Lancashire Holdings Limited (LRE) Earnings Call Transcript & Summary

Hello, and welcome to the Lancashire Holdings Limited Q1 2023 Earnings Call. [Operator Instructions] Please note, this call is being recorded. Today, I'm pleased to present Alex Maloney, Group CEO; Natalie Kershaw, Group CFO; and Paul Gregory, Group CEO. I will now hand over to Alex Maloney. Please begin.

Okay. Thank you, operator, and thank you for dialing in, everyone. I'll just give a quick summary of our quarter's activities, and then Paul will give you a more detailed view of the underwriting opportunity. And that's when we talk about finance, and then we'll go to questions. So our first quarter progress is in line with our long-term strategy of growing our business when the underwriting opportunity improves. As I told you, our last results update, our plan for 2023 is to continue to grow our premiums whilst continuing our work to diversify our underwriting portfolio, and I'm happy to confirm this is the case for the first quarter. Our top-line growth in premiums is ahead of the blended RPI, therefore, demonstrating the real growth in our business as the absolute underwriting margin improves across the portfolio. By this, I mean rate change netted off for increased reinsurance costs. So showing the true benefit of growth at this time in the cycle. Interestingly, if you look at the Insurance segment, the growth is materially higher than this segment's RPI, which also demonstrates the additional growth in the insurance segment as we continue to see the benefit of the investments we've made over the last 5 years and see the continued opportunity in these classes of business. Our plan for our property cat and retro portfolios was to write a similar portfolio to that of 2022, but obviously enjoying the increased margins we are now seeing. By this, just to clarify, we plan to deploy a similar amount of capital to these classes as we did in '22 as we're already a substantial writer of cat business. For our Casualty segment, we continue to build our portfolio after entering this class just over 2 years ago. I believe our entrance into casualty was perfectly timed, and I'm delighted with the progress that the team has made so far. Therefore, I'm very happy with our underwriting activities and our portfolio continues to develop in line with the long-term strategy of our business. As we continue to diversify our writings, we continue to see the benefit of increased efficiency in our capital use. As you can see from our solvency ratio, we continue to be in a very strong capital position, which enables us to have maximum flexibility at an important time in the underwriting cycle. Capital is definitely constrained across the insurance industry at this moment in time, and we don't see any immediate change to this balance. I think our patient stewardship of capital is now rewarding us with the ability to deploy where we see the best underwriting opportunities. As we've always said, we are driven by the best-expected return for the capital deployed first and foremost and therefore, fully aligned to our shareholders. Our investment return of 1.5% is welcome following the steep rise in interest rates that led to the unrealized losses we witnessed during 2022. Clearly, the first quarter has bought market volatility. So we are very pleased with our return during the quarter. Finally, we are very excited about the opportunities for Lancashire, and we had 3 main drivers to improve our returns this year. We have more earned premium coming through our investments in our underwriting portfolios. We have more underwriting margin net of reinsurance costs across our portfolio, and we have increased investment income as we see the benefit from the increase in yields quickly. With that, I'll now hand over to Paul.

Thank you, Alex. As Alex has just highlighted, it's been another quarter of strong growth for the business in a favorable rating environment. Every product line across the business is growing premium levels year-on-year. As can be seen from an overall RPI of 117%, we are seeing strong rate momentum and we continue along our objective to grow and diversify the business. Over the next few slides, I'll add a little bit more color to market conditions in each of our segments. The RPI within our Reinsurance segment was 124% in Q1. This segment contains our casualty, specialty, and property reinsurance lines, each of which has its own dynamic, and therefore, the RPIs per line are distinctly different. At the lower end of the RPI range is casualty and financial lines. These are stable, albeit at very healthy rating levels following the recent years of market hardening. This is only our second full 1st of January renewal season for the class, which continues to get up to scale with impressive levels of growth. We've been very successful in building our core relationships with clients where we already sell other products such as catastrophe risk. Towards the mid-end of the RPI range is our specialty reinsurance offering. As a reminder, this covers products such as energy, aviation, marine critical violence, for example. In an improving market, we continue to grow this portfolio, which is seeing risk-adjusted rate change in the region of plus 25%. Last quarter, we discussed the hard market conditions for catastrophe-exposed products such as property cat and retro. During Q1, our risk-adjusted rate change for property cat was approximately plus 50%, and for retro, slightly better than this. We've grown premiums in these subclasses, however, not to the extent of these rate changes. To remind people, this is for 2 reasons. Firstly, and as highlighted last quarter, we purchased less retro protection, and we will manage our inwards portfolio to deliver a broadly similar net cat footprint at improved margins. Secondly, the risk-adjusted rate change does not all come via pure premium. Some of this is via increases in seed and attachment points. In the retro book, for example, almost all of our risk-adjusted rate change was as a result of increased level. More broadly, the real positive both for us and the market is that we've seen discipline remaining catastrophe lines. There appears to be no significant new capacity coming in and the rating environment we saw at 1/1 and through Q1 is being sustained. The rating environment for insurance lines also continues to be positive and has allowed us to continue to grow and diversify. We've been able to grow this segment significantly ahead of rate. Every class of business is in positive rate in territory with an overall RPI of 109% for the segment. Subclasses such as property insurance, power, energy, and marine liability are still seeing strong double-digit rate increases. There are ample opportunities to grow, particularly in the property insurance classes with inflation continuing to drive demand. Last quarter, we confirmed we were comfortable with top-line premiums for this year in line with consensus, which is now at approximately $1.9 billion. We remain comfortable with this guidance. In summary, it's been a very pleasing Q1. Growth has been strong and market conditions are favorable. I'll now hand over to Natalie.

Thanks, Paul. Hello, everyone. It's been a relatively straightforward quarter from a financial perspective. IFRS 17 was adopted at the beginning of the year, and we will issue full financial statements on this basis at the half year. Our insurance revenue on an IFRS 17 basis has increased by 31.6%, which is ahead of the increase in gross premiums written. IFRS 17 insurance revenue generally approximates to gross earned premium net of commissions. The significant premium growth over the last couple of years is now benefiting our own premium and insurance revenue. As noted on Slide 10, there have been a number of catastrophe events in the quarter as well as a few risk losses in our energy book. None of these are individually material in off to warrant disclosure and are well within our expectations for losses of this nature, given the lines of business that we write. Our underlying performance remains in line with previous guidance given. The investment portfolio returned 1.5% during the quarter, largely due to falling interest rates. We are also starting to see the benefit of our short duration and the ability to reinvest the portfolio relatively quickly. Our book yield is now 3.3% compared to 1.5% at Q1 '22. The investment portfolio remains relatively conservative with an overall credit rating of AA-. We do not intend any material changes to our investment strategy in the medium term, and we'll keep the overall portfolio duration short. Our capital position is in line with guidance of our February call with the DSCR ratio at 31st December 2022, standing at 300%. This would reduce to approximately 263% following a 1-in-100-year Gulf of Mexico wind event. As a reminder, the increase in our solvency ratio during 2022 was due to changes in our INWIT business mix and outwit reinsurance as well as modeling enhancements in the second half of '22. We have detailed the forward guidance given at the last earnings call on Slide 11, with a range of potential outcomes depending on different levels of catastrophe and large risk losses. We expect the underlying combined ratio for 2023 on an IFRS 4 basis, excluding reserve releases and catastrophe and large risk losses to be in the region of 74% to 79%. We also expect reserve releases for the year to be in the range of $100 million to $110 million. We have used 8% for reserve releases in the table showing purely for illustrative purposes to demonstrate the potential impact on the combined ratio. Although IFRS 17 changes the presentation of various elements of the insurance result and can impact the timing of profit recognition largely due to discounting. There is no impact to the ultimate profitability of the business that we write. The waterfall chart shows how the various components of the combined ratio move on an IFRS 17 basis. We will update our guidance to an IFRS 17 basis with the publication of IFRS 17 interim financial statements in August. And we'll arrange an analyst call in September to run through the IFRS 17 financial statements released at Q2 in more detail. With that, I'll now hand back to Alex to conclude.

Thanks, Natalie. So just to summarize, we have strong momentum across all of our business opportunity in every product line we write. We have more than adequate capital to fund our growth plan for this year. So a very good strong position to be in. And I think we're just totally in line with our long-term strategy. So we're building a better-balanced business with continued improvement across the whole portfolio, which will enable us to improve our returns. So lastly, I would just like to thank my colleagues for their continued hard work and our shareholders for our support. So we're ready to go to questions with our operator.

[Operator Instructions] The first question comes from the line of Andrew Ritchie from Autonomous.

Can you just remind us on the trajectory of net versus gross, I guess we're talking IFRS 4 to keep it simple for now, you expect over the year. I lost track of what -- I think you gave some indications at the time of the full year. So just -- should it be a similar momentum or are you retaining more business? Just give us some flavor on that versus growth? Second question on the property cat. I appreciate attachment points have gone up. Have you also moved up typically in the layers you're participating in? I appreciate the overall limit might be the same, but is the shape of your exposure slightly different? And then the final question, what's your outlook for specialty insurance pricing over the rest of the year. Will some of those classes are quite reinsurance dependent, but will they tighten even more as the year goes on.

Andrew, it's Paul. I think I'll probably take all of those. So on the net fee growth, I think said this on the last quarter, but just as an update. Obviously, as the portfolio grows more lines of business within those lines, we bought more premium there. We have to buy more reinsurance. So in absolute dollar terms, our reinsurance spend increases. But in percentage terms, in terms of overall premium written, it will continue to reduce, which is the similar trend you've seen over the last few years. On the shape of property cat portfolio, I think that, in general, the market itself has moved up level. So a lot of the lower attaching layers cedents are now being asked to retain more risk at the lower end. So if you think about our portfolio and how our property cat portfolio was written, we underwrite it out of our Lloyd's platform and our Bermuda platform. So where we see the most changes in our Lloyd's platform, which tends to be lower down program. So we are one naturally benefiting from the fact that the market itself is moving up. So the first layout used to -- I'm just picking numbers but used to stretch 100, now stretch at 200, you automatically benefit from that. And then we're doing some more proactive work within that portfolio to also actively move up program slightly. When you look our Bermuda portfolio, which has typically been more at the higher end of programs, there's less change in shape there, but you are obviously seeing a material change in pricing, as I alluded to in my script. On the specialty insurance side, to be honest, the dynamics are very different depending upon the classes of business. You are 100% right. A lot of those lines are dependent upon reinsurance protections. And as again, as I mentioned in my script, specialty reinsurance, again, it differs on the class of business, but in all classes of specialty reinsurance, there was reasonable rate momentum and structural change at the 1st of January. So that is feeding into specialty insurance. We are seeing continued rate momentum, so in lines such as property insurance, they'd be at the upper end. Some of that is driven by, of course, the cat exposure within property insurance lines. Things like energy and marine liability, power, downstream energy, they're all still seeing reasonable rate momentum. Some of that is obviously coming from that impact of changes in reinsurance structure. There are some lines that are slowing. Things like cargo, for example, is still moving forward, but at the lower end of rate increases. But to be honest, that's in its seventh year of rate momentum. So I don't think that's unsurprising. The areas that are probably, I would say, a little underwhelming, but still moving forward, things like upstream energy but there's just so much capacity in that market. We're just holding our nerve and sticking with our core clients and just kind of taking the small amount of rate we're getting. And to be honest, we probably expected a little bit more movement in terror and political violence, given the changes at 1/1 on reinsurance. We saw positive movement in Q1, probably not as much as we expected. But what we have seen is that market now starting to ramp up in terms of rate rises. So I think that's definitely the impact of changes in reinsurance structure coming through. Sorry, I've covered quite a lot there. So I'll stop.

The next question comes from the line of Kamran Hossain from JPMorgan.

First question is just around, I guess, the outlook for growth. Clearly, Q1 is very important secular for reinsurance. But should we -- how are you thinking about the rest of the year? You still -- it sounds like you're excited, but interest in kind of how things went in at April renewals and kind of your view on the midyear. The second question is just on the capital ratio, which remarkably high even if you take into account the 1 in 100 [indiscernible] PML. How are you thinking about managing the ratio? If you get in this year when losses have been reasonable, rate might be going up a little bit. What are your thoughts about what you might do with that service?

Kamran, I'll take the first one on outlook for growth. Look, I think as you can hear from our tons and scripts, we're positive about the market we're in. Market conditions are really favorable in most of our lines of business. There's rate positive rate range costs all lines of business. So look, we're really comfortable with where we are. I think if you think about the balance of the year and milestones in terms of what could drive growth. Obviously, things like aviation, we're not into the kind of nuts and bolts of those renewals until we get to the end of the year, we have a reasonable footprint in aviation, as you know. So obviously, depending on what market conditions are like, that could move growth one way or the other, but we're overall, we're pretty confident that we'll be able to grow our aviation portfolio at the end of the year. In the middle of the year, things like Florida, for example, I'm not even going to begin to predict what Florida is going to do. We don't usually know even a week before renewal. But that's another moving part. But in general, we're really happy with where the rate momentum is across pretty much all of our lines. On the cat reinsurance portfolio, as I mentioned, there doesn't appear to be sways of new capacity coming in, which is meaning the market is remaining disciplined, and we're still seeing really strong rate movement there. Property D&F as I alluded to in the last question, that's probably ahead of where we expected it to be, and there's lots of opportunity there. So look, I think, as I said in my script, I think consensus is now about $1.9 billion thereabouts. We're comfortable with that. So yes, we're pretty pleased.

Kamran, it's Natalie. On the capital point, as Alex said, we're really pleased with our capital position at the moment. We've obviously got a very healthy tissue, and that's great, given the market that we're seeing. There's no change at all to our capital strategy. So we'll look at when we get to the end of the year is what we can deploy for underwriting next year, and then we'll make decisions on that.

The next question comes from the line of Freya Kong from Bank of America.

Could you give us some more detail on the changes you've made in the property cat book? Reinsurance premiums were up 19% and rates were up 24%. And given that most of the new business growth was in casualty, that would imply some growth exposure reductions in property cat. Was this more because of your move-up in the layers or more management of the portfolios? And secondly, on growth in property insurance, how should we think about the capital intensity of this line? And how much of your surplus would you expect to deploy into exposure growth there given the rates are very strong? And last question, if I may. What sort of strength or upside surprise would you need to see in renewal rates to move or upgrade your underlying combined ratio guidance of 75% to 79%?

So I'll take the first question on property cat and fairness, I'll just pretty much repeat what I said in my script. And probably part of the answer I gave to Andrew on the first set of questions. I think, look, we were quite clear, I think, on the last call that we had bought less retro protection at the 1st of January. That's, obviously, when we buy all or pretty much all of our retro protection. And the aim was to balance our inwards writings to end up broadly similar net cat portfolio. So obviously, that will mean the -- on the growth side, there will be some accounts that we come off because we bought less retro to protect. The reason we're doing that is we think that gives us a better underwriting margin overall, which is ultimately all we focus on. And then secondly, and as you alluded to, not all the RPI in property cat and retro comes through pure premium. It's also recognized in cedents taking increased levels. So you don't always track through. I think in Q1, we're pretty much bang in line with where we expected to be in terms of both of those portfolios. And then obviously, we have a number of renewals through Q2, which started with the Japanese renewals at 1.4, which were very orderly as expected, and then we'll work our way through to Florida at 16, 17. Sorry, could you repeat your second question because I missed it.

On property insurance and how much the growth opportunity there, how much you're looking to deploy of your surplus, and how capital intensive is this line insurance?

Yes. So property insurance. And what I mean by that is our property D&F portfolio. You're right. That's the one area of the insurance portfolio that is more capital-intensive than any of the others because it generally includes catastrophe risk. And as you know, that drives our capital requirements. Not all of it does, by the way, there are elements of our property insurance portfolio that are non-cap. We'll definitely be looking to grow that part of our portfolio. 2 reasons: one in our traditional lines, which is the pure property D&F book, market conditions are really strong. We're seeing really good risk-adjusted rate change. We've seen lots of opportunity come to London. We underwrite that both from our syndicate and our company platform, and we do see lots of good opportunity for growth there. We've also added under that banner of course, on our Australian D&F offering last year in a property construction offering last year, and they both continue to mature. Well, when we talk about our net cat footprint, people, I think also always just assume is property cat and retro is and it's also our property insurance portfolio. So we balance we try and balance everything off. And I'll comment on having broadly the same net cat footprint remains valid. I think that's probably the last question.

Yes. On the guidance question, [indiscernible] quarter into the year. So we're not going to look to change guidance. We will update the guidance in Q2 to an IFRS 17 basis, but I still wouldn't expect any change to the underlying economics because obviously, we factored in some rate change at the beginning of the year when we were looking at guidance. And then if you think about the underlying ratios, as we said last quarter, kind of quite heavily impacted by casualty, and we're not seeing rate rises big rate rises in casualty. So we don't expect to change the guidance this year.

The next question comes from the line of Ashik Musaddi from Morgan Stanley.

This is Ashik. Just a couple of questions. So first of all, I mean, would it be possible to get some early thoughts on April renewals? What has happened, how the renewal has gone? I mean is the price increase is more or less similar to what we saw in first quarter or any changes, any deviation from that in any particular line of business, et cetera, would be helpful to know. So that's the first one. Secondly, I guess, you mentioned just in the previous question about casualty that the prices are still a bit softer. Can we just -- can you just elaborate a bit more on where prices are going. I mean, D&F is clearly -- it's very public that the prices continue to fall even in first quarter this year, but any other particular line of businesses within casualty where things are still not moving in the right direction? And are we going into a territory where you -- it's not that profitable to write it anymore? Or are we still in a very profitable zone? So any color on casualty, both primary and reinsurance would be helpful.

Okay. Ashik, I'll probably take for those again. So on 1/4, I think we'll start with Property cat, still seeing strong rate momentum. The big renewal at 1/4 is obviously Japan. I think our expectation on Japan was, if you look at the range of rate rises, you were going to see across your property cat portfolio, Japan was likely to be at the lower end of that, albeit still strong. That was exactly the case. From our perspective, it's probably slightly better than expected. And from a client's perspective, probably worse than they expected, but as always, with Japan, it was a very orderly renewal. You saw less demand come through in Japan just because inflationary pressures are less there, but we're very happy with the result there. In terms of the broad property cat market, what we saw in U.S. was very similar to what we saw through Q1. So very happy with that. If you look at some of the insurance lines, as I alluded to in my script, things like property insurance, the good rate momentum there ahead of what we anticipated, if you'd have asked us probably 6 months ago. Part of the energy portfolio like power downstream energy life, still seeing good rate momentum. Things are upstream energy, as I alluded to in a previous answer, not still going up, but probably not as much as we would like. So in general, just very much in line with Q1. Still happy with the rate momentum. Moving to your second question on Casualty. I didn't say it was getting softer. I said it was broadly stable. So look, it's probably worth just remembering how we write the casualty class. We write it primarily through quota share reinsurance. We get a very broad spread of the casualty portfolio. And yes, there are lines within that, such as D&O, -- as you mentioned, there are seeing some softening, albeit coming from quite material rate increases in previous years. But the way we look at our portfolio is, obviously, we look at all the underlying rating that our cedents are getting, but then we also need to look at the commissions we pay our cedents, which effectively comes off our margin. And those terms and conditions for us as the reinsurer margins improved during our Q1 renewals. So what you're effectively getting is even if there's some elements of the underlying portfolio that are softening slightly if we get an improved commission terms even omits relatively small. That's why we -- our portfolio will be stable through Q1. So we're comfortable with our casualty book sits where we think the margin is. Obviously, as you know, we're relatively new to the class. We're coming at a level where rates are pretty peaky. We're reserving prudently, and we're really happy with how that book is progressing, which to remind people, is very small compared to our peers.

The next question comes from the line of Ivan Bokhmat from Barclays.

I've got a couple of questions. The first one would be on property cat market. I think we're seeing, particularly on ILS placements, many deals sized up, coupons moving down within the range. And it feels like there's probably -- well, it's certainly a lot more orderly, if not kind of signs of new capital coming in, as you've alluded to. I was just wondering whether you could talk a little bit about the trends you're seeing there. And what should we expect towards year-end and maybe into 2024? And the second one, I was just wondering if you could provide any update on the aviation claims related to Russia sanctions. Sorry, you may have been tired of that question already.

Okay, Ivan. Okay. So on the property cat piece, I think you're alluding to cat bonds in the market, and there's been a lot of issuance over the past kind of 3 to 6 months. I think your observation is fair. Obviously, that's not the product we are selling. We're selling a traditional rated paper product. So I think it doesn't impact us directly. Obviously, there are clients that decide to buy that product that can potentially bring some demand out of the system. I think your comment on it being more orderly is very fair. I think what you've seen is the market now knows where it sits. Most people have their retro protection in place. They know what they need to charge -- in order to improve margins. I think at 1/1, everyone's trying to renew their outwards reinsurers at the same time is right and they're inwards. And it all was very late. So it is a little bit more chaotic. I think that has settled down. But as I said in my script, there's no real significant new capacity coming in, certainly with the products that we're writing. And therefore, that's why you're seeing the kind of right momentum being maintained on the property cat side. And then on the second question, the answer is no.

No news. Then a few lawsuits. I think a few more lawsuits, I should say, being put through. Just no color on that.

No, I think if you think about what we said at year-end, there is no change to that whole situation. Clearly, it's a complex event. But just to remind everyone, we are one of the few carriers that have set aside reserves for any possible outcome. So we're very reactive at our position and nothing's changed since year-end.

The next question comes from the line of Derald Goh.

The first one is just your point around high attachment points for the primaries. To what extent you've seen the benefit of these from the Q1 CAT events? Is there anything anecdotal that you can share? Second one is just on casualty. What are you seeing in terms of social inflation trends and also the frequency of claims following the reopening of courts? And the third one, just going back to your strategy about diversifying outside cat. So given the skew in growth towards primary insurance and non-cat lines, does that free up some capacity to take on more cat without adding to more volatility at an overall level I guess, another way of asking the last question is that when you think about your cat versus non-cat balance, what are the metrics that you look at?

Yes. Okay. So on your first question around high attachment points, I obviously can only answer that generically. I think, obviously, there has been some cat activity during Q1 in various parts of the world. And I think if you look at some of the U.S. events like convective storm, for example, they are exactly the type of losses that moving attachment point will help insulate the broader market from more than you would have seen last year. That doesn't mean, of course, that you are completely immune from losses like that. It just means the impact of them are going to be felt less because you're going to get less of those losses than you would have had year-on-year. That's to say you're exactly on the right lines there. On -- sorry, can you repeat your question on casualty, please?

Yes. Just in terms of your -- what are you seeing in terms of social inflation trends and also things like the frequency of claims falling the year opening of courts or rather the frequency of claim settlement following your reopening of course.

Yes. I mean I think that's probably a better question to ask another carrier. And the only reason I'd say that is because we're obviously very new into the class. We only started right in, in the first quarter of 2021. So in terms of uptick in our own activity, obviously, not really Tenix, we're kind of new into the class. And on social inflation, we've entered that class at a time when that's very much a known and therefore, we can account for that in both our reserve and in our pricing. And we don't -- we're in a fortunate position, obviously, that we don't have a back book to worry about that. But clearly, inflation is a real live issue that we've all been talking about over the past couple of years. But as I said, we're quite fortunate in that we've entered that glass at the time that, that's very much a hot topic, which allows us to underwrite with that in mind.

And I think on your last question, as I said in my sort of statement, I think what we're trying to achieve here is a balanced portfolio, but also seeking the best opportunity. So I think, as you said, if we're in writing more specialty, that allows us to write more casualty -- more cat business without changing any portfolio mix. But even within, say, just the cat classes, we are still small enough and still nimble enough to look at the advantages of is that capital deployed better in property D&F or general property or is that property care was at retro. So I think all in all, what we will have to remind ourselves or not, I constantly have to do this is we all realize substantial amount of cat business. We're probably more levered to the cat opportunity, particularly in any of our London peers. So we already have a large cat book, and that's why it's pleasing to see [indiscernible] growing so much as well.

The next question comes from the line of Andreas van Embden from Peel Hunt.

I've got 3 questions. First of all, could you maybe give an indication of what your blended outwards rate was? Your growth rate is up 17%. I just want to try and see what the spread is between your growth and your outwards rate on a blended basis, please? And then on the attritional combined ratio, you're guiding towards 74.79% for the full year again. Just on your reinsurance book, could you perhaps give an indication whether your whole reinsurance book, including public cat casualty and specialty is within that range or below or above? And then finally, on your diversification strategy, are you diversifying and growing with existing clients? Or are you adding new clients to your portfolio? So is it just growing your renewal book? Or is this really adding new clients?

Okay. Andreas, I'll take questions 1 and 3. So on 1, I can talk around it. We don't really ever talk about what our blended increase and our outwards cost is, so I'm not going to give you that. But what I can say is that our margin is improving. So we're moving forward, and obviously, the rate increases on our outwards are very different across the product lines that we see. And as I mentioned in a question earlier, whilst the absolute dollars of reinsurance spend are going up, the percentage versus our inwards premiums will continue to go down. On your third question around where are we growing? Is it existing clients? Is it new clients? It's a bit of both. It depends on the line of business. If you take on more mature portfolios, it tends to be trying to grow with existing clients, obviously, in our newer lines of business that it will be weighted towards new clients on core book of big upstream energy, to be honest, we just renewing our core book there. We just don't think it's time to broaden our shareholders. If you look at casualty, for example, we've been very deliberate in targeting some clients that we know very well through other products. We sell them such as Property cat.

That helps us take positions on the casualty portfolio. It also gives us comfort because we know how those companies underwrite their portfolios and run their businesses. So -- sorry, long-winded are, but it's a bit of both.

Andreas, it's Natalie. Yes. Sorry on the question 2, we don't give guidance by class, I'm afraid.

The next question comes from the line of Nick Johnson from Numis.

A couple of questions. Firstly, on premium income for this year. So you say you're comfortable with the 1.9 million expectation. I mean that implies growth of 12% during the rest of this year against 23% achieved in Q1. Just wondering if you could say which parts of the business you expect growth to fade during the rest of this year and why, or is it a case that the 1.9% is actually pretty conservative? You could just help square that circle, please? And then secondly, on reinsurance purchase, obviously, you said the dollar cost will be higher this year. But now that most of the program is probably already placed. Just wondering if you can give a bit more specific about the quantum of the increase in dollar spend, just to help us get a feel for that.

Okay. So we're -- one, will underwrite to the opportunity. So the rest, I'm perfectly comfortable with the consensus of -- it's approximately 1.9. I think it's slightly above. There remain a number of unknowns as we go through the year. We don't know what's going to happen in Florida, for example. And if we don't feel that the opportunity is appropriate, then we won't deploy. We've got a big unknown about what happens in aviation towards the end of the year. So we always try to be measured in our guidance. And that's what we're doing. And we certainly don't want to be held to a number because we want to underwrite in the right way, which is underwrite the opportunity in front of you. So we're comfortable with where consensus is at the same time, as I've said many times on this call, we're really happy with where the market is. Rates are still favorable. So they remain that way, then we're happy to underwrite to that opportunity. I think on your second question, we can probably answer that better when we get to Q2 and have got full numbers out.

The next question comes from the line of Faizan Lakhani from HSBC.

I have 3 questions. The first one is on your guidance on the underlying combined ratio and the attritional loss ratio. I'm not going to ask a new guidance, but just directionally over this first quarter, how has the business that you've written differed to the business that you had planned to write in this quarter? And does that influence how we should be thinking about the underlying combined ratio, i.e., do you write more sort of attritional business this quarter than expected? The second question is on capital. Capital position from a Bermudan SCL perspective is very, very strong, stronger than we expected. I guess is a question in the market more broadly and the Lloyd's players in terms of how is the business steered really. Is it solely looking to be the Bermudan SCR ratio? Or should we be using other sort of metrics such as sort of nat cat exposure as a percentage of equity? Because it just obviously, it seems very, very high, and it's hard to see what you can do with that capital. So just to understand, is that really the level that you need to be at? Or is there underlying dynamics that we can't really see from outside? The third one is one of your competitors for Delish, done an IPO or looking to an IPO, female and specialty insurance side. Is there excess capacity coming into that market? And how should we think about the dynamics going forward if we did see sort of increased capacity coming in there?

So on your last comment, Fidelis and [indiscernible] are already in that market. So they're not -- I don't see that as new capacity comes to the market. Clearly, they're restructuring their business, but those guys are already in specialty insurance market. So I don't see that as a change. I think as well on people made the comments about entering the specialty insurance market. It's a very different sport to, say, an ILS investor coming into the cat space, you need the right people, you need to build a team of underwriters. It generally takes 3 years to build a portfolio. There's lots of sort of direct sort of meetings with clients. So it's not quite as simple as what some people suggest. But as I said, I don't see any real change to the specialty insurance market. And I'll let Natalie answer the question about guidance there. But one thing I just want to be clear about is we don't run our business quarter-to-quarter. So we don't look at any individual quarter and change our strategy or nothing, we take a broader view over the year. We don't get hung up on quarterly numbers, which is why we don't even do course numbers anymore. So we just -- we don't think about it that way. So we'll be clear on that.

Yes. On the guidance, we don't see any reason to change the guidance for the rest of this year. We're happy with the underlying performance in Q1. On the capital question, we don't run our business to the Bermuda regulatory capital. The more constricting capital that we have to run through the rating agencies, specifically A.M. Best and S&P where we kind of held to a high level, the BSCR is probably more like a BBB type level, our MBS rating is, and the difference really on A.M. Best for cap rates like because you require to hold enough capital to withstand 2 cat events. So it is quite -- it's more restricted than the BSCR.

So I mean, given the limitations that we have from our side, is there more disclosure you could provide to give us comfort around how we could potentially model that going forward rather than Bermuda SCR?

I think actually, what we might do on the next Investor Day is to a more detailed presentation on capital than maybe you've seen before and that might be able to -- that we should be able to help you.

The next question comes from the line of Tryfonas Spyrou from Berenberg.

I just have one question last, on the PML. I could see that in your annual report that in the motel risk scenarios, the 1 in 250. Some of these have come down considerably versus the half year. So I just wanted to get a sense on what you have done here on the reinsurance side? And what does that mean, if anything, when you appetite for growth going forward, given that you don't really want to lean more into property cat. And I also just wanted to check briefly if these are -- if these PMLs are adjusted for the business return both on the involving network side January this year?

No, I think the PMLs you're referring to are PML from 31st of December. So our PMLs from last year, so obviously, won't take into account any business that we've underwritten at the 1st of January onwards in 2023 and also any changes to our reinsurance. I think I answered this on the last quarter, what we did do during the back end of 2022 following quite a lot of work from our actuarial team was changing the modeling vendor that we used. The reason we did that is we felt that the data analysis that we got on a lot of secondary perils was far superior. But what you did see so the lower down the curve, it's more panel, but then on some, not all tail events for some of those larger PMLs, there was some benefit kind of further out on the curve. So that was really the real driver there. Obviously, when we get to our next set of results next quarter, we will have an updated set of PMLs, which will reflect the 1/1 data set.

Are there any preliminary comments you can make on the 1/1? How would those be reflect in the PML?

I mean I can only reiterate what I said around, what we've been trying to do on our inwards and outwards and maintain a broad net cat footprint that's similar to last year, modeling and PMLs are not an exact science, so things will move. But obviously, I can't make any exact comments on them because we haven't published them.

The next question comes from the line of [ Anthony Young ] from Goldman Sachs.

Just a question on the casualty. I think you mentioned you tend to reserve conservatively in this line. Can I ask, should we say a few things develop as you expect, for example, the social inflation point, should we expect some higher reserve releases from this line in the future? And a second follow-up question on that is, how long is the claims duration in this line?

So I think let's just reiterate what we've always said when we started right in the casualty class. As you know, when we write any new class of business, we generally take a quite conservative approach to reserving as we build out the year and understand as some frontline better. I think casualty is well known to be a difficult class of business with a longer tail than the majority of our book. So I think 2 years into our casualty writings, we're not going to make any changes to our assumptions anytime soon. I think we are being as conservative as probably any carrier can be on that portfolio. We're happy with where we're at, but it's just way to ready to even consider any changes. But I said, I think we're at a conservative end, we're not expecting to make any reserve releases anytime soon. And it's a class of business that, as I said earlier, very pleased with our timing, what have come in. I'm very pleased with what the team has done for so far. We're still in build-out mode, but it's just way too early to talk about any reserve relations from casualty. And I think that's just a prudent thing to do.

Can I follow up on the -- if you can outline color on the claims duration in this line?

Yes, it's going to be more than 5 years. It's going to be more than 5 years.

As there are no further questions, I will return the conference back to you, Alex.

Okay. Thank you, and thank you, everyone, for your questions today, and we'll close the call down.

Thank you. This now concludes our presentation. Thank you all for attending. You may now...