AXIS Capital Holdings Limited (AXS) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. We are going to move along. Our next session is with AXIS, and I'm very happy to have Vince Tizzio to my immediate right, CEO; Pete Vogt, who is the CFO. And in the audience, we have Mike McKenna, who's the Head of North America; and Miranda Hunter, and [ Dinwin ] from IR, who probably run the company entirely.

I want to start with one question, I guess having Mike here really brings it to the fore. And that is, we've seen a significant number of personnel announcements coming out of AXIS since you took over. I want to say it was May 5 if I have the date right?

Yes. That's right.

And I was hoping you could talk about the -- what specifically you're looking for? And how the strategy that you want to implement is reflected in these hires?

Meyer, it's good to be with you, and thank you for the time. So AXIS over the last several years has been repositioning itself as a specialist underwriter. And in doing so, we've observed the need for different skills and capabilities and the ability to attract those kinds of talents to leverage new initiatives. In the case of Mike McKenna, Mike is leading something called North America, a newly created role. It will be a critical role as part of our growth trajectory and story, and it's just one example. At the same time, we've also promoted a number of our existing colleagues, Dan Draper, in a newly created role of Chief Underwriting Officer. So I think it's a balance. And while there's been a number of announcements in the external domain, we've equally made the same number internally.

Okay. Fantastic. And if I can respond to a point that you made, or really just a follow-up on that is probably better we face. You talked about being a specialist underwriter. And one of the troubles with insurance is that specialty means different things to different people. So when you're looking at it from the perspective of AXIS, very clearly, focused on specialty and emphasizing the specialty reinsurance component, what does that mean to you? What should we expect to see as specialty?

Yes. So it has a profound meaning to us at AXIS. So firstly, we go to market with underwriters whose entire capability and discipline is representing a particular product. We deal with a distribution mechanism, predominantly wholesale that equally faces us with the same discipline. And so we bring persons that have a craft, a capability to underwrite a particular line of business, and that's all they do. And we think that, that is the best form of a specialist. Additionally, there are a number of coverages that we bring to market that are not covered by traditional packages or BOPS or other kinds of insurance. And so we also think of specialty as lines of business that have enough individual technical acumen need that being represented by a specialist makes a whole lot of difference and creates even more value ultimately for our buyers.

So in that context, how significant is product development? How often do you need to create new products to identify or to plug maybe holes that aren't available in the standard packages?

In the case of innovation, really for us at AXIS, it's not necessarily creating the next product. It may be iterating an existing product and putting its AXIS spin on it, whether it be, for us as examples, aviation, cyber, excess casualty, just to name a few, where we think we're bringing a distinct proposition to the market, generally reflected in the term and conditions that would support our products. Or equally importantly, the people that are representing those products, their technical acumen. And they're following in the broker channel.

Okay. That's helpful. I do want to talk about cyber. And I should point out that after this question, I'll be surveying the audience. I do want to make sure that if anyone has questions here, they get answered. So please don't hesitate to raise your hand, and we'll turn to you. I was -- that was awkward, pardon me. If we could...

Get some water.

There you go. I was hoping for a better offer. So I want to talk about cyber, because there are a lot of things moving on in cyber. It seems to be from a pricing standpoint on a line of business where there's not object softening, but things seem to be leveling off. My premise has always been that cyber risk is evolving more quickly than other lines of business to the extent that I've been wrong recently is because the other lines are evolving faster, not that cyber is becoming necessarily much more predictable, but it could be that I'm missing something there. But we've seen an uptick, I would say, as I understand it, in ransomware attacks. Maybe people that were initially distracted by the Russia-Ukraine conflict are now back to their day-to-day business. So something you can update us on both of those, on the pricing side, on the loss trend side and what you see as the opportunities in cyber over the next few years.

Cyber for AXIS is a critical part of our proposition and offerings generally. It's a scale business for AXIS. And so we think we're an informed risk provider. We service all sorts of sizes and complexity of risk within our cyber portfolio, just to give you some context. For us, it's a business that's grown substantially over the last 3 years. It's a class that, for us, has also seen substantial rate achievement up until probably the first quarter of this year in '23. We've seen a deceleration of rate. I think you characterized it right, it hasn't sort of fallen off of a tree, so to speak, but it has substantially decelerated in a progressive way over the last several months. We think that part of that is the inclusion of new markets that we've been competing against. But Peter and I feel pretty good about our premium adequacy in the class. We think that the complexion of claims, while you're observing an increase in ransomware matters, there's no doubt that, that's occurring. But there's other emerging exposures in the class that are showing itself in claims. We've seen an increase in fishing matters. We've seen some of the technology companies presenting new exposures within the cyber offering that we have. And so I think it's a class that will continue to be a strong thought leader in. We have a fairly sizable portfolio that we go to market with. But we're always going to put margin over of a gross line in that class for sure.

What is that -- so for cyber, that would entail -- and I'm asking this from a very primitive understanding. So start with that. But I think it would entail sort of having the imagination and say, okay, the last 5 years, last 10 years look like this. But here's something that could go wrong, based on new technologies, whatever that would be. So I was hoping you could give us some insight into the evolution of terms and conditions, whether that's in the insurance contract itself, whether it's in the required hygiene of the companies that you're insuring and how that's developed over the past couple of years.

I think it's come from exactly what you're pointing to. So the sophistication of the underwriting process in cyber has been progressive. And I think AXIS earlier, certainly before I joined, took a strong position around the hygiene of the companies it was underwriting to. Extensive application processes, extensive sort of value-add in helping companies diagnose the degree of the cyber exposure. That's an example of where our thought leadership has played a role. In terms of the imagination of the exposure becoming sort of more progressive in the source of claims, we think it is a class that will, over time, migrate into different types of asserted claims. I've referenced fishing as an example. There's a whole variety of new claims sources coming from. It's a class that Peter and I, in -- inside the shop and certainly in other external engagements, we talk about having humility around the class, which is why we buy as much reinsurance around the class. We feel pretty protected with our partners, many of whom we've had since day 1. And so it's a class that will continue to evolve. Term conditions will evolve with it, and we think it's borne out of how new matters are being prosecuted against the policy forms, how hygiene actually reveals new exposures to loss and the buying tolerance of the different types of customers that we provide cover to.

Okay. Fantastic. And one last related question. And again, if there are questions in the audience, please let me know. I know there's a lot of concern about cyber reinsurance capacity at the beginning of the year. From the outside, it didn't seem like you had any trouble getting the capacity that you wanted. I'm wondering if it looked any different on the inside?

No, it hasn't. We -- we feel very good about the level of protection, the type of protection that we have on our direct side. And as you know, in 2023, we've accelerated some of our reinsurance grants of capacity in our reinsurance business. And we've gone to the market on the reinsurance side with the same underwriting discipline, but with the proposition of trying to solve clients' needs.

Okay. Fantastic. And if there are questions in here, let me know. Otherwise, I'm going to move to property. And I think it's not a secret. It's not even new anymore, that AXIS has been withdrawing from reinsuring property and catastrophe risks. But you've maintained your commitment to underwriting primary property. So I want to talk about that from a number of angles. First of all, how should we think about PMLs? And I'm saying this with an explicit intent to encourage the continued publication of PMLs, because it does matter. We'd love to see that bit of knowledge spread to the people. But I want to get an understanding of AXIS' appetite for property risk on the insurance side for cat exposed property risk and how you're thinking about that more broadly.

Peter and I will ham and egg this one. But clearly, when we took the decision to exit the property and catastrophe reinsurance business, we did so really as a statement of what we wanted to be as a company and our view of risk and where we thought we could provide a more sustainable proposition, and we chose to underwrite property out of our direct business. And so that's the narrative that supports or explains why we exited the property cat and catastrophe market. On the direct side, we're a meaningful risk participant in property. We underwrite the class through our wholesale business, like many others that are competing in that space. We have seen a very successful year in solving clients' problems in terms of providing capacity, seeing favorable rate, and yes, some terms and conditions. In terms of our reinsurance purchase, we were really gratified by the degree to which we maintained our prior year cover, which for us was testimony of our reinsurers' view of how we go to market, kind of safeguards that we bring into underwriting the class. On our PMLs, I think they're fairly straightforward. We publish them in a very expansive way as part of our earnings. And I think we have fair runway to continue growing that class, continue to reasonably grow within our PML tolerance, and I think you'll continue to see us do that.

Yes. I'll answer that, Meyer. I think the PMLs, we've always had very more apropos of reinsurer in the property and the cat business, then you see a lot of the direct carriers, the primary carriers don't do a lot of PML disclosure. We'll keep the PMLs because we know you and the community like the disclosure. But I think what's just as important now is the time we took on the second quarter call to describe what is our outwards protection on our primary book. And as Vince noted, we had a very good renewal of that in May. We felt good that our event XOL still attaches at $100 million. So knowing those details, we think, are as important as the PMLs. Because while the PMLs do disclose the 150, 100 to 250, a lot of the storms in the last 6 years have been like 1 in 20, 1 in 10, 1 in 7 storms. And so more apropos is what does our outwards look like on our primary book. And we are thinking with our IR team about as we go into the latter half of this year, probably more as we get into next year, what are maybe additional disclosures we should do to help you all understand what is our property exposure now when a storm hits, considering we're more of a primary carrier on property now.

Okay. How should we think about your geographic appetite? I mean there was -- when we look at the PMLs on reinsurance, there was Japan, there was California. What about on the primary side, are you more limited in scope?

I thought you would continue.

Obviously, I'd be more than happy to.

It's a global business. It has representation around the world as a class. It's obviously per risk on the direct side. It has strong limits management. It is predominantly a wholesale channel of distribution for us. And we feel pretty good about our spread of risk, our limit profile and our mix of type of business concern.

And then I don't want to ask this question in a binary sense, yes or no. But maybe I'll ask it that way and hope you'll give a more expansive answer. We're seeing different weather patterns, whether it's the more rapid formation of hurricanes in the Gulf, whether it's fact that hurricanes or weather, whether it's the fact that we had these horrific wildfires in Maui. For property in particular, whatever the underlying trend is, they're seeing a lot of volatility. And I was hoping you could talk about how that's incorporated in the pricing that you're doing.

Carefully.

As opposed to, right. Carefully, Yes. Careful.

Yes. Obviously, the impact of weather is -- has enough pattern recognition where the models that we're drawing upon and the pricing tools has to contemplate and account for the change of risk complexion and type of catastrophe events and convective storms is a good example where it's not occasional any longer, right? They're happening routinely. And so we've attempted to adopt the phenomenon of climate as an element in our rating processes and tools. But it's also contemplated in how current we're being with our reinsurance partners in the view of risk. And that's something that we spend a lot of time through our COO's office, making certain that our models are as contemporary as possible. But also looking at our portfolio spread and mix and seeing what the proportionality of these different perils could be within the portfolio in total. So I feel more assured than I ever have, given the construct of our CUO office and the capacity of our team, our catastrophe management capabilities, which I'm really pleased with.

Okay. And then maybe this is a related question. I want to ask it from 2 perspectives. The first is the reinsurance book of property and catastrophe risk is winding down. So in theory, that would free up some capacity to write more property premium. Again, it doesn't have to be one for one, but as a concept, it would. The second is just to have a basic understanding, and this has come up in earlier conversations. How long does this migration of property risk move to the wholesale channel, which is the channel that you're addressing?

Peter loves this question. And I'll only answer the last observation in your question, which is how long can it last. I don't think there's a runway close time in wholesale distribution in providing its retail clients with dedicated wholesale property capacity. And I think that, that runway and the spread of risk that's coming to wholesale will be sustained. And Peter will address the first part, which...

Yes. I think when we look at it, when we decided to get out of the reinsurance business on the property and the cat side, Meyer, that was a decision for all of AXIS. Because we looked at AXIS in total, and we were overlying property. And that's what was leading to a lot of the volatility in our results. And we wanted to do was get to be a more consistent provider of earnings quarter-to-quarter-to-quarter. So we decided to get out. We looked at it and we said, we like the primary market better than the reinsurance market. Again, this was 18 months, 24 months ago, you don't make this decision lightly. And so when we looked at it, we said, we really like where we are in the primary market. So we're going to get out of that -- on the reinsurance market. So when you look at our overall portfolio today, property has grown as a percent of premium because we've got a lot of rate there. So you'll see premium is probably about 18%, 19% now of the trailing 12 months. And that's about right for us. I wouldn't say we're going to go and give that PML to the underwriters on the insurance side, because that would just get us back into where we were before where we have too much volatility as a company. I will tell you as soon as we got out of the reinsurance property and cat business, we had a dinner in London and all the underwriters in London assumed they were getting the PML. And I had to be the person to tell them, no, you're not. We are looking at this as a total company way of a portfolio. And therefore, we're happy with where we are now. And we think that we can handle the volatility that will come with being a property carrier in the direct market.

But your London folks have a growth mindset, so that's positive?

Especially what is great, right?

And that's certainly there. I don't know if there are questions on property, if there are, let me know. Moving to the casualty side. I don't want to start talking about reserve issues because it's been somewhat of an offset. I want to say, I think every quarter has had net favorable reserve development overall. But whether it's insurance or reinsurance, on the liability and professional line side, there have been some issues. I was hoping you could talk through what you're seeing in terms of the drivers of that. I don't know if it's possible to quantify how long this lasts. But this is, I think, a broad investor concern. I was hoping you could give us your perspective on it.

Sure. I'll start with that, Meyer. It has been very much focused on what we call in the industry, those soft market years. And what we've seen is, especially in that 15 to 19 year, it continues to kind of evolve negatively for us. And so as we see it evolve, we continue to put up reserves in those years. And so for the most part, it really has been those years, and we continue to keep our focus on those. Again, our claims department is looking at those claims. It's been a little bit of a different claims pattern because as soon as '19 ended, COVID started in '20. And so we've had a different pattern of things working their way through the courts. We've got a different pattern of how things are getting settled. And so we're taking all that into account. And as we see it evolve, we're responding to it as quick as we can. But it really has been focused in there. There's been some one-offs. I mean, we did have the 2021 tower -- tower collapse down in Miami. And we decided to take that as negative rather than use up any IBNR. We did put some program business behind us last year, and that did affect the 21 as well as a 22 year. But for the most part, it really has been those 15 to 19 years.

Okay. And if I'm understanding what you're saying correctly, the higher losses associated with those older years aren't predictive of the losses for the more recent accident years. Maybe that's COVID, maybe that's other issues. But the more recent years, you're still very comfortable with, it sounds like.

We are. Yes, we are. Yes. And by more recent, we're talking about '20 forward.

Right.

Yes. And those markets got a lot of rate. So when you go back and look at the rate commentary from 2021, '22, they were getting a lot of rate. And that really helped the industry. And given where social inflation trends may go, you've talked about that early on. We still think those markets need to continue to get rate.

Do you think they will?

We think that we need to price the business for a proper return, and we think that the casualty classes are vastly different from '20 forward, particularly '21, '22. And I mean, as Peter noted, part of what you're observing in the GL line and you saw programs as an example. It's a class that's been re-underwritten, one of the things Mike has done is sort of change the underwriting appetite on top of the changes that I had made. And so it's a very different business. And so the profile of our insured and go forward is different. The measurement and management of proportionality around some of these exposures has been aided by our COO office. So we think it's a different portfolio in the go forward, but we certainly have shown the pain of the 19 through 15 years, while at the same time also observing some of the many good guys in our quarterly earnings.

Right. Okay. On the subject of social inflation, guys like me talk about it all the time. I don't know how like we measure it. I guess we don't have to. In theory, if you're an underwriter, you have to come up with a range or a point estimate for social inflation for pricing, for reserving. How do you track that, just to make sure that there isn't an acceleration? And I've asked that question, we're seeing an awful lot of commentary about technology-generated claims, maybe a new category of claim or new severity stressor that could translate into worse social inflation than the elevated social inflation we've seen. So how do you monitor that?

Well, the monitoring is easier certainly than making certain that the inputs of your changes to your models, your pricing model is contemplating the potential impact of social inflation. That's a more complicated effort. And it's an effort that pulls upon many facets of an underwriting organization, right? And so our claims, our actuaries, our underwriters are all providing inputs through our own sort of mechanism of reporting. And those inputs are being contemplated in our pricing models. And trend is observed as regularly as any other key indice in our company just to be as observant. But to be clear, we will remain very vigilant around GL and have very strong pricing expectations, and we view the risk in a very disciplined way, and we're challenging ourselves repeatedly around certain jurisdictions, certain types of claims where there is emerging data on how if a matter goes to a jury, it will be handled. And so I think it's fluid. It requires a strong input from all parts of the organization. And there's a lot of math, but there's also a social science to it as well. And that's not something that we're ignoring of.

Okay. Perfect. I want to talk about expense ratios. This is an area where AXIS has actually done very, very well in terms of driving expense ratio improvement pretty consistently. I don't think it's every single year, and the premium volumes associated with the withdrawal have changed that. But I was hoping you could talk about what the potential is for expense ratio improvement from here? In other words, we've had that step function shift because of the reinsurance appetite change. What comes next? What are the drivers?

Well, I'll take that. But I appreciate the comment about the past. We've come down about, as an overall organization, close to 300, 350 basis points over the last 3, 4 years. We've had some headwinds on that, too, because as we switched from being a more of a reinsurer to more of an insurer, the insurance business just carries a higher G&A with it than the reinsurance business does. And that number has probably got about one point of headwind in it associated with that, I'll call it, that mix of business change as we become more of an insurer. But where we are today, we're at about 33. We do think longer term, to be competitive, even as we become more of an insurer, we really want to get it down into the low 30s. And that's nothing we're going to do in the next 6 months. I do think that's a goal that we are sustaining as a management team to get to over the next 2 to 3 years. But I think it's that consistent improvement that you're seeing for us. And right now, we haven't had the best tailwind with regard to net earned premium because we had some changes we made in the insurance portfolio. And we had some changes we made, obviously, in the reinsurance portfolio, getting out of the property and the cat. So our net earned premium hasn't had dramatic growth in the last 4 years, yet we've been able to continually bring down our expense ratio. So with that same mindset with now being able to grow out of a really solid portfolio that we have today, I do think that we'll be able to get down into that low 30% range over the next couple of years.

And it won't come through wishing it, right? We've embarked on how we work internal campaign that is trying to bring the best efficiencies to everything that we do. We are very encouraged by our glide path toward the aspiration that Pete speaks to, low 30s, 30, 31 would be, I think, a very competitive expense ratio for our mix of business in total. And so we feel that it will provide operating leverage. We see efficiencies coming through how we work. And it's a multiyear effort, as Pete says, and one that our company has embraced.

Okay. And then I ask the same question, but specifically with regard to Lloyd's, where my impression is that expenses create something of an affordability issue for a lot of these risks. In other words, there are global risks that should go to Lloyd's. So that don't simply because there's so much expense associated with it. I'm thinking distribution. It's not only distribution, but it seems like the challenges of getting ahead of expenses are maybe more profound there.

Well, I think for some -- for sure, we're a top decile, top-performing syndicate, as represented in Lloyd's. And so we've got a lot of experience at working through challenges and also opportunities. And so we're very pleased with our financial results of the syndicate. And part of what you point to around maybe the AXIS burden is also a choice that our customers should have. And so you'll see Mike has already announced in North America an inland marine capability, an ocean marine capability. And so we think that the 2 specialists, the global specialist markets, North America and Lloyd's, will be an opportunity for our distribution to make a choice about where it wants to place its business and deal with the cost structure, respectively. And so you'll continue to see that, and we're pretty encouraged by it.

Okay. Are there -- this is my last question on this, but are there broader efforts at Lloyd's right now that should bear fruit? I don't mean specifically AXIS, but I know Lloyd's has talked about this forever. We've seen some evidence. I don't want to be too dismissive, but it seems like there's a long way to go. Are there other external efforts that AXIS would benefit from?

Well, I think the Blueprint Two efforts certainly have not gained the kind of traction in its stated ambition. And certainly around efficiency and reduction of expense. Equally, the management of the capital fund and how cover holders are gaining access to that level of protection. So I think there's a number of initiatives. John Neal and the team have to continue to advance to maintain the value proposition that Lloyd's serves many markets around the world. And we'll be as vocal a supporter of Lloyd's as we possibly can. And as I said to you before, we're a meaningful brand within Lloyd's, and we'll continue to be that.

Okay. Fantastic. I do want to scan the room in case there are questions here. Okay. I guess a little bit more shyness than I had anticipated. I want to talk about interest rates, but I want to talk about it first in a slightly sideways perspective and then get to the investment portfolio. And that is with regard to, again, reserve development and the cost of an LPT. Because I would imagine that the implicit cost of transferring some assets and reserves to a retroactive reinsurer, that cost is higher in a higher-yielding environment. So can you talk about how that reality of changed interest rates is impacting your attitude for maybe taking another step and getting all of these concerns finally behind you?

Yes, I would say whenever -- we did do an LPT in December. And when we price out an LPT, we definitely look at it on an economic basis, Meyer. So the fact that interest rates are higher, would actually move up the hurdle rate, we would require to actually pull off a transaction because we look at it on a full economic basis. And the one we did in December, we felt was an appropriate good deal for us. Again, if I just remind you, it's centered on the insurance business. It was mostly lines of business we had exited within the Pro Lines and Liability Group, but it included a lot of, I'll call it, older claims and liabilities that we really want to get off the books for more, I'll call it, reserve risk certainty. So when LPT is great for risk management and great for capital management. And we kind of used it for both as we were looking at that $400 million transaction. But no doubt, in today's environment, you've got a higher hurdle rate because we do look at it on an economic basis. And need to acknowledge that, that economic also considers the uncertainty around the price point on the underlying reserves. Interest rates, one factor, and then goes into it is what your certainty on the underlying assumptions and the volatility around that. And that's where you get into handling, I'll call it, risk management around using an LPT.

In your assumptions, and I just thought of this question now, I don't know if it's a good question at all, so throw stuff at me if it's not, do you assume that higher interest rates are going to convey higher inflation? Or are those -- have those been bifurcated?

I would say when you look at the higher interest rates today that we could get on the assets, that is an input and an influence when we think about just inflation in our pricing as well as our reserving. So we look at not only social inflation, we look at economic inflation, we look at medical inflation. We look at all those factors go into a set of claims. And so yes, that would be something that we would consider.

Okay. Fantastic. I want to move to pricing now. Same sort of question, recognizing that in the specialty world, I think some of the pricing precision that we may start to anticipate, like companies like Progressive can achieve in personal auto, that level of precision is simply not available in the specialty realm. And I don't mean that as a criticism. It's just an observation. The data does not -- the data pools aren't big enough and homogeneous enough. So from that standpoint, do -- how do interest rate changes that we've seen over the past 18, 24 months impact targeted underwriting returns and impact pricing?

Good.

Sure. Again, built into our pricing tools, fairly straightforward. We have an assumed return, and we price to that return as interest rates move. We adjust. But more importantly, the complexion of the portfolio, the mix of the written classes plays as much a role in that output. And so here again, coordinated effort, one that has a lot of math driving it. But a lot of it because of the specialty lines, and these aren't necessarily cookie-cutter classes that we're underwriting or risk profiles that we're underwriting to. There's some judgment in it. And so therefore, having enough math from our pricing actuaries govern. The framework is important, and it's one that we've shown discipline too.

Okay. Fantastic. Looking around again, just in case. Clayton, we're just -- we're just bringing you the mic.

You talked about '30 to '31 expense ratio over time in the next couple of years. Have you mapped that out, when the business finally mix shifts where you want to be, what that loss ratio will be, assuming some normal level of cats?

As we've mapped it out as a management team, I'd say we have line of sight into what we need to do to get there.

We haven't disclosed.

No, we haven't disclosed. I'm sorry, I couldn't hear you. Yes. Yes. Now we've talked about our goal really is to get into the low 30s. I've said that publicly before, and that's what we expect to get to over the next 2 to 3 years. And as a team, you can't get there without a plan to get there. And as been said, we've done a lot of work to determine where we think we can grow and where we think we've got to take expense and efficiency into the organization, especially now that we've got a whole program called How We Work. Everyone is kind of looking at it from end to end to say how can we be more efficient and effective in how we're working. And that will provide some efficiencies to us that should adhere to the P&L.

Okay. John?

Thank you. I just want to clarify on the interest rate question, where you said you -- rates are up, so your assumed return goes up, and so you make changes. So could you just expand on that? Are you saying that your targeted ROE is going up? Are you saying you would adjust your premium? Because or maybe not increase your rates as much because you're getting more of a return -- ROE return from the investment portfolio. Like, what are the pieces that are moving? I wasn't clear on that.

Some of it is the class that we're underwriting to. Some of it is the tail associated with the claims pattern. The overall portfolio has a targeted return aspiration, of course, and how that is made divisible between the different lines of business. Bear in mind, we go to market with 40-odd different products, lots of different loss drivers. And the tail in our portfolio plays an important role as well. And so it's the variety of inputs that goes into the expectation. But as we've said publicly, we'd like to provide, over the cycle, a mid-teens ROE. And so everything that we're doing is trying to be assured of that and protecting of that.

Okay. And then finally getting to the obvious question on interest rates. How are those impacting your investment portfolio, Whether it's obviously just the higher book yields that we're seeing every quarter? Does it change your appetite for alternative investments? And if so, how so?

That's a good question, Meyer. Yes, definitely, we have seen the uptick in interest earnings, net investment income from our fixed income portfolio. As you noted, the overall portfolio is now at a 3.9% rate. A year ago, it was at 2.4%. So it's a pretty substantial increase. And I would expect to see our net investment income from fixed maturities continue to grow into the rest of this year and it's 2024. So that's the obvious positive. As we sit here today, just because interest rates are higher, is it necessarily a de facto reason on why we think better or worse about the alternative investment universe. It's one of the factors that goes into it, but it's not the only factor. As we sit here today, given what we know about what's going on in the markets, where we think whether it's going to be a recession or a soft landing, but I'd say that our alternative portfolio is well positioned. And at the moment, we're not looking at growing it. So our risk assets are about 16% of our total portfolio. I expect it will be there for a while longer. We talked to the investment team, they aren't taking -- I'll quote a bet either way right now. Are rates going to go up more? Are they going to stay here? Are they going to go low? We're kind of at a neutral point in our thinking there. So I wouldn't say just because interest rates are up higher, that actually makes our alternatives more attractive or less. There's more that goes into it. And right now, our thinking is we're happy with our risk assets at about 16% of the portfolio.

Okay. Fantastic. One of the sort of immediate-ish ramifications of writing less property cat, taking less volatility is the capital required for those lines of business are very significant. And I think you've been pretty clear that you're not looking for your primary property underwriters to take all of that. How should we think about capital adequacy, redundancy and deployment opportunities?

I'd say the #1 use for capital for us right now, given the markets we're in and what we're seeing is continued growth in the insurance business. We saw that in the first quarter and the second quarter. And I think that's the #1 use of capital for us right now. And we've gone to the teams. And to the extent that they're seeing good opportunities, we've told them we have the capital to provide those good opportunities. And I'd say that's the #1 use for capital as we look at it today. And even as we're starting our plans into 2024, we still think the markets are going to be very favorable positioned, and that's where we really want to push our capital.

Okay. That was really going to be a follow-up question, in terms of expectations going forward, that you'll be able to deploy all the capital that you have.

Yes.

Okay. And then this is a question drawing, I guess, on both of your histories because you've both done M&A. It could be that the timing of Novae was a little hair raising at one point in time because it was right before Irma made landfall, I think that you closed. But you've done M&A at Navigators as well. What does the M&A look like -- M&A landscape look like? What does your interest look like?

In the immediate term, we're focused on growing our franchise. And as a specialist that has been engaged in M&A, culture critically, critically plays a role into any such consideration. There are lots of properties out there, all of which have their own agendas and aspirations. Our agenda and aspiration at AXIS is to grow our existing franchise and to stay focused on that. So M&A in the immediate term, certainly not figuring into our strategy. We also are engaged as a meaningful risk participant in most of the specialty classes. And so if there's something that arises opportunistically, whether it'd be more team lift-outs that Mike has been announcing to our inland team as 1 example or others like that, certainly will be a market like that, but no necessary M&A of a company.

Okay. And then I want to follow up on that, if I can. What is the market for talent look like right now? We went through a period, and this is my premise, you don't have to agree that during the Aon-Willis Towers Watson merger courting period, there was a ton of talent available because there was massive uncertainty with 2 very prominent companies. That issue seems to have -- I mean that has been settled down, but it seems to be like there's still a lot of talent mobility now. How does that play into recruitment? Clearly, you've announced some impressive hires so far. How much runway is there on that particular angle?

We're trying to keep the runway as a road that doesn't end, right? It's about your company's culture, the kind of people that you can attract into an environment that is constructive, value-creating, oriented, collaborative. And so at AXIS, we're pretty proud of our culture. We're recognized as 1 of the best places to work, something that we're proud of, but also work hard at maintaining how we reflect our work life balance, how we problem solve, how we reward success in areas that didn't go as planned equally and celebrate the learnings from them I think goes toward the recipe and has served in part as a motivating factor for some of the new joiners to join our firm.

Okay. So we should look for additional new hires or not?

You should. Yes. You should.

Fantastic. I've gone through all my questions. I want to make sure that there's nothing in the audience? Yes, please, Mike.

Just related to that, I'm curious about your -- what I would call a culture of ownership. Are you promoting that? How is that happening internally? Sorry.

I think we're strengthening it, right? We're fairly ambitious, insofar as how we'd like to perform financially. We're ambitious in exceeding expectations of the brokers we service. We're ambitious at providing opportunity to the people that we have employed. We're a 2,050-odd firm. And so you work hard at keeping the culture. And this ownership mentality does play an incredibly important role. It also serves as an accountability to one another. When you're as small an organization and numbers as we are, everyone really matters each day. And so keeping ourselves motivated and properly focused on the common goal is something that Pete and I work hard at, along with a lot of talented leaders, some of whom are here today.

Okay. And with that, please join me in thanking Vince and Pete for a very informed discussion.