Hello, and welcome to the Q3 2022 AXIS Capital earnings call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to your host today, Mei Zhang. Ms. Zhang, please go ahead.
Thank you, Keith. Good morning, ladies and gentlemen. I'm happy to welcome you to our conference call to discuss the financial results for AXIS Capital for the third quarter ended September 30th. Our earnings press release and financial supplements were issued last night after the market closed. If you would like copies, please visit the investor information section of our website at axiscapital.com. We set aside an hour for today's call, which is also available as an audio webcast on our website. With me today are Albert Benchimol, our President and CEO, and Pete Vogt, our CFO. Before I turn the call over to Albert, I will remind everyone that the statements made during the call, including the questions and answer session, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions.
Actual events or results may differ materially from those projected in the forward-looking statements due to a variety of factors, including the risk factors set forth in the company's most recent report on Form 10-K and other reports the company files with the SEC. This includes the additional risks identified in a cautionary note regarding forward-looking statements in our earnings press release issued last night. We undertake no obligation to publicly update or revise any forward-looking statements. In addition, this presentation may contain non-GAAP financial measures. Reconciliations are included in our earnings press release and financial supplement. With that, I'll turn the call over to Albert. Albert?
Thank you, Mei. Good morning, everyone, and thank you for joining our third quarter earnings call. Before we begin our review of results, I'd like to say that our foremost concern is with the welfare of the communities impacted by Hurricane Ian and other catastrophic events across the globe, both natural and man-made. It's at times like these that our industry has an opportunity to fulfill its social purpose to help people when they're down. For AXIS, we're committed to do our part to support the victims and aid in the recovery effort. Let's now begin our review of our quarter. We believe the events in the quarter have validated the actions that we've taken over the past few years to enhance our market positioning and build a more balanced, resilient and profitable portfolio.
During the quarter, notwithstanding the impact of Ian and other cat losses, our performance provided further evidence that the business we're building is one that will deliver positive results in both high and low cat quarters. Indeed, even in a quarter where the industry is anticipating more than $70 billion of insured cat claims, AXIS is now generating positive operating income. For the year to date, while our industry has already suffered aggregate cat losses in excess of $100 billion, AXIS has increased its underwriting income by 75%, and our operating income is up 30%. Recent third quarter cats are a good illustration of our progress. We estimate Hurricane Ian will be a $60 billion event, and our $160 million charge represents less than 0.3% share of the industry loss.
By comparison, in last year's third quarter, Hurricane Ida was a $35 billion event, and our $175 million loss estimate represented a market share of 0.5%. We're confident that our progress will continue, and every part of our company is executing on the actions that will add the most value to our business. Our specialty insurance business delivered 12% premium growth for the quarter and 16% for the year to date. While doing so, we continue to see meaningful improvements in our underwriting performance with good underwriting profitability in both the quarter and year to date period. Our nine-month insurance combined ratio all in came in at an attractive 91.2%, a 1.5 point improvement to 1 point over the prior period.
Our nine-month insurance underwriting income of $204 million is up more than 40% over the prior year for our insurance business. For our reinsurance business, we're encouraged by the early results from our efforts to reposition AXIS Re as a specialist player. The meaningful reductions that we've made to our cat exposures have been rewarded this quarter with a significantly lower market share of industry cat losses. Moreover, through the first nine months of the year, our reinsurance business is delivering an underwriting profit of $23 million with a combined ratio of 99.1. While we've seen decreases in our overall reinsurance growth and net premiums written, it's all due to our planned reduction of property and property cat reinsurance. The rest of our reinsurance book is up 7% for both the third quarter and the year to date.
Thus far, we're lowering cat volatility and growing where we want to, which is exactly our plan. Peter will shortly be taking you through the highlights of our results. Stepping back to look more broadly at our transformation, we recognize that our substantial changes and business mix shift have led to challenges in comparing sequential results on a like-for-like basis and in establishing a foundation for projecting future performance. To help, in our third quarter financial supplement, we've provided additional pages where you can see what our company would look like without the reinsurance property and cat book that we've discontinued. The highlights from the expanded supplements are highly encouraging.
Excluding reinsurance property and property cat business from all periods, on a pro forma basis, in 2021, AXIS consolidated gross written premiums would have grown 16% with an ex cat current accident year combined ratio of 92.6, which would be a four-point improvement over the prior year, and an all-in combined ratio of 97.4. So far this year, on a pro forma basis, consolidated gross written premiums would have grown 13%. The ex cat current accident year combined ratio of 90.1 would be a 2.5-point improvement over the prior year, and the all-in combined ratio of 96.2 would be 1.2% better than the prior period. On that same basis, pro forma underwriting income would have been up more than 25%.
Our industry will always have some quarterly volatility and noise, but the positive trends are evident. We've already taken all the actions necessary to deliver this new AXIS, and the remaining property cat reinsurance exposures should have substantially run off by April of 2023, giving us confidence that we can deliver the kind of performance indicated by these pro forma results. As I'll share later when we talk about the rate environment, we're confident that AXIS is very well positioned in the current market. The ongoing impact of high cat loss activity, financial and social inflation, economic and geopolitical uncertainty, and more limited reinsurance capacity are anticipated to drive favorable market conditions through 2023 and beyond. With anticipated growing demand for specialty coverages and meaningful growth of interest income, AXIS should have the wind at its back.
Our focus now is to continue to build on the momentum, drive further profitable growth, and enhance the value that we provide to our customers and shareholders. With that, I'll now pass the floor to Pete, who will walk us through the third quarter financials. I'll come back to discuss market trends, and we'll have our Q&A. Pete?
Thank you, Albert, and good morning, everyone. During the quarter, we generated net loss attributable to common shareholders of $17 million and an annualized ROE of -1.7%. Operating income was $3 million. Diluted book value per share at September 30 was $43.50. This was principally driven by net unrealized losses related to increased Treasury rates and the widening of credit spreads. As noted in our press release, adjusted for net unrealized losses on available-for-sale fixed maturities, the book value per diluted common share would be $55.21, which would have been a modest increase from the comparable year-end 2021 number.
As I noted in recent quarters, while the increase in interest rates has negatively impacted our book value per share, we are confident we will recover these values as our high-quality fixed income portfolio matures over the next three years. In the meantime, new money yields are now significantly higher on our portfolio, and this will give us an opportunity to grow investment income. The company produced a consolidated current accident year combined ratio ex cat and weather of 88.1%, an increase of 0.5 A point over the prior year quarter, and the consolidated current accident year loss ratio ex cat and weather was 57.1%, an increase of about 1.7 points over the prior year quarter, which was driven by the change in business mix in both segments.
As previously announced, this quarter's pre-tax catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, were $212 million or 16.6 points, primarily attributable to Hurricane Ian. This compares to $250 million or 20.7 points in 2021. The consolidated acquisition cost ratio was 18.7%, a decrease of 0.4 point over the prior year quarter, and this was driven by a decrease in both segments. The consolidated G&A expense ratio was 12.3%, a decrease of 0.8 point over the prior year quarter. This was largely attributable to the growth in net earned premium. Moving on to the segments. I'll start with insurance. Gross premiums written increased by 12% to $1.3 billion for the quarter.
This is the highest third quarter gross premiums ever written by the Insurance segment, and it follows on the heels of the highest first and second quarters ever written. The increase primarily came from Professional Lines, driven by new cyber business and favorable rate changes, liability and marine lines due to favorable rate change, and new business in Accident & Health lines and credit and political risk lines. The current accident year loss ratio ex cat and weather increased by 1.8 points compared to the prior year quarter. This was principally driven by a point of pressure due to our liability program business, 2/3 of which is a catch-up in the quarter to reflect year-to-date performance. There was elevated loss experience in marine and property lines, which I would characterize as normal volatility around these lines, nothing concerning or systemic.
Lastly, we also had impact of mix as we write more Professional Lines, liability, and A&H business. This is not a concern to us because while these lines have a higher ex cat loss ratio, we do like the all-in technical ratios, combined ratio, and the risk-adjusted returns on these businesses. The acquisition cost ratio decreased by 0.3 of a point compared to the prior year quarter. This was primarily related to changes in business mix, reflecting less high-cost property MGA business and more lower cost Professional Lines and liability business written in recent periods. The underwriting related G&A expense ratio decreased by 1.6 points compared to the prior year quarter, mainly from an increase in net premiums earned. Now let's move on to the Reinsurance segment.
The Reinsurance segment gross premiums written of $400 million for the third quarter was $80 million lower than the prior year. I'd remind you that the third quarter represents only approximately 15% of the segment's annual gross premiums written. Given our announced exit from the property and catastrophe lines in June, the decrease in gross premiums was essentially attributable to these lines. The decreases were partially offset by increases in agriculture lines driven by new business. The current accident year loss ratio ex cat and weather increased 2.8 points compared to the prior year quarter. This was due to changes in business mix driven by the decrease in catastrophe business written in recent periods.
When you review the additional pages in the financial supplement that Albert mentioned earlier, you will read that this quarter's loss ratio, ex cat and weather, excluding the property and cat business, has improved from the prior year quarter, and this is due essentially to rate over trend. The acquisition cost ratio decreased by 0.3 of a point compared to the prior year quarter. This was primarily due to adjustments attributable to loss-sensitive features driven by the motor lines and the Accident & Health lines. Underwriting-related G&A expense ratio decreased by 0.7 of a point compared to the prior year quarter, and this was mainly driven by decreases in personnel costs related to our exit from the property reinsurance business. Net investment income was $88 million for the quarter compared to net investment income of $107 million for the third quarter of 2021.
In the quarter, investment income from fixed maturities was $87 million, up over 35% from the $64 million in the third quarter last year, as the yield on the portfolio has increased from 2.1% to 2.9% over the last 12 months. Offsetting the increase in fixed income net investment income were losses from alternative assets compared to gains in the prior year. Alternatives will have some quarterly volatility, but in the long term, we continue to believe they are an attractive asset class. As I just mentioned, at quarter end, the fixed income portfolio had a book yield of 2.9%. It also had a duration of 2.9 years. Our market yield was 5.5%, 260 basis points above the book yield.
Given the duration of our portfolio and the current market yields, we would expect net investment income from fixed maturities to be at least $125 million greater in 2023 than in 2022. Lastly, I'll note that when you re-review our PML disclosures, you'll see that the PMLs have come down significantly as compared to July 1. The decrease is driven by a catastrophe aggregate cover on our insurance property book, where the aggregate deductible has almost entirely been exhausted due to the cats in the third quarter. As a reminder, the aggregate cover has a $10 million per event deductible, then covers 61% of the losses above that point for the event. With this cover in place, we feel well-protected on the insurance property book from now through May 2023.
Excluding the impact of this cat aggregate cover, the October 1 PML levels would be generally consistent with what you saw in July 1, 2022. That summarizes our third quarter results. With that, I'll turn the call back over to Albert.
Thank you, Pete. We'll do a brief overview of market conditions and outlook, and then we'll open the call for questions. As with last quarter, the market environment continues to be favorable. As expected, the pace of pricing increases does continue to moderate. Nevertheless, pricing improvements continue to be broad-based, with the vast majority of our product lines achieving rate change equal to or above loss trends. The average rate increase in our insurance book was 7% for the quarter, marking 20 straight quarters of positive rate change, bringing the cumulative rate change for our book to almost 60% since the beginning of 2018. By region, international was stronger at close to 9%, while North American market was closer to 6%. By class of business, Professional Lines once again saw the strongest pricing actions with average rate increases of close to 10%.
As I've noted in recent quarters, Professional Lines are diverging in pricing trends and best explained in three parts. The first is cyber, which continues to experience hard market conditions with an average rate increase of 45%. The second is public D&O, which is less than 7% of our overall Professional Lines. This line is seeing the most challenging conditions, with rates down more than 30%. This is driven by much greater reductions in the IPO and de-SPAC business, while traditional renewal business is exhibiting more modest reductions. Consistent with past quarters, the drivers of this decrease are a combination of strong price increases in prior periods, fewer new business opportunities in IPO and SPACs, the coming online of new capacity, and a recent decrease in the number of filed cases, which has led to a more competitive environment.
Our view is that notwithstanding market supply and demand factors, we're in a period of high economic and geopolitical uncertainty, and that requires prudent pricing for assuming risk. Thus, we're focusing on risk selection and pricing adequacy and therefore writing much less public D&O business than we did at this time last year. However, the rest of the other Professional Lines, which comprise nearly two-thirds of our book, remain healthy, with average rate increases of more than 5%. Casualty lines are averaging over 5%, with primary casualty strongest at more than 9%, and excess casualty is up a bit over 3%. Property rate went up about 3% in the quarter, and our other specialty lines are also experiencing single-digit rate increases. During the quarter, 90% of our insurance portfolio renewed flat to up.
On a year-to-date basis, our average insurance rate increase was close to 10%, and just as in prior quarters, we continue to see overall new business pricing metrics at least as strong, if not better, than renewal pricing. Let's turn to reinsurance. As Peter noted, the third quarter is a relatively small renewal period for AXIS Re, impacting less than 15% of our reinsurance business. By comparison, just over half of our reinsurance business will renew on January one. For the third quarter, the average reinsurance rate increase was close to 7%. Aviation-generated increases of close to 13%. Liability and motor were both up about 10%. Marine, Accidents and Health, and Professional Lines were all up in the high single digits, while credit and surety saw modest gains. On a year-to-date basis, our reinsurance pricing is up 8%.
This brings the year-to-date rate increase in our consolidated AXIS book to a bit more than 9%, with almost all lines other than D&O showing average rate change equal to or higher than loss trends. This third quarter of 2022 was the first in 10 where average insurance rate increases were below 10%. We're comfortable that current pricing is generally adequate to attractive in most lines. Nevertheless, it would be dangerous for the industry to get complacent. The loss trends we've witnessed over the last couple of years are unlikely to abate anytime soon. We see financial inflation as being higher for longer and unlikely to get back to the levels we have become accustomed to prior to 2021, while social inflation is continuing apace.
As an industry, we must sustain pricing at least in line with the emerging loss trends that this industry hasn't seen since the 1980s. Recent developments and talk in the industry would indicate that pricing discipline is likely to continue. Since we last spoke, Hurricane Ian may have been the straw that broke the back of accommodating reinsurance. This will likely be the sixth year when the reinsurance industry will not earn its cost of capital. Global reinsurers have taken meaningful reductions in book value with the bear capital markets, and they're losing a substantial amount of retro capacity. We expect a hard market for property cat reinsurance in 2023, and we'll likely see firming terms in other reinsurance lines as well.
We're cautiously optimistic that primary companies will adjust pricing to both reflect the heightened risk environment in which we find ourselves, as well as their higher reinsurance costs so as to protect current margins. We also expect to see more risk transition to the E&S and wholesale markets as standard lines markets reduce their overall risk appetite. In this environment, AXIS is particularly well-positioned. We're strongly established in the specialty markets that are seeing the most growth, we've had great relationships with our producers and a talented team that now has a lengthening track record of positive performance under its belt. The portfolio that we're taking into 2023 provides a strong foundation for profitable growth and will lead to a much less volatile book for consistent profitability. We're confident that the future for AXIS is bright. With that, let's please open the line for questions. Operator?
Yes. Thank you. At this time, we will begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble the roster. The first question comes from Yaron Kinar with Jefferies.
Thank you. Good morning, everybody. First question, going back to the cat losses this quarter and Ian in particular. You know, $160 million of Ian losses pre-tax. Can you help us think through how that compares to the published PMLs that seem like that loss comes in well above one in a hundred, and I don't think that's really the case.
I'm guessing there's some elements I'm missing there. Then on top of that, I think you had talked about lowering the cat load, and even before exiting the property business and reinsurance to about 6%, and seems like it's running a little bit above that today. Was hoping to get a little bit of color there.
Thanks, Yaron. I'll handle the second part of that first. Or actually, I'll handle the first part of that first. Yeah, at $160 billion, if you look at the 71 PMLs, you think that might be a little bit over one in 100. One of the things I'd say is, one, every event in and of itself, an actual event is different than all the modeled events. Hurricane Ian had some specifics about it that made it just a little bit higher. The models give you kind of the one in 100 view. You got a median, you got a bunch of events that modeled through there. I think this actual event was just a little bit higher than you'd expect.
I also think that part of what we do see is when we look at a $60 billion event like this, especially on the insurance portfolio, we attach at our Cat XOL. A 1 in 100 event is not as much as a higher than you'd expect from like a one in 50 or one in 70 event. I think it had to do with the specifics of the event as well as how the models kind of look at an array of events, and this actual event just had some particulars with it, as well as us assuming it's a $60 billion event.
When I think about what we expect going forward, yes, we had hoped this year with all the changes we were doing to see the cat loss ratio come down 3 points to 4 points. That is what we said at the beginning of the year. I would say nine months, you know, we're down 2.5 points, so, it's in the right direction. It's where we're headed. I'd say half, three quarters of the way through the year did not really expect us to have $110 billion or so of industry losses through nine months. I do expect by the time we get to the end of the year, our cat loss ratio will be down from where it was in 2021.
Maybe not down to the 5 points to 6 points that we were hoping to get it down to. I would say given the volatility that we've seen around cat, that actually was part of the decision we made to get out of the reinsurance property and cat business. As we mentioned on last week's call, when I look at the all-in number on a go-forward basis, I would expect our cat loss ratio going forward to be somewhat less than 5%.
Thank you.
Anything to add?
Thank you.
My second question. You know, with prop cat rates up 30%-60% and potential spillover to other lines, how are you thinking about the cession plan for 2023? Do you expect to retain more, and how does that impact growth opportunities?
Well, you know, we keep talking to our reinsurers. We think we've got excellent relationships with our reinsurers, long mutually profitable relationships going back a while. From our talk right now is that we don't expect that AXIS will be in any way disfavored by what's happening in the market. We will have to see. I mean, our cat program renews in May, so we've got a little bit of time to see how this thing evolves. For the moment, we're assuming we're gonna keep more or less the same capacity. We expect that we'll have to pay more. We'll obviously need to charge more on the front end to reflect that. For the moment, we are not assuming any meaningful change in reinsurance cover.
Obviously, as the year evolves, we'll be able to have more color on that.
Thank you.
Thank you. Once again, as a reminder, please press star then one if you would like to ask a question. The next question comes from Elyse Greenspan with Wells Fargo.
Hi. Thanks. Good morning. My first question, you know, just given the dynamics of the market, and how that could evolve over the next year, as well as just where you guys are from a leverage perspective, I would assume that you're on the sidelines with buybacks, at least in the short to intermediate term, but can you give us some updated thoughts there?
Yeah. Hi, Elyse. This is Pete. I would say I agree with your comment. Right now, we didn't buy any shares back in the quarter. Right now, I don't anticipate us buying any shares back in the fourth quarter. When you look at our leverage ratios, yes, they are elevated due to the decrease in shareholder equity. However, we have done modeling and looking at the bond portfolio and how it will mature over the next three years, and we do feel confident that as we look through 2023, our leverage ratios will actually they should come down below 30% as we get into next year and should come back into reasonable ranges over the next, obviously, two to three years. We're not comfortable where I am.
I don't like the leverage ratios as high as they are, but I would not anticipate us having any issues getting back to appropriate levels just by the passage of time as the bonds look to mature. The other thing I would point out is I would not expect us to issue any more debt, and I would say right now we feel in a good position. We don't have any debt maturing until 2027. Right now, I don't have to worry about, you know, refinancing in the high interest rate environment. We'll see what it is in 2027.
On the insurance book, you called out, you know, some you know, impact to the liability program business in the current quarter.
Yeah.
You know, earlier this year. Can we just get some more color about what's going on there and then just like the forward outlook for that business?
Yeah, we had some programs that, you know, as we're looking at the experience emerge through this year, was not emerging to our liking. We've already taken underwriting action there, and we've canceled quite a number of those programs, and they were on the liability side. The good news is those particular programs have already been put on notice and have been canceled.
It did mean t hat we did put up some reserves in those businesses. If you read the Q, you'll see the increase in liability reserves. That negative development, both in the quarter and year to date, was essentially due to that book of business. Because of that, we increased our loss picks on that earned premium. As I mentioned, that probably pushed the loss ratio up a point in the quarter, and 2/3 of that is attributable to catch up for full year. I did mention that we started looking at this in the second quarter and took some action in the second quarter. We do feel, well, you can never say you're done, but we've taken some appropriate action, so far year-to-date.
I'm sorry, one follow-up on my prior question on leverage. If we see rates rise another 100 basis points, would your answer then change? Would you then think that you guys needed to manage down leverage or redeem some of your debt?
You know, I think right now, given the duration of our portfolio lease, right now I don't feel that we would need to take those type of actions.
Okay. Thank you.
Thank you. The next question comes from Michael Phillips with Morgan Stanley.
Thanks. Good morning. I guess follow up on one of the earlier questions or comments. It sounds like you expect to have good success passing on your higher reinsurance costs and your insurance primary book, casualty book. I just wanna make sure that's the case.
Yeah. I think that the issues around the higher reinsurance costs on property cat are going to fall across the entire industry. It's my expectation that will have a push down effect on the primary market, yes.
Okay. Thank you.
I don't expect, Michael, that primary companies are going to absorb higher reinsurance costs without changing their upfront pricing.
Yeah. Okay. Good. Thank you. Lessons learned, obviously in the insurance loss ratio, the core loss ratio, one of which of course was the mix shift again. As you continue to kind of push the growth in those casualty and Professional Lines, I guess, can you help us think about how we should think about that ratio going forward with continued mix shift changes?
Yeah. I think that what's happening is that we're growing obviously the longer tail lines more than we're growing the short tail lines or the property in particular. That's having the impact on the ex cat loss ratio. As Pete pointed out earlier, the ex cat loss ratio is only one factor that we look at. When we look at the technical ratio, generally these lines come with lower acquisition expense, so the technical ratio is actually quite good. The all-in combined ratio for that business is good. Overall, I don't see, we don't see, that increase in the ex cat loss ratio as indicative of any reduction in profitability or attractiveness of the portfolio.
To your point, as we grow that, there will always be a little bit of headwind, if you would, from mix shift. It's historically been on the insurance side, a point or less. You know, we'll see what it looks like as we go next year. But it's been much more dramatic, obviously, on the reinsurance side, given the significant reduction, which is why we added those additional pages in the back of the financial supplement, so that you have a sense of what the going forward book looks like. But I would say on the insurance side, clearly a point or less, but I don't know that I can do much more than that right now. Pete, anything you want to add?
Okay. No, we're good. Yeah, thanks.
The only thing I'd add is, if you look year to date, Michael, the mix shift has gone from 47% pro lines liability to now that's up to 51%. That's a pretty move shift this year, and that's on the net earned, and it's in the Q, so you can take a look at it. You know, you can kinda see a 4-point move there is about a point on the ex cat loss ratio. To your point, Albert, the overall combined, we really like, and we see the combined ratio all in ex cat down in insurance year-over-year. I think you kinda gotta watch the mix shift, but we do think that's really attractive business right now, and it's gotten some of the higher rate changes over the last 36 months or so.
Yeah, it's a great ratio if the mix doesn't change, but as soon as the mix changes, you start to lose the message in the ratio.
Okay, wonderful. Thank you, guys. Appreciate it.
Thank you. The next question is from Brian Meredith with UBS.
Hey, Albert. Hey, Pete. A couple of questions here for you. The first one, when you listen to some of the other reinsurers and listen to, you know, some of the press and stuff, they're talking a lot about how, perhaps some of the reinsurers are gonna leverage cat capacity to obtain more attractive terms on casualty business, get more casualty business, just because there's such a demand for cat limit out there right now. I'm just curious, how do you think that impacts y'all's, you know, specialty reinsurance business? Is there more pressure now? Is it gonna be more challenging to keep some of that business at 1/1 renewals?
That's a fair question, Brian, and obviously, we've been monitoring that. You know, what I will tell you is, you know, going back to the individual conversations we've had, you know, post the announcement, Monte Carlo, CIAB, frankly, even Baden-Baden, you know, the message that we're getting from our customers is that they like working with us, they like the relationship we've had, they like the value we provide, and that they're, you know, going in position as they wanna continue trading with us. I think that we're realistic, and in some cases, that may be a factor where they may have to take some business to facilitate a cat placement. I would say two things.
We're not the only reinsurer not providing cat, so I don't think that we would necessarily be the first that gets to pay for that. I would also say that there's a lot of customers that we have that don't need to buy cat, and we would expect that those sessions, whether they be in the A&H business, for example, some of the specialty businesses, mortgage business, et cetera, we don't see how that would influence at all the reinsurance purchase. Yes, there is a risk that we would lose some business. I've said this before, we'll defend every dollar of attractive business, but there is that risk. Here's what I would tell you. In the longer picture, I don't think it matters whether we renew, you know, $100 million more or less at the 1/1.
I think what matters is our transition to be a specialty underwriter with high profitability and low volatility. I will also say that whatever book we renew into 1/1, I'm highly confident will be a book with strong relationship-minded buyers, and that book will provide a very good base for future profitable growth in further periods. We understand the risk, but long term, in terms of the company's strategic trajectory, it's something that we will be able to manage through.
Great. Thank you. Second question, just curious. Cyber market obviously still getting big, big price increases there. Looks like loss activity has maybe slowed some here. What are your thoughts about heading into, you know, next year, maybe increasing some of your retentions on that cyber book?
I think that cyber continues to grow from a price perspective. I think as everybody knows now, it's actually a very reasonably good profitability now on an attritional basis. The real issue around that is the tail. We wanna make sure that we don't grow the tail too much, you know, as part of our risk management. What I would say is that in 2023, we're gonna continue to look for efforts to find protection for the tail, whether it be more reinsurance or a cat bond or sidecar. I think in one way, shape, or form, I think the number one driver of continued growth in cyber exposures for us is our greater confidence in managing the tail.
That's great. One last just quick one. I'm just curious here. Strategic partners, what's the kind of outlook for your strategic partners business? You know, how much of that business is cat-related? I'm assuming that goes away as you kind of exit the cat business.
Yeah. It's about 20%-25% of the business is cat-related, so as you point out, we'll probably lose that. Excuse me. On the other hand, you know, we're encouraged by what we hear, which is that most investors feel they're already very long cat, and they're looking for diversification in other lines of business, and that's an area where we have a lot of expertise. You know, we'll be looking to continue to grow our third-party capital partnerships on the non-cat side.
Great. Thank you.
Thank you. Again, as a reminder, please press star, then one if you would like to ask a question. The next question comes from Josh Shanker with Bank of America.
Yeah, thank you for taking my question. Brian kind of asked what I wanted to know, but I have just one more, I guess. If we're looking at the new year beginning, cat season is over, at least hurricane season's over, you're getting out of that property reinsurance business. Is there an immediate capital release that comes to AXIS that's gonna allow AXIS to free up capital and repurchase its own shares, once we get through, I guess, this hurricane season, and we have the commitment not to be writing new property reinsurance business?
I think the answer is twofold. We feel that the reduction that we're gonna have in the property cat book, by definition, is going to allow us to fuel growth in other lines in insurance and elsewhere. But as Peter mentioned earlier, and you may wanna add comments to that, Peter, I mean, from a reported GAAP perspective, we already have a much higher leverage than we would like. I think that we would wanna see the GAAP balance sheet get back to the economic balance sheet, right? The economic balance sheet is very strong, but I think I would discourage any thought of share repurchases in the first half of next year, unless something dramatic happens in the capital markets.
Yeah, I would just echo what Albert said, Josh. It's more than one thing we're gonna look at when we think about share buyback. Right now, with the movement in shareholder equity due to interest rates, given where our leverage ratios are, I think I would take share buybacks off the table at least for the next few quarters until we kind of see what that looks like going forward. It's less about just looking at the cat, the capital we need for cat and looking at our GAAP balance sheet in total.
Okay. That's it for me. Thank you.
Thanks, Josh.
Thank you. The next question comes from Meyer Shields with KBW.
Great. Thanks. Good morning. A very brief question, I think, but when we look at the Q, and it breaks out reserve development by line, there's a bit of a step up in adverse development and liability. I was hoping you could talk to whether that relates to the accident year adjustments that you made.
That's a great question, Meyer, and it absolutely does equate to the accident year adjustments that we made. When I look at the increase in the liability PYD that you see in the Q, as well as year to date, that's directly related to some of that program liability premium we wrote in 2017 to 2021. That, you know, is reflective of where we've moved those loss picks to for this current accident year.
Okay. That's helpful. Completely different direction. You're growing pretty rapidly in Accident & Health. Can you give us an update on what the market looks like?
The market for A&H is generally quite good. I mean, I would say that some of our limited benefits health program business has not grown because of the lack of opportunity there. The rest of the book does well, both internationally and here. One of the drivers of the growth this year has been the fact that we signed on to a large partnership in the pet insurance area. That's been driving the growth this year.
What I would say is it continues to be a very stable business. It continues to be very stable business.
As you know, the A&H business is low- to mid-90s%, high leverage, good ROE, and it provides good diversification stability to the portfolio.
Excellent. Thanks so much. Sorry for the interruption.
No problem.
Thank you. The next question is a follow-up for Elyse Greenspan with Wells Fargo.
Hi. Thanks. You guys, you know, new money yields are 5.5%, you know, well above that book yield of 2.9. As you continue to roll over the portfolio, I think that could imply north of 5%-6% ROE expansion just from the higher interest rates. If you get your operating ROE perhaps right into the high teens, is there a point where you guys will consider, you know, giving back some of the net investment income benefit as you look to potentially, you know, show more growth in some of your businesses? Is there a break-even point where perhaps this could impact pricing?
Let's deal with one piece of it at a time. I think you're right. As Pete mentioned, we think that if rates stay where we expect they'll be based on the forward curves, we should see $125 million additional interest income in 2023 than in 2022. Your question really relates to, you know, should this leads to lower pricing? Personally, I don't think so. First of all, the numbers just are not as big as, you know, these are not double-digit interest rates, number one. Number two, in specialty insurance, it's not like motor business, where you can dial the loss ratio, you know, to the decimal point. There's only one way to write specialty business, and that's prudently.
I wouldn't even know how to go to our underwriters and say, "By the way, you know, be a little more loose." You can't do that. You can only write the best portfolio that you can. As we mentioned earlier, you know, we're taking a prudent view of market conditions and loss trends. The most dangerous thing that you could do right now is fall behind loss trends. As far as we're concerned, we need to maintain our underwriting margins in our book of business, and we'll take the higher investment income for as long as we can get it. We're not gonna take our pricing down because of higher investment income.
Thanks. Maybe one other one. I know you guys, and it came up I think a little bit earlier, you know, you gave us when you announced the Cat Re exit, you spoke about, you know, the potential overlap with your casualty reinsurance clients. As you've had discussions with your clients and as we go into next year of renewals, I mean, how have those come together? Do you have, you know, more confidence that there won't be as much of an impact in your casualty reinsurance business? Any kind of update there?
Yeah. We mentioned that earlier, and I think that I'll just kind of repeat the general answer, which is we have very strong relationships. We've been getting very positive comments from our clients and brokers, but their desire to continue to do business for us. We're realistic. It might be an issue that there may be one or two, you know, or more, I don't know, accounts that may feel compelled to provide more business to cat reinsurers. As I mentioned earlier, we're not the only reinsurer not providing cat. I dare say that we've been receiving lots of compliments about the way we've managed the process, the transparency, the working with our clients.
Our hope is that the relationships that we've built over time are gonna serve us well here. I also mentioned that, you know, whether we book a little bit more or a little bit less reinsurance premium at January 1, it does not change the core strategic direction of this company, which is to move towards a specialty underwriter, a profitable, stable specialty underwriter, and that's the right call for this company. Whether we write a little bit more or write a little bit less reinsurance in January 1, it does not change the wisdom of that decision.
Okay, thanks for the color, Albert.
You're welcome. Thank you.
Thanks, Elyse. Thank you. This does conclude the question and answer session. I would like to return the floor to Albert Benchimol for any closing comments.
Thank you, Keith, and, thank you to all of you, for your time this morning. You know, before we wrap the call, as always, I wanna thank our people for all that they do to support AXIS and our customers. We've had a hell of a ride over the last several years, and it's really on the back of the very hard work and commitment of our team, and I wanna thank them for that. To all of you, thank you again for joining us. Thank you for your interest in AXIS, and we look forward to, providing you with positive updates on our continued progress. Operator, this will end our conference call.
Thank you. As mentioned, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.