Hello, welcome to the Lancashire Holdings Limited 2023 year-end results. Throughout the call, all participants will be in a listen-only mode. Afterwards, there will be a question answer session. Please note this call is being recorded. Today, I'm pleased to present Alex Maloney, Group CEO, Natalie Kershaw, Group CFO, and Paul Gregory, Group CUO. I will now hand over to Alex Maloney. Please begin your meeting.
Okay. Thank you, operator. I'll just give a brief overview of 2022, I'll be handing over to Paul, who will give you some details on our underwriting highlights of the year, Natalie will deal with the financials. If you look at our growth for the year of 35%, it's incredibly pleasing to achieve that level of growth for our business. As part of our long-term strategy, we very much believe that you have to grow in excess of the rate change at this point in the underwriting cycle. Clearly, if you just move with your rate change, you're not actually growing, you're not moving your business forward. It's very important that we grow at this part of the cycle.
Clearly, you know, our belief is that at other parts of the cycle, you have to shrink your business back or cut your risk level. We're very much in a period where we wanna grow our premiums across our books. It's very pleasing to grow for 35% to $1.7 billion of premium. In fact, if you look at our business and what we've done since the market turned at the end of 2017, we've grown substantially in excess of rate every single year. We've written more than $1 billion of premium since the end of 2017. At the end of 2017, our business was relatively small at $600 million of premium and went out at $1.7 billion.
We also expect 2023 to be another good year of opportunity for Lancashire, where we expect to grow in excess of rate for 2023 as well, but we expect the growth to be more muted than 2022 and more muted than our number in 2021. That's what we think we can achieve. We've added more product lines across our book. We've hired lots of great people. We're a more diversified business. That's allowing us to move our business forward. When you look at 2022, clearly it's been another year where the industry is seeing sort of, you know, a high level of loss activity. You know, Hurricane Ian was the second largest catastrophe loss on record, very large event.
Clearly the war in Ukraine or the conflict in Ukraine has created some loss events and a very difficult loss experience or very different scenarios from that terrible event. We've also experienced some losses in some of our energy lines for the year. You know, you know, not a year without events and things to consider. To achieve a combined ratio of 97.7% when looking into all those things that have happened during 2022 is incredibly pleasing. I think what it demonstrates as well, that our business is more robust. It allows us to navigate years such as this better. I think you're seeing the true benefit of the growth and the diversification coming through to our book.
I think we've just built a better business over time. It allows us to absorb years such as this, and navigate through, you know, large loss events. Obviously, you know, 2022 was a year where the end of free money arrived rapidly and clearly there was a change in, you know, our investment return, which was mostly unrealized during 2022. Clearly we will benefit from better investment returns throughout 2023. If you think about it, you know, we're getting better margins on our underwriting portfolios. We're getting more investment income into our book for 2023. Again, more margin in the system allows us to navigate any losses that may come into our 2023 book. Just moving on to capital.
You know, we've always been very active managers of our capital, whether that's in a soft cycle or a hard cycle. Clearly, with the changes to the reinsurance market, the January 1st with some better modeling that we've achieved through our book. There's been a lot of sort of movements in our capital base, clearly the benefit of diversification is clear to see now. We also had very good support from long-term reinsurance partners. You know, we spoke a lot over the years about having the right reinsurance strategy with the best long-term partners. As most of you will be aware, it was a very difficult renewal, whether that be for cat business or for specialty RI, but we had a lot of good long-term support.
You know, we went early as we generally do, Paul can give you some more details later. Lots of support from our long-term reinsurance partners allows us to continue with, you know, expanding our footprint, you know, better use of our capital as a business, more diversification. As I said, some better modeling, which has all factored to a very strong capital ratio, which is exactly where we wanna be. You know, we wanna be positioned for 2023. We wanna be in the strongest capital position that we can, which we are. Gives us more opportunity, more flexibility as we look forward. With that, I'll just hand over to Paul to ask him to give you some more data on our underwriting activities.
As Alex has described, it's been another year of full momentum that's seen strong premium growth of 35%. Market conditions in every segment of the portfolio continue to improve, with an overall portfolio RPI of 108%. We've now had five years of positive rate movement. In line with our strategy of underwriting the cycle, we've grown our underwriting footprint significantly during this period. Since the start of the hardening market in 2018, as Alex has already alluded to, we've added over $1 billion of gross written premium. This growth has come from expanding our traditional product lines, as well as consistently adding new teams and product lines to the business. The $1 billion of premium growth during this five-year period has been split pretty evenly between expansion of those traditional product lines and the addition of new teams.
For 2022, we guided to $50 million-$60 million of additional premium from the new teams that joined during the course of 2022. We ended up marginally above the top end of this range. These product lines will continue to mature over the coming years. The aim of the past few years' growth has been to build a more robust and balanced portfolio that can better absorb the natural volatility of our products. We are now seeing the benefits of this strategy with the portfolio remaining profitable, despite the second-largest U.S. windstorm on record and the Ukraine-Russia conflict that impacts multiple lines of business in which we specialize. In the next two slides, I'll cover off our reinsurance and insurance segments. We'll cover off a few highlights of 2022 and then look forward to 2023 and our view of how it may evolve.
Moving to reinsurance first. In 2022, we've once again seen very strong growth in our reinsurance segment as rates continue to improve. The majority of premium growth came from the continued build-out of our casualty reinsurance segment and the lines of business that sit within this. For classes within the casualty reinsurance segment, RPIs were marginally positive. Rate adequacy remains robust, and we are very happy with the progress we've made over the past two years building out this segment of our portfolio. Moving on to property and specialty reinsurance classes, RPIs were approximately 110%. As previously guided, our intention in the natural catastrophe exposed property classes was to maintain a stable footprint and take the improved margin. We were successful in this regard, with these classes growing marginally ahead of rate.
For specialty reinsurance classes such as aviation, energy, and marine, we grew ahead of rate as we continued to build out these product lines. Moving on to our 2023 outlook for the reinsurance segment. In summary, we expect a continuation of these trends. For casualty segment, we anticipate stable market conditions as rating levels that remain very robust. We witnessed this at 1/1, our anticipation is that this continues through the year. We will continue to mature our casualty reinsurance during the year, albeit likely at a slower rate than the past two years, given the progress made thus far. Specialty reinsurance, particularly for aviation and political violence, hardened significantly at the January 1st, with rates and retention increasing and terms and conditions tightening. We aim to grow our specialty reinsurance during 2023 as market conditions remain favorable.
For the catastrophe exposed reinsurance lines, we entered a true hard market. The imbalance of demand and supply had already been building during 2022. Hurricane Ian just pushed the market over the precipice. There was a significant pricing correction, a reset of attachment points, and restriction of terms and conditions, all of which feed into a very healthy RPIs we saw at 1/1. These are undoubtedly the best trading conditions we have seen for many years. Broker reports place risk-adjusted rate change for property cat and retro in the range of +30 to +60. This ties in with what we saw on our book. Just as a reminder, our property cat and retro has recently made up approximately 20%-25% of our gross written premium.
Our plan for 1/1 was to maintain a broadly similar net cat footprint and use market conditions to optimize our inwards portfolio and significantly improve margin. We took the decision to retain more risk by buying less retro protection as we optimized our inwards portfolio accordingly. This puts us in incredibly strong capital position with dry powder for the remainder of the year. Our anticipation is that the robust market conditions endure, which will provide plenty of future opportunities. I'll now move on to our insurance classes. We continue to grow the insurance segment ahead of rate with 22% premium growth and an RPI of 108%. Almost all of our insurance subclasses had positive rate movement. For some of these classes, 2022 was the sixth year of positive rate movement.
As a result of this, as previously guided, the rate increases for some sub-subclasses has slowed, albeit importantly, is still improving. A large proportion of growth came from property insurance class due to the addition of the construction team and the opening of our property offering in Australia, and also a very strong rating environment. Every class within the insurance segment grew premiums year-on-year. For 2023, we expect to see continued rate improvement in every product line as dislocation in the reinsurance market flows through. We expect to see more significant rate increases in classes such as aviation, terrorism, political risk for property insurance, as well as more gradual rate improvement across marine and energy. To conclude, I'm very pleased with the 2022 underwriting result in the context of the loss activity. The investments and decisions of the past few years are paying off.
More importantly, we see a significant opportunity in 2023 to further build out and enhance our portfolio, while importantly maintaining portfolio balance and ensuring we continue to selectively underwrite the opportunity. Market conditions in many of our product lines are excellent, and the catastrophe exposed class is the best we've seen for many years. For underwriters, this is an exciting market and provides a fantastic opportunity to build on the work of the previous years, to more importantly improve the underwriting contribution to ROE. I'll now pass over to Natalie.
Thanks, Paul. Summary of our results for the year is laid out on slide 10. 2022 has allowed us to demonstrate the benefit of our successful growth and diversification strategy over the last few years. We are now much better equipped to absorb significant catastrophe losses, such as Hurricane Ian, and still return an underwriting profit. This is a positive development for the business. The benefit of our growth over the last few years comes through in net premiums earned. These have increased by 42% since last year. With additional premiums written this year yet to earn through, we will continue to see the benefit of this year's growth over the next few years. Some of the newer lines of business that we are writing, such as casualty, tend to earn over a longer period than our historical book.
With our prudent reserving, we expect to deliver profits over a longer period. Our operating expense ratio is lower than in previous years at 13%. This reflects the benefit of the increase in earned premium. The small increase in dollar terms in G&A expenses is largely due to higher employment costs, which was somewhat offset by the favorable sterling to dollar exchange rate. The operating expense ratio has also benefited from low variable pay in 2022 as well as in 2021. The acquisition cost ratio is higher than last year. This is due to business mix changes with more proportional business written. This tends to have higher commission rates. Our overall expense ratio at just under 40% is in line with initial guidance given. Moving on to losses on slide 12.
Catastrophe and weather-related losses for the year were $218.4 million. These losses included the impacts of Hurricane Ian, the Eastern Australian and South African floods, U.S. Midwest derecho storm and Winter Storm Elliott. In addition to the catastrophe and weather losses, we also incurred large claims totaling $90.4 million, including $65.8 million related to the ongoing conflict in Ukraine. The increase in Ukraine related reserves in the fourth quarter incorporates an additional management margin over the previous estimate to cater the potential indirect exposure as a result of the conflict where there remains a high level of uncertainty. The remaining large losses, defined as risk losses over $5 million, relate to a few losses in our energy and power lines of business. These are well within our expectations for these classes.
Despite the active loss environment, we delivered a healthy combined ratio of 97.7%. This is a clear demonstration of the successful implementation of our long-term strategy to better balance our business. Turning to reserve releases. We have had overall favorable prior year loss development in every calendar year since the company was formed. For 2022, our total favorable prior year development was $100.5 million, in excess of the original guidance of $70 million-$80 million. The favorable prior year development was positively impacted by IBNR releases from 2020 and 2021, as well as releases from individual losses from earlier accident years. Our history of strong reserve releases is down to our prudent reserving approach. Turning to slide 12.
As we've been talking about over the last few years, continued growth in the new, more attritional lines of business will offset the volatility of our catastrophe exposed classes to some extent. These will have an impact on the underlying attritional ratio. The underlying attritional ratio for 2022 was at the top end of our initial guidance at around 37%, compared to 36% in 2021. The impact of changes to our business mix increased this ratio in the region of 11% compared to 2021, which more than offset the benefit of rate rises across book. The charts on slide 13 demonstrate our improved ability to absorb catastrophe losses, reinforcing the benefits of our growth and diversification strategy.
As we have said before, our newer lines of business are far less exposed to catastrophe losses and are not as capital intensive as catastrophe exposed classes. They help to diversify our book and give us a stable income stream to help offset volatility from the catastrophe and large risk exposed business that we write. They are accretive to the change in fully converted book value per share. Without these new lines, our earned premium would be lower, and this year's catastrophe events would have resulted in a higher combined ratio. Our investment return improved slightly in the fourth quarter, resulting in a negative portfolio performance of 3.5% for the year to date. The negative returns for the year were the result of significant rate rises and the widening of credit spreads, resulting in losses across our portfolio.
The majority of these losses are unrealized and should unwind fairly quickly given the short duration of the portfolio. Our investment portfolio remains relatively conservative with an overall credit rating of AA-. We aim to invest in largely low risk, short duration, and liquid investments while taking more risk on the underwriting side of the business. We do not intend any material changes to our investment strategy in the medium term, and we'll keep the overall portfolio duration short. Given the short duration of the portfolio, we will start to see the benefit of interest rate rises relatively quickly. We do not anticipate major changes to our investment portfolio in 2023. Moving on to capital on slide 15. Even given the overall comprehensive loss in 2022, we retain a strong and robust capital position.
We finished the year with an estimated solvency ratio of 300%, which would reduce to approximately 250% following a one in 100-year Gulf of Mexico wind event. The increase in our solvency ratio in the year is due to changes in our inwards business mix and outwards reinsurance, as well as modeling enhancements in the second half of 2022. As I previously noted, we generally expect that our BMA solvency ratio will be comfortably above 200% going forward. At this level, we are more than sufficiently capitalized from a rating agency perspective. Finally, moving on to forward guidance. With the implementation of IFRS 17, 2023 is a tricky year to provide forward-looking guidance. For simplicity, we will focus guidance on the underlying combined ratio, excluding catastrophe losses and reserve releases.
We will then be able to update this guidance on an IFRS 17 basis, post the publication of IFRS 17 interim financial statements in August. On the current accounting basis, we expect the underlying combined ratio for 2023, excluding catastrophe and large risk losses, to be in the region of 74%-79%, with reserve releases in the range of $100 million-$110 million. Catastrophe losses are impossible to predict, with better pricing and improved terms and conditions, plus the growth in our non-catastrophe exposed lines of business, it is reasonable to expect that we will continue to be able to absorb higher dollar amounts of cat losses than historically. With that, I'll now hand back to Alex to conclude.
Okay. Thanks, Nat. Just to summarize, you know, our long-term strategy doesn't change. The underwriting opportunity looks strong, so we expect to grow our business again this year. As we said, you know, the capital base is very strong. We expect to probably use some of that capital to grow our cat book this year if we see the opportunity there. I think, you know, everything where we wanted to be, we are. So our positioning is exactly where we want to be, and we expect, you know, some really good opportunities for the 2023 year. I'll now hand back to the operator for questions.
Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please press star one one on your telephone keypad. Once again, please press star one one to register for a question. There will be a brief pause whilst questions are being registered. Our first question comes from Freya Kong from Bank of America. Please go ahead. Your line is open now.
Hi, good afternoon. Thanks for taking my questions. Firstly, could you talk us through the moving parts of your regulatory ratio, which was up 30 points in the half, despite the impact on shareholders equity? How much of this was a reduction in exposure of cat driven by reinsurance changes? Or, how much of this was due to the modeling change? Does this factor in forward-looking assumptions? Secondly, could you just give us more color on the modeling changes that you've made and how much of this benefit transfers into your credit rating models? Thanks.
Hi, Freya, it's Natalie. I'll take those questions. The first one on the regulatory ratio. As we said in the scripted remarks, we were looking to retain about the same amount of cat risk as we've had last year. The change in the ratio that you can see since Q3 is predominantly due to modeling enhancements rather than any change in the risk in the underlying portfolio. What we've done on the modeling side, we've been looking over the last few years to try and get a better view of secondary perils, such as flood and fire. The modeling enhancements that we have done actually increase results for those type of events at lower return periods, but they also lower results for extreme tail events at the extreme end.
That means, the PMLs effectively that drive the capital models have come down, and you can see that in the, in the PMLs as well that we publish in the financial statements. I think you said, are they forward looking? They use the PMLs at 1/1. Yes, to that, to that extent, they are forward looking.
Right. Okay. The PMLs published are as at year-end, correct?
Yeah.
Correct.
The PMLs published are at December 31st. Yeah.
Okay, thanks.
You don't get the same benefit exactly in every single capital model, but you know, it's safe to assume there are benefits across the capital models.
Okay. Thank you. When you're saying, when you say you want to retain the same net cat footprint, is this 2022 versus 2021 or 2023 versus 2022? Just to clarify.
I think Nat was making reference to 2022 versus 2021, which is, if you remember at the start of the year, that's what we guided to for last year.
Okay, thanks.
Our next question comes from Will Hardcastle from UBS. Please go ahead, sir. Your line is now open.
Oh, hi everyone. Thanks for the questions. First of all, on the BSCR, just trying to understand how much of this move was denominator versus numerator. You've touched on it a little bit. I just struggle to get my estimate. My estimate probably looks a bit silly now. Trying to understand really that capital requirement has reduced materially year on year or whether it's to benefit from assumed future profits. The second one is, thanks very much for the attritional guidance. I guess just trying to reconcile that to 2022. Would that look to be around 77% in 2022, and so it's you're sort of pointing to the same mark, or could my maths have gone a bit awry? Thanks.
Okay. On your, on your first question, though, the BSCR doesn't assume future profits at all. The benefit that you've seen between Q3 and Q4 is largely due to the enhancements we've made to the model. That, you know, that's the capital required benefit that you're seeing. That would have been very hard for you to model correctly because obviously we didn't give any indication that we were looking to enhance the modeling last time we spoke. Yeah, on the guidance, yeah, we're looking at the combined ratio guidance. The underlying combined ratio guidance is pretty much in line with this year, give or take.
I guess just as a challenge on that, I guess with all the. I appreciate the mix change, but with all the growth and the better pricing, you know, would you consider there's extra conservatism in that guide or what would we be not sort of including? It would be quite simplistic of us maybe to assume that that would improve year-on-year.
Yeah. I think when the pricing goes up at the beginning of the year, that does take a while for that to come through. I think Paul was talking about the pricing. Remember, that's only on about 20% of the portfolio. That's the part of the portfolio that doesn't really impact your attrition either, because we're talking about, he's been talking about cat and retro. It's really predominantly business mix. You know, there are a lot of earnings coming through from this year into next year, and earnings from this year will come through, you know, over the next, like, 18-24 months.
No, that's clear. That's very helpful. Thanks.
Our next question comes from Andrew Ritchie from Autonomous. Andrew, your line is open. Please go ahead.
Hello? Can you hear me?
Yeah.
Yep.
Yep. Sorry, I didn't quite hear the operator. First question, I didn't quite understand. You made a comment about dry powder, talking about. I think you were talking about retro that you didn't use, you took a bit more risk on your book net. To me, that would be the opposite of dry powder. You'd use up more capital. Can you just clarify what you meant? I think maybe did you mean there's some unused retro capacity for later renewals. Just clarify that first of all. Second question. If 2022 happens again with respect to cat losses, based on what you've seen at renewals and what's likely to happen on things like attachment points, do you think your cat loss would be lower? The final question.
You've helpfully provided the underlying combined ratio X casualty. I think it's on slide 12. My math is gonna be crude here, but when I back solve, I'm getting to an underlying loss ratio for casualty of about 95, which does seem very, very conservative. Can you just confirm that's about the right number? Thanks.
Hi, Andrew. I'll take the first two of those questions. Apologies if I wasn't very clear in my script, but to clarify. At 1/1 we kept our net cat footprint broadly stable. We proactively decided to buy less retro limit, protecting our own portfolio going into 1/1 and retain more risk. We managed our inwards portfolio accordingly to end up in a position where we're broadly at the same position on a net basis. Again, that's something we've spoken about over the last three to six months.
Given our strong capital position that we have, if market conditions continue to remain strong and there are good opportunities to, you know, increase on certain clients, then we have the capital position to do it. That was the reference to dry powder. That doesn't obviously mean we have to, we just sit in a very strong capital position if those opportunities do manifest. Hopefully, that provides a bit of clarity there.
I'm sorry. Can you just be clear? When we talk about net cat footprint, you're referring to limits out there, not premium, limits.
Correct. Limits.
Yep.
Yeah. That's right. Yeah. Risk, risk, risk exposure. Yep.
Yep.
If you... On your second question, obviously the first point I'd make is if you take something like Hurricane Ian, which I think is what you're referring to, obviously a large proportion of the book that would've been impacted by it hasn't yet renewed. Let's just assume a broadly similar inwards portfolio, then kind of the things you need to think about, and sounds like you're already thinking about. On the inwards portfolio for both property cat and retro, retention levels have moved up, and in some instances, you know, quite significantly. Very simply, that pushes more loss onto the cedents and less loss into the reinsurance market. Offsetting this a little bit is, of course, you know, we buy our own retro, and we have retained a bit more.
Also, we're part of the retro market and, you know, we had to take slightly increased retentions ourselves, albeit they weren't that material, in all honesty. Those two things combined, I think in pure dollar terms, if you had exactly the same event, which never happens, by the way, you would be looking at slightly less dollars. Kind of to hammer home the point that we've been making through the script, you're just gonna have a more robust portfolio with, you know, the rating environment, we're going into with the bigger business that we have, the broader spread of business that we now have. The portfolio overall is obviously gonna be, you know, much better positioned to take those kind of hits.
Paul is actually thinking less about Hurricane Ian in a way, more about the other stuff. The other weather stuff. You know, Winter Storm Elliott.
Yeah.
The Aussie floods. That stuff I kind of would hope maybe that's not, you know, that's not attaching at all now.
Yeah, look, I think on those smaller type events of which, you know, the market's seen a lot over recent years, I think that's why you've seen the, you know, the real focus on increasing retention levels at the January 1st, which I completely expect to continue through the remainder of the year. It is exactly those type losses that will be pushed back to cedents. There will always be types of losses that are of a certain level that could still find its way to reinsurance market. Let's be clear about that. The level at which the market is now attaching, and that applies obviously to our portfolio as well, we're in a far healthier position. Your assumption is correct.
You know, the impact of those type of events at the levels we've seen will be, you know, it'll be by less material than we've seen in the past few years. It's just worth noting as well, obviously we talk about, you know, rate increases on property cat and retro. Not all of that rate just comes through premium. A lot of that risk adjusted rate change has come through these movement in attachment points.
Hi, Andrew. It's Natalie. On your third question, I think we've said over the last few years since we started writing the casualty book, that we were going to start off, reserving it incredibly prudently. That is what we have been doing.
Do you have any sense as to where you'd want it to ultimately develop? Or where you expect it to ultimately develop?
It's If you think about any new class of business for us, we're always start, you know, with a very conservative sort of loss pick. I think casualty is notoriously difficult, and we're fully aware of that. I think we're in no hurry to sort of change our assumptions. I think our strategy is exactly the right one. We definitely enter that class of business at the right time. We are more conservative on that class than any other class that we write. It will take a longer period of time. We're not in any hurry to change assumptions. You know, I think our approach is 100% right on that portfolio.
Okay. It'd be useful to carry on what you said on slide 12, if we could see it again in future periods, that would be great. Thanks.
Yeah.
Yeah. We could do. Sort of we might have to rethink a little bit when we have IFRS 17 coming in because, you know, the way.
Sure
you just go as well as the premiums and everything slightly different, but we can think about that for sure.
Thank you.
Our next question comes from Kamran Hossain, from JP Morgan. Kamran, your line is open now. Please go ahead.
Hi. I've got two questions. The first one was just on the, I guess, the underlying combined ratio, and how to think about that. I guess within the presentation you've helpfully highlighted that cat is a less significant part of the portfolio, has less of an impact than it should, than it has done in the past. I guess my conclusion is therefore that cat loss assumptions should be materially lower for the group than they were in the past. I think 15 was always a number that was a historical average, not forward guidance. How much lower do you think that number should be now? How should we think about that? Should, you know, is it lower? Should it be lower as opposed to premiums? That's the first question.
The second question is on growth. I think in your opening comments, Alex, you said, you know, this part of the cycle when rates are going up, to increase exposure, you talked about property cap going up, take the midpoint 45% and appreciate some of that is retention changes and structures, et cetera. You know, would it be outrageous if I assumed that, you know, that's 20% of the book at 45%, gets you to 9%, so you should have double-digit growth, in 2023 as well. Just any thoughts around that would be really, really interesting. Thank you.
Yeah. On that, I'll let Paul answer that question, but my comment really is a strategic one in that, you know, if you believe in the cycle as we do so much, you know, you have to put on real growth now. It has to be in excess of rate. You can't just grow with the rate 'cause that's not real growth. I'll let Paul answer your question on your assumptions.
Yeah. I think it's very fair to assume, Kamran, that, you know, we'll be growing this year. I don't think it will be at the same pace as we've seen in the last two years, in all honesty. I think I had a look at the consensus numbers with Yelena this morning, which would definitely suggest double digit. I'm very comfortable with the numbers in consensus. Just a couple of points to pick up on, just to add a little bit more color. You know, obviously not all, and I did mention this like a little bit earlier, but not all the rate change in cat reinsurance will be seen in premium.
You know, these are risk adjusted rate change. It does factor in things like increased retention level, tightening terms and conditions, et cetera. If you look at our inward retro portfolio, a lot of the rate increase that we got on retro was actually driven by a increase in retention level on that portfolio. You know, they're already paying quite high rates on line, the clients, you know, the inwards that we underwrite. A lot of them, we got very strong risk adjusted rate change. A lot of that came through level. You don't necessarily see that flow through in premium. Some of the newer lines like casualty, as I alluded to in my script, you know, they will still grow at a slower pace.
You know, we made more progress than we thought we would in the last two years. It's, you know, getting to maturity quicker than we thought. The growth, it will still grow, but be slower than previously seen. Just lastly, we haven't currently added any new teams for 2023. Obviously, those in 2022 will continue to mature. This could change. We're always looking at new opportunities, and obviously we'll update people if we do bring in new product lines. Look, in summary, yes, more growth this year. Consensus looks very sensible to me. Just remembering that point on cat, that it doesn't all flow through in premium, but I'm very happy that we get level. Level is really important.
Thanks, Paul.
Hi, Kamran. On the cat ratio question, as you know, we don't guide for a cat ratio. You're right, the 15% that we refer to is the historical average cat losses. You're also right, you know, that we're saying our strategy is to grow the non-cat lines, and we're trying to become a more. Or we are becoming a more resilient business with better able to absorb cat losses than we have been historically.
If I just put the two things together, it probably suggests that, I mean, maybe I'm putting two and two together and five, but the numbers should be lower if I, you know. If you've been growing your own specialty, you know, your cat footprint stays the same. Theoretically, that number should come down.
I think the way you think about it is, it's more the impact of cat losses, right? You know, we've got a bigger business, we've got more revenue in the system, so we can absorb more dollars. As I say, you know, it's very hard overlaying over, you know, different years onto, you know, 2023. I think all in all, I think what the message we're trying to say is that, you know, we can absorb more cat dollars. It's less disruptive to our business in the bumper years due to the diversification play and the other products that we now have.
Awesome. Okay. Thanks, Alex. Thanks, Natalie. Thanks, Paul.
Our next question comes from Nick Johnson from Numis. Please go ahead. Your line is open now.
Hi. Good afternoon, everyone. Three questions, please. Firstly, on property cat, it's a similar sort of subject, I guess, to what has already been asked, but slightly different perspective. When you take into account the additional rate you've achieved and higher attachment points, what degree of risk adjusted margin improvement should we be thinking about in property cat? Is it possible to quantify that? Secondly, just a couple of small ones actually. First on LCM, the fees have gone down quite significantly. Is that indicative of sort of similar reduction in assets under management? Lastly, there's been an increase in intangible assets. Could you just talk about the reason for that? Thank you.
Okay, Nick. I'll take the first one. I can start on LCM, and then Nat can probably provide a bit more detail. Look on property cat, it's definitely fair to say that year-on-year we're seeing increased margin. Obviously we're seeing the increased rate come through. We spoke about increased retention level. We have had to pay more for our outwards protections on our retro, and retentions have gone up slightly. We've of course decided to retain more as well. I'm not gonna give you the specific increase in margin. Obviously we've got a lot of the year to run as well. You know, we roughly write about 1/3 of our property cat business in Q1. There's, you know, approximately 2/3 less to go.
What I can say and confirm is, you know, our net expected margin on property cat has increased significantly year-on-year. On LCM, obviously the fees we earn are backward looking. Some of it's impacted by timing through things like profit commissions, et cetera. You know, it is not necessarily indicative of what's happened. You will recall, in Q1 2022, you know, we were very candid that we were in a very difficult environment for raising funds. There's a lot of investor fatigue in the ILS world, and that our 1/1 draw for 2022 did go back reasonably significantly. We did have a raise, but it was significantly less than we've seen in prior years. That, that hopefully should all be known.
Looking forward, you know, for 2023, we did engage in a number of conversations. That fatigue in that world certainly hadn't eased. In fact, I'd say it got somewhat worse. We did engage with both existing and new investors. Given the lateness and complexity of the renewal, we had to make a call at one point as to whether we were gonna continue, because we had to make decisions for inward clients as to obviously where we underwrite the business, and we decided not to do a raise for LCM at the January 1st, 2023. Obviously, you know, we'll continue to assess opportunities, et cetera, et cetera. You know, there were numerous opportunities for all parts of our balance sheet, and we were still able to service and not, you know, all of our inwards clients. That's kind of where we stand on LCM.
When you say you didn't do a raise, just because does that mean that there's no inflows or does it mean that there's no money at all in LCM at the moment?
No, we didn't. If you recall, Nick, with LCM, you know, we raise for every renewal period. We can do it outside of renewal periods as well. We didn't write any new business at the January 1st. Obviously, there are older years that remain live that will be managed, et cetera. At the January 1st, which has historically been the time when we've done our biggest raise, we didn't raise any new funds.
Okay. Yeah, thanks. Intangible assets.
Yeah. Hi, Nick, it's Natalie. There's two drivers of the intangible asset increase. We purchased more of the names capital Syndicate 2010, so that increases the intangible syndicate participation rights. Then we've also been making a lot of investments into technology, so we've got some internally generated intangibles as well.
Okay, thanks. Is the technology investment kind of ongoing for a few years?
Yes, the ongoing over the next couple of years.
Great. Okay. Thanks a lot.
Our next question comes from Derald Goh from RBC. Please go ahead. Your line is open now.
Hi. Good afternoon, everyone. Hi, afternoon, everyone. Can you guys hear me?
Yes.
Yeah.
Yep. Yep. Hi. All right. A few questions. I'll ask them one at a time, if that's okay. The first one is just on the underlying combined ratio guidance of 74%-79%. What's the expense ratio component within that, please?
Yeah. On that, we're not gonna split that ratio out going forward because it's just gonna become really confusing with IFRS 17. We're just gonna stick to the total underlying combined guidance.
Okay, that's fine. Secondly, the solvency ratio at 300%, does that already account for the gen renewals and any other retro changes?
Yeah. As I said earlier, that's all taken into consideration in the solvency models.
Right. I mean, that was for the retro changes in 2022, right? Does that also reflect any other changes that you did in, you know, in 2023 along with any capital that you've deployed at the gen renewals?
Yeah. It takes the PMLs at 1/1 for the year so that it reflects all the changes made for 2023.
Right. Right. Got it. Lastly, just on that, internal management restructuring, I mean, do you have any insight behind that, please? Is that to improve operational efficiency or I mean, any comments at all on that? Thanks.
That's the move to the insurance and reinsurance segments. Is that what you mean?
Yep. Yep.
Yeah. Okay. Really that's just to reflect how we look at the business on a day-to-day basis. You may recall that earlier in kind of mid-2022, you know, we made James Flude and James Irvine COAs of insurance and reinsurance. The change in the segmentation just reflects how we look at the business from an underwriting perspective internally.
Okay. Got it. Thank you.
Our next question comes from Darius Satkauskas from KBW. The line is open now. Please go ahead. Darius, your line is open.
I didn't hear my name. Thank you. Just one question. If cat conditions are really this good, can you help us understand what, why you decided to maintain net cat footprint the same and highlight that you have dry powder? I'm just trying to understand if you're sort of positioning for June, July when the U.S. renews, or are you more focused on managing earnings volatility now, meaning that your cat exposure will grow in line with the rest of the business? Thank you.
Yeah. Look, we've been quite clear over the past, you know, 12 months or so that the intent certainly for 2022 is to keep our cat footprint broadly the same. We grew our cat footprint quite significantly in 2021, obviously following the capital raise in 2020. I think that's been pretty well documented. Obviously, as we went into 1/1, there's a lot of moving parts. It was a very late renewal. It wasn't entirely clear till very late in the day, you know, what reinsurance protection you were gonna be able to get, exactly where the inwards portfolio was going to land.
Our view was if we can look to maintain broadly same net cat footprint, which we've been successful in doing, then that would be a very good start to the year and put us in a very strong position, which as you can see from our capital numbers, is exactly the case. We definitely do not want to unbalance the business after all the hard work that's been done. As I spoke to, there are still lots of opportunities outside of cat. You know, our specialty insurance lines are continuing to see rate improvements. You know, our newer lines are still continuing to grow in things like specialty insurance, where historically we've been quite light. We've had a very successful 1/1 and been able to grow our footprint there.
That just allows us, obviously, along with a strong capital position, to take a view on cat as we move through the year. You know, we're just in a really strong position. We can see how the market plays out. We definitely don't want to imbalance the book, but that doesn't necessarily mean we can't also grow given what's going on in the rest of the portfolio.
I think as well, you know, one thing to remember is that if you look at, you know, we are, you know, we do currently write a lot of cat business already. It's not as if we are not in the cat game. We're probably more leveraged than some to the cat opportunity already. I think we just have to remember that as well.
Operator, could we go to the next question, please?
One moment please for the next question. The next question comes from Tryfonas Spyrou from Berenberg. Please go ahead, sir.
Oh, hi. Just two quick questions from me. I guess taking everything into account on your inwards versus outwards book, how should we expect the ceded premiums as a proportion of your costs to go down year-on-year? Just trying to be mindful of the fact that you purchasing less retro, but obviously your retro cost is going up. Just maybe some dynamic of that ratio. The second question on reserve releases, appreciate the guidance is roughly the same year-on-year based on absolute number. On my numbers, your net premiums earned should go up substantially next year. How conservative is that guidance, assuming some of the new short tail lines of business you entered a couple of years ago should have obviously start to mature as well. Just trying to understand how we think about that guidance on the run up. Thank you.
All right. I'll take the first question. Yeah, look, the dynamics on the outward spend, remember, it's obviously not just catastrophe protection. We buy a lot of protection for our specialty lines as well. Very, very simply, you know, pricing for those products did increase on the cat side. As I've mentioned, we did, you know, decide to retain a little bit more overall. There are other lines of business continuing to grow, which obviously attracts increased reinsurance spend. In dollar terms, year-over-year, and this is going to be a very similar message to the last two years. In dollar terms, you know, reinsurance spend will go up, but as a percentage of inwards, it will continue to reduce.
Okay. Thank you.
On the reserve release, on the reserve releases question, you're right, as a proportion of premium, the reserve release number that I gave might look low compared to historical average. Remember, as we've been talking about, we've been reserving very prudently for casualty and some lines like that, which will release over a longer time period than our historical, more short tail book. Also on reserve releases, because we have a, you know, reserve there for some large risk losses and large cat losses, it's quite hard to predict how they might run off and when you might get a release or even adverse development on those. That can impact the number year to year as well.
Okay, that's clear. Thank you.
Our next question comes from Abid Hussain from Panmure Gordon. Please, Abid. Your line is open. Please go ahead.
Oh, hello. Hi there. I think the line keeps cutting out. Can you hear me?
Yeah, we can hear you.
Oh, hi. Hi, guys. Thanks for taking my question. Just one question remaining, I think on growth. What are your constraints or to growing over the next couple of years if rates do indeed come in at the top end of your own expectations and you write mix in line with your own plans or even probably similar to this year? I'm assuming that you don't tap the capital markets. I'm just trying to triangulate, you know, what else are you thinking about. I know you're thinking about retro, but you have a sort of clear view, having just gone through the one Jan renewals, and you have an intention to grow exposure. I'm just kind of wondering, you know, how hard it can you push in terms of growth. Where are the constraints?
I think it's more about balance. You know, if you think about, you know, a lot of things we've said on today's call, it's making sure that our portfolio is balanced correctly. You know, the message we have to go across, you know, even on the cat book, we are gonna grow, but with maintaining the balance that we have across the portfolio. You know, clearly, you know, it depends what happens to rates and depends on what classes of business grow. Let's just pick an example like terror. If the terror market gets super interesting, that's a very capital light class of business. You can grow that materially. There's no real sort of limit to your growth in terror. It'll just be driven by the opportunity.
I think on the cat book, what we're trying to say is we've built diversification into our portfolio. We're a much more robust business. Clearly, cat losses can disrupt your earnings quite materially. We're just making sure that, you know, even with the growth in the cat book, we're not, you know, undoing some of the work we've done in the last five years.
Just coming back to that. Are you seeing the level of rates that you had hoped for outside of cat? I know cat is the hot topic at the moment, but what about outside of that? Are you seeing adequacy there?
Yeah, I mean, I think so outside of cat, let's talk about the insurance lines first. Most of those lines have been improving for the last five years and will continue to improve next year. That'll be six years of compound rate increase. There's always exceptions within that, but the vast majority of those product lines are at really healthy rating levels. We're happy with where they are. If you look at something like specialty reinsurance, which is again something we've more recently started to expand in. The rating environment one was actually very healthy. We will look to grow our footprint there as we move through this year. Made a very good start of doing that at the January 1st.
Look, in summary, we're really happy with the vast majority of the non-cat lines and where ratings sit. We obviously would like them to continue to go up. I think we're in a pretty go od spot.
Super. Thanks.
As there are no further questions, I will return the conference back to you.
Okay. Thank you, operator. Thanks for everyone's questions today, and we'll close the call there.
This now concludes our presentation. Thank you all for attending. You may now disconnect.