of our clients had asset issues due to the impact of the COVID environment, which also drives reinsurance demand.

Okay. Thanks. And then the $3 billion in cat bonds that you mentioned and then separately the ILWs, do those -- is pandemic a named peril that those -- the cat bonds and separately the ILWs would provide protection for?

They -- both the ILWs and the catastrophe bond are named peril and a pandemic is not a named peril, I mean.

Thank you. We have Yaron …

One last -- I’m sorry, one last comment I would add to Ron's question, too. If you're also thinking about Everest insurance, we also feel that we’ve a very good reinsurance program that's in place with regard to all of this. So I just wanted to finish that thought. Thank you.

Thank you. We will next go with Yaron Kinar from Goldman Sachs for a follow-up question. Please go ahead.

Hey, thank you. I thought maybe I would move away from COVID questions. I noticed there was a little bit of an uptick in the accident year loss ratio in insurance. Can you maybe talk about what drove that?

Yes. Sure thing, Yaron. This is Juan. I think as Craig mentioned also in his opening comments, when you look at the loss ratio for the quarter, very close or very stable to where we were at the end of the year. There is really a main driver on sort of the uptick, and that really has to do with mix. We saw a bit more growth in A&H, in casualty and in risk management. And those lines of business basically could carry higher loss picks than some of the other lines of business. So I would attribute it basically to the mix and the growth in those specific lines.

Got it. And is that mix also impacting part of the decline in the expense ratio year-over-year?

The expense ratio exactly, that was primarily on the commission side of things where because we did write some more risk management business, etcetera, you also had a mitigating effect on that. So that would be correct.

Okay. Thanks so much.

Sure. Thanks, Yaron.

Thank you. It appears that we have no more questions in the private -- in the question queue. [Operator Instructions]

Nadia, pardon, I think we are done with questions. And we would like to hand the call back over to Juan for some closing comments.

Great. Thank you, Jon, and thank you for everyone today. And again, as I said, I’m glad that everyone seems to be doing okay. Look, as far as just some quick summary remarks, over the years, our company has built a reputation for strong operating performance with a strong capital position built to withstand catastrophes. And while no one could have predicted an event of this magnitude, we do stand ready to serve our customers and our brokers, and we will have the strength and stability that they will have come to rely on us over the last five decades. So we will keep refining our estimates, and we will keep working on this, but we will also be there for our customers as they need us. Thank you for your time.

This concludes today’s call. Thank you for your participation. You may now disconnect.