Hello and welcome to the Q3 2022 AXIS Capital Earnings Conference Call. All participants will be in listen only-mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I’d now like to turn the conference over your host today, Mei Zhang. Mei Zhang please go ahead.

Thank you, Keith. Good morning, ladies and gentlemen. I’m happy to welcome you to our conference call to discuss the financial results for AXIS Capital for the third quarter ended September 30. Our earnings press release and financial supplement were issued last night after the market closed. If you’d like copies, please visit the Investor Information section of our website at axiscapital.com. We set aside an hour for today’s call, which is also available as an audio webcast on our website. With me today are Albert Benchimol, our President and CEO; and Pete Vogt, our CFO. Before I turn the call over to Albert, I will remind everyone that the statements made during this call, including the question-and-answer session, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from those projected in the forward-looking statements due to a variety of factors, including the risk factors set forth in the company’s most recent report on Form 10-K and other reports the company files with the SEC. This includes the additional risks identified in the cautionary note regarding forward-looking statements in our earnings press release issued last night. We undertake no obligation to publicly update or revise any forward-looking statements. In addition, this presentation may contain non-GAAP financial measures. Reconciliations are included in our earnings press release and financial supplement. With that, I’ll turn the call over to Albert. Albert?

Thank you Mei. Good morning, everyone, and thank you for joining our third quarter earnings call. Before we begin our review of results, I’d like to say that our foremost concern is with the welfare of the communities impacted by Hurricane Ian and other catastrophic events across the globe both natural and manmade. It’s at times like these that our industry has an opportunity to fulfill its social purpose to help people when they’re down. And for AXIS we’re committed to do our part to support the victims and aid in the recovery effort. Let’s now begin our review of our quarter. We believe the events in the quarter have validated the actions that we’ve taken over the past few years to enhance our market positioning and build a more balanced, resilient and profitable portfolio. During the quarter, notwithstanding the impact of Ian and another catalyst our performance provided further evidence that the business we’re building is one that will deliver positive results in both high and low cap quarters. Indeed, even on the quarter where the industry is anticipating more than $70 billion of insured cat claims, AXIS is now generating positive operating income and for the year-to-date while our industry has already suffered aggregate cat losses in excess of $100 billion AXIS has increased its underwriting income by 75% and our operating income is up 30%. Recent third quarter cats are a good illustration of our progress. We estimate hurricane Ian will be a $60 billion event. And that $160 million charge represents less than 0.3% share of the industry loss. By comparison, and last year third quarter, Hurricane Ida was a $35 billion event and our $175 million loss estimate represented a market share of half of a percent. We’re confident that our progress will continue and…

Thank you, Albert. And good morning everyone. During the quarter we generated net loss attributable to common shareholders of 17 million and an annualized ROE of a negative 1.7%. Operating income was $3 million. Diluted book value per share at September 30 was $43.50. This was principally driven by net unrealized losses related to increased treasury rates and the widening of credit spreads. As noted in our press release, adjusted for net unrealized losses on available for sale fixed maturities, the book value per diluted common share would be $55.21 which would have been a modest increase from the comparable year end 2021 number. As I noted in recent quarters, while the increase in interest rates has negatively impacted our book value per share, we are confident we will recover these values as our high quality fixed income portfolio matures over the next three years. In the meantime, new money yields are now significantly higher on our portfolio and this will give us an opportunity to grow investment income. The company produced a consolidated current accident year combined ratio ex-cat and weather of 88.1% an increase of half a point over the prior year quarter. And the consolidated current accident year loss ratio ex-cat and weather was 57.1% an increase of about 1.7 points over the prior year quarter, which was driven by the change in business mix in both segments. Previously announced this quarter’s pre-tax catastrophe of weather related losses, net of reinsurance and reinstatement premiums were 212 million or 16.6 points primarily attributable to hurricane Ian. This compares to 250 million or 20.7 points in 2021. The consolidated acquisition cost ratio was 18.7%, a decrease of four tenths of a point over the prior year quarter. And this was driven by a decrease in both segments. The consolidated…

Thank you, Pete. So we’ll do a brief overview of market conditions and outlook and then we’ll open the call for questions. As with last quarter, the market environment continues to be favorable. As expected, the pace of pricing increases does continue to moderate. Nevertheless, pricing improvements continue to be broad based, with the vast majority of our product lines achieving great change equal to or above loss trends. The average rate increase in our insurance book was 7% for the quarter, marking 20 straight quarters of positive rate change, bringing the cumulative rate change for our book to almost 60% since the beginning of 2018. By region international was stronger at close to 9% while North American market was closer to 6%. By class of business professional lines once again saw the strongest pricing actions with average rate increases of close to 10%. But as I’ve noticed in recent quarters, professional lines are diverging and pricing trends, and best explained that three parts. The first is cyber, which continues to experience hard market conditions with an average rate increase of 45%. The second is public D&O which is less than 7% of our overall professional lines. This line is seeing the most channel changing conditions, with rates down more than 30%. This was driven by much greater reductions in the IPO and these back businesses, while traditional renewal business is exhibiting more modest reductions. Consistent with past quarters, the drivers of this decrease are a combination of strong price increases in prior periods, fewer new business opportunities and IPO and specs, the coming online of new capacity and a recent decrease in the number of filed cases, which has led to a more competitive environment. Our view is that notwithstanding market supply and demand factors, we’re in a period…

Yes, thank you. At this time, we will begin the question and answer session. And the first question comes from Yaron Kinar with Jefferies.

First question, going back to the cat losses this quarter and Ian in particular, so $160 million of Ian losses pre-tax. Can you help us think through how that compares to the published PMLs that seem it seems like that loss comes in well above 100. And I don’t think that’s really the case. So I’m guessing there’s some elements I am missing there. And then on top of that, I think you had talked about lowering the cat load. And even before exiting the property, business, and reinsurance to about 6%. And seems like it’s running a little bit above that today. So was hoping to get a little bit of color there.

Thanks, Yaron. I will handle second part of that first, or actually, I’ll handle the first part of that first, yes and 160 billion. If you look at the second one PML, you think that might be a little bit over one over 100 of the things I’d say is one, every event in and of itself, an actual event is different than all the modeled events. And hurricane Ian had some specifics about it that made it just a little bit higher. And again, the models give you kind of the one in 100 views. So you got a median, you got a bunch of events that model through there. And I think this actual event was just a little bit higher than you’d expect. I also think that part of what we do see is, when we look at a $60 billion event like this, especially on the insurance portfolio, we attach at our cat as well. And so a one in 100 event is, is not as much as a higher than you’d expect from like a one in 50 or one in 70 event. And so I think it had to do with the specifics of the event, as well as how the models kind of look at an array of events. And this actual event just had some particulars with it, as well as us assuming it’s a $60 billion event. When I think about what we expect going forward. Yes, we had hoped this year with all the changes we were doing to see the cat loss ratio come down three to four points is what we said at the beginning of the year. I would say nine months we’re down 2.5 points. So it’s in the right direction, it’s where we’re headed, I’d say half three quarters of the way through the year did not really expect us to have 110 or so billion dollars of industry losses through nine months. But I do expect by the time we get to the end of the year, our cat loss ratio will be down from where it was in 2021. Maybe not down to the five to six points that we’re hoping to get it down to. I would say, given the volatility that we’ve seen around cat, that actually was part of the decision we made to get out of the reinsurance property and cat business. And as we mentioned on last week’s call, when I look at the all in number on a go forward basis, I would expect our cat loss ratio going forward to be somewhat less than 5%.

Thank you. And then my second question with prop cat rates up 30% to 60%, and potential spill over to other lines. How are you thinking about the session plan for 2023? Do you expect to retain more? And how does that impact growth opportunities?

Well, we keep talking to our reinsurers, we think we’ve got excellent relationships with our reinsurance long, mutually profitable relationships going back a while. From our talk right now is that we don’t expect that access will be in any way disfavored of what’s happening in the market. We will have to see I mean, our cat program renews in May. So we’ve got a little bit of time to see how this thing evolves. But for the moment, we’re assuming we’re going to keep more or less the same capacity, we expect that we’ll have to pay more. We’ll obviously need to charge more on the front end to reflect that. But for the moment, we are not assuming any meaningful change in reinsurance cover. Obviously, as the year evolves, we’ll be able to have more color on that.

Thank you. And the next question comes from Elyse Greenspan from Wells Fargo.

My first question just given the dynamics of the market, and how that could evolve over the next year as well as just here you guys are from a leverage perspective I would assume that you’re on the sidelines with buybacks as well, least in the short to intermediate term, but can you give us some updated thoughts?

Yes. Hi, Elyse, this is Pete. I would say I agree with your comment. Right now, we didn’t buy any shares back in the quarter. Right now I don’t anticipate us buying any shares back in the fourth quarter. When you look at our leverage ratios, yes, they are elevated due to the decrease in shareholder equity. However, we have done modeling and looking at the bond portfolio and how it will mature over the next three years. And we do feel confident that as we look through 2023, our leverage ratios will actually they should come down below 30, as we get into next year, and should come back into reasonable ranges over the next obviously, two to three years. So we’re comfortable, we’re not comfortable where I am, I don’t like the leverage ratios as high as they are. But I would not anticipate us having any issues getting back to appropriate levels, just by the passage of time as the bonds look to mature. The other thing I would point out is I would not expect us to issue any more debt. And I would say right now we feel in a good position. We don’t have any debt, maturing until 2027. So right now, I don’t have to worry about refinancing and the high interest rate environment. We’ll see what it is and 2027.

And then on the insurance book, you called out some impacts in the liability program this in the current quarter and earlier this year. Can we just get some more color about what’s going on there? And then just like the forward outlook for that business.

Yes we had some programs that as we’re looking at the experience emerge through this year, was not emerging to our liking. We’ve already taken underwriting action there, and we’ve canceled quite a number of those programs, and they were on the liability side. So the good news is those particular programs have already been put on notice and have been canceled, but it did mean that we did put up some reserves in those businesses. So if you read the Q, you’ll see the increase in liability reserves and negative development, both in the quarter and year-to-date was essentially due to that book of business and because of that we increased our loss picks on that earn premium. As I mentioned, that probably pushed the loss ratio up a point in the quarter, and two thirds of that is attributable to catch up for full year. I did mention that we started looking at this in the second quarter and took some action in the second quarter. And we do feel well, you can never say you’re done but we’ve taken some appropriate action so far year-to-date.

And I’m sorry, one follow up on my prior question on leverage. If we see rates rise another 100 basis points, would your answer then change? Would you then think that you guys needed to manage down leverage or redeem some of your debts?

I think right now given the duration of our portfolio Elyse right now, I don’t feel that we would need to take those type of actions.

Thank you. And the next question comes from Michael Phillips with Morgan Stanley.

I guess follow up on one of the earlier questions or comments. It sounds like you expect to have good success testing on your higher reinsurance costs and your insurance primary book, casualty book, I just want to make sure that’s the case.

Yes, I think that the issues around the higher reinsurance costs on property, cat are going to fall across the entire industry. And so it’s my expectation that that will have a push down effect on the primary market. Yes. I don’t assume, I don’t expect, Michael that primary companies are going to absorb higher reinsurance costs without changing their upfront pricing.

And then , obviously, in the insurance loss ratio on the core loss ratio, one of which, of course, was the mix shift again, as you continue to kind of push the growth in those casual and professional lines, I guess, can you can help us think about how we should think about that ratio going forward with continued to mix shift changes?

Yes, I think that what’s happening is that we’re growing obviously, the longer tail lines more than we’re growing, the short tail lines or the property in particular, and so that’s having the impact on the ex-cat loss ratio. But as Pete pointed out earlier, the ex-cat loss ratio is only one factor that we look at. When we look at the technical ratio, generally, these lines come with lower acquisition expense. So the technical show is actually quite good. The all in combined ratio for that business is good. So overall, I don’t see, we don’t see that increase in the ex-cat loss ratio as indicative of any reduction in profitability or attractiveness of the portfolio. But to your point, as we grow that there will always be a little bit of headwind, if you would, from mix shift. It’s historically been on the insurance side, a point or less. We’ll see what it looks like as we go next year. But it’s been much more dramatic, obviously, on the reinsurance side, given the significant reduction, which is why we added those additional pages in the back of the financial supplements so that you have a sense of what the going forward bulk looks like. But I would say on the insurance side, clearly a point or less. But I don’t know that I can do much more than that right now. Pete anything?

The only thing I’d add is, if you look year-to-date, Michael the mix shift has gone from 47% proliance liability to now that’s up to 51. So that’s a pretty move shift this year. And that’s on the net earned and it’s in the queue. So you can take a look at it. But you’ve seen kind of see a four point move, there’s about a point on the ex-cat loss ratio. But to your point over the overall combined, we really like when we see the combined ratio, all in ex-cat down in insurance year-over-year. So I think you’ve kind of got to watch the mix shift. But we do think that’s really attractive business right now. And it’s gotten some of the higher rate changes over the last 36 months or so.

Yes, it’s a great ratio if the mix doesn’t change. But as soon as the mix changes, you start to lose the message in the ratio.

Thank you. And the next question is from Brian Meredith with UBS.

Hey Albert, hey Pete. A couple of questions here for you. The first one we listened to some of the other reinsures and listen to some of the press and stuff. They’re talking a lot about how perhaps some of the reinsurers are going to leverage cat capacity to obtain more attractive terms on casualty business get more casualty business, just because there’s such a demand for cat limit out there right now. I’m just curious, how do you think that impacts you all’s specialty reinsurance business? Is there more pressure now? Is it going to be more challenging to keep some of that business at one-one renewals?

That’s a fair question Brian and obviously we’ve been monitoring that. What I will tell you is going back to the individual conversations we’ve had post the announcement Monte Carlo, CIB, frankly even -- the message that we’re getting from our customers that they like working with us. They like the relationship we’ve had. They like the value we provide, and that they are going in position is they want to continue trading with us. I think that we’re realistic and in some cases, that may be, it may be a factor where they may have to take some business to facilitate a cat placement. But I would say two things. We’re not the only reinsurer not providing cat. So I don’t think that we would necessarily be the first that gets to pay for that. I would also say that there’s a lot of customers that we have that don’t need to buy cat. And we would expect that those sessions, whether they be in the A&H business, for example, some of the specialty businesses, mortgage business, etc. We don’t see how that would influence at all the reinsurance purchase. But yes, there is a risk that we would lose some business. I’ve said this before, we’ll defend every dollar of attractive business, but there is that risk. But here’s what I would tell you. In the longer picture, I don’t think it matters whether we renew $100 million, more or less at the one-one, I think what matters is our transition to be a specialty underwriter with high profitability and low volatility. And I will also say that whatever book we renew, into one-one, I’m highly confident will be a book with strong relationship minded buyers. And that book will provide a very good base for future profitable growth in further periods. So we understand the risk, but long term in terms of the company’s strategic trajectory is something that we will be able to manage through.

Second question, just curious. Cyber market, obviously, still getting big, big price increases there. Looks like loss activities maybe slowed some here. What are your thoughts about heading into next year, maybe increasing some of your attentions on that cyber book?

I think that cyber continues to grow from a price perspective. And I think as everybody knows now it’s actually a very reasonably good profitability now, on an attritional basis. The real issue around that is the tail. And so we want to make sure that we don’t grow the tail too much as part of our risk management. So what I would say is that in 2023, we’re going to continue to look for efforts to find protection for the tail, whether it’d be more reinsurance or a cat bond or sidecar I think, in one way, shape, or form, I think the number one driver of continued growth in cyber exposures for us is our greater confidence in managing the tail.

That’s great. And then one last quick one. I’m just curious, your strategic partners, what’s the kind of outlook for your strategic partners business? How much of that business is cat related? And I am assuming that goes away as you kind of exit the cat business?

Yes. It’s about 20% - 25% of the businesses cat related. So as you point out, we’ll probably lose that. Excuse me. On the other hand we’re encouraged by what we hear, which is that most investors feel they’re already very long cat. And they’re looking for diversification and other lines of business. And that’s an area where we have a lot of expertise. And so we’ll be looking to continue to grow our third party capital partnerships on the non-cat side.

Thank you. And the next question come from Josh Shanker with Bank of America.

Yes. Thank you for taking my question. Brian kind of asked what I want to know, Brian’s one more, I guess, if we’re looking at the new year beginning camp season is over, hurricane season is over, you’re getting out of that property revisited. Is there an immediate capital release that comes to AXIS that’s going to allow AXIS free of capital repurchase its own shares once we get through I guess this hurricane season? We have the commitment not to be writing new property re-business.

I think the answer is twofold. We feel that the reduction that we’re going to have in the property cat book, by definition is going to allow us to fuel growth in other lines and insurance and elsewhere. But as Pete mentioned earlier, and you may want to add comments Pete I mean from a reported GAAP perspective, we already have a much higher leverage that we would like. And so I think that we would want to see that the gap balance sheet get back to the economic balance sheet. So the economic balance sheet is very strong. But I think I would discourage any thought of share repurchases in the first half of next year unless something dramatic happens in the capital markets.

I would just echo what Albert said, Josh, it’s more than one thing we’re going to look at when we think about share buyback. And right now with the movement in shareholder equity due to interest rates, given where our leverage ratios are, I think I would take share buybacks off the table, at least for the next few quarters until we kind of see what that looks like going forward. So it’s less about just looking at the cat, the capital we need for cat and looking at our GAAP balance sheet in total.

Thank you. And the next question comes from Meyer Shields with KBW.

Very brief question, I think. But when we look at this and it breaks out reserved development by line, there’s a bit of a step up in address development and liability. And I’m hoping you could talk through whether that relates to the accident year adjustments you made?

That’s a great question Meyer. And it absolutely does equate to the accident year adjustments that we made. When I look at the increase in the liability PYD that you see in the queue as well as year, both in the quarter and year-to-date, that’s directly related to some of that program liability premium we wrote in 2017 to 2021. And then that, and that is reflective of where we’ve moved those loss picks to, for this current ex-cat year.

Okay, that’s helpful, a completely different direction. You’re going pretty rapidly in accident and health, can you give us an update on what the market looks like?

The market for NH is generally quite good. I mean, I would say that some of our limited benefits health program business has not grown because of the lack of opportunity there. But the rest of the book does well, both internationally. And here one of the drivers of the growth this year has been the fact that we signed on to a large partnership in the pet insurance area. And so that’s been driving the growth this year.

But what I would say is very stable business, it continues to be very stable business. Any business is low to mid 90s, high leverage, good roll racks. And it provides good diversification and stability to the portfolio.

Thank you. And the next question is a follow up from Elyse Greenspan with Wells Fargo.

Hi, thanks. So you guys, your new money yields are set, well above that of 2.9. So as you continue to roll over the portfolio, I think that could imply north of 5% to 6% of our weak expansion just from the higher interest rates. So if you get your ROE perhaps right into the high teens, is there a point where you guys will consider giving back some of the investment income benefit as you’d love to potentially show more growth in some of your businesses? Is there a breakeven point where perhaps this could impact pricing?

So let’s deal with one piece of data at a time. I think you’re right. As Pete mentioned, we think that if rates stay where we expect, they’ll be based on the forward curves, we should see $125 million additional interest income in 2023 than it did in 2022. Your question really relates to should this leads to lower pricing. And personally, I don’t think so. First of all, the numbers just are not as, as big as these are not double digit interest rates, number one. Number two, in specialty insurance it’s not like motor business where you can dial the loss ratio to the decimal points. There’s only one way to write specialty business, and that’s prudently and I wouldn’t even know how to go with our underwriters and say, by the way be a little more loose, you can’t do that you could only write the best portfolio that you can. And as we mentioned earlier, we’re taking a prudent view of market conditions and loss trends. And the most dangerous thing that you could do right now is fall behind loss trends. So as far as we’re concerned, we need to maintain our underwriting margins and our book of business and we’ll take the higher investment income for as long as we can get it but we are not going to take our pricing down because of higher investment income.

Maybe one other one. You guys can it came up I think a little bit earlier. You give us when you announced the cat three exit, you spoke about the potential overlap with your casualty reinsurance clients, as you’ve had discussions with your clients, and as we go into next year of renewals, I mean, how those come together there do have more more competence that you can, there won’t be as much of an impact in your casualty reinsurance business. Any kind of update there?

Yes, so we mentioned that earlier. And I think that I’ll just kind of repeat the general answer which is, we have very strong relationships. We’ve been getting very positive comments from our clients and brokers, but their desire to continue to do business for us, but we’re realistic, it might take, it might be an issue that there may be one or two or more, I don’t know accounts that may feel compelled to provide more business to cat reinsures. But as I mentioned earlier, we’re not the only reinsured, not providing cat. I dare say that we’ve been receiving lots of compliments about the way we’ve managed the process, the transparency, the working with our clients. So our hope is that the relationships that we’ve built over time are going to serve us well here. But I also mentioned that whether we book a little bit more or a little bit less reinsurance premium, at one-one, it does not change the core strategic direction of this company, which is to move towards a specialty underwriter, a profitable, stable, specialty underwriter. And that’s the right call for this company. And whether we write a little bit more or a little bit less reinsurance in January 1, it does not change the wisdom of that decision.

Thank you. And this concludes the question and answer session. I would like to return the floor to for any closing comments.

Thank you, Keith. And thank you to all of you for your time this morning. Before we wrap the call, as always, I want to thank our people for all they do to support AXIS and our customers. We’ve had a hell of a ride over the last several years. And it’s really on the back of the very hard work and commitment of our team. And I want to thank them for that. And to all of you thank you again for joining us. Thank you for your interest in AXIS and we look forward to providing you with positive updates on our continued progress. Operator, this will end our conference call.

Thank you. As mentioned the conference has all concluded. Thank you for attending today’s presentation. You may now disconnect your lines.