Lead Real Estate Co., Ltd American Depositary Shares Price & Performance (LRE)

Good morning, everyone, and thank you for joining our call today. Going to do things a little bit differently today. Take a moment, first of all, to reiterate our strategy. I'll then follow on with some brief highlights from 2024 five. Paul will then focus on the underwriting trends, and Natalie will cover the financials and then we will go to Q and A. We adopt our strategy to where we are in the cycle, but our DNA remains We leave with underwriting looking to maximize growth opportunities at this stage of the cycle. We actively manage our capital and risk exposures to deliver attractive returns through cycle.

We do that with fantastic people where we look to see where we look to attract and retain the best talent that fits within our culture.

Some of you may remember me saying five or so years ago, that we will look to grow materially as the cycle started to improve. That we will use our capital more efficiently, and we will diversify our underwriting portfolio to reduce volatility. If I now turn to 2024, you can see this is exact what we have done In another year of high industry insured losses, both natural catastrophe and large risk losses, we've delivered a fantastic ROE of 23.4% We grew our premiums by another 11% in 2024 To put this into context, since the end of twenty seventeen, which was the softest point in the underwriting cycle, have now more than tripled our premiums and added over 20 different sub products to our underwriting portfolio. We've delivered a strong underwriting results The benefits of the successful execution of our strategy is evident in our combined ratio of 80% on a discounted basis or 89.1% on an undiscounted basis.

This includes over $200,000,000 of weather and large risk losses, but the broader business we now have is better able to absorb large loss events. Although underwriting always comes first for us, a broader business, we were also benefiting from a larger investment portfolio This gives us a bigger stock of profits that ultimately help the bottom line.

And we've delivered all of this without dramatically increasing our capital [indiscernible] In fact, we were able to return the vast majority of our 2024 profits in regular and special dividends. And we have reached $294,000,000 and still remain with a very healthy strong balance sheet. 2024 is exactly what we set out to do the market started to improve. 2018. [indiscernible] do more of the same. The external environment remains uncertain So far this year has seen a lot of geopolitical change and a number of highly publicized large events, particularly in the aviation space, and of course, we have seen the devastating impact of the wildfires in Los Angeles. Lancashire's strategy remains unchanged. The products we sell are designed to respond to the uncertain environment. And as already announced, we expect the LAY wildfires to result in a net loss in the range of $145,165,000,000 dollars We As Paul and Natalie were outlined, we anticipate delivering an ROE in the mid teens for 2025 assuming a similar level of catastrophe and large losses we saw in 2024 in addition to the wildfire loss When we give you guidance, we typically have our assumptions in there for large losses and catastrophes.

For $25,000,000 we have added the impact of the wildfires on top of these assumptions.

Would make 2025 probably the costliest year on record in terms of insured losses. Is obviously a severe scenario we're painting and not a normalized one. The attractive return profile we would be able to deliver in this scenario again exemplifies our strategy In action.

As I've said before, I'm extremely pleased at this stage in the cycle that we have a healthy balance sheet, which allows us plenty of flexibility underwrite the opportunities we see. We will continue to deliver what we said we would do. I will now hand over to Paul to talk you through the underwriting trends. Thanks, Alex.

As Alex has just described, 2024 was an excellent year for Lancashire, and the underwriting portfolio has contributed significantly to the group's overall results. What we have demonstrated for the benefits of growth and diversification strategy of recent years. The goal was to build a profitable underwriting portfolio that could withstand large losses and still produce adequate returns whilst using our capital more efficiently. [indiscernible] In the following slides, I'll explain in more detail how 2024 is an excellent example of our progression. And how the underwriting strategy we have put in place will serve us well in 2025. [indiscernible] start quickly by covering some key metrics from 2024.

We continue to grow ahead of rights in line with our stated objective to do so whilst underwriting margins For the seventh consecutive year, the rate environment was positive. As expected, we did see a plateauing of rates as demand and supply rebalanced. But the year ended marginally positive with an RPI of 101%. [indiscernible] had guided to approximately 10% growth in gross premiums written and delivered slightly ahead of this guidance with 11.3% growth. There were many areas we were able to grow in 2024.

One of the most exciting developments was our newly minted U. S. Platform.

It was an exceptional effort by all those involved across the business. To be up and running to underwrite business from Q2. This certainly aided our year on year growth, and will continue to be a platform for profitable growth in the coming years.

As I mentioned in my opening comments, 2024 helps demonstrate the more robust underwriting business we have built. [indiscernible] It was far from a benign loss year. Natural catastrophe losses were approximately $145,000,000,000 in classes such as marine, energy, [indiscernible] As a risk taking business, we will assume our share of losses in large industry events. However, our exposure to such events no longer creates the same degree of volatility and underwriting results that it once did.

As you can see from the slide, despite 2024 being far more active from a loss perspective than 2023, Our insurance services are always basically the same.

Our combined ratio may be higher, but our use of capital is far more efficient. Large industry events, we can still have large dollar losses.

For our larger, more diversified portfolio, means that we are far more likely to still produce attractive returns even in active losses. So what does this mean for 2025? We expect to see the following in terms of market dynamics. We do anticipate 2025 to be the first year since 2017 to see marginal rate softening. I would remind everyone of the progress that has been made in the past seven years and that in most classes rate adequacy remains in a very good place. The rate trajectory is purely a function of the demand and supply dynamics.

Whilst we do see increased demand still coming through in most lines of business, at the margin, there is more supply offsetting this demand. Increased supplies predominantly from existing carriers redeploying strong earnings of recent years which does tend to lead to a more disciplined market. Helping the overall dynamic is effect that demand remains healthy and we live in a world of heightened uncertainty and risk. Whether it be continued geopolitical and economic uncertainty, large loss of bets impacting our industry, or continued pressure on prior year reserves it all helps maintain focus is the reason we anticipate rate softening to be very manageable. So what does this mean for 2025 gross written premiums?

Given that rate adequacy in most lines remains healthy, we still anticipate growing ahead of rate.

However, year on year growth will be less than in previous years. As a guide, we would anticipate growth to be in the low single digits. Areas growth for us will be from the continued build out of our specialty reinsurance lines such as marine energy, terrorism and aviation development of the Lancashire U. S. Platform existing products build out, and new product lines are added. As always, our growth will be based on the market opportunity. And we will happily pivot as necessary and not be driven by premium targets. At the January 1, renewal market conditions met our expectations. In terms of the loss involvement, the first quarter has been highly active for the industry from a loss perspective. Alex has already spoken about the tragic and devastating wildfires in California in January which is the significant loss event in Q1. Terms of the impact this will have on rating for the remainder of the year, our current thoughts are as follows. For property catastrophe reinsurance, we would expect there to be less rate softening than we originally anticipated. We would expect to see a flattening of rate in The U. S. And more measured rate softening in other territories.

There are, of course, a number of territories still to renew through the year that are loss impacted, and these will see year on year rate increase. So overall, the rating environment will now be more favorable than originally expected. Outside of property catastrophe reinsurance, we do not anticipate any significant change from our original rating outlook other than, of course, if directly impacted by wildfires. [indiscernible] the California wildfires do do is act as a reminder that our industry It's also a reminder of the value of our products, Usually, large loss events of this nature are catalyst for future demand, any increased demand for the product [indiscernible] help further stabilize the rating environment.

When announcing our wildfire loss [indiscernible] Slide eight is here to demonstrate the basics of this product. The objective of this protection to help manage volatility of the group's returns in large in years of large catastrophe losses The reinsurance structure provides coverage for our property insurance classes and our property catastrophe treaty reinsurance. Other classes are not covered by this product. At the January 1, we renewed this structure extended the product to fully include all natural catastrophe perils.

The product has a per event deductible After the per event deductible is taken into account, the additional loss amounts erode the aggregate deductible. As you can see from the schematic, based upon the current loss estimate range, California wildfire loss eroded a good portion of the annual aggregate deductible. Once the annual aggregate deductible is eroded, and after the application of a per event deductible, additional loss amounts would be covered by the annual aggregate limit.

Noting that no one loss or sequence of losses are ever the same, And for illustration purposes only, if we had an exact repeat of our 24 natural catastrophe loss events in addition to the Q1 wildfire loss, [indiscernible] anticipate recoveries from the Abrogate cover. We would also not be exhausting the full limit available. Whilst we can never predict every loss scenario, the value of this product is that despite a large catastrophe loss in Q1, we have a high degree of confidence that the business can still produce really attractive returns Even in a year when catastrophe losses could potentially be at historical highs. I'll now pass over to Natalie.

Thanks, Paul. 2024 was another outstanding year for Lancashire Our performance demonstrated our focus on return on capital and shareholder returns. With an increase in diluted book value per share of 23.4%.

We continue to demonstrate the benefit of strategic changes we have made to the business in the last few years. Profitability was consistent with 2023, in a year of more significant loss activity.

Our strong balance sheet and excellent capital position enabled us to return $354,000,000 to shareholders during 2024.

We have also been able to declare a further special dividend of $0.25 per share alongside these results. A summary of our results for the year is laid out on Slide 10. Our profit after tax was $321,000,000 is consistent with our 2023 profit after tax. Given worldwide insured weather related losses of €145,000,000,000 in 2024 compared to €125,000,000,000 in 2020 plus large risk events such as the Baltimore Bridge disaster, this is exceptional reflects strong underwriting performance. Our insurance service result was $379,900,000 compared to $382,000,000 last year. This underwriting performance was further bolstered by attractive investment returns of 5%. Insurance revenue increased by 16.1% compared to 2023.

As you know, it takes us a bit of time to earn the premiums through. Hence, revenue has increased at a higher rate than gross premiums written as it benefits from the significant premium growth over the last few years.

The rate that premiums earned through as insurance revenue will vary dependent on business mix.

The allocation of reinsurance premium is relatively stable compared to 2023, with a small overall increase of 3.4% reflecting our growth. However, we are retaining more risk across the business given the positive market and stock of robust earnings.

The allocation of reinsurance premiums as a percentage of insurance revenue was 24.9% down from 27.9% in the prior year.

Our undiscounted combined ratio was 89.1% or 80% on a discounted basis. This includes all expenses incurred by the group operating as well as underwriting, and therefore may not be comparable to headline combined ratios reported by others given that we include all our costs. This resulted in an insurance service result comparable 2023 even with the discounted combined ratios from five points higher. This reflects our focus on overall profit and return on capital.

The undiscounted combined ratio was marginally higher than our guide The undiscounted combined ratio was marginally higher than our guidance for 2024. This was largely due to some actuarial actuarial refinements to our IFRS 17 methodology towards the end of the year resulting in higher EBIT provisions. These will be released over time and are not in ticket Our underlying undiscounted combined ratio excluding the impact of these adjustments, large cat and weather related losses for the year and reserve releases, is comparable to 2023. Turning to our investments. The investment portfolio generated an investment return of 5% driven primarily from investment income given high yields during the year. While there was some volatility in interest rates, credit spreads remained relatively tight throughout the year.

The risk assets, notably the bank loans and private credit funds, all contributed positively to the overall investment return. Our operating expense ratio is lower than 2023 eight point seven percent compared to 9.8%. Employment costs are the most significant driver of the dollar increase in total expense due to additional headcount supporting the business growth. These headcount increases also result in higher related expenses such as building costs, IT expenses and so on. Moving on to the claims environment on Slide 11. [indiscernible] During 2024, the market loss environment was exceptionally active. With Aon estimating weather related insurance losses being 54% higher than the twenty first century average, and 15% higher than 2023. Our total undiscounted net losses, including reinstatement premiums, from catastrophe weather and large loss events, was $214,100,000 compared to $106,100,000 in 2023.

This includes losses from Hurricane Salerno and Milton, Storm Boris and the Calgary Hale storms, well as the Baltimore Bridge loss. [indiscernible] shown on Slide 12, the build out of the business since 2018 means that such losses have much less of an impact on our underwriting returns and ultimate profitability than historically. This means that with the total catastrophe and large losses higher than in 2037, we were still able to produce an exceptional underwriting result of $379,000,000 On an IFRS 17 basis, total prior year releases include the release of expense provisions well as the impact of reinstatement premiums. Total releases on this basis are $121,100,000 compared to $78,800,000 in 2023. Both years benefited from prior year IBNR releases offset in 2023 by some late reported weather losses from 2022. In 2024, we were also able to release some reserves from catastrophe events in the 2021 and 2022 years. We have summarized the impact of discounting on our results on Slide The total impact of discounting in the year was net income of $66,400,000 compared to net income of $18,100,000 in the prior year. In the current year, the discount benefit comprises a net initial discount of $120,300,000 largely on the 2024 accident year loss reserves, offset by 68,600,000.0 net unwind for the initial discount previously recognized in relation to prior accident years.

The higher initial discount in 2024 compared to 2023 is primarily due for higher net loss reserves given the active loss environment in '24 coupled with underlying business growth. Discount rates across all our major current The impact of the sustained high interest rate environment is seen in the growing unwind period on period.

A small increase in U. S. Dollar rates during the period drove the $14,700,000 impact of the change in discount rate assumptions of in the year Moving on to our balance sheet [indiscernible] I cannot emphasize enough the strength of our balance sheet This is made up of three important strands: the strength of our reserves, the prudence of our investment portfolio and our conservative capital position. I will take these one by one. Starting with reserves.

We have always had a prudent approach to reserving and set catastrophe losses loss reserves on a ground up client by client basis.

We have never had a year of overall adverse reserve development since our inception. Our confidence level of 86% is in line with recent This represents a net discounted risk adjustment of $256,800,000 or 14.7% of total net insurance contract liabilities. Effectively, this is the amount of additional margin that we are currently holding over the actuarial best estimate of our liabilities. Previously noted, we expect that disclosed reserve in confidence level to remain within the eightieth to ninetieth percentile unless there is a change in our reserving risk appetite.

We would expect the disclosed percentile to move around within this range from period to period depending on the mix of reserves and their associated uncertainty. Moving on to investments. Since inception, the primary objectives for our investment portfolio have been capital preservation and liquidity.

And we position our portfolio to limit downside downside risk in the event of market shocks. Those objectives remain unchanged and are more important than ever in today's volatile markets. The investment portfolio therefore remains relatively conservative with an overall credit rating of AA minus. Given current expectations of market volatility in 2025, we will continue to maintain a short high credit quality portfolio with some portfolio diversification to balance the overall risk adjusted return. Moving on to capital on Slide 16. We have a strong regulatory capital position finishing the year with an indicative estimated solvency ratio of two seventy which will reduce approximately 250% following the California wildfire loss. We continue to see the benefits of our diversified business on the amounts of capital we are required to hold, And we were able to announce significant special dividend returns to our shareholders during 2024. Totaling point $25 per share, $300,200,000 with an additional $0.25 per share special dividend announced with these results. Following these capital returns, we remain exceptionally well capitalized and are able to fund all our planned growth in 2025 from internally generated capital.

To further demonstrate our capital strength, the table on Slide 16 shows the estimated impact of a one in 100 Gulf wind loss of €394,000,000 sorry, on the BSCR ratio as well as the sensitivity of the balance sheet for 1% increase in yield curves with a corresponding impact on our insurance liabilities and our investment portfolio. Even after these scenarios, we remain exceptionally well capitalized. Moving on to forward guidance. The growth in our non catastrophe exposed lines of business along with a strong pricing environment, means that we can absorb higher dollar amounts of catastrophe and large losses and historically is for our regular earnings. Alongside the aggregate reinsurance protection we have purchased, this means that given the California wildfire losses in Q1, we could achieve a mid teens ROE in even assuming similar loss activity for 2024 for the rest of the year.

As already noted, 2024 was a higher than average loss year so we are in an exceptionally strong position.

In a more normal loss year, we would expect to beat this guidance.

I think just to conclude, I'd say, look, we're very happy with twenty four year we think at twenty they are based on the conservative And your first question comes from the line of Cameron Hassain with JPMorgan. Please go ahead.

Hi, afternoon. My first question was going to be on the the ROE and the kind of type of loss here, I feel like you've answered that question. So that was clear. The The two that I have, I guess, on the aggregate limit kicking in, how far away from that are you? And if we just try and think about that relative maybe to the size of the Cali wildfires? And then then I guess you've got a chart slide with the charts in shows it caps out at some point, but do you have a pretty high limit above that deductible? The second question is on the I guess on the capital return side. I guess looking at the signals from yourself, you're paying out another special dividend pretty much 95% of earnings ish for the year. Is there anything in the near term that might change your view around capital return and maybe whether you see the opportunity to deploy as being a little bit more attractive? Or do you think we're now settled into a position for the market for the next couple of years that probably it's more likely to be return rather than deploy?

So those are my two questions. Thank you.

Cameron, it's Paul. I'll answer the first question. I won't I'll start by saying I won't be giving any specific numbers given it's specific reinsurance contract, but hopefully I can give you a little bit more color California wildfires, as I said in my script, has certainly eroded decent portion of all, aggregate deductible. And I think again, as I alluded to in my script, to try and add a little bit of color. You took the same kind of loss events that we saw in 2024, we would be into our aggregate protection making recoveries and there would be still limit available after that. Obviously, there are scenarios, Cameron. There is you buy a certain amount of limit in really, really extreme scenarios, then could eventually run out of limit. Obviously, But what we're trying to just show you is that it's in place and it helps give us an element of confidence around some of the guidance we're giving today. We obviously can't talk through every single loss scenario that can happen and everything is different and there is a per but hopefully what I've explained gives you a feel for how it works.

I think your point on capital Cameron is let's just reiterate how all of our capital needs start with the underwriting opportunity. And because we're a small business, we can assess our capital needs on a very regular basis When we look forward into 2025, we still believe we can grow our underwriting in a market that's more competitive, very, very well capitalized as we always are. We'd like to keep a strong capital the balance for our business Yes, there could be opportunities in the future, but from what we can see at the moment, we don't believe we'll need excess capital, but we already have enough capital to flex if there's any great opportunities later in the year.

And also, Cameron, you can see the amount of growth that we've had in the last few years, but we've also been able to have capital returns as well. So the two things have not been mutually exclusive because we have become a lot more capital efficient.

Fantastic. Thank you, everyone.

And your next question comes from the line of Anthony Niu Yang with Goldman Sachs go ahead.

Hi, good afternoon. Thank you for taking my questions. The first question is coming to your premium growth guidance. You mentioned low single digits.

I think these appears lower than one of your peers guided of roughly mid single digit. Could you give more color like Are there any lines you are still growing? Are there any lines you you are not growing? And also, does net premium also grow at low single digits? That's question one. Question two is, could you give an update on the aviation reserve, please? And what are you seeing there And if what gives you confidence essentially on the reserving adequacy for the aviation claims?

Thank you.

Hi, Anthony. I'll take both of those. Natalie might contribute on the answer to the first question. In terms of premium growth, obviously, [indiscernible] Every one of our peers has a slightly different portfolio we can only talk to our portfolio. Looking at the rating environment that we see across the various lines of business, comfortable giving the guidance of low single digits. I said in my scripts, and as I always say, won't be driven by premium targets, we'll be driven by market opportunity. Give a little bit of color around growth, There's parts of the reinsurance portfolio, particularly the specialty reinsurance portfolio things like marine energy, terrorism, aviation reinsurance, where we still see opportunity to grow. We're relatively new to that product line. So that We obviously will anticipate further growth our U. S. Platform both in the lines of business that we started last year and we would also anticipate in that of further lines during the course of this year. Kind of offsetting that slightly, there are some areas. So for example, at 11%, we cut our inwards [indiscernible] Market conditions there were were reasonably competitive. And we in our view, was the opportunity to cut back a little bit there.

So that obviously impacts on top line. But overall, like I said, confident with low single digit as a guidance. That's still above the rating environment that we're expecting to see. That's because most of the lines of business that we're in we still see good margin.

On the second part of your question, just remember that on the IFRS 17 basis, the actual revenue that you see you'll see coming through in the [indiscernible] will continue to grow higher than gross premiums written because that has the benefit of premiums that we've written in the last couple of years coming through.

And obviously, just on the point I made on our Inwood Retro portfolio, obviously, remember, we're a bigger buyer of retrocession than we are seller. So that's a net benefit for us to the market being as it was. In turn, turn into Russia, obviously, the first point I'll make, which you probably already noticed, is that our reserve remains unchanged. If you recall back in 2022, it seems like a long time ago now, we set our reserves for potential exposure relating to [indiscernible] As we said at the time and we've reiterated consistently since, our view was a loss would definitely be a complex one.

Would almost certainly result in legal disputes And also something that we've continually said in loss events such as this, you usually see all interest parties trying to work together to find solutions that run alongside that legal process. Look, as with any loss our approach, we follow the same ground up reserving approach we do for each and every loss. We followed exactly the same reserve approach here. Thus far, and as I'm sure you've been able to read, from the trade press. The situation has pretty much played out in line with our initial expectations. So we've definitely seen legal process You would have also seen in the press certain commercial settlements have been made We expect that to continue. Based on what we've seen so far, we've obviously not changed that overall reserve we communicated to you back in 2022. Look, with any loss, we'll always continue to monitor it. Based upon changes in information. But as I've just said, to date, no new information has led us to change that overall reserve we originally set.

Thank you. Sorry, if I may just clarify. So how has Lancashire already settled some of the claims with some of the policyholders.

Obviously, I can't talk specifics, but I can confirm that there have been have been a number that we have reached settlements on and there will remain a number where we're in ongoing [indiscernible] And your next question comes from the line of William Hawkins with KBW. Please go ahead.

Hello, everyone, and thanks for the color so far. Paul, I did just wonder, can you maybe be a bit more specific on what your RPI is looking like? I guess particularly after the January renewals in the reinsurance book? My first assumption was that it's obviously stepped down. Then given what you're saying about your own kind of retro purchasing, there are some companies that actually still seeing net flat or net benefits because they're more of a benefit on the retro side. So any hints about the RPI after the January renewals would be interesting please. And then secondly, your 5% investment return, how are you looking at that through this year? Are you still reinvesting [indiscernible] at 5% in 2025?

Thank you.

Hi, Will. Take the first question on RPIs. I'll try and give you a little bit of color broad product line, if that's helpful. [indiscernible] On the casualty reinsurance portfolio, market from a reinsurance perspective, we saw that as broadly flat. You'll still remember we write a quota share portfolio predominantly And in that, we are still seeing the benefit of underlying seed and rates still increasing. So we get the benefit of that. There wasn't a huge amount of change in terms of [indiscernible] anything, there was some slight downward pressure, which helps us as a reinsurer but it was at the margin. So I would say our view is it was broadly stable. And to be honest, that was our expectation going into oneone. We were reasonably happy with that. On the other reinsurance lines, both specialty and property cat, We were anticipating marginal rate pressure I think if you look at a lot of the kind of major broker reports, on the CAT side, depends which one you read, but talking anything from kind of 5% to seven points off on Property Cat We're not seeing anything different from that. Very importantly, and again, this would have come out in the broker reports, attachment, there was real discipline on attachment levels, which I think is a real solid takeaway from oneone As I said in my script, we we do think there'll be some plateauing through the year on particularly U. S. Based property cat business.

And probably less of a softening than originally expected in some of the other territories. [indiscernible] there is also loss impacted business, which undoubtedly see rate rises. So your blend is always slightly higher than than you think because you get caught by the headlines of the rate reductions. On the specialty lines, in reinsurance, pretty similar to Property Cat, marginal softening nothing too outrageous. As I mentioned, we did take the opportunity to cut our retro back book book back There was more writing pressure in that market And as I said earlier, we're a bigger buyer than seller. So at the margin, that's better for us. But we did have [indiscernible] We took the opportunity to cut back some of our inwards exposure given the rating environment.

And on the specialty insurance lines, anything casualty related we're still seeing flat to marginally up. So in lines like marine and energy, liability, you're still seeing a little bit of rate come through. In the other lines, it's fair to say you're you are seeing some softening again, at the margin. And coming from seven years of the rating [indiscernible] still at very healthy rating levels.

Sure. Hi. I'll take the investment question. Yes, we would expect pretty consistent returns. It obviously depends the shape of the yield curve, given where rates are now, we would have expected the Fed to cut rates, but that's obviously in question.

Given the Trump administration with tariffs and inflationary pressure. So we see less cuts So we expect to earn a pretty consistent book yield. Our book yield now is 4.8%. So we expect that to our with the short duration, it will should stay pretty consistent. And then we'll probably hold a little bit less cash than we have this year, just given we expect rates to come down a little bit. They've come down 100 basis points in the last part of the year. So we would expect to put cash to use and get a pretty consistent return. Next year?

Great color. Thank you.

And your next question comes from the line of Joseph Tienz with Autonomous. Please go ahead.

Hi there. Perhaps maybe just a very simple question to start with. Can you just remind me what an EONID actually is? And is this particular EONID that you've disclosed today? Is that tied to any part of business? Theoretically, could it be used to cover something like Russian aviation claims? And linked to this, why have you bought this in now? You've went through the IFRS 17 process over a year ago. Why was this [indiscernible] into the picture now. And looking beyond sorry, into my second question now. Looking beyond sort of 2025 maybe, What is the assumed range of global insured losses to hit your combined ratio target? It's fair to say that maybe at the lower end, like in 2023, it was about €120,000,000,000 And if look at sort of €145,000,000,000 €150,000,000,000 at the higher end like we saw 2024, is that sort of the range that you're kind of guiding to? It's just that based off your mid teens guidance, on the ROE, we're looking at something like a mid-90s combined ratio. For answering my questions.

Okay, Joe. I'll take the Enid question. So ENIDs are events not in data. So basically unknown unknowns. And they're an actuarial concept that included in IFRS 17 and Formulency two.

They're not related to any specific events that have happened and they apply across the book. So you wouldn't use them for [indiscernible] They will run off over time in line with the underlying reserves that roll off. Second part of your question on the timing. It's really IFRS 17 is a new standard. It's incredibly complicated, as I think you're aware. Best practice, market practice will evolve over time. And what we have done is just, taken your practice with respect to the Enerd provisions.

So hopefully, that's helpful. On question one.

Sorry, if I could quickly jump in there. On question one, so just to make it clear, you couldn't use this EBIT for something that's already been reserved for. It's something that's sort of come out of the if there's something coming out out of the blue that you haven't reserved for, so to speak, [indiscernible] yes, it is basically an unknown unknown. So it's not something that you know about No.

It's something that I'm making in your numbers, you're not aware of it.

Sorry to maybe labor on the point, but can you give just like a really basic example when you might use it then? I'm just trying to think theoretically how this might be used.

From an actuarial perspective, the way that it's calculated is it's kind of a severe event but a very low frequency, which is why it's not in your data. Or in anyone's data. So probably like the best historical example, which obviously does not apply to Lancashire, is if you think about the asbestos claims, a few years ago where people had written that type of business. They were covering asbestos claims, but no one was aware that they were out there. That's a reasonably good example. Of what an image is like.

More on the man made side?

It's more on the man made side and the nat cat side. Probably. [indiscernible] theoretical event that may have hypothetical that may have some point emerge as Natalie Surgin has script, we would expect to be releasing this over time. [indiscernible] Fritz, it wouldn't really be in that cat event because you would have known that would have happened.

Yes.

Exactly. There's very few Nat Cat events that can happen and you're not aware of them.

Thanks for indulging me on that. It's just useful to understand it.

Hi, Jay. On your second question, Re, read the cats. It's an incredibly difficult Question to answer because you can have $150,000,000,000 come to market in many different ways. You could have it in one single loss, which has a much different impact to people's portfolios than $350,000,000,000 or a run of $20,000,000,000 losses And obviously, it turns out your reinsurance is structured, how much then comes into the reinsurance market given attachment point movements in prior years. So it's I know I'm not answering your question particularly well, but it's an incredibly difficult to answer. But what you can do, obviously, is which we we've already done, [indiscernible] take a year of lower cat activity, And clearly, that has a beneficial impact on our combined ratio. There was a larger cat activity last year combined ratio moves albeit as we said earlier, profitability broadly stable in dollar terms which is exactly what we've been trying to build. If you think about the scenarios we've given in in guidance and you're talking about a more extreme scenario than either of either of those two because we're taking four and then adding on what is already going to be a large cat event Q1.

So Hopefully, that gives you some color. I appreciate it doesn't completely answer your question, but it's it's an incredibly difficult one to answer.

Sure.

Your next question comes from the line of Duralt Go with RBC. Please go ahead.

Hey, afternoon, everyone.

First one is on your 25 ROE guide.

Now it is helpful that you mentioned it's basically a floor target.

But you're implying sort of $370,000,000 of large losses which is a very big number.

Does the mid teens floor Assume some sort of management actions as offset or do you think that's [indiscernible] hit that mute. Mid teens and what might the positive offsets be? Is it PYD? Is it fees? Is it profit permission? And then secondly, this [indiscernible] in Q4 is it a one off or could you plan to grow this with the business over time? And is it possible to maybe quantify the overall stock of INR that you had at year end 2024? And then lastly, in terms of your reserve releases, How should we think about that? Maybe in absolute or relative terms, And historically, you spoke about the casualty drag of about five points. Will that such one win in 2025 already or not?

So I think on your first question, that was my understanding of that is the mid teens ROE guidance we've given does that assume any management actions on top of the large cat events? No, we haven't assumed any unusual management actions with that.

We've just given you 2024 as being the most recent year of performance and overlay the California wildfire loss onto that. [indiscernible] And then you can scale that up or down as you see appropriate for what you think of normalized loss year would be.

On the EBIT, the amount that we put up this year was really a one off adjustment to the IFRS 17 So I wouldn't expect the same quantum of adjustment on that going forward. And that will flex in line with the underlying reserves. [indiscernible] So if our reserves go up, there'll be a really small E and A impacts when we make reserve releases in the future, you would expect the ENID to also roll off in line with future reserve releases.

And on releases going forward, I think as we've said many, many times, we've got quite lumpy business. It's very hard to predict year on year.

What reserve releases will be. I think a reasonable assumption would be maybe sort of last five year average and use that kind of number We are still reserving casualty very conservatively, and we're not assuming any releases from that the next few years.

And your next question comes from the line of Emmanuel Museo with Citi.

Please go ahead.

Hello. Hi. Thanks for taking questions.

Just a clarification on the actually two questions.

The first one is a clarification on the unit. I understand that this is purely conservative. I did It does not relate to any specific event or accident here. It is in essence a forward looking approach rather than backward looking. And as such, it does not affect PYDs, although it throws off in line with reserve releases. And I under but but you gave us large losses and PYD for 2024 and twenty twenty twenty twenty three. So using these numbers, I calculated the additional loss ratio in appears that it's gone up by about two percentage points Can this be due to the INIT provision? And then the second question is on out order reinsurance. Is this year structure similar to 2024? And also looking at 2024, how much of the limit has been used up? Thank you.

Okay. Hi, Emmanueli. I'll take the first question.

You're right. They are a large specific event. And they're not in our prior year development numbers. But you're completely right that they will roll off over time with future prior year development.

And also on the underlying attritional losses, again, you're correct. The actual underlying performance of the business is completely consistent with 2023, and that additional 2% you've calculated is purely related to those EINID provisions.

Hand over to Paul for the RI question.

Hi.

So in simple terms, the structure is very similar to last year. We were able to get benefit of obviously some softening of rate. So we took took that benefit. We were also able to expand coverage for certain [indiscernible] Which was helpful. In terms of the limit obviously, the wildfires erode an element of limit in our reinsurance program but we have plenty of limit remaining available for the rest of the year.

And your next question comes from the line of Nick Jensen with Deutsche Nomis. Please go ahead.

Hi. Afternoon, everyone.

Just looking at the net insurance ratio numbers, whereby [indiscernible] number four reinsurance is about 10% better than group.

And the number for insurance is about 10% worse than the group number. If we apply the same logic the undiscounted group combined ratio of 89%, That might imply that the undiscounted combined for the Insurance segment is close to 100%. Just wondered if first of all, is that logic broadly correct? Because the 100% feels quite high given the strong pricing environment second question is really, is it where you expect it to be at this stage? And I guess it might relate to where the catastrophe losses sit segmentally, but I would assume would have assumed most of the catastrophe losses are in the reinsurance segment. So just a bit of color around insurance ratios, please, insurance segment ratios?

Nick, hi. It's Janel.

If you'll remember, insurance will also have in it the Baltimore Bridge loss.

For last year.

And we're just checking the numbers in [indiscernible] But I think the first thing to remember is that you do have Baltimore Bridge in the insurance number as well. So it's not a clean number as such. Without any losses affecting it. But let me come back to you on the detail of the call.

Okay.

Thanks. And then just to be also to be helpful to have a bit of color on the delta between the insurance ratio of 69% for insurance last year and 82% for this year. As you say, maybe that's all possible bridge, but a bit of color would be helpful when you come back.

The insurance ratio also includes the property direct business.

Which would have been impacted by Helen and Milton as well. [indiscernible] Okay. I guess that's useful. Thanks very much.

And your next question comes from the line of Faizan Lakhani with HSBC. [indiscernible] Hi there. Thanks for your questions. Just two follow ups. One was on the guidance. Just wanted to clarify when you said that you have allowed for twenty twenty four losses plus LA wildfires within your mid teen RE. Just to confirm, is this assuming that you had a full year of twenty twenty four losses or have you allowed for some of your large loss budget from Q1 within that guide And the second one, could you just remind us how you sit relative to your binding solvency? Hi, Faisal. It's Natalie.

That guidance number assumes the same losses as 2024 for the rest of the year.

So we've not taken any benefit from large loss loads or cat loads in Q1.

And then Your second question on capital, As you can see, we're very, very adequately capitalized.

Even with the California wildfire loss that only has a 20% impact on the ratio, and that's not assuming any profits. Either. So we're more than adequately capitalized, as we've said, to grow for the remaining part of the year.

Okay. Thank you.

And your next question comes from the line of Daniel Wilson with Morgan Stanley. Please go ahead.

Hi, good morning. Thank you for taking my question. Just one clarification again on the guidance.

You guys have said that you're guiding for a mid teens ROE, including twenty twenty four losses and the LA wildfires. I just want to double check that twenty twenty four losses is that accounting for the reinsurance structure or is that just adding up the €240,000,000 you took this year?

To the $160.65 for the wildfire losses. I just want to double check that.

Yes, that's correct. Yes. Just adding up.

Okay.

Great.

And we only have one time for your question. We Abid Hussain, Panuire Labrum. Please go ahead.

Hello, hi there. Can you hear me? [indiscernible] just one question from me. Apologies if it's a repeat. I didn't catch the early part. I got cut off. It's just on the Q1 large losses, the wildfire loss. I'm just trying to work out where most of those losses sat in terms of by product? Was it sort of across the quota share or excess of loss? And I'm really just trying to get a feel for to why the loss was sort of closer to one in 100 PML for you? So just any color around that, please?

So I will take that question.

The vast majority of loss for us is coming through our reinsurance lines.

Predominantly write in excess of loss portfolio.

So again, that's where the majority of it will come from. There are elements of direct property scratches in other lines of business, but a small proportion of the overall. And then we do ironing with retro portfolio and we had entered anticipate some losses there. So predominantly the reinsurance line the majority of which are excess of loss.

I think when you think about this coming on to the second part of your question, if you think about losses like this, What and we've spoken about this many times over the last couple of years since the cat reinsurance market reset in 2023, The product has moved from protecting earnings to protecting balance sheets. So when you have events like this where you see seedants that specialize in the products, not only exhausting their layers of reinsurance, but going beyond their layers of reinsurance, it clearly signifies that this is a tail event.

So that is when you would expect the reinsurance market to respond as it is doing. So this is definitely a tail event for the type of peril it is as demonstrated by a number of a large number of clients using vast proportions or more than the reinsurance limit that they buy So I don't think it should be a huge surprise for [indiscernible] for people that write a catastrophe reinsurance portfolio that this would be a significant loss event.

I guess quickly follow-up. How quickly do you think the pricing might react to this? Are you going to see it in the mid year renewals or even before that, do you see it in the Japanese renewals? So I think as I I said in my kind of commentary at the start, our current view is that we anticipate The U. S. Kind of base property cat risks to move closer to flat. Obviously, if they're loss impacted, that will be different. There'll be rate increases. Territories outside The U. S, we would anticipate marginal softening and but being less than we would have originally expected, So overall rating on that portfolio will improve versus our original expectations. I wouldn't define it as a severe hardening or anything of that nature. In terms of Japan specifically, we are in the midst of those renewals at the moment. So So we've probably only got a couple of firm orders and are still pricing other parts of the portfolio. But I would I would categorize it as in line with what I've just said. Probably slightly less softening than we would have seen but I would still anticipate there to be marginal rate softening for most Japanese clients at 1.4.

We're going to take one more follow-up with Joseph Tienz with Autonomous. Please go ahead.

Hi there. I just want to ask quickly on the how much benefit you got [indiscernible] Softening again this year. In 2024, we saw you guys take increase the net exposure that you had can we expect a similar level in 2025? 2024? I think you mentioned sort of a three point increase in the net levels. So that's my first question. And this second question, thinking about the growth of The U. S. E And S business, If I sort of is comparing it to the casualty business in 2020 to say 2022, is that a good benchmark or would it grow sort of materially slower? I'm just trying to think of maybe how to base the growth in this business in the coming year or years? Thank you very much.

So I'll take the first question. Yes, we we did on the non marine retro, we did benefit from the market softening, so we're able to take efficiencies there. In spend, and that will flow through I think at a high level, if you think about we're still looking to grow the business, I would anticipate a macro level reinsurance spend as a percentage of inwards to be marginally down on last year. We still have a number of treaties to renew during the course of the year because we extended a couple from from oneone. So we don't have as much line of sight as we normally do. At this time of year. But that hopefully gives you a good guide And apologies, I missed your second question.

Sure. It was about [indiscernible] Yes. I think I don't think you can compare what we've done in casualty reinsurance at all to the U. Different Product Lines. So I Wouldn't Use That As A Good What We're Going To Do In The U. S. And also The U. S. Growth will all be driven as well by our only happen won't give any individual numbers for that. You At this time, But yes, you shouldn't compare it to what we've done in Casualty Sorry, do you mind just repeating the middle part of your response because you cut out a little bit there. Sorry for that. I don't know if it's on my end or yours. So I'll just I'll just answer the question again. So look, I don't think you can compare it at all to what we've done in in reinsurance. It's a completely different product line.

Underwritten in a different a different most virtually all the business we're going to write in The U. S. Will be insurance So it will take longer to build out.

There will also be driven by our ability to hire new team throughout 2025.

And then lastly, infancy, we won't give any individual numbers for The U. S. Operation. And equally, even from an internal point of view, No, no, no, that Lancashire gets paid on product line or geography either.

So we'll build it out very much in the same fashion We have built out some of our London lines There'll be no difference there. At this point, we shouldn't compare it to our [indiscernible] [indiscernible] Thanks for answering my follow ups.

Thank you. And that concludes our question and answer session for today. I would like to turn it back to Alex Maloney for closing comments.

Thank you for your questions today, and we'll close the call now.

Thank you. And this now concludes our presentation. Thank you all for attending. You may now disconnect.

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