Welcome to the Everest Re Group Earnings Conference Call. This call is being webcast and will also be available for replay on the Everest website later today. I now like to turn the call over to Jon Levenson, Head of Investor Relations.

Good morning and welcome to the Everest Re Group Limited 2020 Third Quarter Earnings Conference Call. The Everest executives leading today's call are: Juan Andrade, President and Chief Executive Officer; Mark Kociancic, Executive Vice President and Chief Financial Officer. We are also joined by other members of the Everest management team. Before we begin, I will preface the comments on today's call by noting that Everest 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 these 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 turn the call over to Juan Andrade.

Good morning, everyone, and thank you for joining the call. For nearly 50 years, Everest has been a source of strength for our customers. This has never been more important than in today's public health, economic, social and natural catastrophe-impacted environment. Our business is running smoothly. We're performing well. And our people continue to demonstrate the passion, professionalism and resilience that differentiates Everest. I am thankful to our employees for their hard work and perseverance in delivering the solid results we're reporting today. I am particularly proud of Everest recently being named by Business Insurance as one of the best places to work in 2020, a meaningful achievement in the current environment. The economic recovery is uneven and there was significant natural catastrophe activity in the quarter. Despite this, Everest has continued to grow and generate operating profit. Our broadly diversified Reinsurance and Insurance franchise, our financial strength, deep distribution relationships, and our focus on providing solutions to our customers represent the foundation that position us well for the strength we see in the reinsurance and insurance markets today. In addition, we have added 2 exceptionally talented and seasoned global executives to our management team. Mark Kociancic, our new Group Chief Financial Officer, joins us from SCOR, where he was the group CFO since 2013. Jim Williamson, our new Group Chief Operating Officer, joins us from Chubb. Both of these executives have made an immediate impact to Everest. I want to thank Craig Howie for his commitment and contributions to the company. Craig has played an important role in the growth and evolution of Everest. Craig will remain with the company until the end of 2020 to assist Mark with a smooth and seamless transition. We have also further fortified our already strong capital base with $1 billion senior notes…

Thank you, Juan, and good morning, everyone. I am very excited to be joining the great team here at Everest with its excellent talent base and culture. I look forward to contributing to the company's continuing growth and success. I think my industry experience and skill sets will be assets to further augment the great foundation that has been built here at Everest. Everest delivered a strong set of financial results for the third quarter of 2020. We achieved significant net income and positive operating income, continued our growth into favorable market conditions and strengthened our already robust capital position. For the third quarter of 2020, Everest reported strong net income of $243 million. This is more than double the $104 million of net income for the third quarter of 2019. On a year-to-date basis, net income was $451 million compared to $792 million for the first 9 months of 2019. Year-to-date, net income included $67 million of net after-tax realized capital gains compared to $90 million in the first 9 months of 2019. Third quarter results were driven by strong premium growth across the group, strong investment income performance and improved attritional loss and combined ratios. We also had Q3 catastrophe activity of $300 million, pre-tax and net of reinsurance and reinstatement premiums. And we added $125 million COVID-19 pandemic loss provision; year-to-date, our COVID-19 provision stands at $435 million. And as Juan stated, it's predominantly IBNR. The group experienced an underwriting loss in Q3 of $150 million due to the elevated level of natural catastrophes in the quarter as compared to an underwriting loss of $28 million in 2019. Turning to Everest's market position and growth. On a year-to-date basis, gross written premium was $7.7 billion, up $1 billion or 15% compared to the first 3 quarters of…

Great. Thanks, Mark. Operator, we're ready to open the line for questions. And we would ask if everyone can please limit their questions to 2, 1 question plus 1 follow-up. Thanks.

[Operator Instructions] Elyse Greenspan with Wells Fargo, your line is open.

Thanks. Good morning. My first question, just looking for a little bit more color on the margin profile within, I guess, Insurance and Reinsurance. So you guys are getting a good amount of rate in both of those businesses, showing some good growth as well. So I'm just trying to understand just the level of margin improvement. I know we saw some in the quarter when we backed out cat and the impact of the pandemic. But I'm just trying to think about the impact of earned rate exceeding trend and how we should think about the margin, the potential for expansion in both Reinsurance and Insurance for the balance of this year and into 2021.

Thanks, Elyse, and this is Juan Andrade. Yeah and as you note, we saw good margin improvement in the quarter. And just to add a little bit of context for that, we are seeing that rate is outpacing our loss trend in most classes of business, particularly in the insurance sector, also in reinsurance. But we are not changing our accident year loss picks at this point in time. We believe, again, based on our prudent reserving philosophy that we need to let some of the season over time before we actually start taking it to the bottom line. However though, keep in mind that we also have other levers that we can pull in order to improve margin and improve profitability in our book of business. And it's things like portfolio management, always looking at your portfolio in detail, being able to tweak that. We could look at deal structures. We could look at limit deployment. We could look at industry class selection, terms and conditions, et cetera. So from that perspective, we're doing all of that in our goal to continue to improve underwriting profitability for both the Insurance and the Reinsurance segments.

Okay. That's helpful. And then, my follow-up, I guess, just tied to that, was there any benefit from COVID in the accident year loss ratio? Just I'm thinking if there was any kind of frequency benefit within workers' comp or some short-tail lines that you took in the quarter? Or did you not take any of that within your results?

No, we did not take any frequency benefit into account in our results. We are seeing frequency benefits in certain lines of business, commercial auto, general liability, workers' compensation, et cetera. But keep in mind, there's also exposure reductions that are taking place at the same time, because of economic situation. And so, similar to my reply to the earlier question, we're looking at this and we're taking a wait-and-see approach before we change any of our loss picks or bake in any frequency benefits at this point in time.

Okay. Thanks for the color.

Thanks, Elyse.

Yaron Kinar with Goldman Sachs. Your line is open.

Hi, can you hear me?

We can hear you, Yaron.

Okay. Good morning. Thank you.

Good morning.

So, first question is with regards to the COVID losses. Can you maybe talk a little bit about what lines of business those reserves were put up in?

Yeah, sure thing, Yaron. The lines of business were contingency, business interruption and a little bit of workers' compensation as well. And I would point, again, back to my remarks and remind you that, again, the vast majority of that provision was really in Reinsurance, which is about $110 million of the $125 million. And overall, 85% of our provision at this point year-to-date is on an IBNR basis. So I think that gives you a sense for, again, the prudent approach that we're taking on this.

Okay. And have you booked, I guess, in contingency and BI, have you booked those at full limit losses today or is there potential for additional losses to come?

Yeah. The way I think about it, and I'd point you back to my remarks, Yaron, we have a pretty detailed and rigorous process by which we're estimating our reserves that is based on credible and fact-based information. So given that, what we're doing is essentially looking at the fact that this is an ongoing event. It's continuing. I mean you're certainly seeing the situation in Europe these days with some of the additional lockdowns and the spikes, et cetera. So from that perspective, it's an ongoing event. And so, what we do is we do a bottom-up, treaty by treaty, account by account, profit-center by profit-center type review and we true it up with the latest information that we have available at the time.

Got it. And then my follow-up question is with regards to the reserve beyond COVID. You're still relatively new in the role, less than one year in, there's new CFO now as well. We haven't really seen much movement in reserves this year. As we head into the end of the year, how confident is the management team in the current reserves?

Yeah, sure thing. So, Yaron, what I would say is, we have an ongoing and dynamic process to review our reserves. And our philosophy hasn't changed. It's really what we have talked about in the past in the sense that we recognize bad news quickly. And we require good news to be proven over a longer period of time. And hence, that was a little bit also of my answer to Elyse earlier about accident year loss picks. We need to see some of that season over time. But we're always continuing to review and analyze the portfolio. We have completed some reserve studies in smaller segments earlier in the year, and there was no material change in either direction. We will be completing longer-tail segments in the fourth quarter. And if we see any need to take action, we will take action at that point in time. But again, that's basically the reserving stance in our philosophy.

Thank you very much.

Sure.

Brian Meredith with UBS Securities. Your line is open.

Yes. Thank you. A couple of questions here. The first one, just on the Reinsurance space, I noticed a drop in casualty XOL and casualty pro rata premiums. I thought that was actually a pretty good market now. What's going on there? Just contracts lost, certain unusual items going on? Or is your conscious reason to decrease that?

Thanks, Brian. I'll ask John Doucette to please comment on that.

Yeah, good morning, Brian. Look, part of that is just timing of accounts and a couple of one-off accounts. But we agree that it's a good market, and we're seeing both on the treaty and the facultative side proportional casualty and excess of loss casualty opportunities both in the U.S. and international. And we had a very good July 1, and continue to see that. And frankly, expect that to be an area of growth for us in 2021.

Great. And then pivoting over to the Insurance, kind of similar type question. I mean only 5% growth in premium this quarter. I know some of that's probably the pressures from workers' comp. But maybe some color around why are we seeing better growth there?

Yeah. Mike Karmilowicz, if you can answer that question, please?

Sure. Thanks, Brian, for the question. A couple of things. Juan stated before that our focus is really in the business with a better margin long-term, as you just mentioned with workers' comp and our diversification. You're seeing that business mix play through the underlying loss ratio. And with that, we are focused with the front foot of capitalizing those markets where we are prepared to drive. So when you think about like excess casualty, you think about D&O and even our core U.S. retail and wholesale property where we're up 28%, we're driving those groups really hard. Now there is a drag a little bit that you're seeing with regards to the pandemic, but we are very well positioned. And given the opportunity in the marketplace that's in front of us, we think we're going to have significant opportunity in the foreseeable future as the economy comes online.

Yeah. And what I would add to that, Brian, as well, is that we're executing pretty well and we have the platform, both on the E&S side and the retail side. You saw the plus 19% rate that we had in the quarter, which is continuing to build over prior quarters. And when you take away some of the drag from the exposure reductions that you're seeing in the economy, this business will grow double digits. And that's just a matter of the economic recovery playing itself through.

Great, very helpful. Thank you, Juan.

Sure.

Michael Zaremski with Credit Suisse. Your line is open.

Okay. Good morning. Thinking about the capital raise, I guess from hearing the comments on previous earnings calls, it didn't seem like capital was really needed. I heard the comments, Juan, about being opportunistic. So just curious, did something kind of change quarter-over-quarter? Or is it just simply low debt costs and some growth? And do - will some of this capital be used for buybacks, if the buybacks, you think, will come online now that COVID losses seem to be kind of improving, and we're through most of cat season?

Yeah, thanks, Mike. So first of all, nothing has changed. We have been in an excess capital position as a company, as we've talked about in the past. And for us, it was exactly what I said, it was really opportunistic timing, given where credit markets were. I mean, look, the fact that we printed a 3.5% coupon on 30-year debt is pretty good. I think it's probably one of the lowest, if not some - the lowest P&C long-term debt coupon that's been printed out there. So the timing, it was really the key for the markets where yields were at the time. That was really the key that drove all of this. Now as far as what we'll do with that capital, again, we were starting in an excess capital position, we're now in an even stronger capital position, we have flexibility. As I indicated in my remarks, we see some very, very good opportunities right now organically in both the Insurance and Reinsurance space, given the market conditions. So that's part of it. But we're also thinking, as I said in my remarks, about playing this in support of our overall strategy to grow book value, right. So there's different things that we can do over time with this capital.

Okay. Understood. And that would include share buybacks potentially reopening, Juan?

It could in the future, right. I mean if you look at our capital management philosophy, our first priority has always been to deploy capital for organic business growth in the market. We see attractive opportunities there. Beyond that excess capital can also be used for other things, share repurchases, pay dividends, et cetera, et cetera. So there's multiple things that we can do there. And that's really my comment about supporting growth in book value over time.

Okay. Great. And last question was a follow-up to Yaron's question about kind of reserve studies. Do you - is there any - do you think that the new management team coming onboard, there might be a change to kind of the reserving philosophy as you guys take kind of a new sets of eyes kind of look at the book, I think - versus one that historically you've thrown up just a little bit of reserve releases. Some of your peers tend to kind of just book a little bit more conservatively. Just curious if you think if there could be any changes there. Thanks.

Yeah. Thanks Mike. Look, keep in mind, I think, as Yaron said, I've been the CEO for less than a year at this point in time, right, it's been about 10 months. Mark Kociancic is now joining us. But as I stated earlier, in the response to his question, the fundamental philosophy of recognizing bad news quickly and requiring good news to be proven over a longer period of time really has not changed from that perspective. So I go back to the fact that I'm a fact-based guy. We will look at the information that comes out of our reserve studies and then we will act accordingly.

Thank you.

Sure.

Meyer Shields with KBW. Your line is open.

Thanks. First question to Mark, if I can. You mentioned I think that insurance ceding commissions were up and that was helping the expense ratio in that segment. I guess it was a little surprising. My impression is that ceding commissions are generally coming down as one of the aspects of the hard market. I was hoping you could add some color to what's going on there?

Yeah, Brian.

Meyer.

Meyer, sorry about that. Yes, the ceding commissions what we're seeing in the Insurance space is an elevated level of ceded premium really due to the business mix of what we have. And so we're ceding a bit more business out in certain lines, which is leading to higher ceding commissions coming in there, but that's more of a business mix situation.

Yeah, so it's not so much a change in the percentage for the actual ceding commission, but rather the business mix that's flowing through.

Okay. That's very helpful. The second question, I guess, earlier this week, we had one of the Bermuda reinsurers talk about being more conservative in their interpretation of potential catastrophes than vendor models. And I was hoping if you could talk about how Everest sees that.

Yeah, thanks, Meyer. This is Juan. Look, I think climate change is a real thing, right. It would be crazy to deny that climate change exists. You know I'm also acutely aware that our industry plays a critical role, frankly, in the economic and social recovery after extreme weather events. And you look at what's been happening, particularly in the Gulf Coast. And frankly, my heart goes out to these people having spent a lot of time in my career working and living down there. The frequency of activity that's hit them in the past quarter is just not good. From the perspective of how we think about it, I think modeling is a big part of it and we certainly have a really world-class modeling capability that looks at everything from sea temperatures to atmospheric saturation to changes in economic valuations, and we look at all of that. However, what I would say is, though, no single computer model is going to be able to predict consistently the long-term impact of climate change. So this is when you have to really come back to the skill set that your underwriters bring and the underwriting judgment that we have. And so from our perspective, that's part of how you have seen some of our PMLs reduce over time, right, the fact that we're looking to grow a diversified book of business to be able to manage that type of volatility even better. And the other thing that I would say is you look at our hedging, right. The fact that we do pretty significant risk transfer to our third-party capital tools like Kilimanjaro, Mt. Logan, et cetera, and that's part of the suite of how we think about all of this. So hopefully, that provides a little bit of context on how we think about it, Meyer.

It does. Thanks so much.

Thank you.

Ryan Tunis with Autonomous Research. Your line is open. Ryan, your line is open.

Sorry, I was on mute. Sorry about that. Can you hear me, Juan?

Yeah, Ryan, I can hear you. Good morning.

Sorry about that. Yeah, good morning. So yeah, you said you've been here 10 months. So you're pretty familiar with Everest now, some management changes. I guess just taking a step back, a broad question. As you think about 2021, what are the main parts of Everest that you think need to get better? And what are you thinking, like, some of the main improvements might be?

Yeah, it's a good question. Look, I start with the fact that I think we have a great company and a great culture. And frankly, based on the numbers that you see us continue to report, we're attacking this environment, right. The pricing is there, the execution is there. So I feel pretty good about all of that. We certainly have strengthened the management team with two executives who have global capabilities, who have a lot of strategic strength, and I feel very, very good about that. Look, I think for us, the opportunity is how do you continue to execute in the middle of all of this, right. The context of a pandemic, the context of an economic recession, and the context of a very strong underwriting market. So for me, those are good problems to have, which is how do you continue to take a great franchise and move it forward in that environment and do it successfully.

That's helpful. And then my follow-up, I guess, just for John Doucette. The $300 million of cats seems like a lot less than maybe what Everest might have had in past years. I don't know if that's how you're thinking about it or not. But I'm just curious if - what's your observation on cat experience this third quarter versus maybe what you would have had in a similar type of cat year in 2018 or 2019? How does that reflect some of the changes you made in the book?

Yeah, thanks, Ryan. Good morning. And - so a couple of things. So as we've talked about on prior earnings calls, you break it into a couple of parts, you break it into wildfire. So we had talked about how we didn't think the industry was charging enough what we thought was required for the elevated risk for the wildfires. And so we pushed rates, terms, conditions and irrespective of getting a lot of improvements. We also decided, made a conscious decision to cut our wild - our gross wildfire exposure. And then on the - on some of the property and the wind-exposed areas, yes, we've been seeing a lot of rate, but we also talked about a view of an elevated risk, a combination of the climate change that Juan talked about before, but also seeing social inflation, things like Assignment of Benefits, and how that impacts things. And so, that along with exposure growth, and just frankly, our increased cost of capital, because our ability to deploy capital profitably into many other lines of business, and we expect to be doing that going into 1-1. As we see improving rates terms and conditions, our cost to deploy property ag has continued to go up, cat capacity. So that certainly was helpful in terms of our market share and absolute dollars of loss. But, frankly, that wasn't an accident, this was all intentional.

Thank you.

Josh Shanker with Bank of America, your line is open.

Yeah, good morning, everybody.

Good morning, Josh.

I wanted to talk a little bit in relation to Meyer's question about ceding commissions, but on the Reinsurance side. Obviously, it's a very good quarter in terms of the commission expense ratio, the best since 3Q 2017. I've been looking at the mix of business. It seems like quota share casualty went down, and it doesn't seem like there was a lot of ceding commissions from the events. Maybe you can walk through that number a little bit and give us some thoughts on how it might compare with where it might be in 2021.

Yeah, so John Doucette, maybe you can provide some color on that?

Yeah. Thank you. Good question. So I mean part of it is mix of business, but part of it also, I think, there was also a commutation we had mentioned a couple of quarters ago that had to do with prior year that kind of had an offset between what was on the commission side and the loss reserve. So it was kind of a push financially, but it did move some of the numbers around. And I think that's part of what you're seeing. So - and then in terms of what we would expect going forward? We would encourage you to look at the year-to-date numbers for what the commission ratio as a better indicator than any one quarter.

Okay. And then, if we're thinking about business mix going forward, orientation for 2021 between XOL versus pro rata, between property versus casualty, do you have any preview on how you think you might orient the book coming next year?

Yeah, it's a great question. We spend a lot of time thinking about that, strategizing about it with our underwriters all over the world. So look, I mean the bottom line is we're pretty bullish on many opportunities across many lines of business going into 1-1. And there's a variety of reasons for that. We're seeing the flight to quality and a flight back to the traditional model, which we think will greatly benefit us across many lines. Our global clients are continuing to want to buy more and buy more from people like Everest. So that's a significant opportunity. And then, whether it's property or casualty or specialty, marine and aviation, political risk, trade, credit or surety, I mean we have underwriting expertise in all of these lines of business all over the world. And so, we are ready, we get the team. We have the capital as one. And Mark talked about. We have the franchise, the distribution. And we're really leaning forward. And then, in terms of where it will be, we see opportunities in all of those. We expect the casualty market, partially because the reinsurance panels, the security requirements on reinsurance panels for our long-tail business, casualty professional, that's hard for a lot of people to get access to that business. So we have the distribution and the relationships and, again, the underwriting expertise. So we expect to see a strong 2021 when it comes to the long-tail. But, of course, we're looking at the most dislocated property retro market we've seen in 15, 20 years. And so, again, we'll look to deploy capacity and capital. And then, we spend a lot of time, and we've talked about this before, kind of dynamic capital allocation, not just between short-tail, long-tail, but then within each of the respective areas; what's the best territory, what's the best product, structure that we want to deploy. And so, it's hard to know how that will all settle out. But rest assured, we are bullish about the opportunity presented to us and our ability to execute it going into 1-1.

Thank you very much for the answers

You are welcome.

There are no further questions at this time. I would now like to turn it back over to the Everest team for final remarks.

Thank you. And thank you for your time today. I think as you've heard from us, Everest is well positioned for this market. We have the financial strength. We have a preferred market presence. We have a diversified global platform. We're very nimble. So we can go either way and take advantage of the opportunities. We have a deep distribution set of relationships. We have great people. And we have a great culture. So we do feel pretty good about the market environment and the situation that Everest is positioned on to capture. Thank you for your time today and we look forward to updating you at the next quarter.

This concludes today's earnings call. We thank you for your participation. You may now disconnect.