Everest (RE) has cut its exposure to prop-cat reinsurance (as a percentage of premiums) by about a third over the last couple of years, and has instead looked for more interesting opportunities in casualty. With management talking about going into 2019 with a cat load below 8 (versus around 9 in the third quarter and 12 a few years ago), it doesn’t sound like the company plans to recommit to prop-cat in a big way. For those not familiar with the term, cat load basically measures how much premium is needed to cover losses from modeled catastrophes, so a lower cat load basically means the company is taking on less cat-exposed risk.
So what is Everest Re underwriting if not prop-cat? Financial lines have grown to over 10% of the reinsurance business, including mortgage reinsurance (which is different than the primary mortgage insurance that Arch has started underwriting in a big way), and management has talked about very favorable market conditions in structured finance and credit. Management has also been shifting more of its property underwriting to pro-rata versus excess of loss, which can pressure margins in the short-term, but should produce more consistent long-term results.
The company has also been expanding its insurance business. While insurance underwriting hasn’t been keeping pace with reinsurance (up about 8% in the third quarter, versus 17% adjusted growth for reinsurance premiums), Everest Re management has found attractive rates in specialty niches (which has been true for others like Argo (ARGO) and Arch as well). Recent commentary from large P&C insurers like Chubb (CB), Hartford (HIG), and Travelers (TRV) does make me wonder if the rate upcycle is petering out, but specialty segments should hold up relatively better.