Everest Group, Ltd. 2026 Q3 Earnings Call

Good morning, everyone, and welcome to Everest Group Limited third quarter of 2026 earnings conference call. The Everest executives leading today's call are Jim Williamson, President and CEO, and Elias Habayeb, Executive Vice President and CFO. We're also joined by other members of the Everest management team. Before we begin, I'll preface the comments by noting that today's call will include forward-looking statements. Actual results may differ materially, and we undertake no obligation to publicly update forward-looking statements. Please note that forward-looking statements, including estimates, projections, and forecasts of future results, are subject to the risks, uncertainties, and assumptions noted in Everest's SEC filings. Management will also be referring to certain non-GAAP financial measures. Available explanations and reconciliations to GAAP can be found in the earnings release, investor presentation, and financial supplements on our investor relations website. And with that, I'll turn the call over to Jim.

Thanks, Matt. Good morning, everyone. Everest has generated a year-to-date annualized total shareholder return of 14.2% while executing on several initiatives focused on generating shareholder value and positioning the company for its next chapter. I've said that Everest would do whatever was necessary to ensure the strength and sustainability of our balance sheet. This quarter, we prudently strengthened our casualty reserves and reinsurance while not taking full credit for favorable development in short tail lines. As a result, our reserve position is now over $850 million above our more conservative actuarial central estimates, further demonstrating this commitment. Our annual long-tail reserve studies were more robust than ever. Both Elias and Katy Bradica, our new Group Chief Actuary, materially enhanced our reserving process, applying more conservative assumptions while giving little to no credit for the significant underwriting actions we've taken unless clearly evident in our data. Elias will provide more details.

Moving on to third quarter results. Our strategy is centered around strengthening our core underwriting businesses while managing the cycle with relentless discipline. Operating earnings per share of $7.62 were driven by disciplined attritional underwriting across our core businesses, record net investment income, and accelerated capital return. Our core businesses delivered $3.7 billion in gross written premium, a modest year-over-year decrease reflecting our disciplined approach. As I've said, prioritizing bottom-line results over top-line production is imperative, especially when we're seeing more signs of irresponsible behavior in the market. Over the past several years, we have significantly repositioned the casualty portfolios across both core businesses, balanced our mix, and improved risk quality. We prudently raised our casualty loss picks at the beginning of this year. Coupled with the significant underwriting actions we've implemented, our current accident year loss picks remain conservative. Now turning to the segments.

Our reinsurance treaty team continues to do an excellent job managing the cycle across all markets. We continued to decrease our exposure to U.S. casualty lines and selectively reduce business where rates were not adequate. This resulted in about a 6% decrease in gross written premium year-over-year on a constant dollar basis and excluding reinstatement premiums. Casualty lines were down by 18%, while property premiums decreased slightly as growth in property pro rata was offset by decreases in our cat and non-cat XOL portfolios. We continue to see growth opportunities in our global specialty and financial risk portfolios, where risk-adjusted returns remain attractive. Growth in the quarter was led by a variety of specialty lines.

The increase in the combined ratio in the quarter largely reflects the casualty re-reserve strengthening I mentioned, as well as pre-tax catastrophe losses of $277 million, net of estimated recoveries and reinstatement premiums, primarily associated with the Colombia earthquake, events in the Middle East, and a number of smaller European and Canadian losses. At the same time, the underlying portfolio's performance remains solid, as evidenced by the attritional loss ratio improving to 56.3% in the quarter. Looking ahead to the 1/1/2027 renewals, we expect market conditions to remain competitive. Everest is well-known in the industry as a top-tier lead market sought after by high-quality cedents looking for longstanding partnerships. Despite expected competition, we continue to see opportunities for attractive capital deployment. That said, we remain disciplined. Where deals don't meet our return thresholds, we'll adjust our participation accordingly.

Turning to the Global Wholesale & Specialty segment, which delivered another solid performance. Despite rate headwinds in short tail lines, our strategy to expand the portfolio in specialty lines and targeted international markets remains consistent while continuing to deliver margin expansion. Gross written premium increased over 3% year-over-year. We grew double digits internationally with broad-based growth across financial lines, marine, and a number of specialty classes, partially offset by aviation. While rate across our portfolio increased modestly, it continues to vary by line. More importantly, the areas of our business we are expanding are rate adequate. The attritional loss ratio improved 90 basis points year-over-year to 60%. This is a result of the team's disciplined risk selection and portfolio management driving improved loss experience.

The combined ratio was 97.3%, prudently positioned at the high end of our expected range in the mid to high 90s for the full year. This included pre-tax catastrophe losses of $25 million net of estimated recoveries, primarily resulting from the Colombia earthquake and mid-size losses in the Middle East. Now a word on capital management. We accelerated capital return to shareholders to approximately $550 million in the quarter, inclusive of dividends, bringing the year-to-date total to over $1.4 billion. Share repurchases continue to be a top priority for capital deployment as we approach year-end and head into 2027. Over the last two years, we have transformed Everest.

As we move forward, I couldn't be more optimistic in the strategy we're executing across our core businesses as Everest embarks on its next chapter, one that I believe will consistently generate value for shareholders, led by disciplined underwriting, proactive capital management, and balance sheet strength. With that, I'll turn the call over to Elias.

Thank you, Jim, and good morning, everyone. The third quarter financial results reflects our continued focused execution on our strategic priorities. We grew book value per share, excluding unrealized gains and losses on the available-for-sale fixed maturity portfolio, to $414, which grew both on a year-over-year basis as well as sequentially. This is despite higher cat losses and reserve strengthening in our reinsurance business. Before unpacking this quarter's results, let me first touch on reserves. First, as Jim said, Katy and I performed in-depth reviews of all material reserve studies for the quarter, which included all material long-tail lines. Second, we followed a very robust process. We thoroughly vetted and refreshed all material actuarial assumptions and methodologies with added conservatism. This included expected loss ratios and loss development factors across all years, and we responded more promptly to credible emerging trends.

We improved line of business segmentation within our reserve studies to better reflect performance and mix. While we've taken meaningful underwriting actions in recent years, we did not make any adjustments for these actions unless definitively evident in the data. While there's evidence of accelerated case reserving in casualty based on our enhanced claims analytics, we did not make any adjustments for this deliberate action in our core businesses. As I stated last quarter, our philosophy is to book our reserves at management's best estimates, which we expect to be above the actuarial central estimates. The actions we've taken this quarter have moved our reserves to a more conservative position and have meaningfully increased the differential between management's best estimates over the actuarial central estimates. This differential increased to over $850 million as of September 30.

This further strengthens our balance sheet as well as reduces the potential for future reserve volatility. Now turning to the reserve movements in the quarter. We reported overall net unfavorable development of $268 million, driven largely by casualty reinsurance reserve strengthening. While loss emergence in short tail lines continues to be favorable, we held back the majority of the favorable development as we look to enhance our conservative position. In reinsurance treaty, we strengthened gross casualty reserves in the quarter by approximately $600 million, which is on top of the $200 million of strengthening in the second quarter in U.S. casualty. The vast majority of the development was in underwriting years 2022 and prior, where we added conservatism to each underwriting year. In addition, we also rolled that experience forward into the more recent underwriting years.

Turning to our insurance businesses, the bifurcation of our reserve studies into separate studies for each of Global Wholesale & Specialty and legacy resulted in de minimis net overall reserve movement with no meaningful change to reserve subject to the ADC. As a result, we continue to have approximately $1 billion of net limits remaining under the ADC. More importantly, the reserve study confirmed our view that the underwriting actions we took over the past few years have been beneficial and the Global Wholesale & Specialty business is performing as expected. Finally, the reserve studies resulted in no change to our 2026 loss picks as they were previously set more conservatively. Now turning to the third quarter group results. Everest generated after-tax net operating earnings per share of $7.62. This was largely driven by attritional underwriting income, record net investment income, and strong share repurchases. Moving to our core businesses.

Gross written premium were $3.7 billion, down approximately 4% on a comparable basis year-over-year, largely driven by our underwriting discipline in casualty lines. The attritional loss ratio was 57.2%, a decrease versus the prior year reflecting improved loss experience and mix. Pre-tax CAT losses were $302 million net of estimated recoveries and reinstatement premiums in the quarter, largely driven by the events Jim mentioned. The expense ratio increased to 5.2%, largely reflecting the impact of lower net earned premium. Now moving on to our reinsurance treaty business. Gross written premiums were $2.7 billion, down approximately 6% on a comparable basis year-over-year, largely driven by our underwriting discipline in casualty lines to a lesser extent to rate softening in property. The combined ratio included 11.3 points of net adverse prior year development and 12.8 points of CAT losses. The attritional loss ratio improved to 56.3%, reflecting improved loss experience.