Earnings Transcript for LRE.L - Q4 Fiscal Year 2021

Operator: Hello and welcome to the Lancashire Holdings Limited 2021-year end results. Throughout the call, all participants will be in listen-only mode and afterwards, there will be a question-and-answer session. Please note this call is being recorded. Today I am pleased to present Alex Maloney, Group CEO, Natali Kershaw, Group CFO, and Paul Gregory, Group CUO. I will now hand over to Alex. Please begin your meeting.

Alex Maloney: Good afternoon, everyone and thank you for joining us. I thought start giving an overview of 2021 and imposed to ensure the underwriting picture before and actually goes for the financials. At the end, I'll talk throughout the outlook for 2022 before we open up the questions. Slide 5, please, Jelena (ph). 2021 was a challenging year for profitability. For context, insured loss estimates from various catastrophe events during 2021 or somewhere between $105 billion and $130 billion sets you bid end dollars making this one of the closeness years on record. Only 2017 produced a larger insured loss of around $150 billion for catastrophe claims. As we underwrite a significant catastrophe exposed portfolio across our various businesses, we expect to be presented with significant claims from our clients in years such as this. It's disappointing to deliver a combined ratio of 107% and a loss for the year. But this is only the second time this has happened in our history. But these losses all within our risk tolerances and management's expectations, given the magnitude of these events. Importantly too, we have taken our usual approach to reserving, where we have a tried and tested process which has seen releases come through overtime the time -- over time as the loss of the claimant matures. We have a track record of positive reserve releases and are generally on the right side of these claims. We have made great progress across our business during 2021. When on underlying basis, we can see the benefits of the investments we have made since 2019 when the right environment turned positive. During 2021, we enjoyed the fourth year operating momentum across our entire underwriting portfolio, but the 2021 catastrophe events have masked the progress we have made throughout our business. I'll now move to Slide 6. On this slide, you can see the strong increase in premiums for the year, in what has been a trans - transformational year for Lancashire. We have achieved what we always said we would do, take advantage of the improved rates in the environment, and grow that business at the right time in the insurance cycle. As well as rightsizing our positions, I am also really pleased by the additional, the new underwriting teams and the quality of people we've been able to hire. They complement and joined our excellent existing teams, where we've been promoting strong individuals from within. Looking at 2022, we continue to deliver on our strategy, our capital position gives us optionality and we will continue to add new teams and talent to the group. I expect these investments to future proofing business at the right points in the cycle to deliver returns to our shareholders as they earn through. I'll now pass over to Paul it to give you the underwriting picture.

Paul Gregory: Thank you, Alex. Moving to Slide 9. I'll start with our underwriting strategy, which has not changed. Since the turn of the market in 2018 and in line with our long-held belief in cycle management, we've been expanding our underwriting footprint and building the Lancashire franchise. The fundamental principle has been to write more business as the rising environment improves in both existing and new lines of business. The ultimate goal of building a more robust portfolio is better insulated from the inherent volatility that some of our products provide. Slide 9 clearly shows that growing the businesses in the right environment is improved and stuck to us strategy. How and where we grow depends upon the market opportunity. In the years preceding 2021growth has been keyed towards some of the less catastrophe exposed lines in specialty insurance, policy such as aviation and energy. And then in Post-COVID we saw a more pronounced rate improvement in the catastrophe exposed classes. So we grow off footprint here. Unfortunately, improved writing never guarantees underwriting profitability, it simply increases the probability of profits, which is why we're prepared to take more risk when margins improved. We have been deliberately consistent with our strategy. Despite a challenging last year, we have made significant progress executing the long-term strategy. From this perspective, 2021 is a transformational year for Lancashire. We've continued to build out our product offering and developed, and strengthened our underwriting bank whilst delivering 50% year-on-year premium growth. We believe these investments are for the longer-term benefit of the Lancashire group and will drive future profitability and help deliver a more robust portfolio of risk. Turning to 2021 premium growth, I would like to highlight a few key areas. I will group these down to three things

Natalie Kershaw: Thanks, Paul. Today I'm going to portray some slides on our losses, our strong capital position, and our investment returns, starting with slide 14 on the loss environment. As Alex has mentioned, 2021 has been estimated as one of the costs this year when natural catastrophe is on record. Our overall total net claims to weather and large losses in 2021 was $306.4 million. This includes the previously announced losses for Hurricane Ida, European storms and Winter Storm Uri, as well as critical violence claims from the riots in South Africa in July, 2021. During the fourth quarter of 2021, we incurred further catastrophe losses for the Midwest storms and tornados and Australia hailstorms. While the extensive losses in 2021 is obviously disappointing to us our assets to grow the business and diverse our portfolio products over the last few years were successful in providing something of an offset to the catastrophe losses. For comparison, languishes 2017 catastrophe and large losses totaled $213.7 million, but resulted in a combined ratio of 124.9%. As mentioned last quarter, we have maintained the same catastrophe reserving process for the current year events. The estimated loss is built ground up on a contract-by-contract basis and is then challenged and assessed by representatives from across the business and across departments. For this year's event, we've been especially mindful of potential supply chain issues, demand surge, and inflation. We have historically reserved conservatively to catastrophe events. We showed you last quarter that our initial loss estimates for the 2017 catastrophe events have run off favorably whereas the initial PCS estimates 2021 was the first year since our inception that we incurred losses of any significance in our terror and political risk book, due to the political unrest in South Africa. This loss is within our expectations for this type of event and magnitude of industry loss. Our terror and political risk book has historically been one of the most profitable classes of business for Lancashire. That's not to say it can never have a loss. Turning to reserve releases. We have had overall favorable prior-year loss development in every calendar year since the company was formed. For 2021, our favorable prior year development was $86.5 million in excess the previous guidance of $45 million to $60 million. The favorable prior year development was positively impacted by the release of two large-risk claims from older years in our favor, as well as releases across the 2017 CAT losses. As we have noted before, and given the lines of business that we write, we are exposed to large-risk claims that can see movement from prior years. However, given the growth in both our premiums and loss reserves this year, I would estimate prior year releases for 2022 to be higher than previous guidance in the region of $70 million to $80 million. Turning to Slide 15, this slide is a reminder the inherent volatility of catastrophe business, which has always been a significant proportion of the business that we write. The first chart shows approximate catastrophe losses over long time horizon. Insured catastrophe event for much higher in the last 5 years than the 5 years proceeding those. And overtime their appears to be some clustering at catastrophe events. The second chart shows the relative components of our combined ratio in the last 10 years. This demonstrates inherent volatility in our returns from the catastrophe business that were necessarily impacted by catastrophe losses in years of heightened activity. However, since inception, the net loss ratio for our property catastrophe, and that of classes of business is well under 50% and although we will have usable volatility, we expect that these classes will continue to be profitable for us over the long term. As I said last quarter, we expect continued growth in the new more attritional lines of business to offset the volatility and catastrophe losses to some extent. Although these will have a dampening effect for the underlying attritional ratio as we tend to reserve new classes conservatively in the initial years of writing. These newer lines of business are far less exposed to catastrophe losses and are not capital intensive, they help to diversify our book and give us a stable income stream to help offset volatility from the catastrophe and large risk expose business. And as we have said before, they are accretive to the change in fully converted book value per share. Without these new lines, our own premium would be lower. catastrophe events would have resulted in a higher combined ratio on overall loss for the year. Moving to the next slide. A number of you have asked us to look at the underlying combined ratio. We made them a benefit of reserve releases, and adjusting for catastrophe and large losses, you can see the positive impact of rate increases on our combined ratio since 2017. Our attritional ratio was 36% in 2021, at the lower end of the 35% to 40% range previously given. For 2022 with increased rates across the majority of our business, the attritional ratio guidance range has improved to 33% to 37%. The actual ratio will very much depend on the business mix that we write, which is itself dependent on the market opportunities that we see. This year's premium growth will continue to earn through in 2022 and our net premiums earned will further benefit from the expected 2022 new business that Paul has spoken about. This higher premium level will benefit our overall combined ratio. We expect ratio in the region of 18% for next year and anticipate that the acquisition cost ratio will remain broadly the same as this year. Moving on to capital on Slide 17. Even given the losses in 2021, we retain a strong and robust capital position. As a reminder, we started 2020 in a stronger than usual capital position as we retained earnings to fund growth. We then raised $340 million in equity capital in 2020, and an additional $123 million of debt capital in early 2021. Although we have used a substantial portion of this additional capital to fund our growth in the last couple of years, we retained more than sufficient capital to fund our current plan to 2022 grace. We still maintain a strong regulatory capital position following the years losses with a solvency ratio for 222% at Q3 2021. Our year-end position is likely to be slightly higher than this as we expect that our 2022 reinsurance program will be beneficial at the regulatory loss return periods. We will provide the final year-end regulatory position at the Q1 earnings call. As I previously noted, we generally expect the 12 BMA solvency ratio will be comfortably above 200% going forward. At this level, we are more than sufficiently capitalized from a rating agency perspective. In line with our stated dividend policy, we are declaring a normal final dividend of $0.10 per share. And finally to investments, Slide 19 illustrates our relatively conservative portfolio structure with an overall credit rating of A plus. Our 2021 investment performance including that from realized losses was marginally positive at low 0.1%. The significant increase in treasury yields, particularly between the two-year and five-year treasuries resulted in losses in our fixed maturity portfolios. The soon realize losses may mitigate for more by the majority of the risk assets which generated strong returns. Notably the bank loans, hedge funds and the private debt funds. We do not anticipate major changes to our investment portfolio in 2022. Slide 21 provides a summary of guidance previously given how we performed in 2021 and the new guidance for 2022. With that, I'll now hand back to Alex to complete

Alex Maloney: Thank you, Natalie. We've got Slide 22 and the outlook. You've already heard me say that our strategy remains unchanged. We're an underwriting focused business, and we're continuing to underwrite the opportunity in front of us. Our balance street is strong and allows us the flexibility to navigate the insurance cycle. But saying that, our franchise is more resilient now due to the investments we've been making since 2018. Our non-catastrophe capital-light lines are lowering the volatility of our results even in challenging years. Our outlook is positive for 2022 as highlighted by Paul's commentary and the improved guidance Natalie gave you. We expect to grow this year as long as we see the underwriting opportunity to improve our returns. We will do this through the rates increases we expect, the growth of the existing teams we have, and addition of new underwriting teams. Lastly, I'd like to thank all our shareholders for their support and all my colleagues, their continued hard work, and make what it is today. With that I'll turn back to the operator for questions.

Operator: Thank you. . Our first question is from Faizan Lakhani of HSBC. Please go ahead.

Faizan Lakhani: Morning, thanks for taking my questions. Well, obviously not necessary. My first question is on the S&P rating modal changes. They are in press collecting comments on revised capital model. In particular, on the focus and net cat. Could S&P become the binding constraint going forward? Any color on this would be great. The second is on the attritional guidance, I wanted to understand how I should think about the impact of business mix shifts and what's been achieved in 2021 and the rate impact. If I look at shift on gross written premium, the proportionate properties increased to 63% and that still has to earn through. So just understanding that would be helpful. And the final question is on the cat loss ratio. Is it still a good proxy to use historical performance given the fact that you've had a quite strong shift in business mix. And we've had the change in the claims environment. Thank you.

Natalie Kershaw : Faizan. I think I'll take all of those. And the first one on S&P -yeah. So obviously they haven't released the full model in Excel format, which is not massively helpful. So it's quite difficult to assess the full impact that we don't anticipate some of change for rating and actually we don't expect S&P to become the binding constraint for us. And what we see thing is it the increase in these charges will be offset by diversification benefits. And we'll also get a capital benefit on a new model for the alliance of deferred acquisition costs. And just as a reminder, the debt refinancing that we did in early 2021 was all Tier 2 debt. So that's all for the allowable and the new S&P modal. On attrition one thing I can tell you is that the improvement that we've seen so far, in the attritional ratio has been dumping since what we will turn the new lines of business, which then since 2018, if you expect to escalate those new lines, the ratio has decreased more directly in line with rates increases. And we would estimate in '21 as an example. And the new lines the business increase the attritional ratio in the region of 6 percentage points. If that's helpful. And then on the CAP performance, I think we normally states to look at it last 10-years average CAP percentage, lost ratio in a previously given 15%. If you look at the last 10 years now going average, it's maybe just under that.

Faizan Lakhani: Is that still relevant given the fact that you've growing very strongly as last year. And this talk about climate change and claims inflation. Does that still work? That's the rough guide?

Natalie Kershaw : Yes. I think that still works because we are obviously in the process of growing the more attritional lines and on the specialty book as well. So it's not just the cut -- the CAT lines that we're growing.

Faizan Lakhani: Great. Thank you very much.

Operator: Thank you. Our next question is from Freya Kong of Bank of America. Please go ahead.

Freya Kong : Hey, good afternoon. I've got three questions, please. Just on your attritional loss guidance of 33 to 37. This is quite a wide range could you give us some more color on what sort of conditions you would need to see to hit the bottom of this range or coming closer to the top. My second question is on business mix. If the opportunities are available to you, what would be an ideal long run business mix for Lancashire? And third question is just on the reserve releases. So you've guided for $70 million - $80 million for 2022. Is this 2022 specific or guidance for an ongoing basis? Thanks.

Alex Maloney : On business mix. I think we've always been very clear on this one that -- we've always said that we still underwrite the opportunity that is there at the time. So we've never been weighted to percentages across our whole underwriting portfolio. And I suppose this year is a great example isn't it, of where we've got a better balanced portfolio, but we're happy to hold that cat footprint. So I think we just try and look at the opportunities, we're not wedded to any product line. We're just looking to generate better returns across our whole portfolio, so we've never been wedded on business mix. I think on attritional ratios, and what I would say, just to remind you that you have to understand the business that we write and we still write big ticket specialty items that can move around. So for us, on attrition. And there's always going to be very difficult to really, so get to the granular data that maybe you're looking for. But clearly, what we've demonstrated in the last year or so is the improvement in our portfolio. The improvement in our attritional ratio. You'll see in the benefits from five-years of right change now and obviously, as, as the capital lines. So earn through, you'll see in the benefit there. So it's very hard for us to give you a pinpoint number. And clearly our numbers can move around. As always been the case at Lancashire. But I think you all know, but now giving you positive improvements and better guidance, which I think is a real demonstration of our conviction of the portfolio we've built.

Natalie Kershaw : On the reserve releases, I would say just keep that number into next year, we will visit it this time next year and give a brighter guidance which theoretically, is premium increase and increase and new reserve release we will say increase as well. Yes. Kicking this change in methodology.

Freya Kong : Okay, great, thanks. And -- sorry, just to follow up on the business mix. I mean, yeah, you've been investing in specialty lines since 2018 and trying to-and building that out quite successfully. Do you see that trajectory ongoing or-yeah because you need to balance volatility of the cat portfolio. I just want to get a better understanding of what sort of business mix is ideal for you guys.

Alex Maloney : Yes, I think there's two separate things. We've invested in these product lines because we believe that they improve their returns over time. So all the time we can find new people, all the times that we can expand into more specialty classes where you will continue to do that, and that will inevitably change the business mix. And you're correct, that will help balance out the volatility -- the inherent volatility of a CAT portfolio, as you've seen this year. Our result is still over 100, which obviously is not ideal, but I think the point we were trying to make earlier is that we have more balance across our business and we have more non-volatile business. I also remember the only time we enter any product line is to improve our returns. That's the sole purpose of everything we're trying to do.

Freya Kong : Thanks, guys.

Operator: Thank you. Our next question is from Nick Johnson of Numis. Please go ahead.

Nick Johnson : Hi, everybody, three questions, please. Firstly, on reinstatement premiums. Just wondering how much the outwards reinsurance in '21 is reinstatements. Just wondering if you could quantify that, if possible, please, so we can get a better sense for the underlying? And secondly, on tax rates, what should we be assuming for '23 tax rate given the OECD 15% agreements? Just wondering what signals are hearing from the Bermuda authorities? Apologies if you already answered that question before, but wondering if there's any update. And lastly, on investments, just wondering if you can say anything about the risk asset performance in the year-to-date, are we in negative territory on those assets or are they holding up okay? Thank you.

Natalie Kershaw : I'll take the first 2 and then I'll hand over to Denise with the investment question. On reinstatements, what I can say is they were a relatively small proportion of those inwards, on outwards, premiums on the actually upset she offset each other. So there is no bottom-line impact from those. On the tax rate changes, obviously, we're maintaining a watching brief on that. We don't have any book dates from previously. Certainly internally we're not expecting a change for 2023.

Denise O’Donoghue : Hi Nick. It's Denise here. Yeah. No, our risk as has really diversified portfolio quite well. They have positive returns year-to-date. So it was beneficial to the fixed maturities that were hit by the increase in treasury yields. So gal.

Nick Johnson : In positive territory. Okay, that's great. Thanks very much for the --

Denise O’Donoghue : Yes, good return. Thanks.

Nick Johnson : Thank you

Operator: Our next question is from Andrew Ritchie of Autonomous. Please go ahead.

Andrew Ritchie : Oh, hi there. Thanks for the additional detail in the presentation today, it's very welcome. First question, I think you implied that the business states that you'd grow in 2022 is purely rate, not exposure. In that context, should I assume, when I look at your PMLs, which clearly went up dramatically with the growth in '21, they weren't go - they'll stay where they are. We'll all things being equal in 2022. That's the first question. Second question, when would you get comfortable on releasing some of your COVID reserves? Because I think particularly on the part of exposures you would have had, there should be some finality now on those claims. The final question, I mean, I don't -- I should understand what this means, but the footnote on Slide 17, I don't really know what it means. It says our year-end position is likely to be higher than this as we expect that our 2022 reinsurance program will be beneficial. What do you mean by that, I guess linked to that, can you give us some color on the placement of your protections for 2022, both reinsurance and retro given there's been clearly a much tighter market? Thanks.

Paul Gregory: Sure, Andrew. If I take questions one and three, and then Alex can take question two. Yes, your assumption on PMLs is correct. Obviously, PMLs do move around for a whole host of reasons, but as a broad comment, if we keep our CAT footprint the same, you would expect the PMLs to be much more stable than they were last year. So that's a fair assumption. On reinsurance, I think it's best if you split this into two parts. As you know, we buy a lot of our reinsurance at the first of -- not all of it, but a vast majority of it at the first of January. And we split this into kind of catastrophe exposure, reinsurance, protections, and non-catastrophe expose. So for the catastrophe exposure insurance, our experience in the market with broadly similar to the general market dynamics but we were literally insulated given the vast majority of our reinsurance each January from rising carriers, we've limited limit just from OLS markets. In general, the cat products we purchased, we paid more for our cover in line with market dynamics and our attention is on our core programs did increase a bit over where we've purchased a little bit more limit, which is why you're seeing some of the benefit come from a capital perspective. And also we were able to purchase more limit on an aggregate basis, which again provides quite a protection from North frequency also provide some additional capital-related. On non-CAP side. on the reinsurance side, the market was a lot more stable than in catastrophe space, so very simply it's broadly similar to last year in terms of spend and broadly similar in terms of structure. From a spend perspective, much like last year, a dollar amount of spend will probably go up. Two reasons, we'd pay more the CAP protections. And secondly, again, we're ready more teams and there comes a disproportionate percentage spend on reinsurance for the new teams. But as an overall percentage of Premium much last year, we'd expect the ratio to go down again given the anticipated growth in top line

Andrew Ritchie : Okay. Sorry -- sorry, just sorry for that. But so the reason to the regulatory benefit is because you bought more, essentially, more limit.

Paul Gregory: More and more. That was a little -- there were some more limit purchase correct but also as we put more aggregate protection, which then effect more limit that works - -that has worked quite well from the capital.

Andrew Ritchie : Another way -- I understand then your net cat exposure has gone down. Well, at least the model says that.

Paul Gregory: Well, it's broadly stable year-on-year.

Andrew Ritchie : Right. Okay. Sorry, Alex.

Alex Maloney : It's alright. Sorry. On COVID. I mean, I'll make some comments about our own book and then I will give you a wider view. I think for our own book in the same way that any other reserves can move around is that we've say nothing to change our view i.e. no evidence to reduce our current COVID reserves, and that's why they've been stable for a long time now. And my personal view on our book is that we are nowhere near close to the end of the process of assessing the claims that we have and the we have available. So there's no reason for us to change our COVID reserve. I was surprised that some others are bringing their COVID reserves down now. That doesn't really make a huge amount of sense to me. Obviously, different carriers have different books of business and may have reserved in a different way, but it does feel premature to me for anyone really to be moving their COVID numbers down at this point. As I said, clearly that might have a different process to us than different portfolios of business.

Andrew Ritchie : Okay. Thanks.

Operator: Thanks. Our next question is from Iain Pearce of Credit Suisse. Please go ahead.

Iain Pearce : Hi, thanks for taking my questions. I think that largely to follow up some more on what Andrew was asking about. The first one was on catastrophe appetite. If I'm just trying to understand sort of rates being up gain on a risk-adjusted basis this year. If you're thinking about the underwriting opportunity, why you wouldn't be growing your CapEx this year when you would last year significantly, is that a business mix thing? Is that something to do with PMLs being at the upper end of where you want them to be? Just trying to understand, you know, what is the no opportunity that you grow the CapEX this year, as well as a result of sort of business mix considerations. And then on the reinsurance changes, I think Natalie, you talked about favorable benefit to key regulatory term periods, which regulatory return periods as sort of seeing the most benefit as a result of the changes in the reinsurance program? Thanks.

Alex Maloney : I think I've said this on my last call. We'd never sit here and say we'd never grow our CAT book because until you see the opportunity, you can't make those calls. So I think there are circumstances where we would grow our CAT book. If you think where we are today, we've only seen the first of January renewal so far, which got a huge amount of attention. My personal belief is that the meat of the CAT portfolio is the U.S. renewals, and until we see those renewals, we won't get a true picture of the opportunity, which could be better than we think it is. I don't think will be worse than what we've planned for in any circumstance but it could be better, so we could grow our CAT book. But equally as we've said at the start of the call, your CAT portfolio brings an inherent level of volatility to your overall business so there will be a point where any carriers just going to make it that decision that you've just gone on CAT business. So I think as you can see from this year, we run a fair bit of volatility already. There's not an unlimited appetite for CAT, but we do have the capital and the ability if pricing moves on again to write more CAT business. So I think by the time we have our next call we'll have a much better view of the market and the opportunity and we can update you farther from them.

Operator: Hi and so I think could you repeat that second question, please.

Iain Pearce : Yes. Sure. Just on -- you talked about the benefits of the different regulatory -- key regulatory return periods when the reinsurance changes to -- which are the key regulatory return periods that you are seeing the benefits?

Natalie Kershaw : Some of the reinsurance that we bought, particularly the aggregate COVID that Paul mentioned, gives us more benefit kind of in the title of the risks. So the more extreme end of the return periods, and that's why it benefits the rating agency and regulatory models, you don't necessarily see the same benefit on just normal occurrence PMLs when they come out in Q2.

Iain Pearce : So --

Natalie Kershaw : in that space --

Iain Pearce : Sure. That's great. Thanks. And Alex, moving forward, if I could just follow up on the CAT business. I think last year you saw big European PML growth. So at one-one is that fair to assume that that PML growth won't be significant based on what appetite that you have at the moment?

Paul Gregory: Yes. I think as we answered to an earlier question, it's a fair assumption to think the all PMLs is going to be broadly stable this year versus last. There are things that happened within models that aren't necessary always intuitive, so you do get things that move around but as a general statement you would expect our PMLs to be broadly similar.

Iain Pearce : Perfect. Thank you.

Operator: Our next question is from Ben Cohen of Investec. Please go ahead.

Ben Cohen : Hi, there. Good afternoon, everyone. I have two questions, please. Firstly, I was interested in your view of pricing adequacy in catastrophe business, particularly for sort of secondary perils, maybe where I guess, large parts of the market, including yourselves, arguably were caught out last year. Is your view on the pricing of those perils has that changed over the course of the year? And secondly, I would like your view on the relative pricing of catastrophe risk between the reinsurance book and the insurance book. And maybe you could give us some indication in terms of how you're looking to shift that balance between the two over course of this year. Thank you.

Paul Gregory - : Yeah. Look, Ben, I think secondary payrolls have certainly been highlighted in more recent years, but I think there's always been an acknowledgment that the models have struggled to capture them. And is one reason to be honest we've never solely relied a modeled out but the pricing risk, given that no model is perfect, and part of underwriting is understanding those weaknesses within models, and one of those weaknesses is on secondary payrolls and absolutely, we've seen a number of secondary payrolls obviously through the close of '21. I mean, obviously, we're seeing risk-adjusted the pricing at one, I think pricing is one two. I think another thing that the market we forget to talk about enough is that attachment point of risk. And I think this is particularly important on secondary payrolls. And I think there was a lot of focus certainly at the first of January on getting clients to assume more risk at the bottom end of programs. A lot of that was as a result of trying to move away from the impact of the secondary perils. So you're clearly in a better position in 2022 versus 2021, the combination of price increases and level increases. And then your second question, sorry again, was that the balance between how we say reinsurance and property insurance?

Ben Cohen : Yes, that's right.

Paul Gregory: Over the past couple of years, we've been growing both. You recall our property insurance product was predominantly sold from our syndicate and then the 18 months two years ago now we expanded that to also offer from the company platforms that we've been gradually building that out as the market improves. We obviously saw more significant growth on the reinsurance side last year as that price momentum kicked. We saw pricing increasing certainty start earlier on the insurance book, and that momentum has continued. I'll go back to what we always say, obviously it will be driven by market conditions this year, but I'll probably expect to grow a little bit more in property insurance versus reinsurance in 2022. But as we know, things can change quite quickly, and if the opportunity is different, then we are more than happy to pivot between the two.

Ben Cohen : Okay. Thank you very much.

Operator: Thank you. Our next question is from Will Hardcastle of UBS. Please go ahead.

Will Hardcastle : Hi, everyone. Just really thinking interest rates of obviously it was a key factor in keeping approximate medicines going. I would stage to going to current flash to interest rates have moved to new underwriters. And perhaps just overall extension Just thinking about how we rising interest rate for the benefit with capital ratio and how that feeds driven any sensitivity going. Thanks.

Alex Maloney : Will, on that first question, we didn't really get that, but I think you said something about interest rates and brokers using that against us, was that correct?

Will Hardcastle : Yeah, that's right.

Paul Gregory: I think for all portfolio that we underwrite, the interest rate argument is just not one that is that prevalent. With brokers, when they come to us to broke their clients, they also -- it's fundamentally is more about what demand and supply there is in the market and using those dynamics to either pressure us to give reductions or ask us the capacity, which means we can put pricing up. I think it's probably more relevant if you've got a longer skew towards a longer tail classes, which at the moment, as you know, we have some, but it's relatively limited compared to the rest of the portfolio. I'll be honest, it's not really something that we have presented to us from brokers as a reason to start giving rate reductions.

Natalie Kershaw : Okay. We didn't -- I don't think we quite caught the second part of the question.

Will Hardcastle : It was just how higher rates even if it's just to the short-end benefit in capital ratio or any sensitivity could help.

Denise O’Donoghue : So we are very short duration with -- sorry, hi, it's Donoghue. We have very short duration. If you look roughly, 100 basis points move is something like $15-$20 million impact so that's tiny compare -- I mean it's a very small impact on -- for us. It's more of an impact -- rising interest rates tend to be more of an impact for us on earnings as a positive, as opposed to necessarily impacting our capital base.

Natalie Kershaw : And I think I would just add that with the short duration portfolio, we'll turn up very quick and our reinvestment yield goes up very quickly.

Operator: Thank you. Our next question is from of Morgan Stanley. Please go ahead.

Unidentified Analyst: Thank you and good afternoon everyone, just a one simple question is it lake clearly the book has gone up quite a lot last year, and most likely it is going to continue to grow this year as well. Can you just give some color as to which geographies you're putting a bit more in terms of growth? I get it that pricing is what drives the focus. But if we can get some visibility as to okay. Out of the 50% growth, like say, large half of that is coming from U.S., some from Europe. Any, any visibility on that would be very helpful. And is there any particular line of casualty -- we're sorry, property where you are going a bit more exposure. So that would be very helpful as well. Thanks.

Paul Gregory: Hi. I think to be honest, as we mentioned in property, catastrophe exposed property business were it be insurance or reinsurance grows. We have rightsized our portfolio quite a lot during 2021 and I think as Alex mentioned from a risk perspective on anything with basis. It's going to be broadly similar this year in terms of where we underwrite the risk, we have a global footprint when it comes to catastrophe -- property catastrophe business. As with most markets as the low of dominance from the U.S. but we obviously write business all around the world from Australia, Japan, Europe etc. I don't expect the balance of that to change significantly year-on-year.

Unidentified Analyst: Okay. Thank you.

Operator: Thank you. Our next question is from Tryfonas Spyrou of Berenberg. Please go ahead.

Tryfonas Spyrou : Hi, good afternoon, everybody. And just a question. So the first one on marine, I think premiums grew by just 2%, our PI was at 9%, I think you mentioned impact of some multi-year contracts to guess. Do we expect the catch-up in growth in 2022? Given also, you have the new teams in pace. And the second question is on G&A ratio guidance being around 18 points. If I apply these to a reasonable expected net earned premium figure for 2022, the absolute number of expenses come up quite a lot. I was wondering if you could comment on this. I would have expected out to gradually come down a bit more given the growth you're seeing this year as well. And obviously, net premiums earning through from 2021. Thank you.

Paul Gregory: Hi. So on the first question yeah, you're quite right. The marine portfolio did have some multiyear policies in there that weren't due for renewal and we would expect some of those to renew in this year, 2022. Obviously, that would be subject to acceptable renewal terms, etc. And also as you said, we've invested specifically in the marine liability sector where our underwrite joined us halfway through 2021. So we would expect that line of business to build out during 2022. So yes, you would expect to see some growth certainly larger than we saw in 2021 come 2022.

Natalie Kershaw : On the G&A ratio question. The ratio for the current year is probably around two percentage points lower than a normal rate because we have reduced the variable pay element as compensation due to the performance in the year so it's kind of artificially a little bit low this year. Also, if you look into next year, the 18% as well as increase in relatively conservative assumptions on headcount, which is the main driver on G and A ratio. Wage inflation for the 18%, I would say is relatively conservative, but you have to take into account that this year is also a bit lower than normal.

Tryfonas Spyrou: Okay. That's clear. Thank you.

Operator: Thank you. Our next question is from Ivan Bokhmat of Barclays. Please go ahead.

Ivan Bokhmat : Good afternoon, everyone. A couple of questions for me. First one is perhaps a bit cheeky, it's on gross. Obviously last year you've increased your book by 50% and then mind from rate movements was 12% from new teams that was $95 million, and then 30% from exposure growth. What you give us now for guidance is just on the new team’s components, I was wondering if you could give some quantitative or qualitative feel of where the other two might go in '22 and then the second one is, I guess a little more technical but just drawing them the comparisons, Natalie, that you made to the 2017 year. When I look at the triangles, the 2021 is 79% of your net earned premiums, but 2017 was far higher, it was 94%, while actually the net CAT components as percent of premiums, as you've highlighted, was actually quite similar. I was just wondering what's different between the way you've reserved for those two years, and how will the runoff may look different? Thank you.

Paul Gregory: Okay. So I'll take your question on growth and it would definitely be more of a qualitative answer than a quantitative one, right. So I think -- as I mentioned in my script, we definitely expect to grow ahead of right this year albeit certainly not to the same extent that we saw in 2021 when the growth was pretty exceptional. We're going to see growth from three principal areas. Obviously, as we mentioned, is going to be five -- the sixth consecutive year of positive rate momentum. It's likely to be more pronounced on the catastrophe exposed products and the specialty exposed products, albeit we still expect positive rate momentum in specialty, as can be first area. Secondly, those new classes where we add -- that we added in ' 21 those that contributed $95 million in '21, well they're going to be in their second full year. So you are going to continue to see them mature. And then thirdly, is the quantitative part that we've given you, which is those four new teams we mentioned starting underwriting in '22, and based on current market conditions, our current estimation is $50 million to $60 million of additional . So we do anticipate good growth in 2022, but we're already mindful to caveat that. It certainly won't be the same extent to '21.

Natalie Kershaw : Hi, Ivan. On your second question, this sounds quite technical. We might have to follow up after the call on what data you're looking at. I would say that we were writing lower attritional business in 2017. So that might be the answer to your question, but I think maybe we should follow up after the call.

Ivan Bokhmat : I supposed to -- the level of rate obviously, has also changed quite a bit. Okay. Maybe just a follow-up on the first question, it's -- I suppose would be pointless to try to highlight -- to guide you towards high, high single-digits, low-teens, that guidance. Is it too early for that? I mean, maybe just as an outcome for the 11 renewals, you could suggest what that points towards. Sorry for being persistent.

Paul Gregory: No, it's fine to be persistent unfortunately I will be stubborn back in there. I can't give guidance on that because that's the numbers that we haven't yet put out in the public domain, but obviously, when we come to our next earnings update, we are going to be able to give you a lot more color on that, and absolutely the numbers we produce in terms of premiums for Q1 are going to give you a very good guide as to what you can expect for the balance of 2022. Sorry, I can't be more helpful.

Ivan Bokhmat : I appreciate.

Operator: Thank you. We have time for one last question and that will be from Barrie Cornes of Palmer Garden. Please go ahead.

Barrie Cornes : Thank you and hello everybody. I just got the two questions. First of all, I just wondered if you could give us a feel for your appetite, between quota share and excess of loss business. And how attractive each one is relative to the other. And the second question was maybe slightly why the market question really. Just wanted to given 2021 losses, with what you think that was modeling needs recalibrating generally. And if you take a view internally, anyway, thank you.

Paul Gregory: All right. Barry I'll take question one. The historically, and I assume you're referring to the ranger and -- Appetite has been heavily skewed towards excess of loss business, well, can that be property catastrophe or other areas. In the last couple of years, we have written a little bit more, quality share business as some of those underlying rights with some of our cedents have improved and we've partnered with a few clients where we have an excess with loss relationship. As they build out, their business is predominantly in the U.S. To be fair, we've done a little bit more of that 1-1, but it's still the minority of our business from a catastrophe exposed reinsurance lines. Obviously, we started underwriting casualty reinsurance last year and it's the opposite that the dominance of that business is quota share reinsurance as opposed to excess of loss. Obviously, the casualty reinsurance base is still a relatively small part of our overall income.

Alex Maloney : I'm sorry, are your comment about models because there's a lot of commentary at the moment about models and for CAT business. And I think one thing -- that one thing we've always been very clear on over the years that I'm sure is that I think the modeling aspects of catastrophe underwriting is only one part of the process, and I think that too much reliance on models is probably as dangerous as having no models at all. And I think that what you need to do or what any good underwriter need to do when they are underwriting a CAT portfolio or a piece of business is that use the model for what you believe is good for, but totally accept the parts of the model that are just not adequate for the process. So I think when people talk about climate change or they talk about model perils or secondary perils, inflation, all these factors have to be factored into every underwriting decision, and what we've always tried to do here is take the modeling data, take the actuarial view, take the science, and then overlay with some experience underwriting views, and we believe that gives you the bright outcome. I think people expect in the model to give you the perfect answer on our catastrophe portfolio, the client kidding themselves. And yes, models get better over time and every time you have a loss, you can recalibrate your model, you can look at things that are not good. And clearly, every loss gives you a new dataset. I think anyone overwriting the models are kidding themselves are going to go with the answer. I think is you just think that blend and that should give you a better outcome.

Barrie Cornes : Great. Thank you. It's very useful, thank you.

Alex Maloney : Okay. Thanks for your questions, and we'll leave it there.