Good morning, and welcome to the AXIS Capital to acquire Novae conference call. All participants will be in 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 telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Linda Ventresca. Please go ahead, ma'am.
Thank you, good morning, ladies and gentlemen. I am happy to welcome you to our conference call to discuss the announcement of our acquisition of Novae Group. The offer announcement, press release, and investor presentation for this transaction were issued yesterday evening after the market closed. If you would like copies of any of these, please visit the investor information section of our website, www.axiscapital.com. We have set aside an hour for today's call, which is also available as an audio webcast through the investor information section of our website. A replay of the teleconference will be available by dialing 1-888-317-6003 in the United States and through the international number 1-412-317-6061. The conference code for both replay dial-in numbers is 7582829.
With me on today's call are Albert Benchimol, our President and CEO; Peter Wilson, CEO of AXIS Insurance; Matthew Fosh, the CEO of Novae; and Joe Henry, our Chief Financial Officer. Before I turn the call over to Albert, I will remind everyone that the statements made during this call, including the question and answer session, which are not historical facts, may be forward-looking statements. Forward-looking statements include statements relating to the expected benefits of the offer for Novae, background to and reasons for the offer, information on the prospects of AXIS or Novae and future capital expenditures, expenses, revenues, earnings, synergies, economic performance, and future prospects. Forward-looking statements involve inherent risks and uncertainties that could significantly affect expected results and are based on certain key assumptions.
Many factors could cause actual results to differ materially from those projected or implied in any forward-looking statements, including risks relating to the successful integration of Novae with the company, higher than anticipated costs relating to the integration of Novae, investment required in Novae to realize expected benefits, and facts relating to Novae that may impact the timing or amount of benefit realized from the offer that are unknown to the company. AXIS expressly disclaims any obligation or undertaking to release any updates or revisions to these forward-looking statements to reflect any change in Novae's expectations with regards thereto, or any change in events, conditions, or circumstances on which any statement is based after the date of this presentation, or to keep any other information contained in this presentation up to date.
Accordingly, undue reliance should not be placed on the forward-looking statements which speak only of the date of this presentation. In addition, we urge you to review the other disclaimers set forth in the presentation here, materials including the responsibility under the United Kingdom rules of The Takeover Panel. With that, I'd like to turn the call over to Albert.
Thank you, Linda, good morning, everyone. This is Albert Benchimol from AXIS Capital. Thank you all for joining this call. We're very excited about the news issued last night about AXIS' proposal to acquire Novae. This represents a new milestone in the continued evolution of AXIS as a 21st-century specialty insurer and reinsurer. As you'll hear in more detail during the call today, this is both strategically and financially compelling. Let me share some of the highlights, and I'm doing so on slide two. This acquisition is strongly aligned with our strategic vision for AXIS Insurance with low execution risk. It increases our scale and leadership in international specialty insurance. It brings to the table a highly complementary portfolio of business, which enables enhanced growth for the combined entity. It significantly strengthens our distribution platform.
Not only does this deliver all of the aforementioned strategic benefits, but it is also financially compelling for AXIS shareholders. We'll spend more time on these points throughout the call. On slide three, we show the key terms, structure, financing, and timing for the proposed acquisition of Novae. The proposed transaction is a 100% acquisition of Novae Group PLC at a price of GBP 7.00 per share in cash for a total equity value of $604 million. This represents 1.5x Novae's tangible book value as of December 31st, 2016, and a 29% premium to the 30-day average closing price as of yesterday. The transaction is, of course, subject to all customary regulatory approvals as well as approval by Novae shareholders, with expected completion in the fourth quarter of this year.
Matthew Fosh, who's here on the call with us today, will be appointed Executive Chair, Europe, and Rob Forster, who is Novae's Chief Underwriting Officer, will be appointed to a senior underwriting management role on the leadership team for AXIS Insurance's international division here in London. We're excited to welcome the Novae team to AXIS and believe that their expertise in the London and international specialty markets will be valuable in ensuring a smooth integration and driving the success of the AXIS-Novae combination. Turning to slide four. Many of you have followed our story. As you can see from this slide, much has been accomplished since our inception in 2001, and indeed, in recent years. We've delivered compound annual growth in diluted book value per share, adjusted for dividends, of over 12% since 2002.
We've achieved this excellent value creation through the execution of a clear strategy rooted in being a leader in specialty insurance and reinsurance businesses. Critical to this execution is portfolio optimization. For those of you who know us, we've been delivering very diligently on a plan to deliver less volatile, more consistent performance across our portfolio with superior returns. As we move through this presentation, you'll see a number of parallels to the Novae story, and that's one of the key reasons that we believe that this combination will be successful. Before I introduce Matthew Fosh, CEO of Novae, I do want to say that we've been following Novae for many years, and we've been very impressed with the work that you and your team, Matthew, have done to focus Novae, to make it more profitable, and to really position it as a very strong leader in the Lloyd's market.
I think this is a perfect combination of our businesses to create a London market leader. I welcome you and your team to AXIS. Matthew?
Well, thank you, Albert. Good day, ladies and gentlemen. Look, just to look at the two slides that I have here in front of you to give you a sense of Novae that perhaps you don't know that well. We are a pure Lloyd's business. We're one of the top players in Lloyd's. You can see there on the top right, $1.2 billion of gross premium written in 2016. You'll note here the diversity across the three divisions there below. I'll come to a second in the changes that we've undertaken there to make the business fit for the world as it is now, rather than as it was. I'll come to that in a second. Novae has an established reputation as a leader in the London marketplace. We're a top 10 syndicate at Lloyd's, an operating history of over 30 years.
We were founded in the mid-1980s. A return on equity averaging 13.2% over the last five years, after adjusting for the recent Ogden rate changes, which impacted the 2016 results. Other than that, 13.2% over the last five. In terms of investment portfolio, we have a high-quality liquid investment portfolio. We have 350 employees, primarily in London. That's the background of the whole business. If you turn to that next slide, it gives you a sense of the detail behind that. Recently, we announced plans to refocus our portfolio on a select group of core classes. Now, that is a plan that we completed that plan in May. It's been underway for a while. Basically what that means is saying you need, in today's market, to focus on those classes where you have a demonstrable and sustainable competitive advantage.
As the market's got tougher, you need to focus on where you can add value and bring relevance to the brokers and so on. That you see going on here in the bottom right-hand corner. You see that dark area where we show the growth over time, over four, five years of those invest classes where we have a proven track record. That's what we talk about for the invest and maintain classes. Now, we've demonstrated our commitment to a portfolio that delivers consistent, sustainable and attractive returns by doing the difficult thing of exiting over GBP 130 million of gross written premium over that same period, while growing our invest and maintain classes by over 550 over those four or five years you see there. That's what you need to do.
As the market's got tougher, you've had to be ever clearer about where you have a competitive advantage. We believe the portfolio as it stands today fits perfectly with the AXIS strategic vision. With putting the two together, the combined is uniquely positioned now to maximize the potential of Novae, and we can leverage the tremendous assets that AXIS has, the reach, the bandwidth, the management bench strength and all that, which allows us to exploit the advantages of having created the portfolio that we have now. We're very excited. Peter, you're up next, I think.
Thank you, Matthew. I think you'll be able to tell from the comments that Matthew has made, then the comments that I will make from the AXIS perspective, why we view this as such a compelling combination. I'd like to turn your attention to slide seven, if you will. I'll spend some time discussing just how strongly this acquisition aligns with the AXIS Insurance strategy. We value expertise and insight in specialty risks. Together, AXIS and Novae create a top 10 Lloyd's franchise with an established reputation as a leader in the London market. Novae's underwriting teams bring deep expertise and attractive classes which AXIS has been looking to grow, such as specialty property facilities, marine liability and cyber.
The addition of these talented underwriters gives us a chance to take more lead positions and also brings long-standing relationships with over 650 coverholders, providing increased access to attractive, more consistent small account business. Portfolio optimization is also critical to our strategy. Novae's business is largely complementary to AXIS' existing portfolio, bringing the benefit of diversification without significant attrition. It's not just Novae's portfolio that is additive to our business. Novae also brings an appreciation of innovation, having brought a number of new products to market, including the first computer crime product. The access to rich underwriting data can also be leveraged to optimize both portfolios and improve underwriting, pricing, and claims insights. Novae has an underwriting culture that is focused, disciplined, and highly compatible with the AXIS vision. Strategic relationships with our business partners are important to us.
In addition to increasing the AXIS profile at Lloyd's, this transaction will also increase scale and relevance with our strategic broker partners and third-party capital providers. Its market-leading binder business provides the potential to extend in other lines, as well as unique franchise and attractive local U.K. specialty business. Finally, we can't thrive as a business without an efficient operating platform. Through this combination, opportunities arise to increase operating efficiency and drive meaningful cost synergies and top-line growth. We'll be able to leverage recent investments already made in our London and Lloyd's operations. Novae's market-leading binder operation, when combined with AXIS, has greater scale to support efficiency investments and expansion into other lines or risks. AXIS' company platform creates flexibility for Novae clients and distribution partners with the potential to reduce acquisition costs. I'd ask you now to turn to slide eight.
Slide eight, with the acquisition of Novae, AXIS will increase its scale and market relevance in the international specialty insurance space. The pro forma company will be a $2 billion player in the London specialty market, a top 10 reinsurer, insurer at Lloyd's, and a leading underwriter of attractive binder business at Lloyd's. Furthermore, we meaningfully enhance our position in the emerging cyber insurance space, strengthening our leading global professional lines franchise, all in addition to AXIS' position as a top 10 U.S. excess and surplus lines player. I turn it over to slide nine. We set out a summary of the pro forma business mix on slide nine. You can see that Novae increases the contribution of specialty insurance. Lloyd's an international specialty insurance business to AXIS, which is consistent with the strategic vision we set out for AXIS.
The pro forma business writes over $6 billion of gross premium, of which 61% is insurance business, 24% is from Lloyd's, and 51% is written outside the U.S. and Bermuda. Turning to slide 10. The table on slide 10 demonstrates the complementarity of our two portfolios. Novae's premier marine and cyber franchises provide AXIS with deeper and broader underwriting expertise in these invest classes, and the combination with Novae brings us lead capabilities in these and many other specialty classes. Novae also brings a number of new classes to our portfolio, including a U.K. and European property business focused on SME and specialty homeowners, which is additive to our existing property book. As we dug deeper into the profile of our respective portfolios, it was remarkable just how complementary we found these portfolios to be. Not all of this can be captured in this table.
Where Novae is strong, has presence, leadership, and/or scale, we tend not to be in the business line and are subscale or want to grow. Where Novae writes a large portion of a class of business under binders, we are more oriented towards open market business. Therefore, levels of pure overlap are surprisingly low. We're comfortable that the benefits combining our two portfolios more than offset any impact of any overlap. Turning to slide 11. It shows the combination with AXIS will enhance Novae's top-line growth in multiple ways. These include access to more distribution channels for certain lines, including U.K. and European property facilities and associated U.K. liability business, access to the broader Lucas platform. I guess we can say the AXIS platform. The ability to write larger lines and retain more business, increase relevance with strategic brokers, and increase reinsurance purchasing power and optimization.
We also believe there are select opportunities to advance AXIS Reinsurance plans for Lloyd's. Finally, the combination may allow AXIS and Novae to expand our third-party capital initiatives, which allow us to do more for our clients and deliver attractive fee income. Finally, on slide 12, shows the combined company will also benefit from a significantly enhanced distribution platform featuring increased relevance and scale with Lloyd's brokers. Further, we'll have greater access to more stable, attractive binding authority business through Novae's market-leading binder distribution network of over 650 coverholders. With more than 50% of Novae's business produced through coverholders, pro forma AXIS specialty or specialist distribution will grow from 14% to 27% of premium written. Novae's binder relationships will allow us access attractive SME and personal lines businesses, diversifying our distribution network while strengthening relationships with key Lloyd's brokers.
With that, I'll turn it back to Albert, who will discuss the financial merits of the transaction for AXIS and our shareholders.
Thank you, Peter. Our conviction with respect to the strategic merits of this transaction is matched by our belief in the significant value creation opportunity for AXIS shareholders, many of whom are on this call. We believe emphatically that this is a financially compelling transaction. As you heard from Peter, there is a long list of well-identified revenue synergies which we believe substantially offset any overlap between the businesses. We've also identified $50 million of run rate pre-tax cost savings, which include very little from front-office functions such as underwriting and claims. We are confident that these cost savings will be fully realized by year two. It is our expectation that the transaction will be accretive to operating EPS and operating ROE in year one, with high single-digit EPS accretion expected by year two.
It is also expected to be roughly neutral to book value per share at close and very minimal impact to tangible book value per share, with growth in book value per share and tangible book value per share accelerating post-transaction, driven by the increased earnings powers of the combined company. Further, we believe that given the size of this transaction, the scope of integration limited to one office, and the complementary nature of the Novae business to our existing book, the enthusiasm and goodwill of our employees, execution risk is very limited. In summary, we believe that this combination represents the rare opportunity to accelerate our strategic vision, hitting on multiple objectives while delivering a very attractive value proposition to our shareholders with limited execution risk. With that, I'd like to open the line for questions. Operator?
Yes. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Just a moment, we will pause momentarily to assemble the roster. The first question comes from Kai Pan with Morgan Stanley.
Good morning. First question, can you give us probably more background about this transaction, and how do you think of Lloyd's market now because of the recent pricing pressure as well as high expense over there, and why Lloyd's is attractive, and also did you talk with other independent Lloyd's syndicates, and why Novae is the best fit for you?
Thank you, Kai. I think there is no question that we are all experiencing challenging market conditions in all markets in all countries. Lloyd's is no different. However, we remain convinced that Lloyd's is the preeminent international market for specialty risks. The concentration of talent here in London and the number of companies and markets and brokers is such that we really do not see that changing in a material way in the near term. The other thing is that participating in the London market and participating at Lloyd's over the last three years, we have also been impressed by the increasing conviction by Lloyd's and by the various markets within Lloyd's to change the Lloyd's market, looking to become more efficient, change the target operating model, lower costs. We actually believe that Lloyd's is doing the right things.
If you, like AXIS, want to be in global specialty lines, Lloyd's is one of the markets that we have to participate in. As you know, we feel very proud that we are diversified. We are in a number of insurance and reinsurance markets. We do U.S. E&S , we do professional lines, we do A&H. We are in a lot of different markets. What matters to us is that we cannot be everything to everyone. In a market where we choose to be, it is imperative that we have the relevance, scale, expertise to be a differentiated provider and compete in a very positive way. That is what we want to do with Lloyd's. As to Novae, I really do believe it is a perfect fit.
As you've seen in terms of the books of business, as both Matthew and Peter have discussed, they're in many lines of business that we are not in, that we would like to be in. They complement many of our lines of business. They are a pure specialty lines player. We don't have to work our way through different lines of business. Matthew and his team have already done a lot of the hard work of focusing that book of business. In one of the slides there was reference to maintain and invest lines.
The way we see it, given the good actions that Matthew and the team have done, is that the maintain and invest lines that have delivered an average combined ratio of 80 over the last five years will essentially comprise 100% of the book that we are going to be taking over in year 2018. We have a high level of confidence that this is a perfect fit with our book of business. There's complementarity. The talent within Novae is outstanding. We're really thrilled to be bringing them into our company. Combined, we will create a very successful $2 billion plus specialty company in the London market.
Kai, can I just add to that? It's Matthew Fosh here, the CEO of Novae. We are something of a rare beast. We are the only pure Lloyd's single platform business there is of any scale. We're the only quoted pure Lloyd's player, so whilst I'm sure Albert did all the due diligence he needed to do to check whether we were the company he wanted to get to speak to, we do offer something that others don't in terms of that scale, in terms of that pure specialty play, and as Albert said, we have taken the surgery necessary in the last two or three years to get very pure on that specialty approach. That's one fashioning reason I suspect why Albert lighted on us.
Thanks, Matthew.
Thank you. Thank you very much for the comments. My second question on the financial accretion. If you look at Novae's earnings for the past three years, if you take an Ogden rate for 2016, running about $70 million-$80 million US dollars pre-tax earnings. That itself is more than 10% of expected earnings for AXIS going forward. I'm just wondering, even before the $50 million cost savings, I'm just wondering what's the basis for the high single digits creation by year two, and is something I'm missing, amortization or other things?
I think we're taking a reasonably prudent view of the market as we're seeing it. I think that the market today is not as attractive as it was three years ago, two years ago, as you know, we earned the business on a lagged basis. Our view is that we don't want to create expectations that are unreasonable. We've always been prudent in our outlook. Kai, to your point, I think it speaks to the high level of confidence that we have that moving forward, this union is going to be very attractive to our shareholders.
Thank you. Last one, if I may, very quick, is that the stock Novae is trading above your GBP 700 offer, indicating some possibility of additional bids. I just wonder what's the breakup fee as additional safeguard for the transaction?
In the U.K., the rules for takeovers are very clear. There are no protections and no breakup fees in transactions. We believe that the offer that we have put on the table is a very compelling valuation for Novae shareholders. I think it represents a healthy premium to Novae's market price. As I mentioned, 29% over the average price for 30 days. It reflects the benefits that we see coming, frankly, some of the benefits that could only happen in a union with AXIS. Prices move up and down for any number of reasons. We believe that what we have here is a compelling offer to Novae shareholders.
Thank you very much, good luck.
Thank you.
Thank you. The next question comes from Elyse Greenspan with Wells Fargo.
Hi, good morning. A few questions. First, Albert, if you can just walk us through how you became comfortable with Novae's reserve position in terms of your diligence for this transaction. I know there's been some press reports surrounding maybe some legacy reserve transactions on Novae's part. If you guys can just update that, kind of where we stand on that, and how that kind of came into your thought process surrounding this acquisition.
Elyse, thank you for the question. I feel very comfortable with the extent of our due diligence on Novae. Again, going back to the point, it's a very focused business. It's a business that we participate in every day. We have a lot of familiarity with the lines of business. We reserve our own lines in similar lines. I will say that we were very impressed with the processes, the professionalism of the approach. We've done our work. We feel very comfortable as to the quality of the balance sheet. As I said in one of the interviews, we wouldn't have done this deal if we weren't satisfied with the quality of the people, the quality of the book, and the quality of the balance sheet, and we are satisfied with all three.
As to the press reports that you refer to, my understanding is that these are unsubstantiated rumors, and of course, we don't comment on that.
Okay. Thank you. My second question, can you just comment, I know you guys said you would finance this deal with cash on hand and maybe some debt. How do you think about your buyback, just given that we're now in the middle of hurricane season? Does entering into this transaction now change your thought process around buying back your own shares?
Thank you for asking that, Elyse. In fact, it does. As you know, we'll be taking on $1 billion worth of new premium, it would make sense for us to have a little bit more capital to support that premium. As of now, it is our view that we will suspend our share repurchases for the next two quarters resume repurchases in early 2018. We believe that that is the appropriate way to move forward. I will say this, because I expect there'll be a question about share buybacks. We have been I believe, a very responsible steward of capital, and we have given back to our shareholders a significant amount of capital in the form of dividends and share repurchases.
Where we are today is we have done significant analysis of the benefits to our company and to our shareholders of continuing the buybacks and not do this acquisition or do this acquisition and hold back on the buybacks for the next couple of quarters. I can tell you that we are absolutely convinced, without a doubt, that the economic benefits to our company of making this acquisition far outweigh anything that we could do in the near term in terms of continuing buybacks. This is the right strategic and financial decision for this company.
Okay. Then in terms of Novae, what about its cat exposure? I see about just under half the business is property. If you can just let us know where their biggest cat exposure is. I assume there is some exposure to the U.S. If you can just walk us through that, especially now that we're in the middle of hurricane season.
That makes good sense. As you know, our net appetite for incremental cat risk is reasonably limited. What I would say to you is that a good part of their property book is already shared with third party capital, number 1. Excuse me. Although we don't necessarily have great appetite for incremental cat exposure, we believe that this is business that is going to be very attractive to our third party capital partners. We view this as an opportunity to continue to be helpful to the market and also provide attractive premium to our third party capital partners and generate essentially risk-free fee income for AXIS. For us, this is a win-win-win. Of course, as the wind season continues, we will be doing the normal risk management that you would expect us to do.
Where does their PML, I guess where are they writing to today? Do they disclose it kind of like you guys do?
I don't think they do. Given that the company continues to be a publicly listed company we don't think it's appropriate for us to create new disclosure for them.
Okay. Thank you very much.
You're welcome.
Thank you. The next question comes from Meyer Shields with KBW.
Thanks. Good morning.
Morning.
Between that and the various lines that were put into runoff, how much of the $1.2 billion of 2016 gross premiums is AXIS interested in renewing over the course of 2017, 2018?
Let me split this question in two, if I may. I think that the proper question for Matthew is, given all the actions, I don't know if they've already projected the premium level for 2017 or not. I think from our perspective, we can talk about how we feel about the book.
Fine. Yeah. Our gross written premium will be around GBP 940 million for 2017, or the net earn will fall slightly. Your question about how much of the business have we discontinued, is that really what you're after, Meyer? Could you repeat? I'm talking pounds now, okay?
Okay.
GBP. Right?
Yeah, that is the question.
Okay. If you look at the 2016 number, we have probably since the end of 2016, we probably discontinued about GBP 80 million or GBP 90 million of old business that we no longer thought was sustainably profitable. Okay? We have replaced that in 2017 with equivalent amounts of growth. It's going to be relatively stable for 2017 over 2016. Does that answer your question, Mayab?
It does, yeah.
Great. It's the business mix that's changing, and it's this absolute determination to know. Look, this market is tough, as we acknowledge. When a market gets tough, you've got to be crystal clear about where you think you have a competitive advantage, right? That's what Albert says the whole time. He's a specialty house because he believes specialty is a way you can differentiate, and we entirely agree, and that's our roots, okay? When the market changes, you've constantly got to be adjusting your portfolio because classes that were profitable three years ago are no longer profitable, right? You have to discontinue, you have to de-emphasize. It's the classic management, just like a fund manager, right? One's managing assets, we're managing liabilities, okay? That's what you have to do. You've got to be really disciplined in markets as they are now.
Thank you. From our perspective, as I mentioned earlier, we feel very good that in 2018, which will be the first year of operation, we believe that 100% of that business will be in those maintain and invest classes. We're starting with a book of business that we think is very attractive. After that, of course, we just do the normal reactions to opportunities in the market.
Okay. No, that makes perfect sense. That's very helpful. Can you give us some guidance in terms of what you're modeling for typical acquisition-related premium spillage?
One of the things that came across here was the complementarity of the books of business. As we looked at it, we felt that there were so many opportunities actually for positive leverage in terms of taking Novae products, placing some of them on company paper versus Lloyd's, working through our distribution, really leveraging the capabilities that we have, buying less reinsurance. All of those, any way we cut this, we felt that the positive synergies far offset any potential negatives.
Mayab, if I could jump in there as Matthew, one of the aspects the board was dealing with was the fact that by being this specialist house, we are enjoying more opportunities than we have capital. Now it's a question of how do we cope with the opportunities we're being faced? Because when you are very clear about quite where you add value and what you can bring to the brokers and so on and so forth, you get opportunities and they bring you more. We believe, Albert and I believe, that by putting these two businesses together, that's only going to enhance those opportunities. Coping with the requests for an opportunity we have is going to be one of the challenges of putting these two businesses together.
Oh, fantastic. That's very positive. One last question, if I can. Novae's tax rate has been higher than AXIS's. Should we assume that that 10%, 11% tax rate persists on that portion of the business? Or can it be filtered through lower tax jurisdiction underwriters?
I think as you look forward, I don't think that's going to have a significant impact on the pro forma tax rates of the merged company. There is a fair amount of normal volatility, if you would, to the location of the earnings and way they come back and forth. Long term, I don't see a big change in our tax rate.
Oh, fantastic. Thanks so much.
Thank you. Once again, please press star then one if you would like to ask a question. The next question comes from Jay Cohen with Bank of America Merrill Lynch.
Yes, thanks. Just a couple other questions. It looked like in the spring, Novae essentially shed some of its catastrophe business. I'm wondering how much, and does that free up any capital for the company?
Jay, explain. Shed some of its catastrophe business.
Shed.
Oh, shed.
Reduced it.
Shed. Okay. Yes. What we're talking about is that it comes back to this point, Jay, about where are the areas we have a demonstrable leadership stroke competitive advantage? In property catastrophe, we are not a property catastrophe player of any scale. We cannot honestly claim to be a leader in London or anywhere else in property catastrophe. What do we do? We shared it and shed. We worked with Fidelis, that is a leader in property catastrophe in this country. We said, "Okay, you take our perfectly nice but not especially good book," but they did one. "You can do more with it.
We'll share that with you, and we'll quote a share back some of your book where you are clearly leaders." It comes back to this point, is unless we are leaders, unless we are really special at something, we don't want to do it. It was this journey we've been on to complete that portfolio change. When you say shed, we actually just exchanged a particular type of business where we thought it was okay, but we weren't leaders. Working with another partner, we then quoted shared back their book, which was demonstrably top performer. That's what I think you're referring to. Okay, Jay?
Very helpful. Thank you. Net-net, your CAT premiums probably didn't change much. It's just coming in a different form?
That's exactly the point, Jay. Yes.
The other question, the $50 million of expected savings, Albert, I'm assuming that's sort of a net number. In other words, you may have to make some investments in the business, $50 million is what you expect to help the bottom line eventually?
That's right. Look, as you know, we continue to be investing in the business. We've spoken to you about some of our initiatives around the future insurance platform, the systems that we have. We're clearly continuing to grow our investments in data and analytics. We will continue to do that. The $50 million that we've identified is a chunk of savings that we can deliver within the first two years.
That's great. Thank you.
Thank you. As there are no more questions at the present time, I would like to return the call to management for any closing comments.
Well, thank you very much, and thank you for your interest in this transaction. As you can tell from everybody on this call, we're highly enthusiastic. I think this is really a unique opportunity to put together two specialty underwriting shops that have a similar conviction around underwriting discipline, around entrepreneurialism, and around excelling in the markets in which we choose to compete. It's a unique opportunity, and we are very pleased to be able to move forward with the acquisition of Novae. Again, Matthew.
I would second that, Albert. Thank you very much. It's been a pleasure so far.
We look forward to reporting to you on our ongoing progress. Thank you very much.
Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.