Good day everyone. Welcome to the Fourth Quarter 2017 Earnings Call of Everest Re Group. Today's conference is being recorded. And at this time for opening remarks and introductions, I would like to turn the conference over to Ms. Beth Farrell, Vice President of Investor Relations. Please go ahead.

Thank you, Derrick. Good morning and welcome to Everest Re Group's fourth quarter and full-year 2017 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 the 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 meeting this morning. We are pleased that we’re able to report to you today an excellent fourth quarter result. This of course comes during the year that experienced a record level of catastrophe losses for the industry. It is noteworthy that despite this level of losses, we were able to report a profit for the full year and an ROE of 6% on the strength of the fourth quarter. This level of performance for the year demonstrates the ability of our platform to sustain periodic events and yet maintain an above average industry return through the cycle. Our value proposition and risk management has positioned us to succeed. No doubt there'll be questions today and beyond about rates, competition, return of capital, and acquisitions. And while we've readily admit these are certainly the issues of the day, our value proposition is such we continue to build diversification and scale that allows us take advantage of market dynamics. If you've heard from us in the past and will continue to hear from my colleagues today is the success we're having in achieving profitable growth, both the new products and existing ones. We reached a record revenue with over $7 billion in total gross premium written for 2017. In 2017, our reinsurance portfolio grew 20% with much of that growth in lines other than U.S. property cap. Crop, casualty, non U.S. property, mortgage and other credit related business, all exhibited meaningful growth during the year. The U.S. cap business grew in part due to reinstatement premiums and back up coverage, and true growth is offset by sessions to cat bonds and Mt. Logan. Therefore, there was no material change to speak of in our PML exposure relative to cap. All this points to a…

Thank you, Dom and good morning everyone. Everest had net income of $571 million for the fourth quarter of 2017 with the strong underline performance, aided by reserve releases that impacted both current and prior years. This compares to net income of $374 million dollars for the fourth quarter of 2016. Net income for the year was $469 million compared to $996 million in 2016. After tax operating income for the fourth quarter of 2017 was $556 million compared to $363 million in 2016. Operating loss excludes realized capital gains and losses and the tax charge related to the enactment of the Tax Cuts and Jobs Act of 2017. For the year, operating income was $375 million compared to $993 million in 2016. The primary difference was higher catastrophe losses in 2017. In the fourth quarter, Everest saw $184 million of gross current year catastrophe losses related to the California wildfire. Net of reinsurance, the current quarter catastrophe losses amounted to $162 million. We lowered our pretax estimates for the third quarter of 2017 catastrophe events by about $100 million. This was primarily related to reductions for the earthquake in Mexico and the third quarter Hurricane. The fourth quarter of 2017 also included $30 million of favorable development on prior year cap losses, largely from the 2016 year. Therefore, net catastrophe losses for the quarter were $29 million. On a year-to-date basis, the results reflected net pre-tax catastrophe losses of $1.5 billion in 2017 compared to $301 million in 2016. Excluding the catastrophe events, reinstatement premiums and prior period reserve development, the underlying book continues to perform well with an overall current year attritional combined ratio of 85% for the year, down from 85.5% last year. On reserves, we completed our annual loss reserve study. The results of the studies…

Thank you, Craig. Good morning. Our operating team is following the 2017 catastrophes and the January 1st renewals are resilient, adaptability and partnership. Resilience is valued by our investors and is expected by our clients who depend on our financial security, and they rely on our evergreen promise-to-pay claims, especially in times of need. Everest has faithfully kept its promise for the last 45 years, through years with extreme industry losses such as 2017. Both sides of our balance sheet are built to withstand shock losses whether from actual 2017 cat events or worse hypothetical losses had Hurricane Irma directly hit Miami as a cat five. Supporting our strong conservative capital position on balance sheet, many levels of hedges protect our capital and our promise to our clients. This includes $2.8 billion of unexhausted catastrophe bonds and over $1 billion deployed in Mt. Logan, further protecting us from even more extreme events than seen in 2017. Following several major catastrophes in Q3, we are pleased with the strong profitability generated by our reinsurance book in the fourth quarter, and the overall results for 2017. In Q4, reinsurance generated $419 million of underwriting profit; $197 million from favorable prior year development offset by $33 million in net catastrophe losses this quarter. For Q4, California wildfire losses were $156 million, offset by releases on prior period catastrophes, including Q3 caps. For 2017, reinsurance withstood $1.3 billion of pre-tax net catastrophe losses. Our 2017 combined ratio was 103%, including 29 points of cat losses, highlighting our robust underwriting strategy, broadly diversified portfolio and strong risk management. Excluding cats, reinstatement premiums and favorable prior year development, our attritional combined ratio remained flat at 81%. Globally, Q4 gross written premium increased 21% from backup covers and new capital relief quota shares and some multiline deals.…

Thank you, John and good morning. Our global insurance operations finished 2017 on a strong note, in terms of growth and more importantly, profitability in the fourth quarter. As shared in prior calls, we have been consistently executing on a multifaceted strategic plan, encompassing every dimension of our global insurance organization. As measured by our key performance metrics, we have made considerable progress and are pleased with our expanded operating platform and the growing depth and diversity of our associated books of specialty business. 2017 concluded with record levels of gross written premium, the deepest roster of actively underwritten specialty products in our history, 150 and counting, the broadest geographic reach, 17 offices across the U.S., Canada, and Europe for us to execute our business from, and the highest number of insurance teammates across disciplines who are making all this happen. This quarter's 36% growth and 80% combined ratio are further testament to the corrective underwriting actions successfully executed upon over the past several years and our conservative reserving position across the portfolio. At $2.1 billion and 2017 gross written premium, Everest Insurance is maturing as the global specialty underwriting platform we had envisioned at the onset. And it's firmly positioned within the top 10 of the global lead table for specialty insurance carriers. We remain encouraged about our growing opportunity set globally and look forward to the many opportunities ahead of us in 2018. Turning to the financial results. The global insurance operations produced a record $575 million in gross written premium in the fourth quarter of 2017. This is an increase of $153 million or 36% over fourth quarter 2016. The fourth quarter growth profile is generally consistent with our experience over the last several quarters as the addition of dozens of new products and the many talented…

Thanks, Jon. Derrick, we are now open for questions.

Thank you [Operator Instructions]. And our first question comes from Elyse Greenspan with Wells Fargo. Please go ahead.

My first question in terms of the PML disclosure, at the top of the call, you guys mentioned that your PMLs went down in U.S. reinsurance. Is this after reinstatement and taxes? I know you guys disclosed to PML figures?

Elyse this is Craig. Yes, that would be the same basis that we typically disclosed our PMLs on a net economic basis, so it would be after reinstatement and after taxes. We do expect them to stay in relation to our overall capital. We expect them to stay relatively flat or even slightly down.

So then as we're thinking about the impact of tax reform and what that could have had done to your PML, to keep your net PMLs, to get your net PMLs to go down. Was there more retro that you were purchasing if you can just talk to I guess how you changed on your PMLs following on tax reform?

After tax reform, as you know, the tax rate will go down. So the tax benefit for some of the longer bill depends on the return period. So the longer return periods will get less tax benefit, but we can cover that with other types of reinsurance purchases and lower catastrophe loss.

And also, Elyse, what we said was that our PML relative to capital about stable, so we were suggesting that the PML would go down necessarily, which is relative to capital it would be about similar position.

And then sticking with taxes for a second. How should we think about your tax rate as we think about modeling in 2018?

So overall with the tax rate coming down in the United States, as you know, we do business globally around the world in many different jurisdictions. But with the tax rate coming down in the U.S., we expect our overall tax rate to come down about a couple of points.

And then as we think about your outlook for the market for the balance of the year, you guys obviously reloaded Logan, your own alternative capital vehicle to a level well in excess of where it’s at last year, so more than covering of the losses. How do you view the impact I guess, so it's a two part question of both alternative capital as well as we see more of the insured losses for the third quarter events come down. How do you think that that can have an impact on the market as we think to the June and July renewals?

I still think that we feel the market was trending up in the property space, particularly those areas that have been loss affected. And we’re not anticipating perhaps the alternative capital of having some impact on wild swings in rates but generally markets are seeking some level of rate increase in those loss effective areas, and frankly they deserve it. So we do not expect the reloading of alternative capital if it is even reloaded entirely to impact or to have a rate decrease effect.

And then one last question, you mentioned I believe that some multiyear coverage written in the fourth quarter. How bigger or multiyear coverage in proportion to your reinsurance book?

That's one of the things we did net incrementally accounted for some of the premium, I mean across the entire $5 billion on premium, it's not that material. It does -- it's in different classes of business, credit, mortgage and different lines of business, there is a couple of property deals. But overall, it's not a very meaningful part of our book.

Our next question comes from Kai Pan with Morgan Stanley.

First question just follow-up on the January renewal, John mentioned that you guys had improved your risk adjusted returns above the market. Could you quantify that just in terms of how much do you see the market increase versus yours? And how the market would -- dynamics would play out at New Year renewals, is that -- would that rate increase sustain or improve in the coming renewals?

So there's a lot of moving parts. And I don't know that we know exactly what happened with the market. There's a lot of deals that are done in the market that we declined, and we don't know what the ultimate price that they were done at. And I think that's one of the ways that we get better than market results is that we maintain our underwriting discipline on deals that we don't agree with the absolute rate or don't agree with the rate increase or flat or decrease given the loss positions or the overall market condition. So it's hard for us to quantify that, but we are comfortable that we are building a better overall portfolio that exists in the market given our ratings, our global footprint, our very broad diversified portfolio, frankly our fantastic underwriters around the globe. And I think that just helps us. And as I mentioned, it helps us build relationships as we continue, we are and continue to be relevant to many of our trading partners. And one of the interesting things this January 1st is we saw across a whole lot of operations, our Bermuda, our London, Zurich, Canada, Miami, U.S., we saw many clients increasing their participation with us and that's across a lot of different lines of business. So that's probably the most -- one of the most optimistic things we saw is just the increase in demand for reinsurance, particularly with Everest. So we're very pleased with that. Again, Dom alluded to the mid-year renewals we don't know what it's going to be. We think given the rate decreases that have happened and the losses, there should be upward pressure on rates, but we don't forecast what we think it'll be. We are confident that we'll be able to execute irrespective of what the market conditions are.

My second question -- If you look at your fourth quarter, especially insurance segment, that's the first meaningful release in more than a decade. So just wonder if you can give a more detail regarding to how much of that -- how much the legacy book developed, what accident year those workers’ comp release has been. And going forward, given you guys since 2010 has instituted more conservative reserve for last year. Will we see more reserve releases in the coming years?

I'm going to let Craig get to the specifics for that. But first let me say that you're correct and that we haven't had an overall net reserve release in insurance for quite some time. But let me highlight the fact that it has been due to our legacy portfolio and we have had net reserve releases in varying lines of business in the insurance book, it’s just that on the net basis, they haven't come through because they’ve been overwhelmed with the legacy issues, which we now feel we have control of it. I'll let Craig get into some of the more specifics about your question.

It's a good comment, and Dom's comment is correct as well. We didn't see any drag from the prior year run off business in the insurance segment this year. So what you're seeing is the actual results come through on a net basis, you're seeing favorable development. Primarily from as John Zaffino mentioned, it's from 2013 and prior and mostly in the workers’ compensation area but some other small lines as well. So that's the major difference year-over-year, but our process hasn’t change that conservative process that you mentioned since even as early as 2010, remains in effect and we continue to go through that same process each year. We take our time to react to that favorable development and we don’t release those redundancies until they've developed overtime and become more mature.

Last one if I may on the tax rate. You said it will be a reduction about a couple of points. What are the starting points? And are you guys going to change your ceding program, which currently is sitting about 40% of U.S. premiums to offshore affiliates?

So the answer to that, first of all, is the starting point was our 2016 tax rate was about 10% that was last year. This year as you know, we had a tax benefit for the overall year, so that the actual exposure that we had after the catastrophe losses for the year. But we do expect it to be in the high-single digit going forward, that's number one. And your question about what are we doing going forward. We will be cancelling or have canceled our quota share already, because it is not economical for us to do that, going forward.

Our next question comes from Jay Gelb with Barclays.

First, just want to note that I think that tax rate is lot better than people thought it was going to be. Second on outbound reinsurance and retrocessional protection in 2018. How should we be thinking about Everest strategy on that?

So I think we buy traditional reinsurance, we buy have looked at retro from time-to-time, we cede business to Logan, we have the cat bonds, and probably use, et cetera and we continue to look at different capital structures traditional or non-traditional that we’re going to do. I think probably the way I would think about it is look at the metric gross ratios both for insurance and reinsurance over the last couple of years. And those should stay reasonably consistent. We're still in the process as Craig said with the change in the internal quota share. We're still in the process of thinking of PML management, risk management, capital management. And we haven't yet decided on everything we have some ideas. So that may result in the tail we do additional sessions but across the whole portfolio, that won't be that larger percentage. So I think the net to gross ratios that exist today are probably pretty good.

And part of the answer to that Jay is also that it's a little difficult to give you absolute numbers on that, because it somewhat depends on what we see coming in front door, so if our property business is down or that one strategy if it’s up that might be an entirely different strategy. What we are anticipating though is that our expected capital were go forward into 2018 would be just under 9%, which was about a point drop from where traditional is at.

Final question is on the merger and acquisition environment and opportunities. So in light of AIG's announced acquisition of Validus all-cash for what can be viewed as a pretty attractive multiple. Does that have any influence on Everest’s thinking in terms of acquisitions going forward or consolidation within the reinsurance market?

None whatsoever. In fact, I am not sure that we would -- maybe even detract a little bit more from an acquisitions team to the extent that that's the go forward multiple we think that an organic build is a lot more efficient for us. And I think we've demonstrated both on the reinsurance and the insurance side that we've been successful in that strategy.

Our next question comes from Josh Shanker of Deutsche Bank.

I just want to add a little bit on Kai's question about the timing on the reserve releases. Dom, you're I think up to almost nine years at the firm. When you came in nine years ago, what did the reserve situation look like? And in terms of your priorities, is there a different timeline on getting the different departments in order or are both the reinsurance and insurance reserving techniques the same and on the same track?

Well, Josh you have a good memory as to timeline. But when I first came in I think what I said at the time is that I thought we had an adequate reserve position. And I think that’s demonstrated to be accurate. I think if you look through the history at the various accident years, we have developed favorably, so that's number one. Some years develop more favorably than others, but all different. What did change and I did institute some reserving changes when I first came in just the way we established the current accident year number, and that I think frankly through time has proven to be perhaps a bit more conservative than it may have been prior to that. But nevertheless, reserves have developed favorably. And I think it's what we've been able to harvest over the last couple of years, probably is somewhat reflective of a slightly more conservative philosophy than we had in the past. But notwithstanding that again history would prove that our reserves have developed favorably at various accident years.

And the second part of that question Josh was the process and the process did the same for both reinsurance and insurance.

And then in usual with your peers you brought back stock in the fourth quarter. You obviously have a lower debt to capital ratio than everyone else does. Depending on how you view the stock. Why was it the right time, why not buy more, the decision in terms of how much capital you need to raise new business? What's the trade-off between debt financing share repurchase at this point? Can you talk about all the nuts and bolts behind that decision?

Well first of all, I think that we felt the stock was an enormous value at the time we bought it in. The amount that we bought in was somewhat contained because of how close it was to coming up with numbers as opposed to why it was 50 as opposed to something more. We have to be mindful of the fact that we’re getting closer to the year-end. And relative to our capital position, we were comfortable with where the third quarter events what that meant to our total financial position. So we weren’t particularly concerned about our capital position. And relative to debt-to-equity, what we stated in the past is that we'd like to keep that number conservative because it's a contingency reserve if you will to the extent that we saw an opportunity either despite my preference for organic build. If we did see an acquisition that made some sense that gave us some flexibility and/or if we saw some tremendous market opportunity again it gave us flexibility. So we tend to view the debt capacity as one that's gives us flexibility as opposed to leveraging that made up to the max.

Our next question comes from Meyer Shields of KBW.

I'm trying to put together a couple of data points. One is the fact that most companies and I think Everest as well has talked about the third quarter catastrophes being in line with modeled expectations instead of having any major surprises. And the second is that we're seeing bigger rate increases on loss affected accounts. Is that a fair observation and is that a rational response or is there -- I'm asking whether there’s an opportunity in there?

Is what rational response, that there is rate increases on loss affected….

Bigger rate increases on loss impacted accounts if that was more luck than a reflection of lower underwriting profitability?

First of all, the rate increases that have come through the market are probably less than people were anticipating based on other market events of a similar nature. And recognize that the market has been in somewhat of a rate declines for several years. So whether to the extent was it a rational response, even though the losses were as you described as expected, I absolutely think it was a rational response. And I think perhaps closing as rational as it needed to be. But nevertheless, from our perspective, the rate increases get us back to a point where it's a reasonable return relative to the risk we’re taking on. Whereas I think if you look at the results of the industry in last three years in many cases there were many markets that were operating at below the cost of capital. So I absolutely think even though it might have been an expected level of loss, if you’re riding business below your cost of capital then that absolutely is a rational response.

Is there -- the opportunity I'm wondering, is there an opportunity to target impact -- accounts that were impacted by 2017 catastrophes because rate increases are bigger there than elsewhere?

Well, that's what we do each and every day, and of course. And there are instances where we think it's the right rate and we’ll increase share. We think it’s the appropriate rate. And in many cases, as we saw 1/1 were instances where we defined or got off the certain businesses, because it was an inappropriate rate relative to the risk. So yes, these events always create opportunities, sometimes the opportunities make sense and other times, they don't.

I want to add a little more color to that. I think going back to your first part of your question, I think there's also -- you got to look at it as modeled results and then psychology of the market and also when losses like this have happened. And I am not sure I completely agree that all the -- that it's certainly across the buyers and even some of the sellers that everybody thought these losses were expected. I would highlight California wildfires, largest fires of all time. Houston being impacted by Harvey are one in a thousand event. I am not sure if people think in terms of one in a thousand type event, the flooding that happened there. As you may recall, Irma for a while was heading to Florida, to Miami as a Cat five and looked like it was going to be a direct hit and the market was talking about $150 billion, $200 billion of insured losses. And Maria heading Puerto Rico that was the first major hurricane to hit Puerto Rico since 1928. And all of that I think impacts what -- while it could be in a model, I am not sure about the wildfires and flooding is always a challenge, but the model. But there's certainly a lot about just the buyers and sellers and the market dynamics and what managements think and boards think of the buyers and things like that. I think there's some people maybe were surprised with the outcomes of some of these -- and some of the losses that happened, and the accumulation and aggregation of them. So I think there's a lot of moving parts beyond what did a model say.

Second question, as the property insurance book grows, is there any seasonality to how you plan to report results because so much of the ultimate profit is recognized at the back half of the year?

I think we pretty much have a fixed pick loss ratio that we keep throughout the year.

And we do that -- it's less seasonal now that it’s on the reinsurance book than it was when it was on the insurance book.

And our final question for today comes from Brian Meredith with UBS. Please go ahead.

Let me just interrupt there for a minute. There are more questions -- we were perhaps a little longer than usual in our opening remarks. So I don't mind going over a bit if you've some additional questions in queue, given it's the year end and given the nature of the results. So anyway, go ahead Brian.

John, could you give us a sense of how much of the fourth quarter growth was one-off back up coverage those types of things?

So across reinstatements and back up covers, it was about $200 million in total.

Second question, I am just curious on your workers’ comp business in California. Do you anticipate any pushback from regulators with respect to pricing and rate given tax reform?

Very uncertain at the moment. We're going to obviously watch the market carefully and continue to react based on what we see as underlying risk return characteristic. So we’re following the same early commentary and we’ll keep an eye on that. But at this stage, we have not seen anything different but we’ll certainly be watching that closely in California and other jurisdictions as information becomes better now.

I think that, Brian, will more likely be more of a personal lines issue than it’s likely to be a commercial lines issue. And I think overtime the market will self-correct itself I'm not sure that regulators necessarily sometimes can help themselves will necessarily need to get involved in that particular kind of activity.

And then a little bit bigger picture question here. As you’re pricing your business both reinsurance and the insurance side, obviously, you could have build in some type of kind of loss trend either inflation assumptions, which you think are going forward. Would you all thinking on the loss trend upside over the next year or two? And how are you pricing the business and reserving for it?

Well, that varies across various lines of business. So what we model in for work comp is different than what we build in for a casualty or excess liability, or property, it's were financial lines for that matter. So there isn’t one how to answer to that question, but suffice to say that we’re building trend in to all -- not only our pricing but also our reserving activities.

And then last question would be just curious lot of growth going on. Any thoughts about, in your expenses, it's been going up relatively modestly. Any thoughts about whether you've got the infrastructure to handle this type of growth and could you put more growth on the current platform?

Is that a question about reinsurance or insurance or both?

I would say, on both sides.

Well certainly, I'll talk to the reinsurance piece first. We've actually been adding resources. We talk a lot about adding new lines of business and diversifying our reinsurance platform. And we have been adding resources, technical resources to keep up with that or to generate those business opportunities and properly underwrite them. And I don’t see that on the reinsurance side as particularly the problem given both nature of the premium that comes in on the reinsurance side, so not an issue at all. And frankly from an infrastructure point of view, we've added the resources and we have the management debt to deal with those types of accounts. On the insurance side, as Jonathan pointed out, our expense ratio just up slightly year-over-year and that scenario we also continue to add resources, as well as continue to invest in fiscals. So fact that we're able to maintain that expense ratio, I think is attribute to Jonathan and his team, as well as the rest of the support units within the organization that provide services to our insurance operation. So we continue to do -- the earned premium continues to build on the insurance operation. I think we’re able to properly manage that expense ratio and at the same time, make the proper investments where we need to.

And we did have a follow-up question from Jay Gelb with Barclays. Please go ahead.

My questions have been answered. Thank you.

Thank you. And at this time, there are no further questions in the queue.

Well, good. Thank you all very much for your participation in the call this morning and for your questions as normal. Just to summarize, this has been record level of catastrophe losses. For the year, we think we've had more than respectable result and it's demonstrated the diversity of Everest, the growth that we've experienced in both on the reinsurance side and the insurance side, demonstrates that we continue to add value to our customers, clients and brokers. And we expect that success that we had in '17 to continue into 2018. So thank you for your interest and your participation this morning. We look forward to any follow-up questions you might have after this call. Thank you so much.

Thank you. And once again, that does conclude today's call. We thank you for your participation. You may now disconnect.