Hello and welcome to the Third Quarter 2023 AXIS Capital Earnings 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 would now like to hand the conference over to your first speaker today, Ms. Miranda Hunter, Head of Investor Relations with AXIS Capital. Please go ahead ma'am.

Thanks, Chuck. Good morning, and welcome to the AXIS Capital third quarter 2023 conference call. Our earnings press release and financial supplement were issued yesterday evening after the market closed. If you would like copies please visit the Investor Information section of our website at axiscapital.com. Joining me on today's call are Vince Tizzio, our President and CEO; and Pete Vogt, our CFO. Before we begin, I would like to remind everyone the statements made during this call including the question-and-answer section, 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 the Form 10-K or our quarterly report on the Form 10-Q 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. And with that, I turn the call over to Vince.

Thank you, Miranda. Good morning and thank you for joining us. In the third quarter, AXIS delivered strong results. During the quarter, we produced record performance, double-digit premium growth, improvements to our operating infrastructure, made investments in talent that complement our team and enhance our ability to bring new and existing specialty product capabilities to the market. Key indicators during the quarter include our highest ever quarterly operating earnings per share at $2.34. Year-to-date operating earnings per share of $6.90, which is the strongest nine-month performance in our company's history. Our annualized operating return on equity was 18% for the quarter and 18.4% for the first nine months of the year. On the underwriting side, record third quarter overall gross premiums written of $1.9 billion including $557 million in new business premiums, which was an increase of 21% over the prior year quarter. We produced a healthy combined ratio of 92.7% as we delivered both strong top and bottom line results even as the industry faced an active quarter for global weather events with industry-wide losses estimated to exceed $25 billion for the quarter. And this results in a quarterly accident year underwriting income of $144 million. Turning now to our segments. First, within our Insurance business, we produced close to $1.5 billion in gross premiums written or 11% over the prior year quarter. New business premiums for the quarter were $467 million also a record for the third quarter and the second highest of any quarter. On the combined ratio, we delivered a very strong result of 88.2% and an ex-cat current accident year combined ratio of 84%. We generated underwriting income of $105 million, an improvement of $89 million. We produced overall rate increases of 6% remaining ahead of loss costs, while our portfolio continues to benefit from…

Thank you, Vince, and good morning everyone. This was an excellent quarter for AXIS, rounding out a strong first nine months of the year. As Vince noted, both our quarter-to-date and nine months operating income per diluted common share, are the highest in the company's history. During the quarter, we generated net income available to common shareholders of $181 million and an annualized ROE of 16.1%. Operating income was $202 million, an annualized operating ROE of 18% and diluted book value per share increased by $0.19 or 0.4% to $51.17. As our net income generated was mostly offset by unrealized investment losses and common share dividends. 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 $59.78 at quarter end. Moving on to key highlights in our consolidated underwriting results. During the quarter, the company produced a combined ratio of 92.7%. This was an improvement of 11.6 points over the prior year period, primarily driven by the decrease in pretax catastrophe and weather-related losses. The losses were primarily attributable to Maui wildfires and Hurricane Dalia, as well as other weather-related events and totaled $42 million or 3.2 points. This compares to $212 million or 16.6 points in the third quarter of 2022. The consolidated G&A ratio was 13.5% this was an increase of 1.2 points over the prior year quarter, predominantly driven by an increase in variable base compensation due to strong company performance so far this year as compared to a reduction in variable based compensation taken in the third quarter last year due to catastrophe loss activity. As Vince noted, we began implementing our How We Work program, which resulted in reorganization expenses of $29 million, primarily related to impairments of IT assets and…

Thank you, Pete. We're now ready to begin the question-and-answer session. We ask that you kindly restrict your questions to one primary question along with a single follow-up. And if you have any further questions, please rejoin the queue. Chuck, back over to you.

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] And the first question will come from Yaron Kinar with Jefferies. Please go ahead.

Thank you. Good morning everybody. My first question goes back to the Monarch partnership. Can you talk a little bit about or try to quantify the capital relief you get from it. And I think I heard you say that you're looking to deploy that capital back into growth?

Hey, Yaron, this is Pete. I'll take that. Yes we are looking to deploy that capital back into growth. I also think that when we look on a go-forward basis, this will actually bring our ceded percent between insurance and reinsurance as I look forward to 2024 to be a little bit more consistent between both of the segments. So as I'm thinking forward as we're thinking forward that's what we're thinking of. But overall with regard to capital, I'd say, our capital factors are very much driven by net premiums as well as reserves off those net premiums given that we've given you the numbers that we have for premium that's actually being deployed, I think, you may be able to back into it. We typically will not talk about specific capital released on just a deal like this. But if you kind of look at the premiums, I think, you can do some of the analysis.

Okay. I appreciate it. And then my second question focusing on the Insurance segment. Clearly, a bunch of moving parts there, and I certainly hear the potential for improving the expense ratio. I guess, I'd like to focus on the loss ratio here if we can. With lines such as cyber and professional liability coming under some pressure, do you believe that you can continue to generate rate above loss trends for the portfolio as a whole? Or in other words is there room for further accident year loss ratio improvement?

Yaron, good morning. It's Vince. Look these two classes we've been highlighting in the last couple of quarters as being under rate pressure, but please appreciate that the compounded rate over the prior years has built a fairly strong premium adequacy position. And as respect to trend, we're keeping a careful eye on each of those portfolios. And within cyber of course realize, we underwrite to many different types of businesses and sizes of business. And so we're keeping a watchful eye. I would say that we're observing the pressure. We're watching it carefully, and we're reshaping the portfolio as we evidenced in this call by commenting on examining the small to midsize cyber component. And as we've said previously in public D&Our, we've shrunk that business as well.

Thank you.

Welcome.

The next question will come from Elyse Greenspan with Wells Fargo. Please go ahead.

Hi. Thanks. My first question maybe is a clarification. So I think you guys said insurance rates are up 6% and that's above loss trend. So where is loss trend? And I thought you guys have said loss trend was around 8% last quarter, but I might be misremembering the numbers. If you could just tell us where loss trend is now and I guess where it was last quarter relative to the 6% rate?

Yes. When I think – Elyse, this is Pete. When we think about loss trends I'd say you the 6% is overall for the insurance portfolio, which obviously has a lot of product mix in it. When we think about loss trend right now we're looking at it to be mid to high single digits depending upon the product line that we're talking about. And so when we look at the 6%, in relation to the distribution of our portfolio in whole, we feel that it is covering loss trend. And it is different by the various product lines.

Okay. And then you guys -- you called out the restructuring charge this quarter. Is there a plan to take additional charges in future quarters? Or is it just that in the future quarters we will see a benefit from the charges you took this quarter?

Elyse, good morning, it's Vince. Through the body of work of how we work we're undertaking as you know a number of process examinations we're looking at all parts of the body. I don't think we're prepared to say that we expect to have continued restructuring charges. I think what you should count on is continued effort at improving the efficiency of the organization just as we've been signalling over the prior calls.

Thanks. And if I can just squeeze in one more, we've heard some commentary being pretty positive on the casualty reinsurance market I know you touched a little bit forward looking on 1/1, 2024. So what about the casualty? Do you see any momentum building in those line just ramifications from social, economic inflation and just potential reserving issues across the industry?

We certainly see the opportunity in our reinsurance business to deploy, our capital on a select targeted basis. We've evidenced growth, as we reported in the quarter. And we reasonably expect continued rate and see commission changes to occur in the positive which is to say continued rate and lower ceding commissions.

Thank you.

The next question will come from Alex Scott with Goldman Sachs. Please go ahead.

Hey. Good morning. I first wanted to ask you about casualty reinsurance pricing broadly and how it affects your two businesses. I guess one on the Casualty Re side of the business. One of your peers mentioned is an opportunity. Do you think casualty reinsurance is a place that could become an opportunity for you to actually try to grow? And then, I guess, on the insurance side, I think it was mentioned that the lower ceding commissions. And so if pricing is getting more, firm there do we need to think about that at all. When we look at things like underlying loss ratios heading into next year?

So Alex, good morning, this is Vince. I think Pete, will come over the top. Let me take the second part of the question. I think what -- what is strong for Axis of course is our liability business is predominantly underwritten in the insurance side out of our wholesale division. And bear in mind that division has freedom of four rates and has an allowance for an appetite to be opportunistic. And I think in the third quarter we evidenced a degree of ability in that regard by citing some of the growth. But more particularly, if you were to look at our AXIS Casuality business which is a substantial business within our wholesale division we grew that business some 36-odd percent with rate over 9.5% with strong new business production that was an improvement of some 56%. And we think it is an example of meeting the needs of that channel of distribution in the framework of the question that you raised. And so that's just one proof point. On the reinsurance side we have said throughout 2023, that we're bottom-line focused and we are approaching our cedings with a very clear appetite and a clear expectation around pricing and we're going to continue that. And so we may not yield the most substantial growth rates in liability, but we will focus on the bottom-line in that class. We're pleased with the 7.5-odd-percent rate that we achieved in our liability classes in the third quarter within reinsurance. And we'll continue to execute our product strategy.

Yeah. I think Vince, what I would add on top of that Alex would be given the given the change in business mix we've seen the acquisition cost for insurance are probably at a consistent run rate what we're seeing in this third quarter. But I'd also add that, given that we're now hearing the reinsurance markets talking about increasing pricing to the primary markets as we're now thinking about 2024 our primary teams are considering that as they're now thinking about the price increases they need to get. So we've talked about this phenomenon driving pricing and property through the first nine months of this year. My expectation, I think our expectation is we continue to see if we see reinsurance costs go up the primary markets are going to respond to that and continue to see price increases on that side of the business as we look to 2024.

Got it. That's all very helpful. Second question, I have is in the casualty re business can you give an update on how far through just negotiations around stuff that was packaged between property and casualty within reinsurance. So how far through that are we at this point? And one of the concerns that I've expressed is just that there could be some adverse selection associated with that process and the business that was packaged that remains what are you doing to avoid that? I mean, is there anything you can point to that can give more confidence that there's not going to be a headwind associated with that versus selection?

Hi, Alex, this is Pete. I'll start and then I'll pass it over to Vince, but we're substantially through all of that business. So as I look at the first -- the fourth quarter of this year there is low single-digit millions left of that business. So we can look to what's happened so far this year and actually start to see what we did with that particular group of policies. Overall, because the only way we were really able to keep some of that business is our client actually had to split policies. There was a really good focus on the terms and conditions, the rate, the limits deployed, as well as looking at the true underwriting of that underlying company. So we got to choose whether we wanted to be on that treaty or not proactively. And where we wanted to play and actually how much capacity we wanted to put out. So I would say that, when you think about adverse selection on what's remaining each one of those was approached by our reinsurance team as a brand-new client essentially. And so I would say, we minimize that particular impact, because of the way it had to renew with us. And I think I'd ask Vince to add any comments on top of that.

Thank you, Pete. Alex what I would say is that the confidence that we feel in our underwriting process around risk selection, terms and limits gives us confidence. Of course, pricing is included. And so I think taken together the consistency of that underwriting approach complemented by the integrated underwriting strategy that we've talked about in prior quarters involving our COO office and our pricing actuaries gives us confidence, along with our claims leadership that we're making the right risk selections on behalf of our company and providing real value to our cedents.

Got it. Thank you for the responses.

Thank you.

The next question will come from Josh Shanker with Bank of America. Please go ahead.

Thank you. Good morning, everyone. At the risk of mischaracterizing things as you -- as a reinsurer are fronting a lot of the underwriting that you're going to transfer to a third party a how does that affect clients' desire to reinsure through you knowing that it's not your balance sheet taking the risk? And two, even though Monarch is a closely monitored partner reviewers and when you think about being in this business on a multiyear basis is there a risk that when you're running a business with the intention of ceding the premium elsewhere that your business or business strategy is too reliant on that third party capital?

Josh, good morning, this is Vince. On the first part of your question Pete will take the second part. We have had ILS capacity inside our reinsurance portfolio for some time now. And as is the case in Monarch it's AXIS underwriters that are making the risk selections and the bets. And the trust that comes from these agreements of course is that we will make the right decision on behalf of our company and by extension our financial relationship through these transactions. And our cedents count on that responsibility as well including claims control.

Yeah. And I would reiterate what Vince just said, we've used ILS capacity in the reinsurance world Josh for quite a number of years. We did it when we were involved in property and catastrophe, but today we still have multiple vehicles that we work with on long-tail liabilities on our reinsurance book. So again, it's AXIS paper to our cedents and then it's us managing where we want to put the risk based upon the capital preferences that we have anything from our balance sheet to using a third party. And since it is quota share to the third parties we're ceding to our interests are very much aligned, because it's a quota-share treaty we're still keeping a bunch of it as a reinsurer before we give it to our third-party capital partners. And so our interests are all aligned through the entire transaction. So we feel good about that. And with regard to our third-party transactions, we're close with them. These are funded vehicles, Josh. So we look at the reserves, we have contracts in place to make sure that the reserves are appropriate because we understand these are long-term liabilities and we want to make sure that the funding will be there when it's required. So we're comfortable with what we have there especially with our collateral agreements.

And my second question. Thank you for the answers. I mean I have the same question I asked on the last conference call with a little bit of a twist. The Monarch transaction it's freeing up a lot of capital. I know you really want to invest in your own business and write a lot more insurance but some of those lines are really, really soft. The stock is trading at a deep discount to peer valuation. How is share repurchase not the best use of capital right now and especially, with your freeing up more capital, why isn't that a bigger part of your strategy?

Hi, Josh, this is Pete. I'll handle that. I'd say there's a couple of things we want to get through. One, even though it's now the end of the third quarter obviously, going into wind season, we still have exposure to cat through our insurance business. So we're aware of that. We still know that we are waiting for the S&P formula to finalize. We'll know more about that at the end of the year. But given what their initial formula and statement was, you'd know that there's a fair amount of senior debt in our capital stack that could or could not be considered capital on a go-forward. So we want clarity of that as we go forward. And then lastly, given the negative AOCI we have in our capital, we still have a high financial leverage ratio. As a matter of fact it didn't move at all in the quarter. It started the quarter at 29.4%, it ended the quarter at 29.4%. So we would like to see that financial ratio come down. But you are right we feel really good about the financial and the economic ability the economics of our balance sheet. If I was doing it on an economic basis. And then lastly, I would say you did say, there's softness all across our markets. On the insurance side I guess I'd characterize it, we're still seeing some of the best markets we've seen a while in our insurance opportunities. And with that I'd ask Vince to add on to that.

Peter I think you characterized our situation and our current view of the market well and there's ample opportunity for continued growth and we're evidencing some of that in today's call with the appointment of our inland and ocean cargo investments in North America. Thank you, Josh.

Thank you.

The next question will come from Meyer Shields with KBW. Please go ahead.

Great. Thanks. This is not really – it's not just an access question. But when we look at liability lines and we're facing elevated social inflation and older accident years are developing adversely. And the more recent accident years are maybe weird because of COVID and all that disruption. How much additional margin needs to be baked into price or you be confident that pricing is adequate?

So Meyer, this is Pete. I'll take that. As we look at it, we do the studies where as we've seen the negative development, we on level everything to sort of say, okay based upon where we are, do we think, we take all that information what does those prior years tell us about our pricing in our current year. And then we take that as a forward look to where do we think social inflation is going to go. And given the prudent view that we have today, given everything you just mentioned we see emerging in the marketplace, we do believe we've been able to take that prudent view and put it in today's pricing. As you know, it's still an uncertain environment going forward but we believe we've been very prudent and exactly where we've been pricing our business as we think about growing in the liability classes today.

I think that's right Pete.

I'm sorry I didn't mean to get you off.

That's okay Meyer. Go ahead.

Yes. Just I guess this is a related question, but we look at recent accident years loss emergence. And I know we're talking long tail lines so it's slow. But are there any early indications of how don't over the last three years casualty or liability reserves are playing out?

To your point, they are long-tail liabilities Meyer. So I would say that what we're seeing is more coming out of the older accident years and anything we're doing in the more recent years tends to be prudence related, where if we're seeing like a spiky claim or something like that we'd rather just take push the reserve up for the claim rather than do anything to offset it. The other thing, I would say is as we have mentioned in our program book, where you actually see the claims a little bit quicker because it's very small limits, low level, mostly primary. There we have seen some negative development in that 2020 and 2021 years. So again, we're being very prudent about our thoughts even on 2021 and 2022.

With the different limit profile as well –

Absolutely.

Appetite in certain of those lines and certainly a different limit. So the profile of the business in those latter years is changed.

Thank you so much. That’s very helpful

Thank you, Meyer

The next question will come from Brian Meredith with UBS. Please go ahead. Q – Brian Meredith: Yes. Thanks. A couple of them here for you. First one Vince, I'm just curious you mentioned that front. I know you talked about it last quarter kind of some of the changes in reserving process that you're at least looking at. Maybe you can give some insight into kind of what you're thinking about, what you're doing any changes that you're anticipating as you look into the fourth quarter process?

Brian, thank you. Good morning. So we are not done with the process that we articulated in my opening remarks and that process is well underway. We're confident that we'll bring it to a conclusion in the fourth quarter, consistent with what I outlined in my opening remarks. Q – Brian Meredith: Got you. Okay. And then second question, maybe you can talk a little bit about what you're seeing in the call it casualty loss trend environment been a lot of talk about some acceleration there and things going on. Are you seeing that in your book as well? Does it continue to get worse? Or what are you seeing is from a tort inflation perspective?.

Certainly, one, we have a very vigilant eye toward the class generally and certainly because of social inflation. And yes, there is certainly evidence whether it's as a result of the pandemic, inflation or a combination of factors that there is an increase. And certainly we've been observing to it. Pete in prior quarters has spoken to our programs, liability business as an example of increased severity. And so we have a vigilant eye. We have a close coordinated view of risk in terms of our loss picks, our mix and certainly our expected trend. And so taken together, we think we're watching it in a prudent underwriting way. And I think that there's certainly continued focus that you'll see from us. And as you've heard reported elsewhere, there's continued vigilance generally around liability and social inflation. Q – Brian Meredith: Great. And one other quick one, if I could just sneak it in here. With the Monarch transaction Pete, any changes or thoughts on the investment portfolio probably shortens up duration on your reserves? Is that going to cause any changes from investment allocation?

No, Brian, right now I don't see us changing our investment allocation, overall. I would expect the duration to stay at around three years, which is for us the short end of neutral. And right now we still have about 15% of assets in risk assets. And right now, I think we -- we're keeping that where it is right now. Q – Brian Meredith: Great. Thank you.

You’re welcome, Brian

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Vince Tizzio, President and CEO for any closing remarks. Please go ahead, sir.

Thank you. Thank you for your time, today. As we look to the future, our objective is clear: to drive consistent profitable returns, and deliver value to our shareholders through growth in book value per share. We'll get there by exhibiting underwriting excellence, and strong cycle management and providing tailored specialty solutions to our customers and partners. I'll take a moment to express my great appreciation to our team, for the tremendous work that they're doing, to drive what thus far has been a year of record results for AXIS and also to our customers, who choose to place their trust with us. In order to achieve our ambition to elevate AXIS, as a specialty underwriting leader, we have the humility to know that much work remains ahead and we're focused on further building on our positive momentum. I look forward to providing updates on our progress in future calls, as well as during the Investor Day, in the first half of 2024 where we'll have a meaningful discussion about the company's strategic initiatives, how we are measuring our success and the value creation upside that we see ahead. Thank you, once again, for your time today. Operator, this completes our call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.