Verisk Analytics Q3 2023 Earnings Call Transcript

Participants

Corporate Executives

• Stacey Brodbar, Head of Investor Relations
• Lee M. Shavel, President and Chief Executive Officer
• Elizabeth Mann, Chief Financial Officer
• Neil Spector, President, Underwriting Solutions
• Maroun S. Mourad, President, Claims Solutions

Analysts

• George Tong, The Goldman Sachs Group, Inc.
• Manav Patnaik, Barclays Capital
• Alex Kramm, UBS Group AG
• Greg Peters, Raymond James
• Andrew Jeffrey, Truist Securities
• Jeff Meuler, Robert W. Baird
• Toni Kaplan, Morgan Stanley
• Andrew Steinerman, J.P. Morgan
• Jeff Silber, BMO Capital Markets
• Andrew Nicholas, William Blair
• Heather Balsky, Bank of America Co.
• Seth Weber, Wells Fargo Securities
• Surinder Thind, Jefferies Financial Group Inc.
• Ashish Sabadra, RBC
• Russell Quelch, Redburn Partners

Presentation

[Operator]

Good day, everyone, and welcome to the Verisk Third Quarter 2023 Earnings Result Conference Call. This call is being recorded. [Operator Instructions]

For opening remarks and introductions, I would like to turn the call over to Verisk's Head of Investor Relations, Ms. Stacey Brodbar. Ms. Brodbar, please go ahead.

[Stacey Brodbar, Head of Investor Relations at Verisk Analytics]

Thank you, Cheryl, and good day, everyone. We appreciate you joining us today for a discussion of our third quarter 2023 financial results. On the call today are Lee Shavel, Verisk's President and Chief Executive Officer; and Elizabeth Mann, Chief Financial Officer.

The earnings release referenced on this call as well as our traditional quarterly earnings presentation and the associated 10-Q can be found in the Investors section of our website verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC. A replay of this call will be available for 30 days on our website and by dial-in.

As set forth in more detail in today's earnings release, I will remind everyone today's call may include forward-looking statements about Verisk's future performance, including those related to our financial guidance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is contained in our recent SEC filings.

Finally, I'd also like to remind everyone that the financial results for recent dispositions are included in our consolidated and GAAP results, but are excluded from all organic constant currency growth figures. A reconciliation of reported and historic non-GAAP financial measures discussed on this call is provided in our 8-K and today's earnings presentation posted on the Investors section of our website verisk.com. However, we are not able to provide a reconciliation of projected adjusted EBITDA and adjusted EBITDA margin to the most directly comparable expected GAAP results because of the unreasonably high effort and unpredictability of estimating certain items that are excluded from projected non-GAAP adjusted EBITDA and adjusted EBITDA margin, including for example tax consequences, acquisition-related costs, gains and loss from dispositions and other nonrecurring expenses, the effect of which may be significant.

And now I'd like to turn the call over to Lee Shavel.

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Good morning, and thank you for participating in our third quarter earnings call. I am pleased to be here today to update you on the progress our team at Verisk is making on driving strategy and translating it into strong growth and value creation for our clients and shareholders alike. Elizabeth will provide the financial detail, but in summary, we delivered another strong quarter of results marked by solid organic revenue growth across most of our businesses, healthy margin expansion and double-digit profit growth. We have confidence in our ability to deliver on both our 2023 guidance and the longer-term objectives we communicated back in March at Investor Day.

The industry environment within which we are operating is marked by some deep challenges. Insurance carriers are dealing with the cross currents of inflation and higher losses, which are both negatively impacting industry profitability. In fact, AM Best data for the first six months of 2023 points to a $24.5 billion net underwriting loss for the U.S. property and casualty insurance industry, running well ahead of the pace of the full year 2022, which experienced net underwriting losses of $26.9 billion. AM Best notes that personal lines specifically homeowners is the primary driver of these declines.

In reaction to this backdrop, carriers are exiting markets in key catastrophe prone states dropping certain lines of unprofitable business and laying off portions of their workforce. Carriers are also raising rates to attempt to cover rising inflation and losses driving net written premium growth up 9.7% for the first six months of 2023. In response to this environment, Verisk is partnering closely with our clients to address their most pressing concerns, including high value solutions that can deliver high return on investment for our clients and we are including our clients earlier in the innovation process to ensure we are delivering the right solutions with simple implementations, improving the success rate and pace of uptake of new solutions.

One of the key tenets of our strategy is to elevate the strategic dialogue with our clients and to become their trusted data and analytic and technology partner. During the third quarter, we engaged with clients on several occasions and at a variety of venues, including the Verisk Insurance Conference in London. This year, we've combined several Verisk events to make it easier for clients to explore the many ways we can add value and increase the efficiency of their operations. In London, for example, we combined events focused on underwriting, claims, specialty Insurance and extreme event modeling into a singular client-centric experience featuring Verisk solutions.

I delivered one of two keynote presentations and the entire Verisk Senior Operating Committee was in attendance demonstrating our commitment to our customers at all levels. Our solutions gallery featured Verisk solutions as well as the solutions of our ecosystem partners and we held 35 concurrent educational sessions. We wrapped-up with a CEO dinner with attendees that represented carriers, brokers and managing general agents at a group discussion around common challenges faced by the entire insurance value chain.

Enterprise-wide risk management is top of mind for many in London as our clients are managing extremely large and complex portfolios of risk spanning multiple classes of business and insurance markets all over the world. To address this pressing need, we recently introduced Enterprise Exposure Manager. This solution is a joint development effort between specialty business solutions and extreme events to bring to the market a cloud native and scalable solution that enables insurers and reinsurers to make more informed business decisions by offering a comprehensive view of risks that exist across large property portfolios.

As we engage with our customers at these events in the many one on one meetings we have hosted throughout the year, there were a few consistent themes that we hear in these conversations. First is digital transformation, which represents a massive opportunity for the global insurance market. Our clients aspire to modernize their platforms, improve systems integrations, lower expenses and improve operational efficiency and we are partnering with them on this journey. Verisk is introducing solutions to drive operational efficiency for some of their most people and paper intensive processes. For example, within our casualty business, we recently launched Discovery Navigator and are seeing solid early success.

Discovery Navigator combines artificial intelligence and machine learning, Verisk's contributory data and years of clinical and legal expertise to immediately identify and extract key medical data points from unstructured records, which are part of bodily injury claims. Depending on the complexity of the case, the number of medical pages involved in a bodily injury claim can range from hundreds to thousands. Verisk has automated the organization, review and summary of these complex unstructured documents allowing insurers to adjust, negotiate and settle more claims in less time.

Discovery Navigator easily integrates into our customers' workflows through API or online options and delivers up to a 90% time savings and 95% accuracy for an average 10 times ROI for clients. Additionally, Discovery Navigator is a widely versatile tool that is driving innovation and can be used in combination with other Verisk solutions like Liability Navigator delivering workflow automation, decision support and overall efficiency for clients. The need for deeper data insights is also something we hear regularly from customers.

Inflation trends during the past year have underscored the need for accurate, up-to-date and granular data insights to inform underwriting, risk management, reinsurance and claims decisions. No company is better positioned to meet this need than Verisk with our comprehensive and proprietary data assets. For example, our Verisk property estimating solutions are designed to meet these challenges head on with a comprehensive set of tools based on timely proprietary data enabling our customers to write the most accurate estimates possible on their first attempt. This reduces the risk of over and under payments while improving cycle times.

Key to this process is exact expert, our recently introduced rules engine that assists estimators in avoiding unwarranted costs in their estimates. We also enable our customers' quality assurance teams that evaluate the data from the entire process ensuring that the claim payment will be correct the first time. Finally, generative AI remains a frequent topic with clients, both its transformative potential and the risk that it brings. We believe gen AI can deliver efficiency within Verisk and in client facing solutions, starting first in our underwriting and light businesses where we are actively exploring new product development as well as enhancements to existing solutions.

We are increasing our investment and leaning into generative AI as our clients recognize that by partnering with Verisk, they can invest in this -- we can invest in this advanced technology on behalf of the industry more efficiently than any one customer can do on their own. We also intend to do so while maintaining our focus on fairness and value-centric governance. On the theme of investment, I want to provide a progress report and update on our core lines reimagine project. We were about one-third of the way complete in what is likely a five year journey to modernize our forms, rules and loss costs and related solutions.

We've made progress modernizing our internal processes like our ratemaking operation to enable and efficiently scale innovations in current and new solutions. We are expanding our industry-leading contributory database by adding new data contributors and by increasing the quality of our collective data and we are working on enhancing the recency of our data in our analytics. On the customer facing side, we are in market with new proprietary analytics and workflow tools. For example, we have launched executive and client insight reports designed for the senior leadership of our clients across two of the largest lines of insurance, namely homeowners and business owners with plans to expand into other large lines over time.

Just this month, we also launched our legislative monitoring application in the new platform for select clients. This new cloud native application transforms what was previously a document based paper trail for tracking thousands of insurance-related legal, regulatory and legislative developments into a data driven modern digital monitoring and efficiency tool with an improved customer interface. Legislative monitoring is the first of a series of new features that will be launched over the next several years on the platform.

Overall, customer feedback on the reimagined project has been quite positive, including on the custom analytics and legislative monitoring application I mentioned before and there is excitement for future advances within core lines. This excitement is driving more constructive value-driven conversations with our clients as we partner with them along their digital transformation journey. We are making these investments to deliver increased value for our clients through enhanced underwriting accuracy and efficiency.

With that, I'll hand it over to Elizabeth to review our financial results.

[Elizabeth Mann, Chief Financial Officer at Verisk Analytics]

Thanks, Lee, and good day to everyone on the call. I am pleased to share that Verisk delivered strong third quarter financial results. On a consolidated and GAAP basis, revenue was $678 million, up 11% versus the prior year and income from continuing operations was $187 million, up 13% versus the prior year reflecting strong growth across both underwriting and claims. Diluted GAAP earnings per share from continuing operations were $1.29, up 23% versus the prior year. This quarter's reported results included a $19 million litigation reserve expense associated with an indemnification for an ongoing inquiry related to our former financial services segment, which was sold in April 2022.

Moving to our organic constant currency results adjusted for non-operating items as defined in the non-GAAP financial measures section of our press release. Our operating results demonstrated strong and broad-based growth from most of our businesses aided by some in-period transactional benefits. In the third quarter, OCC revenues grew 9.4% with growth of 8.3% in underwriting and 12.2% in claims. Our subscription revenues which comprised 80% of our total revenue in the quarter grew 9.3% on an OCC basis with growth in almost all our subscription-based solutions.

More specifically on the drivers of growth in subscription revenues, during the quarter, we experienced a continued benefit on certain of our revenues from the stronger net premium growth in 2021, which is currently reflected in some of our contract pricing as well as the lower level of attrition and consolidation across the industry. Within property estimating solutions, our efforts to expand the ecosystem and drive new innovations like exact experts are paying dividends through higher levels of customer retention for our contractor customers.

In anti-fraud, we saw underlying strength in the business with growth augmented by the continued benefit from the conversion to subscription from previously transactional customers through our claims essentials bundle. And finally, within extreme events solutions, we are benefiting from strong renewals and new customer wins. Our transactional revenues representing 20% of total revenue in the third quarter grew 10.2% on an OCC basis. The largest contributor to growth was again from our auto solutions, driven by better than expected shopping activity by consumers and the continued benefit from a large non-rate action deal with a national insurer that we previously communicated.

Our trends track consistently with the recent JD Power data, which pointed to a 12% increase in shopping activity for auto insurance in the third quarter as customers continue to respond to rate increases. That said, we will begin to anniversary the elevated shopping activity in the fourth quarter, so we are expecting that growth to moderate. In addition to gains in auto, our transactional revenue growth also benefited from double-digit growth from life insurance solutions as we are seeing strong customer demand for incremental services.

And within our property estimating solutions business, we saw strong transactional growth generated by our expanded set of distribution partners within our ecosystem and from elevated weather events, although not to the level of a large scale catastrophe. In fact, according to Verisk's PCS data, the third quarter of 2023 had 73 days out of 92 that included a PCS event in the U.S. and 2023 is on track to become a new high for catastrophe frequency likely to bypass 2021, which was the highest year on record to date.

Moving now to our adjusted EBITDA results. OCC adjusted EBITDA growth was 11.8% in the third quarter, while total adjusted EBITDA margin which includes both organic and inorganic results was 54%, up 70 basis points from the reported results in the prior year. This margin rate reflects core operating leverage from the strong revenue growth and cost discipline across the organization. As we've said in the past, the margin rate in any given quarter can be influenced by revenue mix and timing of spending. So we think it's best to look at our margins on a trailing 12 month basis, which in the third quarter were 53.3%, up 150 basis points over last year's level.

Continuing down the income statement, net interest expense was $29 million for the third quarter compared to $34 million in the prior year. The current level of net interest expense reflects lower year-over-year debt balances as we paid down our revolving credit facility as well as higher interest on cash balances. Our reported effective tax rate was 25% compared to 24.2% in the prior year quarter. The year-over-year change in the tax rate is related to the $19 million litigation reserve expense that we mentioned earlier, partially offset by higher stock compensation benefits in this quarter versus the prior year's period. Going forward, we expect the tax rate for the full year 2023 to be near the high end of the originally guided range of 23% to 25%.

Adjusted net income increased 17% to $221 million and diluted adjusted EPS increased 27% to $1.52 for the third quarter 2023. These changes reflect organic growth in the business, contributions from acquisitions and a lower average share count. The share count reflects the impact of our $2.5 billion accelerated share repurchase plan that we entered into in March as well as an additional $50 million worth of share repurchase that we completed in the third quarter. Regarding the share count, you can see that while our weighted average diluted shares outstanding declined 7.7% year-over-year, it was essentially flat sequentially.

From a cash flow perspective, on a reported basis, net cash from operating activities decreased 11% to $250 million, while free cash declined 9% to $196 million. The decline in both cash flow metrics is a function of the fact that prior year cash flow metrics include the results from previously divested businesses as well as the favorable cash tax impact in the prior year from the sale of our environmental, health and safety business. Adjusted for these items, both cash flow metrics increased year-over-year during the third quarter.

We are very pleased with robust year-to-date performance. Our guidance for 2023 remains unchanged. We now expect revenue to be towards the high end of our range of $2.63 billion to $2.66 billion. Adjusted EBITDA is still expected to be between $1.39 billion to $1.43 billion, adjusted EBITDA margin in the 53% to 54% range and adjusted EPS in the range of $5.50 to $5.70. A complete listing of all guidance measures can be found in the earnings slide deck, which has been posted to the Investors section of our website verisk.com. We do want to remind you that the fourth quarter of 2022 included $6 million in revenue associated with Hurricane Ian as well as the tax benefit associated with the divestiture of Wood MacKenzie.

And now I will turn the call-back over to Lee for some closing comments.

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Thanks, Elizabeth. In summary, we are excited about our business momentum and the opportunity ahead. Our motivating purpose is to partner with our clients in building resilience for individuals, communities and businesses globally. The combination of our focused business model, deep customer relationships and strategy to deliver value for clients through improved decision-making and operational efficiency is the formula that will also deliver value to our shareholders through growth and returns. We continue to appreciate the support and interest in Verisk. Given the large number of analysts we have covering us, we ask that you limit yourself to one question.

With that, I'll ask the operator to open the line for questions..

Questions and Answers

[Operator]

[Operator Instructions] Your first question comes from the line of George Tong with Goldman Sachs. Your line is now open. Please go ahead.

[George Tong, Analyst at The Goldman Sachs Group]

Hi. Thanks. Can you talk a little bit about what you're seeing with insurance marketing budgets, especially in the current rate and inflation environment and if you're seeing any sort of a pullback from insurance carriers?

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Yeah, thank you, George. I appreciate the question. So the short answer is yes. I think the dynamic that we're observing is that because of the loss environment and the frustrations that the insurer -- the carriers generally have had in getting rate increases to compensate them for the increased risk and the increased replacement costs driven by replacement. Right now, they are focused on achieving profitability off of their existing books and that has resulted in a lower level of advertising by the carriers as they are kind of working with their existing book. We have seen as Elizabeth described a lot of shopping activity, but that is consumer driven and is a response to the higher rates that almost everyone is experiencing right now. The consequences of that for us is that in our Verisk Marketing Solutions business, we have seen declines within that business because of lower overall advertising spend by the carriers as a function of this environment.

[George Tong, Analyst at The Goldman Sachs Group]

Got it. Very helpful. Thank you.

[Stacey Brodbar, Head of Investor Relations at Verisk Analytics]

Next question please.

[Operator]

Line of Manav Patnaik from Barclays Capital. Your line is now open.

[Manav Patnaik, Analyst at Barclays Capital]

Thank you. I guess, I'll just ask the question around the guidance that was maintained. I mean, this quarter came in I think above at least our expectations and probably yours. Correct me if I'm wrong there. But if the subscription growth stayed steady like it usually does, are you implying that the transaction piece could see some material declines? Just would love any help, but just trying to bridge that.

[Elizabeth Mann, Chief Financial Officer at Verisk Analytics]

Yes, thanks very much, Manav. On the guidance, we're very proud of our results year-to-date. We have given full year guidance in order to bring additional transparency and for folks to see how the business is going. We did update that mid-year after seeing significant shift in the environment, but our full year guidance does imply revenue growth of approximately 8% to 9% on a reported basis. That's above our long-term targets. As we look at the fourth quarter, no specific comments on the fourth quarter other than what I highlighted, which is to remind that the growth comparisons do get tougher in the fourth quarter due to the storm revenue and the tax benefit there.

[Operator]

Line of Alex Kramm with UBS. Your line is now open.

[Alex Kramm, Analyst at UBS Group]

Yes. Hey, good morning, everyone. Just Lee, you keep on talking about the strategic dialogue you have with customers at a higher level and it sounds like some of the stuff is resonating. I guess, I'm curious are you actually measuring success in any way yet or is this too early. I mean, should we be looking for larger, I don't know, outsourcing deals or maybe again specifically like any revenues that you're tracking that you can already talk about?

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Thank you, Alex. Happy to address that. I think we have seen a clear benefit in a variety of areas. So one at first is that engaging at that strategic dialogue and I probably have had over a dozen client CEO meetings. And one thing that we focus on in that is understanding their broader enterprise challenges within this environment and there's also a focus on what is Verisk doing for us and where are their areas that we are helping others that we can help them. And specifically in a number of those conversations, we've identified products -- existing products that we have that can be particularly helpful in this environment.

And I would say our -- what we have done to help carriers analyze their existing rate adequacy and where there may be opportunities to improve their rates in their auto book or in other parts of their business. And that's opened up some channels that before where our bottoms up approach may have run into an obstacle within the organization. But given the opportunity to describe the strategic benefit, the financial benefit, we're getting more top down support and I've seen that take place in a number of clients. So I think that's one.

The second is in understanding areas, emerging areas where they are facing either challenges or interest in new technologies, an opportunity to guide what we are doing in some of our projects like core lines reimagine, what we're doing in generative AI to tailor them to what we know has strategic resonance for those clients has been helpful. And so I think as we have been investing in a number of generative AI applications that has been specifically helped by getting insight and buy in from those levels.

I had one dinner with a CEO who said, look, Lee, we could spend tens of millions of dollars on generative AI and I'm not sure what we'll be able to generate out of it, but if you can develop a pilot and we can benefit from that, we would be happy to test that pilot as soon as you have it ready. And I think that's a great example of where we're able to substantiate that strategic dialogue and translate it into targeted product development at a faster rate than we would have before. I think those are certainly benefits that we'll hope to begin to deliver additional growth for us in 2024 supporting our core business.

[Operator]

Your next question comes from the line of Greg Peters with Raymond James. Your line is now open, Greg.

[Greg Peters, Analyst at Raymond James]

Great. Good morning, everyone. I will focus my question on Slide 6 of your investor deck where you breakout subscription and non-subscription growth. And I guess, I'm going to come at the non-subscription piece where you call out auto underwriting property estimating and life insurance. And clearly, you're doing really well this year, but were also dealing with some really unusual profitability challenges inside auto and property. Would you expect that the non-subscription organic growth rate would inversely correlate with sort of the underwriting cycle for your carrier partners or am I missing something?

[Elizabeth Mann, Chief Financial Officer at Verisk Analytics]

Well, let me -- thanks for the question, Greg. Let me take a crack at that. I think it's a little bit hard to draw that conclusion. The transactional revenue is a combination of a couple of different areas. We've highlighted the main ones that contributed to the growth. The auto underwriting, the shopping activity has driven that. The property estimating solutions has a transactional component related to weather activity and then life on the incremental services. So I'm not sure I would point it directly to an inverse correlation to the underwriting environment.

[Operator]

Your next question comes from Andrew Jeffrey with Truist Securities. Your line is now open, Andrew.

[Andrew Jeffrey, Analyst at Truist Securities]

Thank you. Good morning. Appreciate you taking the question. Elizabeth, could you give us an update on the state of two markets: one, Florida, just an update on liquidations and how that's impacting your outlook for the fourth quarter? And also California, I know there has been I think we referred to in your prepared remarks some disruption in especially homeowners underwriting in California and some challenges that carriers are facing raising rates. Just wondering if there are any updates in either of those areas as it pertains to the guidance in the -- maybe the longer-term outlook?

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Yeah, hey, Andrew, this is Lee. I know you've directed that to Elizabeth, but we have Neil Spector who runs our underwriting business for us and I think he has been closest to that. So let me give him an opportunity to give you a read from what we're seeing in those markets.

[Neil Spector, President, Underwriting Solutions at Verisk Analytics]

Sure. Thanks. Well, first, I'm sure you've seen the news that several large national carriers have kind of withdrawn writing new business in both those markets due to the challenges. However, in Florida, specifically, we haven't seen any additional liquidations and there has been no reduction in the ratings of the carriers that are there. So there's still availability in that market of carriers and you may have seen recently a press release we put out in the last quarter showing how citizens which is the state run insurer is leveraging some of our aerial imagery data to help with evaluation of properties in Florida. So that's really stable as far as between the last-time we reported and now.

California, there's certainly challenges both in the amount of time it takes to get rates approved and also in what tools you're allowed to use in Florida as far as pricing goes and those continue, although the regulators in California are seriously looking at the potential to use more tools in the future to help with challenges like wildfire.

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Yeah. And I would add to that, Andrew, I think that gives a great kind of current sense of where things are. Neil and I were in Washington, D.C. last week meeting with a number of the trade associations just to understand how we can be helpful to the industry from a data perspective. And one thing that was very clear is that the Florida and California are both very engaged with the industry to understand what steps could be taken to improve the health of those markets. I think they understand the risks and the challenges. They obviously face some political pressure, but we've been encouraged by their openness to discussing how they can improve the market dynamic for the carriers within each of those markets and that's an intense level of dialogue that could ameliorate some of kind of the early pressures that we saw.

[Operator]

Your next question comes from the line of Jeff Meuler with Baird. You may now go ahead.

[Jeff Meuler, Analyst at Robert W. Baird]

Yes, thanks. I imagine we're at the time of year where you starting to send invoices on '24 pricing. So can you just talk through how you're thinking about it relative to the historical context just given the cross currents of still elevated inflation, but maybe it's coming down the P&T insurance, industry profitability challenges. And then just not sure how things like core lines play into that pricing realization versus discrete upsell. Thank you.

[Elizabeth Mann, Chief Financial Officer at Verisk Analytics]

Yeah, thanks, Jeff, for the question. Obviously, we're looking at it. It's still early in the cycle. I mean, I am not in a position to quote any numbers or any thoughts on '24. The data on 2022 while it's still being finalized, it does show net written premium growth still in an elevated level around the 8 -- slightly north of 8% that has tapered from the 2021 growth, but still relatively high on a historical basis. I think Lee pointed to both that environment, but also the fact that it is a function of the challenges and the desire to move towards profitability that our carriers, our customers are seeing. And so we are balancing those two things as we go into the pricing cycle for next year.

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

And I think those are the two core elements, one, the impact of premium growth, which as we indicated remains strong as well as the value that we are creating, particularly in core lines where we've increased the number of datasets, we've increased the ability of our clients to utilize that data. And so we certainly look to capture the value that we're creating for our clients there and all of those factor into our pricing considerations.

[Operator]

Your next question comes from the line of Russell Quelch with Redburn. Your line is now open.

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Russell, are you there? We'll move to the next question.

[Operator]

Your next question comes from the line of Toni Kaplan with Morgan Stanley. You may now go ahead.

[Toni Kaplan, Analyst at Morgan Stanley]

Thank you. Lee, I was hoping you could talk about the M&A pipeline, any areas of particular interest, maybe technology just given you highlighted the digital transformation theme earlier. Just wanted to ask about sort of how -- what would be interesting and how you're seeing levels of assets right now? Thanks.

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Thanks, Toni. So the first thing that I would say is hopefully as is evident by kind of what we have been doing has been a primary focus on our internal operations and what we can accomplish with the core business and we're particularly focused on the growth objectives that we set, the margin objectives that we've set. And we feel it's important coming after -- coming off of Investor Day that we are focused on demonstrating what the core franchise is able to deliver. So in that regard, we are not looking at any substantial large acquisitions that would be transformative. We obviously are entirely focused on insurance right now and so that's on the orientation.

We do maintain active engagement on smaller, mid-size opportunities, generally sub $100 million where we feel there may be a high quality product that has gotten initial traction with the industry and where we can add substantial value by accelerating its adoption. In many cases, our clients feel more comfortable adopting a product when they know that they have the strength and the stability and our capabilities behind it or we can enhance that product by improving the dataset, improving the efficiency or the technology that's driving it. And we've had success with that in a number of areas probably most notably our acquisition of FAST on the life side, which has been a textbook case of where we can add value in those areas.

We continue to be excited about the marketing opportunity, even though as we mentioned in our earlier comments, the advertising environment has been a headwind for that. But we see broader appetite for those and we'll look to -- across all of our businesses to see where there might be a technology or a product or a dataset that is relevant. So I wouldn't say that there is anything in particular. We really are aware of it across all of our businesses and we want to make certain that we don't miss an opportunity to enhance one of our businesses if there is something that is truly additive.

[Operator]

Your next question comes from the line of Andrew Steinerman with J.P. Morgan. Your line is now open.

[Andrew Steinerman, Analyst at J.P. Morgan]

Hi, Elizabeth. You pointed to the high end of the 2023 guidance range now being expected. Was that just for revenues or for other figures as well? And then when I look at the high end for the 2023 revenue guide, I get an implied revenue growth for the fourth quarter of plus 4%. Of course that would be as reported. Could you help us with the counterparty OCC revenue growth implied in the fourth quarter.

[Elizabeth Mann, Chief Financial Officer at Verisk Analytics]

Yeah, thanks for the question, Andrew. That comment about the high end was specific and confined to revenues and did not apply to the other line items. And I'm not here to comment on the fourth quarter in specific other than the points I made about the year-over-year comps.

[Operator]

Your next question comes from the line of Jeff Silber from BMO Capital Markets. Your line is now open.

[Jeff Silber, Analyst at BMO Capital Markets]

Thanks so much. I'm going to ask a question about 2024, but not a numbers question. I'm just curious compared to a year ago, what areas of your business are you feeling more confident about as we head into the next year? And conversely, what areas might be a bit more concerning for you than they were a year ago? Thanks.

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Yeah, thank you, Jeff. It's an interesting question and I would start off by saying that first at a high level, I feel as though the strategic engagement that we've had has created a broader opportunities for us to advance in a number of businesses by more effectively communicating the value to their enterprises. So I think that's certainly something that we feel strongly about. We -- in addition, I feel confident about the core lines reimagine investments that we've made and our ability to deliver greater value to our clients over the next several years and to participate in that. I think that we are also seeing in the property market and the focus around profitability an opportunity to serve our clients more broadly.

I think the other thing that we would look at this year that we have benefited from is some higher level of transactional activity, particularly in the auto side with high levels of shopping that have contributed to our growth rate that may not be sustained into 2024. Similarly on the property side, some higher levels of activity there that have contributed to strong growth. I think overall, we're really pleased with the growth that we generated in 2023. We had some tailwinds. We aren't providing guidance on 2024 at this point.

We have to step back and assess where we are and we'll do that in the first quarter, but I think strategically, and from an investment standpoint, we're excited about where we're investing, core lines, generative AI, investments that we're making in broadening our ecosystem and integrating other partners that add value to our customers. And we'll continue to work to offset and mitigate any of the transactional benefits that we've had in 2023.

[Operator]

Your next question comes from the line of Andrew Nicholas with William Blair. Your line is now open.

[Andrew Nicholas, Analyst at William Blair]

Hi. Good morning. Thanks for taking my question. Wanted to ask a modeling one, not specific to fourth quarter '23 necessarily. Just wanted to ask the last half decade has been a little bit of a crazy one I think that speaking to it lightly, a lot of moving parts. Where the business sits today, is there any -- how would you kind of describe the seasonality of transaction revenue? Is there a -- if we're talking about '25, '26, is there like a typical cadence that we should expect on the non-subscription line given the makeup of the underlying businesses that comprise that? Thank you.

[Elizabeth Mann, Chief Financial Officer at Verisk Analytics]

Yeah, thanks for the question, Andrew. The biggest component of the transaction revenue that has some seasonality to it, there's two that come to mind. One is the weather related seasonality in property estimating solutions that on a long-term historical basis tends to occasionally get a boost in the third quarter as a function of Atlantic hurricanes. Last year in '22 that happened to hit in October and fell in the fourth quarter. The other element that you saw last quarter, the securitization market can sometimes -- that hits in the second quarter primarily. That's a relatively small part in our business. The other elements of transactional revenue don't necessarily have a seasonal pattern to them, the life insurance services, the auto underwriting product is more a function of their own markets.

[Operator]

The next question comes from the line of Heather Balsky with Bank of America. Your line is now open.

[Heather Balsky, Analyst at Bank of America]

Hi. Thank you for taking my question. I was hoping you could update us on your expense program where you are today? Are there any other areas that you're identifying in terms of opportunity as we move forward? Thanks.

[Elizabeth Mann, Chief Financial Officer at Verisk Analytics]

Yeah, Heather, thanks for the question. Our expense program as we highlighted in the past, I think we said sort of over 90% of the benefit is experienced in 2023. So I think of those original set of actions, we think we've -- they've largely been action that are expressing themselves in the margin expansion that you're seeing today. There is continued focus on cost efficiency at Verisk and so we're looking in the future for opportunities based on our global talent outsourcing program and based well on investments in internal efficiency that will play out over time like the ERP program that we've talked about.

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Yeah. And Heather, I would say, look, we're very focused on the margin objectives that we set at Investor Day and I think we had a very good start in what we have delivered and have been realizing the benefits of that. But it's a continuous process for us and we're always going to look for where we can achieve greater efficiencies throughout the business. Elizabeth mentioned several, but as we have been able to make the business a more integrated business focused on insurance, I think we've identified some areas where we can improve both effectiveness and efficiency in the organization and we'll expect to be pursuing those in 2024 to continue that momentum.

[Operator]

Your next question comes from the line of Seth Weber with Wells Fargo Securities. Seth, your line is open.

[Seth Weber, Analyst at Wells Fargo Securities]

Thanks. Good morning and thanks for taking my question. I was interested in your comment in the prepared remarks about incremental business on the life side. I'm wondering if you could just unpack that a little bit and talk about customer appetite for more cross-selling and taking more solutions here in this environment. Thank you.

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

So Seth, thank you for the question. And I'm going to ask Neil to talk about where we see incremental opportunities within the life space as I think it's not only clients, but also thinking about kind of the nature of their technology, that low code, no code approach and its applicability more broadly here in the industry.

[Neil Spector, President, Underwriting Solutions at Verisk Analytics]

Yeah, thanks, Lee. So our solution in life is a low code, no code software platform that helps a life insurer from the policy administration distribution claims from a full lifecycle. And what we've seen is even in the current environment, there is a huge need in the life industry to modernize technology. They're behind P&C as far as modernization of systems. And as Lee pointed out, because our system is a low code, no code, we have the opportunity to potentially lower the operating costs of deployed lines of business on our platform pretty substantially versus legacy solutions. So there's a strong incentive for life insurers to move on to these more flexible and lower cost operating environments. We've also seen a huge beat from our customers in support of their transformation and that has driven some of our service, our transactional revenue for our existing customers because of their desire to have a support their implementation efforts.

[Operator]

Your next question comes from the line of Surinder Thind with Jefferies. Your line is now open.

[Surinder Thind, Analyst at Jefferies Financial Group]

Thank you. Lee, could you please discuss maybe the performance in the international business, maybe what's driving growth there and how that kind of differs from the U.S. and maybe even some product plans or how you expect it from the further offering out there?

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Yeah, thank you, Surinder. I'm going to -- I appreciate that. We've been pleased with the international growth rates across the organization. I would put them into three categories. We first have our specialty business solutions, which is predominantly a London-based addressing the Lloyd's or the excess and surplus market there. They continue to have success in delivering workflow and automation efficiencies through the software platform that they have built and are integrating other components to. We think that's -- delivers a lot of value to the participants in that market. So that's been additive to our overall growth rate.

On the underwriting side, we have a life, health and travel business that has performed well, particularly coming off of the resurgence of global travel post the pandemic. Since then, it's kind of normalized, but we continue to see opportunities for that to grow. And I'm going to actually turn to Maroun Mourad who has had several businesses internationally on the claims side to give you a sense of our experience there as well.

[Maroun S. Mourad, President, Claims Solutions at Verisk Analytics]

Thank you, Lee. Thank you, Surinder, for the question. As I have mentioned in previous calls, we had made decision within the international claims business to reorganize the units splitting the U.K. and Europe about a year ago to drive more focus and growth. And that approach and the execution of the strategy has paid dividends. I'll talk about the U.K. first, which is growing with speed and focus under the leadership of Chris Sawford and his team innovating on existing property, bodily injury and auto or motor as we call it across the pond solutions and more recently, there has been a focus on the anti-fraud space within the U.K.

On the European side, under the leadership of Sam [Indecipherable] and his team, we had entered the bodily injury markets through Germany a couple of years ago through the acquisition of ACTINEO. As a matter of fact, I was just in Cologne where we hosted a market event attended by over 70 customers. We showed greater support for the bodily injury solutions and product offering as well as an appetite to engage more frequently with Verisk to -- on the motor side where we have few months back made the Krug acquisition on the motor side and that integration is proceeding well and delivering our plan.

And last but not least, we have Mavera acquisition in Scandinavia based out of Sweden that delivers technology solutions for the bodily injury space. And finally from an operating model perspective, we are leveraging our position in multiple territories with single finance, human resources, marketing, legal, as well as technology platforms.

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

And Surinder, just to kind of put it in context, so the international revenues represent about 17% of our total as you probably would see in the investor presentation and I think the characteristic is that this is an opportunity for us to penetrate new markets. It is diverse as you can hear from a lot of the businesses. So we have a number of growth factors and I would end by saying a focus also on elevating our dialogue to articulate the strategic value to international institutions is part of our strategy as well. So we're happy with the progress that we're making. We continue to see that as a substantial growth opportunity for us.

[Operator]

The next question comes from the line of Ashish Sabadra with RBC. Your line is now open.

[Ashish Sabadra, Analyst at RBC]

Thanks for taking my question. Lee you mentioned gen AI a couple of times. So -- and you highlighted improving existing product as well as launching new products using gen AI. My question there was how should we think about the monetization of gen AI? Wondering if you could give some anecdotal example of some products that are coming to the market. How should we think about monetization? Will that be offered as free or we'll be charging more for gen AI? And the third last would be the timeline, how should we think about timeline for some of these product launches? Thanks.

[Lee M. Shavel, President and Chief Executive Officer at Verisk Analytics]

Yeah, well, thank you, Ashish. So let me give you a couple of responses to that. So first, I have to say generative AI is something that is certainly relatively new. And so there is a developing aspect to this technology and its application. And so there will be dimensions of this that we're still in the process of piloting and testing. But let me refer you back to the comments that I made around Discovery Navigator and what we're doing in the casualty space where we are already utilizing AI including some generative AI elements in that solution. And so generative AI is a component kind of similar to traditional AI or machine learning that is a tool to help our clients gather data, consolidate and interpret and then utilize data.

So as it relates to Discovery Navigator, there were some generative AI elements that are included in that, that we are in the process of monitoring by demonstrating the substantial ROIs by improving the speed with which they can gather that data from a workers' comp claim through all of those medical records. So that's in flight. We have other dimensions of that in certain businesses. The second example I would give is in utilizing generative AI from a cooking perspective to improve efficiency is something that we have been exploring and testing and we think there are internal efficiencies for us in adapting some of that technology.

And then finally, what is on the horizon that I referenced in speaking to our client engagement and their enthusiasm for us to developing a product is something that would be a co-pilot in an underwriting context that utilizes our datasets, our experience in supporting from an actuarial standpoint, from a rating standpoint, the underwriting process that is specifically targeted to align the business and that is something that is on more of the front end that we are testing and developing. In the first instance, that's something that we are monetizing.

With Discovery Navigator in the second instance, that's something that we hope to begin to deploy so that we can achieve efficiency in our overall coating and in the third instance that's going to be something that hopefully we develop a product. There has been a strong appetite and interest from our clients. And so if we can deliver something that would be -- something we would hope to begin to monetize in the '24, '25 timeframe based upon what our product development is. So a range of that, but it's a component of and an additional tool to a lot of the data and analytics work that we do.

[Operator]

[Operator Instructions] Your final question comes from the line of Russell Quelch with Redburn. Russell, your line is open.

[Russell Quelch, Analyst at Redburn Partners]

Yeah. Thanks for circling back around and sorry for the technology issues. I was wondering if you would provide us with the growth rate for the extreme events solutions revenues in Q3 and year-to-date. And you made some brief comments in your prepared remarks, but can you expand on what trends you saw there in Q3 and maybe what you're seeing so far in Q4? And wondering what you've assumed in your full year guidance for Q4 in this business area.

[Elizabeth Mann, Chief Financial Officer at Verisk Analytics]

Yeah, hey, Russell, glad you're able to join us. Sorry, we don't provide specific disclosure on the extreme events business and certainly not quarterly. So sorry, I can't comment on that.

[Seth Weber, Analyst at Wells Fargo Securities]

[Operator Closing Remarks]