Juan Carlos Andrade
President, Chief Executive Officer & Director at Everest Re Group
Thank you, Matt, and welcome to Everest. We're excited to have you on board. And good morning, everyone. Thank you for joining us today. Everest delivered strong results in the second quarter with positive momentum across our key objectives. We expanded margins in both of our underwriting businesses, and our insurance segment delivered another standout performance. We further scale our platform with strong overall and underlying results, continuing the positive trajectory for this business. In reinsurance, we seized opportunities to improve the diversification and profitability of our book, while reducing volatility. In a complex environment, Everest's global talent, disciplined underwriting and market leadership provide strength and stability to our customers. Our relevance and impact have never been more important. Improvements in underwriting profitability and operational efficiency, supported by our investment portfolio, delivered $386 million in net operating income and a 15.3% annualized operating ROE. We achieved these results through consistent and relentless execution of the strategy that was articulated at our Investor Day last June. Our strategy is to profitably scale our insurance platform and capitalize on our reinsurance leadership position to continue building a broadly diversified and consistently profitable company that provides leading returns in the sector. Our results quarter after quarter demonstrate we're accomplishing what we set out to do. Operational excellence is also a core component of our strategy. Efficiencies resulting from investments in our systems and technology make us more resilient, so we can respond nimbly to changing market conditions and cease emerging opportunities. Coupled with our ability to attract and retain great talent, this gives Everest a competitive advantage. This is increasingly important against the backdrop of macro volatility, achieving ambitious growth in profit today requires companies to operate with both the strong offense and defense. Our second quarter financial results demonstrates ever stability to strategically do both in a complex environment. I'll share some highlights now, first from the group and then for each of the underwriting businesses.
Second quarter results for the group were strong and underscore the earnings power of our company. We grew gross written premiums by just over 10% in constant dollars. The growth was broadly diversified in both divisions and is supported by continued momentum in insurance as well as underlying margin improvement in both businesses. We continue to benefit from positive rate, exposure growth and deliberate portfolio management actions, keeping us ahead of loss trend. The combined ratio for the group is 91.8% and includes $85 million of weather-related natural catastrophe losses, primarily in South Africa, Canada, Europe and the United States. Overall, our catastrophe losses for the second quarter and year-to-date remained well below our cat loss ratio target for the year, despite an estimated $39 billion of insured industry losses in the first half of 2022. According to Aon, this level of natural catastrophe activity is 18% above the average for the 21st century. We also recognized a $45 million IBNR accrual for the Russia-Ukraine war. We have limited direct exposure to the Ukraine and expect any potential losses to be a manageable earnings event. Mark will provide additional details in a moment. The group attritional combined ratio was 87.2%, a 40 basis point improvement from the prior year. This includes a 1.9 point year-over-year improvement in insurance. The group attritional loss ratio also remained strong in the quarter at 59.8%, with continued improvement in both segments. The $240 million in underwriting profit for the quarter is a direct result of continuous portfolio management. Net investment income for the group was $226 million, balanced between fixed income and alternative investments. Now turning to our reinsurance business. Reinsurance gross written premiums were up in the second quarter by over 5% in constant dollars. Our growth is broadly diversified, which allows us to target higher margin opportunities in each region and line of business. We are not reliant on one market or one product to drive our growth and profitability. For example, second quarter growth is driven by our international operations, particularly our casualty book, where we're focused on key seasons for achieving strong underlying profit improvement and results ahead of loss trend. We also grew our global facultative business and our mortgage reinsurance business, where there has been a significant pickup in deal flow. This growth is partially offset by a reduction in property pro rata as we continue to optimize that portfolio. I talked about the advantage of flexibility.
This is where our ability to manage market dynamics makes a meaningful difference in the quality of our portfolio. The reinsurance attritional combined ratio was 86%, including an attritional loss ratio improvement of 30 basis points year-over-year to 58.8%. This contributed to a strong underwriting profit of $175 million, supported by successful midyear renewals. With respect to these renewals, market conditions have steadily improved over the course of 2022. We are seeing improved economics for property cat. Everest's position as a preferred market has allowed us to reposition our participation in key programs, further away from frequency losses and achieve better expected profit or reduced cat exposure. Our underwriting teams deploy capacity with discipline. Casualty market remained stable with some tightening of terms driven by market concerns over social inflation and emerging risks. The market is showing signs of discipline, especially in pro rata, where cedes appear to be stabilizing. Our underwriting teams are data-driven, carefully tracking and analyzing trends to ensure we manage the underwriting cycle. In summary, we are positioned to capitalize on opportunities as we maintain our strong underwriting discipline. We are well placed going into the January renewal, and we expect further improvements in the market. Now for our insurance results. During the quarter, we continued to deliver on our strategic objectives, generating record underwriting profit and continued growth, while investing in our talent, technology and analytics. We achieved strong gross written premium of $1.2 billion, a quarterly record for our insurance division, up over 20% in constant dollars. This growth was broad and diversified across our target product lines, channels and regions. We had strong growth in our U.S. casualty, specialty lines and in our international business. We also continue to see significant opportunity in the E&S space where we are well positioned. Growth was driven by several factors, increases in underlying exposures across many lines of business, including general liability, property and workers' compensation, strong renewal retention and positive rate in excess of loss trend across the portfolio. In the quarter, we achieved a rate increase of 7.3%, excluding workers' compensation, and a total of 6% with high single-digit increases in property, professional lines, umbrella and commercial auto. These rates remain well above pre-pandemic levels. It's also important to note that in addition to renewal rate change, there are other levers we deploy to ensure that margins continue to expand, such as coverage terms and conditions, limits management and attachment points, risk selection, new business pricing, which continues to be higher than renewal pricing, and the benefit of additional premium from inflation-sensitive exposure basis.
Insurance growth was partially offset by continued portfolio management, including our reductions in U.S. property catastrophe, where we achieved an approximately 36% reduction in our gross one in 100 U.S. Southeast Wind PML over the last 12 months. In addition to robust growth, insurance continued its strong profitability trend. We achieved a record low attritional combined ratio of 90.2%, approximately two points lower than second quarter 2021 and with a 1.5 point improvement in the attritional loss ratio. These results are aligned with our financial targets and build on our continually improving attritional combined ratio trajectory since the end of 2019, where we have gained over six points of underlying margin expansion in the combined ratio. This is a direct result of the consistent and cumulative actions I just spoke about. These improvements resulted in $66 million in underwriting profit, the second best quarterly profit in our insurance division's history. We also made solid progress in the quarter with important milestones that advance our international expansion strategy. Everest insurance received regulatory approvals to operate in Singapore and Chile, where we are officially open for business. Asia and Latin America are both significant opportunities. We are well positioned with the talent, customer-first platform and proven track record to cease this opportunity in new markets. I have personally witnessed the excellent reception of our presence by local brokers. We will continue to bridge gaps in regions around the world, where we are uniquely positioned to serve clients and brokers with our strong balance sheet and broad suite of insurance products and capabilities. Our leadership team is driving the strategy forward and Everest continues to be a net acquirer of talent. During the quarter and since the beginning of the year, we welcomed a significant number of new colleagues, all of whom are accretive to our organization and inclusive culture. From underwriting to pricing and claims, we are innovating across the entire organization to deliver a world-class experience and value to our stakeholders. Our second quarter results demonstrate that Everest is nimble and strategic, diversified and well positioned to perform in any environment. We entered the second half of the year with momentum. We are leveraging our talent and the full breadth of our enterprise to strengthen every area of the business and bring our partnership to more people and businesses around the globe. Now I will turn the call over to Mark to take us through the financials. Mark?
