Ladies, and gentlemen, please stand by. Good day, and welcome to the Chubb Limited First Quarter 2022 Earnings Conference Call. Today's conference is being recorded. If you would like to ask a question, please press star one on your telephone keypad. Now for opening remarks and introductions, I would like to turn the call over to Karen Beyer, Senior Vice President, Investor Relations. Please go ahead.
Thank you, and welcome to our March 31, 2022 First Quarter Earnings Conference Call. Our report today will contain forward-looking statements, including statements relating to company performance, pricing, and business mix, growth opportunities, and economic and market conditions, which are subject to risks and uncertainties, and actual results may differ materially. Please see our recent SEC filings, earnings release and financial supplement, which are available on our website at investors.chubb.com for more information on factors that could affect these. We will also refer today to non-GAAP financial measures, reconciliations of which to the most direct comparable GAAP measures and related details are provided in our earnings press release and financial supplement. Now I'd like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Peter Enns, our Chief Financial Officer. Then we'll take your questions.
Also with us to assist with your questions this morning are several members of our management team. Now it's my pleasure to turn the call over to Evan.
Good morning. We had an excellent start to the year, with record per share operating earnings and underwriting results. Double-digit global P&C commercial lines premium growth, accompanied by rate increases in excess of loss cost and improving growth in our consumer business globally. Core operating income in the quarter was $1.64 billion or a record $3.82 per share, up 52% on a per share basis over prior year. In the quarter, we produced simply outstanding underwriting results. $1.28 billion of underwriting income was more than double prior year with a combined ratio of 84.3, both records. Our P&C current accident year combined ratio, excluding catastrophes, was 83.5%, a 1.7-point improvement over prior year with about 1 point from loss ratio improvement and the balance expense-driven.
On the investment income side, adjusted net investment income was circa $900 million for the quarter. We are predominantly a buy and hold fixed income investor, and given rising interest rates and widening spreads, we expect investment income to increase from here. Every 100 basis points increase in interest rates for us is worth on an annualized basis about $1.2 billion in pre-tax investment income. We have a portfolio duration of about four years, so a rise in rates begins to earn in reasonably quickly. Peter will have more to say about other financial items. Let me say a few words about the Russia-Ukraine war. The events unfolding before our eyes are a human tragedy of epic proportions with profound geopolitical implications. Our actual incurred losses to date from the event are de minimis.
From all we know today, while additional losses may develop over time, this will not represent a meaningful event for Chubb. Integration planning around the Cigna transaction is quite active and remains on track. We expect to receive regulatory approvals leading to a close during the second quarter. There are no changes of substance to the guidance we gave you, and any changes are modestly positive. We will update you after closing. Now, turning to growth, the rate environment and inflation. Global P&C premiums, which exclude agriculture, increased 8.8% in the quarter on a published basis, or 10.7% in constant dollars, with commercial up 12% and consumer up 8%. Growth in the quarter was broad-based, with contributions from virtually all commercial businesses globally. From large corporate to middle market to small, from traditional to specialty in most all regions of the world.
Commercial P&C premiums, excluding agriculture, for North America were up 10.5%. While in Overseas General, they grew 13% in constant dollars, but we then had 5 points of FX impact to the published result. Agriculture premiums were down in the quarter because of a return of premium to the government. It was based on our level of profitability for the 2021 crop year. This is a favorable, unexpected development. You will recall that crop insurance is a business where revenue and losses are shared with the government. For the 2022 crop year, we will have a substantial increase in premium revenue over last year, given commodity prices and other factors. Most of this will be recognized in the third quarter. Returning to commercial P&C.
In terms of rate, the level of rate increase remains strong and, as I have said before, is naturally moderating as individual portfolios achieve adequacy and additional rate is then required to keep pace with loss costs. The rate environment is reasonably orderly, and in aggregate, rate increases remain in excess of observed and projected loss costs. In the quarter in North America, total P&C premiums excluding agriculture grew 9.6%, again, with commercial up 10.5%. Growth this quarter in commercial lines was led by our middle market and small commercial business, with premiums up almost 12%, followed by our major accounts and specialty division, which grew 9.5%. Total exposure change was a + 1% in the quarter.
A combination of an increase in economic exposure of about 3.2% due to higher payrolls, sales, and other economically sensitive activity. On the other hand, a decline in exposure due to underwriting changes, such as increased attachment points and higher deductibles, which is a good thing. Renewal retention for our retail commercial businesses was 100% on a premium basis, very strong. Overall rates increased in North America commercial lines 8.7%. Major accounts, which serves the largest companies in America, rates increased 9.3%. General casualty rates were up over 15.5% and varied by class of casualty, while risk management-related primary comp and casualty related rates were up 3.7%. Property rates were up 9.1%, and financial lines rates were up 13.9% and varied by subcategory.
In our E&S wholesale business, rates increased by more than 11%. Rates were up 13.3% in casualty, about 10%, in property. Casualty was up 10%, and financial lines rates were up 15.4%. In our middle market business, rates increased 7.7% or 9.5% excluding comp. Rates for property were up over 8%. Casualty rates, excluding comp, were up 8.5%, and comp rates were down 1.5%. The comp pricing, which is rate plus exposure, was up over 9%. Finally, financial lines in middle market were up 17%. We are trending loss costs at 6%, and it varies by line.
In general, we're trending loss costs in the rates we charge for short tail classes just over 6.5%, though the actual is running lower. In long tail, excluding workers' comp, we continue to trend at a 6% rate overall, and our first dollar workers' comp book is trending between 4% and 4.5%. In short tail classes, we are actively monitoring property valuations, loss costs as they develop, and the real-time drivers of costs for changes in inflation, labor, parts, and supplies, as well as the delays caused by supply chain disruptions, given the length of time to repair or replace. This can add additional pressure on costs. In long tail lines, we actively monitor and study both frequency and severity of each class.
Turning to our international General Insurance operations, retail commercial P&C premiums grew 15.5% in constant dollars, while our London wholesale business grew just over 5.5%. Retail commercial growth varied by region, with premiums up 18.5% in Latin America, followed by growth of about 16.5% in our U.K. and Europe division, and Asia- Pac was up 14.5%. Internationally, like in the U.S., we continued to achieve improved rate to exposure across our commercial portfolio. In our international retail business, rates increased in the quarter 10%, while in our London wholesale business, rates increased 9%, both varied by class and by region as well as country within region. Outside North America, loss costs are currently trending about 4%, though that varies by class of business and country.
In general, loss costs for short tail classes are running just under 4%, and we anticipate this to increase. In long tail, we are trending at about a 4.5% rate. International consumer lines growth in the quarter continued to recover from the pandemic's impact on consumer-related activity. Premiums increased about 9.5%, though FX then shaves six points off the growth rate. Premiums in our international A&H business grew 8.6% in constant dollar. Our international personal lines business grew over 10%. Latin America led the way with A&H and personal lines growth of over 18% and 17.5 %, respectively.
While Asia- Pac's growth for these two product lines was over 6% and 24.5%, respectively. Net premiums in our North America high net worth personal lines business were up about 7.5%. Last year's reinsurance reinstatement premiums due to CAT losses had a negative impact on growth then. Adjusted for that, plus other one-time items, our underlying growth was about 5.5% in the quarter. Our true high net worth client segment, the heart of our business, grew over 13% in the quarter, driven by a flight to quality and competitors leaving certain markets, while overall retention was very strong at nearly 99%. In our homeowners business, we achieved pricing, which includes rate and exposure of 12.3%, while homeowners loss costs are running in the 11% range.
In our Asia-focused international life insurance business, net premiums plus deposits were flat in constant dollar, but will increase in future quarters, while net premiums in our global re-business were up 22%. In sum, we had an outstanding quarter all around, and we are off to a great start to the year. As I look ahead, I remain optimistic and confident in the things we can control, though I have naturally grown more cautious given the world around us. Economic growth, general inflation and central bank actions, and the war come to mind. We will continue to capitalize on favorable underwriting conditions for our commercial P&C businesses globally. Consumer lines growth should continue to recover. As interest rates rise, our investment income will as well.
As I stated last quarter, our strategic investments, including the acquisitions of Cigna, and likely later in the year, Huatai, will provide us with greater revenue and earnings growth opportunity. I'll now turn the call over to Peter, and then we'll be back to take your questions.
Good morning, everyone. As you've just heard from Evan, we are starting the year with an exceptional quarter, with strong top-line growth and record P&C underwriting results that produced operating cash flow of $2.4 billion for the quarter. Turning to our balance sheet and capital management, our financial position remains exceptionally strong, with $73 billion in total capital. We continue to remain extremely liquid, with cash and short-term investments of over $5 billion. I would note S&P and Fitch both reaffirmed our double-A ratings and stable outlook, reflecting our strong financial position. Among the capital-related actions in the quarter, we returned $1.3 billion, or 82% of core earnings to shareholders, including $1 billion in share repurchases and $340 million in dividends.
As of March 31st, $1.6 billion of the $5 billion share repurchase authorization remains available through June 30. We plan to seek authorization from our board for our annual share repurchase program prior to that date. During the quarter, rising interest rates caused a mark-to-market pre-tax unrealized loss of $4.7 billion or 4.5% of our fixed income portfolio. As a comparison, the Barclays Global Aggregate Bond Index declined by 6.2% for the quarter. This adverse mark-to-market movement of $3.8 billion after tax, or 6.5% of our book value, drove the decline in book and tangible book value per share of 4.4% and 6.8% respectively.
Excluding the unrealized mark-to-market in the investment portfolio, book and tangible book value per share increased by 2.1% and 2.9% respectively. As noted in our supplement, the market rate on our fixed maturity portfolio was 3.4% for quarter end, exceeding our book yield of 3%. As of last Friday, the market reinvestment rate had increased to 3.8%. Reflecting this rising rate environment, we now expect our adjusted investment income for the second quarter to be in the range of $915 million-$925 million, and then it will go up from there. Our reported ROE for the quarter was 13.6%, and our core operating return on tangible equity was 17.1%. Our core operating ROE was 11.3%.
Pre-tax catastrophe losses for the quarter were $333 million, including $138 million for Australian storms, $65 million for wildfires in Colorado, and $130 million for other global weather-related events. We had favorable prior period development of $240 million pre-tax, essentially all in short tail lines of $228 million, principally in A&H, property and surety. Our paid to incurred ratio for the quarter was 91% or 80% after adjusting for CATs and prior period development. Our core operating effective tax rate for the quarter was 16.9%, and we continue to expect our annual core operating effective tax rate for 2022 to be in the range of 15.5%-17.5%. Now to finish with a couple of discrete items.
First, relative to our exposure in Russia, our Russian entities have been separated operationally from Chubb and are managing their affairs independently and have been deconsolidated. During the quarter, we impaired the full carrying value of these entities and have recognized a realized loss of $87 million. Relative to Cigna, we have amended our purchase agreement to remove the joint venture in Turkey. This amendment will have a de minimis impact on the transaction. As Evan mentioned, we will provide an update with more specifics on the acquisition during the second quarter earnings call. I'll now turn it back to Karen.
Thank you. At this point, we'll be happy to take your questions.
Ladies, and gentlemen, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. Keep in mind, if you are using your speakerphone, please make sure your mute function is released so that signal can reach our equipment. Once again, star one for questions. We will begin with Yaron Kinar with Jefferies.
Good morning, congratulations on the quarter. I know I've asked similar questions in the past, so I hope you have a little bit of patience this time around. You have the investment environment adding a good 150 basis points ROE for every 100 basis points of interest rate improvement. The loss ratios look great. You're still earning well over trend. At what point do you start taking the foot off of the rate pedal or go after more exposure as opposed to pushing for rate?
We don't think of it that way exactly. I mean, first of all, the market itself is a governor on rate. We're in a competitive market. We pursue the rate we think we need, and that actually it's the other way around. That actually determines the outcome of growth. We're underwriters first. The rate we require for both exposure and adequacy of rate to exposure, plus inflation as part of that's the starting point for us.
My second question, I think for the last several quarters, if we look at the rate environment in commercial internationally, it's been higher than in North America, yet the loss trends are lower internationally. Can you maybe help us think through why that would be? Is it because of the lower interest rate environment overseas, or are there other drivers there?
Well, you know what? You have 55 countries that we're operating in around the globe, so there is no one neat, simple answer. On the long tail side, most countries don't have the kind of legal environment that we have. There are a few that come to mind that are similar, like Australia and the U.K. The balance, it's a much lower inflationary environment on loss cost for long tail lines of business. Short tail, it really varies by jurisdiction. You know, Europe is very different than Australia, which will be very, very different than, say, Malaysia or Korea in terms of parts and supplies and the nature of short tail losses. It's a mixed bag, and that's why we're on the ground operating locally in every jurisdiction around the world. We know the markets.
We're part of the market. We approach from the idiosyncrasies of that local market when we think about adequacy of pricing and underwriting.
Thank you very much.
You're welcome.
We'll now move to our next question, which will come from Michael Phillips with Morgan Stanley.
Thanks. Good morning. Evan, as you just said, you're part of a pretty competitive environment, and that kind of covers a lot of things. Given the decelerating rate environment for the industry, and I think it's pretty unique times with loss trends that are accelerating pretty rapidly, do you think there's an opportunity for that, for the industry to find pockets where rates will actually invert and accelerate again sooner than they otherwise would have?
You know, look, it's certainly possible that you know, if, as losses in certain areas or exposures increase, certainly the industry, and you see it in different areas. Look at personal auto right now, industry responds. Look at commercial auto, industry responds. Look at cyber, industry responds. So as loss costs show themselves or the specter is on your doorstep, the industry does respond. Look at property. Property continues to increase at a, you know, overall a double-digit rate. Part of that is a reflection of revised views of cat exposure, given climate change. That is pretty universally recognized by good underwriters in model changes that drive inflation and loss cost. I'm answering your question by giving you facts that I think make it self-evident.
Okay. Thank you, Evan. Yeah, this is more for actually for you and your book, and specific to your North American Commercial Lines book. When you look at that book, Evan, do you step back and say, "Gee, I wish we had more of this," or, either there's holes of opportunity and holes is too strong of a word, but pockets of opportunity in either size of accounts or lines of business where I wish we did more of this in North American Commercial Lines?
You know, it's more of a personal question. If you know me, you'd know my natural state is not at rest.
Okay.
We're an ambitious group, and we have, you know, let's call it 1% or less of the global insurance market. We're a rounding error still in that regard. There's plenty of growth opportunity for this company, and we're not brilliant at everything we do. There's plenty of opportunity to improve ourselves. We're on an endless voyage.
Okay. Thank you, Evan.
Now moving to Greg Peters with Raymond James.
Good morning. The first question, you know, and I know you mentioned this in the comments and then in your letter, you know, the political, the war, political tensions, lockdown, supply chain issues. I think you mentioned in your letter the potential for a new world order. My question is, you know, the strategy difference of being a global reinsurer or a global insurer versus having more of a regional focus. I'm wondering if that narrative has changed or your thinking has changed because of, you know, all of these wild swings in what we're seeing in the press and in reality.
You know, nothing has changed. You know, I take a medium-term and longer-term view of opportunity and strategy when we think about growth for the company. Let's take Asia. Asia is where probably more than 1/2 to 2/3 of the world's growth will likely take place over the next decade, two decades, and longer out. Chubb's presence and increasing presence there is a good thing. It'll allow us to capitalize on those opportunities, and that means that's where the insurance industry is gonna grow. When I think about Latin America, yeah, it has a volatility signature to it that is more extreme. We recognize that in how we approach the business. The trend line over time is increased growth opportunity for a number of reasons in particular.
No, it doesn't give me pause for thought on the underlying thesis. The world goes through periods of greater volatility and risk, and sometimes a little less. You recognize that, and you build that into your thinking when you approach your strategy and tactics and how you expose your company. It is a natural consequence of the strategy you take on when you go global, that you will expose yourself. I would also say this. I don't think that any country or region of the world, given the interconnectedness of the globe, is immune. We're certainly not immune at home. If you're in the U.S. as a U.S.-only insurer, you haven't insulated yourself from the global issues by any means. Just look at inflation.
By the way, the war in Ukraine and cyber that goes across border. You know, we all live on the same planet. Nowhere to hide, bud.
Good point. Peter, in your comments, you talked about the capital returns in the quarter. I think you said 80%+ of the earnings was returned to shareholders. When we think about, you know, obviously, it's gonna ebb and flow between quarters, but is that sort of like the general framework that you guys are thinking about absent some major M&A opportunity on a go-forward basis?
No, I'd say that was just an outcome I was indicating. We have a capital framework which Evan's been clear on in the past, which is we will hold capital for risk and opportunity and return capital beyond that to shareholders. We will reauthorize, with our board's permission, a new program in the second quarter, and we'll report on that basis. There's no change to anything, and that 83% or 82% was an outcome.
Got it. Thanks for the answers.
We'll now hear from Elyse Greenspan with Wells Fargo.
Hi, thanks. Good morning. Evan, in your annual report, you also talked about achieving an ROE of about 13% in 2023 and, you know, kind of heading north from there. When you make that statement, you know, how are you thinking about the rate versus trend environment playing out over the next couple of years? Do you see still a good glide path for, you know, written rate to remain in excess of loss trend?
We did all our inputs. I'm not, Elyse, I'm not going to go to specific items, but all of it, our own view of market outlook is baked into that statement. Glide path, I think, is right. That rates will, you know, continue to moderate, but with an asterisk on it. It depends on the line of business, and it depends on the loss cost environment. I would expect that the industry would respond.
Keep in mind, if there are any classes where rates are in excess of that which is required to earn an adequate risk-adjusted return on capital, then, you know, you might see in some of those classes, and you see it, you always see it, you see it now, that there is a little rate giveback, which is natural also. We imagine, in a word, a fairly orderly marketplace. But it's a marketplace, and we also know a marketplace always has a certain signature of chaos to it. That's baked into our thinking.
Okay. You know, in terms of growth, right, you guys saw, you know, almost 11% global P&C, that's ex-A&H growth in the quarter. Obviously, there was, you know, some impact of ex-FX there. But as we think about the global economies improving, consumer is bouncing back, would you expect, you know, premium growth to remain in kind of within that level or perhaps, you know, pick up from here?
Nice try, Elyse. You know I don't give forward guidance. You know, I remain quite confident in Chubb's ability to outperform.
Okay, am I right in thinking that consumer just has some tailwinds, right? Just given, you know, the environment, and the headwinds that that business, I guess, has faced over the past couple of years.
Yeah, I think you're reasonably right. It varies by region, but you see the trend, follow the footprints and where we have been going quarter-over-quarter and I think that's reasonably good way to think about it.
Okay, thanks, Evan.
You're welcome.
Our next question will come from David Motemaden with Evercore ISI.
Hey, good morning. Evan, I just had a question a bit on the exposure change, specifically in North America Commercial. It sounded like that detracted around 2 points from growth this quarter, which, you know, obviously at close to 11% was still good. I'm wondering if you could talk a bit more about some of the underwriting actions that you've been taking. I know this is something you constantly work on, but it feels like it was a bit more of a concerted effort, or it has been more of a concerted effort over the last year or so. Just wondering where we are in this exposure management, you know, is this something that, you know, is gonna continue to be a drag going forward? Are we through most of it?
Maybe, you know, secondly, if we could think about how to quantify the benefit to margins from these changes, whether that be on both underlying or CAT load.
Yeah. I think, David, you didn't get it quite right. It didn't detract 2 points. In fact, it added about 1 point. What I gave you was 1 point of exposure growth in commercial lines, North America. I told you about 3.2 points of that was economic. There was an offset from underwriting, which we can measure, and that it was a change in terms and conditions and deductibles, et cetera. It's not some event over the last year. It's over a more extended period of time. In the hard market, you can, o ne of the tools you have and that the clients want because they're getting a lot of price and rate increase, deductibles and attachment points, as an example, they don't move for years during a softer part of the market cycle.
Yet inflation is relentless. Even if it's two points or three points, it's year- on- year- on- year- on- year. What a million-dollar deductible was worth 10 years ago is hardly what it's worth today. Clients in a hard market, they understand dollar swapping. They don't want to swap dollars. You correct for that. It's not just rate that occurs. There is this rational correction of structure of terms with your clients. That's the change in deductible and attachment points, as just to cite those in particular.
I would give you that mental model. In terms of margin, nice try. I'm not going there. Though we do quantify it quite precisely to ourselves, in most classes. I think I answered it. I wanna go back on Elyse's. Elyse, not being cagey, I expect consumer to continue to recover and to continue to show improved growth. The only thing I can't control is a war and any area that may go into recession. From what I can see right now, I expect it to continue to recover.
Anything further, David?
Yeah, yeah, thanks. That's helpful. And I guess, you know, you know, obviously higher rates, higher interest rates is helping, you know, ROEs across the industry. Have you seen any competitors, you know, picking up their aggressiveness in terms of pricing, just as we've had interest rates move higher here? Or, you know, obviously it's still a very uncertain environment. Inflation's still, you know, very high. Have you seen any evidence of the competitive environment picking up?
David, think about it. They've just started rising relatively short period ago. Portfolios have to turn over to actually earn it in, and they moved very, very quickly. By the way, on one side is interest rates, and on the other side is inflation. The industry needs to stay ahead on inflation. No, the answer is I have not seen that.
Got it. Thanks. That makes sense.
Moving on to Ryan Tunis with Autonomous Research.
Hey, thanks. Good morning. I got one on the Russia-Ukraine conflict, Evan. In the annual letter, one thing that stood out to me was, you know, the fact that Chubb's a market leader in a lot of political risk classes. You mentioned your Bermuda subsidiary. I think it's called Sovereign Risk. I guess I was pleasantly surprised, but in a good way, that losses from Russia-Ukraine were de minimis. First part is, can you just help us understand, you know, how have you managed to avoid losses tied to that? And second of all, what are the types of opportunities you're seeing on the back end of this?
Yeah. Opportunities begin to emerge in political risk, but we're pretty conservative and cautious underwriters in the class and the way we approach it. We know our limits clearly. Look, more losses may develop in that area. I can't tell you. If I knew, we would have taken, we would have recognized. But given events, losses and further exposures may develop in the political risk area, given confiscations or expropriations or inability to use an asset. We are in touch with all our clients. So far to date, we don't see individual circumstances that translate to loss.
If it does happen, given our aggregate of exposure, in total, 'cause we watch and always have our aggregations by country, by industry, by type, whether it is insuring debt or it's insuring equity, whether it's insuring currency and convertibility. We're very careful in how we think about the construction that way. If there is loss to emerge in the future, which I just don't know, it won't be a big event for Chubb. We don't have huge limits on any one client on a net basis. In aggregate, that's why I made that statement that it may develop. If it happens, it happens over an extended period of time. The aggregate amounts, it won't be a big event for Chubb.
Understood. Then my follow-up, I guess, very strong underlying loss ratio improvement in the commercial segments. Is it fair to say that pretty much all that is from the, you know, earned pricing versus loss trend dynamic or was there anything else that, you know, you'd point to that might have made that outsize this quarter? Thanks.
No. Nothing. No. It's really, you know, in long-tail lines, you're in the first quarter of the year. It's based off of target loss ratios that you select. In short tail lines, virtually the same. There's nothing we see underlying, and there were no one-time or anomalous items that contributed. Very broad-based.
Okay, thanks.
It was the resilience of it and the quality of it. I was, you know, I'm gratified to see, and it's a testament to all my colleagues, is the broad-based nature of it.
Now moving to Paul Newsome with Piper Sandler.
Good morning. Congratulations on the quarter. The 6% loss trend that you were talking about, does that include the A&H book? I was wondering if there's a difference or you could contrast the claims inflation trends you're seeing on the property and casualty, pure property and casualty book versus what we're seeing on the A&H book. I guess sort of the corollary question to that is, if there is a difference, does the way we think about sort of aggregate claims trends change for Chubb when you close the Cigna deal?
Paul, let me help you with that. What I gave you was the commercial lines business, and I gave you short tail. Included in the commercial lines business is a very small A&H book. Actually, I think you can virtually see the premiums, so it hardly swings any stick. Beyond that, I'm not going into any more parts and pieces. In fact, I think I was more transparent than than most are who are reporting. I've gone as far as I'm going to go in terms of individual lines or any of that. Again, A&H is hardly swings any stick in the trend numbers we have. 'Cause the 6% was a North American number, and it was North America commercial.
Okay, thank you.
You're welcome.
Next question will come from Alex Scott with Goldman Sachs.
Hi. Yeah, first question I had for you is just to see if you could describe what you're seeing with court reopenings and if that's having any impact, you know, I guess either positive or negative on just the updated view of loss cost trends that are sort of separate from, you know, the CPI type inflation?
What did you just say? I'm sorry, what was the first part of that?
Sure. I'll repeat it. Sorry. I was interested if you could describe what you were seeing with court reopenings and how that's impacting loss cost trends, either positive or negative.
We're seeing an increase in frequency, what we would expect with court openings, and we're seeing more adjudication of claims, given court openings. Nothing is impacting trends.
Got it. The second question I had was just on the cyber insurance and I guess, A, are you seeing anything there? B, the war exclusion common war language you have in your policies, could you just describe if that's changed at all since sort of 2017 and things maybe you learned from the outcome with Merck, and whether the language would be more protective against events like what happened in 2017?
First of all, let me work backwards, and then I'm going to come to the first part because, let's be precise with each other. First of all, Merck. Merck was not a cyber insurance policy. Merck was a property insurance policy. I wish those who are thinking about this or writing about this externally would put their heads around that it was property insurance, not cyber insurance. Huge difference. I hope that helps you. Secondly, when you started by saying, "Am I seeing anything there in cyber?" What do you mean, am I seeing anything there? Help me, and then I'll help you.
Sorry. Have you received any claims that are at all associated with the conflict in Ukraine and Russia?
You know, the largest single vector territory of attack into the U.S. for the last number of years has been Russia. Clearly, when it comes to ransomware attack, more comes out of Russia than any other jurisdiction in the world. In fact, China is not a source of that. China is more a source of espionage. It hasn't abated, and it hasn't increased actually, from what we see. When we talk to the experts, those in the cybersecurity industry, there are certain changes of patterns that I won't go into. But overall, it was a hostile environment, and it continues to be in that regard and has a certain frequency and severity signature to it. We haven't seen anything systemic.
I think you probably know that because otherwise you'd have been reading about it in the New York Times.
Thanks for the responses.
You're welcome.
Next question from Meyer Shields with KBW.
Thanks. Good morning. Evan, I'm trying to understand with the Cigna businesses, when or if interest rates rise in those markets, does that get typically offset by more aggressive pricing, or does that translate into higher returns?
In which businesses?
In the businesses that you're buying from Cigna.
No. Pricing doesn't really change. It's very independent of the interest rate environment. This is not savings-oriented business for the most part. It is fundamentally a risk business. It's a morbidity business, to be clear in the vast majority of it. Think about supplemental health-related, dread disease-related. There is an element of ROP, which is a return of premium product. It has a savings element to it, but that's a filed rate, and it changes very slowly. No, it's not an interest. To put it in a word, Meyer, it's not an interest-sensitive business.
Okay. I don't know if it's too early for this. I suspect not. Has the crop book changed at all this year because of the commodity prices? In other words, the mix by state, by commodity.
No, it has not. We have 20-some-odd% market share in crop in the U.S . That's a huge tanker. That thing moves pretty slowly if you're thinking about change in exposure, which in that sense, you'd be thinking about change in mix of crop, you'd be thinking about territory change. The only change in mix of crop comes in the aggregate to the degree that farmers change their behaviors and it aggregates to something significant, like a change from corn to soybeans, et cetera. We generally see that most every year, a bit of that on the margin.
Okay, perfect. Thanks so much.
You're welcome.
As a reminder, to ask a question, please signal by pressing star one. We will now hear from Brian Meredith with UBS.
Yeah, thanks. Evan, a couple of quick questions here for you. First, I'm just curious, looking at the ceded premium in your North American business up pretty large on a year-over-year basis, was that just a timing issue or is there something else going on, maybe, you know, more of an opportunity here to buy some less expensive reinsurance and put some good margin in place?
Always looking for that. No, there was nothing. It was just a mix and an anomaly in the quarter. It bounces around a little bit, as you know.
Gotcha. Thanks. I guess my second question, I'm just curious, you know, looking out over the next kinda six to 12 months, you know, balance sheet obviously in much better shape for a lot of these P&C insurance companies. You know, pricing, maybe we're kind of in the seventh, eighth inning. What's your view with respect to the M&A environment out there and the opportunities that may be presented to you? I know you've got a couple of, you know, larger ones internationally, but I'm sure you've got the capabilities to do lots of M&A.
I gather you're talking about the industry, Brian, my view of it, not job.
Yeah.
You know, I don't have a firm view about it, a clear view. I would say on one hand, cost of capital has gone up. The bar goes up. Most companies or a lot of companies, their balance sheet and earning power is in pretty good shape. Most of the M&A in the industry, in my mind, cloaked in the word strategic, is actually more done out of weakness, where people feel pressure and they wanna continue growth, they have a balance sheet hole problem, et cetera. I don't see a lot of impetus for M&A in a broad sense. There's more risk in the environment right now. Remember that. People will be a little cautious. You know, you'll see it'll be more in small and mid-sized.
I doubt you'll see much in anything of, you know, of a large size, but who the heck knows?
Okay. Great. Thank you.
You're welcome.
Ladies, and gentlemen, this will conclude your question- and- answer session for today. I'll be happy to turn the call back over to Karen Beyer for any closing remarks.
Thank you everyone for joining us today. If you have any follow-up questions, we'll be around to take your call. Enjoy the day. Thank you.
With that, ladies, and gentlemen, this does conclude your conference for today. We do thank you for your participation, and you may now disconnect.