Welcome to the Everest Regroup Earnings Conference Call. This call is being webcast and will also be available for replay on the Everest website later today. I'd now like to turn the call over to John Levinson, Head of Investor Relations.
Good morning, and welcome to the Everest Regroup Limited twenty twenty Fourth Quarter and Year End Earnings Conference Call. The Everest executives leading today's call are Juan Andrade, President and Chief Executive Officer Mark Kosciansic, Executive Vice President and Chief Financial Officer. We are also joined by other members of the Everest management team. Before we begin, I will preface the comments on today's call by noting that Everest's SEC filings include extensive disclosures with respect to forward looking statements. Management comments regarding estimates, projections and similar are subject to the risks, uncertainties and assumptions as noted in these filings.
Management may also refer to certain non GAAP financial measures. These items are reconciled in our earnings release and financial supplement. With that, I turn the call over to Juan Andrade.
Thank you, John. Good morning, everyone, and thank you for joining the call. 2020 had its share of global challenges but COVID-nineteen leads any discussion of the year. The pandemic affected all our communities, our way of life and resulted in an unimaginable death toll. It affected all aspects of the world's economies, including the insurance and reinsurance industry.
Despite unprecedented challenges and through the resilience and dedication of our team, Everest delivered solid 2020 results with excellent growth and improved underlying profitability. Key steps we took last year include adding to our deep and talented management team, strengthening our balance sheet, enhancing our enterprise risk management and operational discipline and further diversifying our business. Most importantly, we have been a valued partner to our distributors and customers during a very perilous time. With a strong foundation in place, we remain confident in continued operational and financial success across our business. We are bullish about 2021.
We will continue to profitably grow the Insurance segment, while continuing to grow and strengthen our position as a global and leading P and C reinsurer. As we think about our positioning in the market amongst our clients, partners and investors, we are guided by the following principles by whichever will seize opportunities and increase the value of our company. First, we will deliver superior growth in book value per share over the cycle. Second, we are an underwriting company. One of our core competencies is the identification, underwriting, pricing and management of risk.
Diversification by line of business and geography is critical. We have clearly defined and quantified risk appetites, and we maintain strong enterprise risk management and performance monitoring. Third, investment returns are a critical value driver and investment management is also a core competency. We are further optimizing our invested assets via portfolio management strategy that is complementary to our underwriting risk. With a sizable invested asset base and significant cash flow, we seek to add value and diversify the sources of income to the company.
Fourth, we manage our capital to fuel long term profitable growth, while continuing to expand our third party capital capabilities. And fifth, we will maintain our industry leading financial strength. We complement our core strengths with a low cost expense base and a flat entrepreneurial and responsive organization. Our diversified reinsurance and insurance franchise, financial strength, deep distribution relationships and leading customer solutions enable our continued performance in today's market. We have robust momentum coming into 2021, and we are well positioned to continue diversifying our business for sustained profitable growth.
I will now discuss our group, reinsurance and insurance results, starting with the fourth quarter followed by our full year 2020 and how these results position us well for 2021. Starting with group results. In the fourth quarter, we grew gross written premiums by 13% and net written premiums by 16% with strong growth across both segments. Our growth stems from a combination of new business opportunities, improved terms and conditions and rate levels, expanded shares on attractive renewals and high retention rates on our existing book. Our underlying combined ratio was 86.3%, a four point improvement over the fourth quarter of twenty nineteen, with both segments showing significant improvement in loss and expense ratios.
Net investment income was very strong at $222,000,000 compared to $146,000,000 in the prior year quarter. For 2020, Everest grew gross written premiums 15% and net written premiums 17% year over year. We delivered $514,000,000 in net income and $300,000,000 in operating income despite the COVID-nineteen loss provision, the prior year reserve strengthening and an active cat year. Our dividend adjusted book value per share grew over 11%. We are focused on delivering superior growth in book value per share over the market cycle.
The underlying combined ratio improved almost one point to 87.5% year over year, with our Insurance segment improving 2.3 points to 94.2%. Net investment income was in line with prior year despite the market volatility. These results demonstrate the earnings power of Everest and our ability to thrive in any market. We continue to diligently manage our portfolios to improve returns with a broad array of underwriting actions, including managing attachment points, limits, terms and conditions, targeted nonrenewals and many other actions. This is the hard work of building and sustaining a profitable book.
Underwriting profitability remains at the core of everything that we do. As previously announced, in the fourth quarter, we strengthened prior accident year reserves in our Reinsurance segment by $400,000,000 The reserve strengthening does not change our view of current accident year loss picks as we had already selected more conservative loss picks in response to general loss trends. We are confident in the prior year reserving actions we took in the quarter and the quality of the in force portfolio. These decisive actions will serve us well. In the fourth quarter, we also added $76,000,000 primarily for third party lines to our COVID-nineteen loss provision.
Despite a high frequency of storms in the fourth quarter, our manageable catastrophe losses of $70,000,000 resulted from disciplined underwriting and the purposeful reduction of volatility over the last two years in our reinsurance portfolio. Mark Kosciansik and Jim Williamson are on this call and can provide more detail on these actions during Q and A. For our Reinsurance division, the fourth quarter continued our strong growth. Gross written premiums grew 12% in the quarter and 15% in 2020. The attritional combined ratio ex COVID was 83.9, an improvement from eighty seven point four in the prior fourth quarter.
January '1 is our largest renewal date and this one was one of the strongest in many years. The rate environment improved across most territories and lines of business with loss impacted business seeing material increases. Capacity is abundant, but reinsurers remain disciplined on pricing and terms and conditions. There is a flight to quality where Everest's strong balance sheet and highly rated financial strength set us apart. Customer and broker demand for Everest capacity is strong, as highlighted by our increased shares and preferential signings on treaties.
Counterparties actively want to do more business with Everest. Our responsiveness, ability to deploy significant capital and reputation as problem solvers in the market were critical to a successful renewal season. We saw outstanding results in Latin America, in The U. S. And Canada, as well as meaningful growth in Continental Europe.
We had notable wins on large deals and increased our share with core customers and in territories and classes we found the most attractive, including facultative business. We continue to expand and diversify the portfolio as we execute to achieve a stronger, more diversified and more profitable book. Specific to our January 1 property book, total limit outstanding increased with an increase in rate online and significant improvements in the combined ratio, ROE, risk adjusted return and increased dollars of expected margin. We have a stronger and more profitable portfolio. John Doucette is available to provide additional details during the Q and A.
Our Insurance division continued its solid execution as evidenced by our results in both the fourth quarter and the full year of 2020. Gross written premiums grew 15% or 18% excluding terminated programs, with gross written premium of $872,000,000 in the quarter and over 3,200,000,000 for 2020. Both fourth quarter and full year 2020 revenues are milestones for the Insurance division. This growth is driven by disciplined cycle management, strong rate in target classes and improving activity in certain lines of business such as transactional liability that was partially offset by reductions in economically impacted areas such as energy, sports, leisure and entertainment. Everest Insurance delivered an improved attritional combined ratio of 93.8 for the fourth quarter, a 4.3 improvement over the fourth quarter of twenty nineteen and ninety four point two percent for the full year 2020, a 2.3 improvement over 2019.
These results are driven by portfolio and expense management and are consistent with expanding insurance margins. We achieved record renewal rate increases of 21% in the fourth quarter, excluding workers' compensation and up 14%, including workers' compensation, where we are seeing rates flatten. Rate is outpacing our expected loss trend and renewal retention across the entire portfolio is strong. The rate we achieved is a function of market conditions and disciplined proactive underwriting actions across our businesses. After years of soft pricing and rising loss costs, pricing adjustments are necessary, and we expect they will continue throughout 2021.
Consistent with prior quarters, these increases are led by property up 21%, excess casualty up 50%, D and O up 35% and commercial auto up 17%. We are also seeing widespread increases in other lines of business, which have been slower to turn most notably general liability now up 9%. We are managing the insurance portfolio to build a diversified business and steer our mix toward product lines that are in higher long term margins. Our position in both the E and S and retail channels give us access to a wide set of opportunities. Mike Carmelovich is available to provide additional details during the Q and A.
We have a vibrant and well diversified reinsurance and insurance business with experienced teams providing industry leading solutions to our customers. Building on the achievements of 2020, we will continue diversifying our business for profitable growth and sustained momentum throughout 2021. The company is on solid ground with excellent financial strength ratings, top talent and a prudent capital management philosophy. We are focused on sustained profitable growth, a more diversified mix of business and superior risk adjusted returns. The relentless execution of our strategies result in maximizing shareholder returns.
I am confident in Everest's future and on our ability to deliver the commitments to our customers, shareholders and the marketplace. 2020 showed us all just how resilient we truly are. Now let me turn the call over to Mark Kosciansic for additional details on the financials. Mark?
Thank you, Juan, and good morning, everyone. As Juan discussed in our pre release outline, Everest had strong underlying results for the quarter and the year with positive net income in Q4, improving underlying margin, continued growth and an excellent capital position. I'll touch on these over the next few minutes. The positive quarterly net income result was achieved despite a prior year reserve strengthening charge of CAD400 million, a COVID provision of CAD76 million and catastrophe losses of CAD70 million. This clearly demonstrates the diversification and earnings power of Everest.
Everest reported net income of CAD64 million for the quarter and $514,000,000 for the year, resulting in a return on equity of 5.8% for 2020. We had a $44,000,000 operating loss for Q4 given the charges and generated an operating income of $300,000,000 for the year. Our net income in the quarter reflects strong investment income performance and improved attritional loss and combined ratios offset by cat, COVID and reserve charges. The catastrophe losses of $70,000,000 are pretax and net of reinsurance with $60,000,000 from reinsurance and $10,000,000 from insurance driven by Hurricanes Delta, Zeta and the Australian Queensland hailstorm. The estimate implied market share of industry losses is just over 60 basis points for Everest.
This is reflecting the underwriting and risk management initiatives of the past two years. There was also no development from prior cats in the Q4 charge. Year to date, the results include catastrophe losses of $425,000,000 compared to $576,000,000 during 2019. All amounts are pre tax and net of reinstatement premiums. In the fourth quarter, we added $76,000,000 to our COVID loss provision, reflecting the ongoing nature of this event and our consistent reserving philosophy.
This additional provision is predominantly IBNR for third party lines. This amount includes $56,000,000 in the Reinsurance segment and $20,000,000 in the Insurance segment and is in addition to the $435,000,000 of pandemic losses estimated in the first nine months of twenty twenty. Our fourth quarter estimates were not impacted by the recent UK Supreme Court ruling, as we had taken a prudent approach to loss assessment leading up to that ruling. For the full year 2020, the total pandemic loss provision is $511,000,000 of which more than 80% is classified as IBNR. Everest had an underwriting loss in Q4 of $219,000,000 due to the prior year reserve adjustment charge as compared to an underwriting loss of $29,000,000 for Q4 twenty nineteen.
As Juan mentioned, we booked a $400,000,000 prior year reserve strengthening in the fourth quarter exclusively for the Reinsurance division, primarily within long tail casualty segments such as GL, auto liability and professional lines for accident years 2015 through 2018. The reserve charge also includes actions on non cat property lines, primarily for the 2017 through 2019 accident years and driven by a few large losses to aggregate programs. Our reserve studies indicate that the Insurance division overall has strong and adequate reserve levels. At a granular level, we address some redundancies and deficiencies with no overall financial impact. The lines we strengthened included professional liability in the twenty fifteen through twenty eighteen accident years.
This was offset by releases in other lines. Turning to Everest's market position and growth. On a year to date basis, gross written premium was $10,500,000,000 up $1,300,000,000 or 15% compared to 2019. This reflects strong and diversified growth in both segments with reinsurance up 15% and insurance up 15% compared to 2019. Our underlying attritional loss and combined ratios are strong and improving.
Excluding the catastrophe losses and impact from the COVID-nineteen pandemic, the attritional combined ratio was 87.5% for twenty twenty compared to 88.4% for 2019. Excluding the pandemic loss estimate, the group attritional loss ratio for 2020 was sixty point one percent, down from sixty point two percent for 2019, with insurance improving from 66% to 64.8 percent. For reinsurance, the 2020 attritional combined ratio excluding the pandemic loss estimate and prior year reserve charge was eighty five point two percent, down from eighty five point five percent in 2019. For insurance, the 2020 attritional combined ratio excluding the pandemic loss estimate was ninety four point two percent compared to 96.5% in 2019. Our U.
S. Franchise, which makes up the majority of our insurance business continues to run at an attritional combined ratio in the low 90s, excluding the pandemic loss estimate. The group commission ratio of 21.6 year to date was down from 23% in 2019, largely due to business mix, a one time significant contingent commission in the Reinsurance segment during 2019 and higher ceding commission in the Insurance segment. The group expense ratio remains low at 5.8 for 2020 versus 6% for 2019, as we benefited from premium growth and continued focus on expense management. Q4 investment income had a strong performance of CAD222 million compared to $146,000,000 for Q4 twenty nineteen.
For the full year, pretax investment income was $642,000,000 versus $647,000,000 for 2019. The fixed income portfolio generated $542,000,000 of investment income year to date compared to $520,000,000 for the same period last year. Limited partnerships recorded $91,000,000 of income quarter to date largely due to fair market value adjustments. The limited partnership result was due to the continued improvement of the economy and financial markets. As a reminder, we report our limited partnership income one quarter in arrears.
Invested assets grew 23 to $25,400,000,000 versus $20,700,000,000 last year end. This strong invested asset growth was due to 2,900,000,000.0 of operating cash flow and the proceeds of our debt issue. The pretax yield to maturity on the investment portfolio was just under 3% down from three point four percent one year ago. Approximately 80% of our invested assets are comprised of a well diversified high credit quality bond portfolio with duration of three point six years. The remaining portfolio is allocated to equities and other invested assets, which are largely private equity investments with the residual amount in short term investments and cash.
Our effective tax rate on operating income for 2020 was 7.712.1% on net income. For 2021, we expect our tax rate to be approximately 12%, which reflects an annual cat load of about six points of loss ratio. Everest generated record operating cash flows of $2,900,000,000 compared to $1,900,000,000 in 2019, reflecting the strength of our growing premiums in 2020 year over year and a more modest level of claims paid. Everest enjoys very strong financial strength with ample capacity to execute on market opportunities. Shareholders' equity was $9,700,000,000 at year end 2020, up from $9,100,000,000 at year end 2019.
Net book value per share stood at 2 and $43.25 up 11.4% versus year end 2019 adjusted for dividends. Everest's strong balance sheet was further strengthened by the thirty year one billion dollars senior notes offering completed in early October twenty twenty. This is long term capital for Everest and enhances the efficiency of our capital structure with our debt leverage now standing at 16.4%. And with that, I'll now turn it back to John.
Thanks, Mark. Operator, we are now ready to open the line for questions.
Elyse Greenspan with Wells Fargo, your line is open.
Hi, thanks. Good morning. My first question, I wanna touch on the reinsurance reserve charge. So, Juan, I think in your opening remarks, you said that you guys had already selected more conservative loss picks. So can you just it would be helpful if you could provide more color there on the more recent accident years just given, right, that there was strengthening on some of these long tail lines, you know, going up to accident year 2018.
So can you just provide a little bit more color on what loss trend you're booking to in some of these lines within your reinsurance book? And how we could think about confidence in the more recent accident years?
Yes. Thank you, Elyse. We go through a pretty detailed review of each of our segments. And frankly, one of the things that this new management team has done really in the past year is really look at our carried reserves at a level of granularity that is pretty detailed. So we basically look at the accident years, underwriting years, we're using the latest information to better understand trends, predict ultimate loss ratios, and frankly, to figure out in a more detailed way the direction of travel for the underwriting portfolios.
So I start there by giving you a sense of the detail of granularity that we go through and basically coming up with the strengthening that we did in the quarter. Now, that being said, as we set the accident years, beginning at the end of twenty nineteen, and as we set the 2020 accident year, as we've set the 2021 accident year, we've already looking at some of the loss trends that are impacting industry. And so we baked those in when we made those loss picks. That's also one of the reasons why you don't see us taking up current accident year loss picks as a result of the reserve charge.
Okay. But can you give us a sense, I guess, I know there's many different business lines, but what kind of loss trends you're booking to within reinsurance?
I don't know if we specifically disclose the loss trends that we booked to. But what I can tell you though is that we are booking our current accident year loss ratios very prudently. And we have been, again, starting at the end of twenty twenty and going into 2021. We have not seen a significant impact on severity in the most recent accident years. And we're very confident in where we are at this point in time, both with the prior reserve actions that we took as well as the current year reserve loss picks that we have in place.
Okay. And then my follow-up question is on the insurance on the reserves there as well. So I think, Mark, you mentioned there was no overall financial impact from the review. But I believe you mentioned strengthening professional lines for 2015 to 'eighteen and there being releases in other lines. Can you give us a sense of the magnitude of the professional line strengthening?
And then what were some of the other lines? I'm assuming maybe workers' comp where you saw reserves of leases?
Yes, the magnitude is relatively muted. You're looking at overall $3,200,000,000 of net reserves in the insurance segment for the group. And so the types of adjustments we're talking about are in the teens, it's quite small. And the offsets are coming from other lines, you know, workers' comp would be an example of one. But again, very modest movements relative to the overall reserve level of the segment.
Okay. Thanks for the color.
Thank you, Elyse.
Mike Phillips with Morgan Stanley, your line is open.
Thanks. Good morning, everybody. I guess first on insurance. So looking at your core loss ratio ex the COVID losses, really, really good improvement there, three points or so this quarter increasing the last couple of quarters. I guess how should we think about the margins there, I guess in the near term, just this year as you focus on growth there and we've got industry concerns on COVID and loss trends and everything else in the casualty ones?
Yes. Sure thing, Mike. This is Juan Andrade. Look, I think we are building meaningful margin momentum. And you can see that by our numbers for the fourth quarter and full year underwriting results.
That improvement both in insurance and reinsurance is really driven by portfolio management, decisive underwriting actions and intentional shifts in our portfolio mix. If we exclude workers' compensation, we're also seeing the rates are outpacing our expected loss costs. And as that rate is being earned on a growing premium base, that's also going to have a positive impact on expected margin going forward. But also and I would point this out because this a very important point, in addition to rate, we're also taking a broad array of underwriting actions, including more granular segmentation in the in force book, management of attachment points, limits, terms and conditions. We're doing targeted non renewals and many other actions.
So we're doing a number of things that you're starting to see show up in the underlying profitability of both insurance and reinsurance that are by design and that are very proactive. It's not just all about rate, but it's also about all the other tools that we have in our kit about improving underlying margins. But all of that being said, and I think this goes to your question, Mike, it's important to keep in mind that some lines do require more rate than others. It also depends on the starting point. It depends on the loss cost trends.
And we also have to recognize that we're in an environment where the impact of COVID and the time that it will take for some of these claims to emerge, there's some uncertainty, right? We also have to think about the underlying social inflation costs. So overall, I feel very good about the margin momentum that we're creating in this business. It's not just about rate, but it's also about all the underlying levers that we're pulling forth. And I feel very good and very comfortable with both books of business going into 2021.
Okay. Thank you, Juan. Appreciate that. I guess second question specifically on your comp book. You guys have a pretty sizable concentration in one state.
And I'm curious to hear what you are seeing in California in comp given coming back from a shutdown and there's been some concerns on loss trends kind of rising there in The States. So anything you can share with what you're seeing in that book?
Sure, Mike. Let me start and then I'll ask Mike Carmelovich to jump in as well. I would say overall on the comp book, a couple of key things to keep in mind is we have reduced the percentage of comp in our book of business over the last year eighteen months. It's now roughly down to about 16% of our mix, down from about 24%. And again, this has been done in a purposeful way, right?
As you have seen less attractive pricing in the comp book, we have diversified into business. And so you see our growth in lines like casualty, property, D and O, etcetera. The other thing that we have done in our comp book is we have also moved more towards loss sensitive business, loss rated business on the comp side. And we've done less basically guaranteed comp business at that point in time. So we're actively managing the trend.
We're actively managing what we're seeing in the environment and obviously trying to continue to drive a lot of profit in that comp book. But let me ask Mike Karp to jump in specifically on your question
Thanks, Juan. Thanks, Mike. Yes, look, it's continuation of what we said and shared in prior quarters about starting to see it bounce on the bottom. We are seeing some pockets of some momentum upward, but in general still slightly in the negative side. That's why we're taking the actions we have and just managing through the cycle.
But we're hopefully cautious optimistic of what we foresee possibly towards 2021 towards the second half of the year.
Okay. Thank you, guys. Appreciate that.
Yaron Kinar with Goldman Sachs, your line is open.
Hi, good morning, everybody. First question goes back to the reserves strengthening. Can you maybe talk about loss picks for 2019, '20 '20, '20 '20 '1 accident years relative to where they currently are for the 'fifteen to 'eighteen accident years in GL, commercial auto and professional lines?
Yes. Thanks, Yaron. I'll start with that and then I'll ask Jim Williamson, who's our new Chief Operating Officer to add some color on this as well. As I mentioned before to Elyse's question, particularly when we set the accident year loss picks for 2020 and 2021, we were more conservative than the picks that had been in place for the 2015 through 2019 accident years. And that was really a reflection of what we saw in the environment, some of the industry trends that we were seeing, etcetera.
So we took a more prudent approach in being able to set those. So I would tell you that as I sit here today, looking at 2020, '20 '20 '1, they're stronger than the picks that we had in place for 2015 to 2018. But I would ask Jim Williamson to add some color on that as well.
Yeah, sure, Yaron. Just in terms of a little bit more detail. Mean, think one thing to keep in mind is we're performing this analysis at a very detailed and granular level. And so there's a lot of moving parts in terms of picks that have come up over that period where we're now at a higher level. And then other areas where we've taken so much rate, so many underwriting actions and the picks have come down.
I think the key thing to keep in mind though is that as Juan had indicated, we took a very conservative approach to the setting of the loss picks for the 2020 accident year, the 2021 accident year. And those picks are consistent with the level of ultimate loss ratio that's coming out of the reserve studies. And that gives us confidence that our starting point is the right one. We're taking rate in excess of our loss trend, right? So those things give you confidence that moving forward, we're positioned in the right way in the portfolio.
Got it. That's helpful. I appreciate that. And then my second question actually goes to top line growth. Juan, in your opening comments, did I get the or I got the feeling from the opening comments that maybe you're deemphasizing growth in reinsurance over insurance in the foreseeable future.
Is that correct?
No, no, not at all, Yaron. What I was saying in my opening remarks is that we have a very good market right now in both insurance and reinsurance. And our intent is very much to continue growing as long as the opportunities are there for us to be able to do this profitably. We have a leading franchise in P and C reinsurance. We're the seventh largest in the world.
We are aiming to continue to grow that presence, continue to take advantage of those opportunities. So absolutely not. As a matter of fact, I would also point you to my comments around our January 1 renewals and the fact that we had one of the strongest renewals we have seen in a number of years. And so look, as long as the market opportunity is there, as long as we can underwrite profitably, we're taking advantage of that. We are very well positioned, whether it's from a capital standpoint, a distribution standpoint, a talent standpoint, to be able to continue moving forward in this market with a lot of momentum.
Thank you. I appreciate the comments.
Thanks, Sharon.
Josh Shanker with Bank of America, your line is open.
Yes. Good morning, everybody. My first question, I know you can't speak to others' books, but we see something in your book that looks similar to what we've seen in others. Most of the improvement during this year has come on the expense ratio side of the of the combined ratio despite very, very strong rate increases already coming through in earned rates. I'm wondering if you can talk about why we're seeing such large expense ratio improvements, whether it's sustainable.
And just given your many, many years of work in the industry, what's going on here? This is not just an Everest phenomenon.
Yes. Sure thing, Josh. So I would say a couple of things. We certainly have seen an improvement in the expense ratio, and that's really coming from two areas. One is on the commission side.
And I think there's different factors there. I think if you look at insurance first, part of that is that we're writing more direct business through our brokers and less DUA business overall. And so I think that's part of what you're seeing there. We also in our insurance business because of mix, get the benefit of improved seat commissions. I think our team has done a very good job in setting up their external reinsurance program.
So you see some of that coming through on the commissions. On the reinsurance side, I think it's also pointed to mix at the same time on the commission line. But more importantly to me, it's really the operating expense ratio. One of the hallmarks of our company has been that we are lean, we're disciplined on how we manage expenses, we invest where we need to invest in technology and people and infrastructure, but we're also very disciplined about how we do that. And that's something that you saw us continue to accomplish in 2020 and on to 2021.
That actually drives that expense ratio to where you see it today. We also experienced loss ratio improvement. And you see that particularly in the insurance business for 2020. And that is really related to all of those actions that I mentioned in my opening remarks, what I term is really the hard work of running a profitable book of business, right? This is managing attachment points and limits and running off programs and books of business that you're not comfortable with and always seeking out the best economic opportunities to continue to improve the profitability of that business.
So to me, those are all the actions that one has to take to continue to improve underwriting profitability and sustain a profitable book going forward.
And my second question, maybe I'll try and get back in line then. The 6% expected normalized cat load for the coming year, it's obviously materially lower than where Everest has been in the past, although that's where it's been trending. Given the property cat renewals, which weren't as good as some were hoping, it's certainly better than they've been. Do we expect that long term Everest's volatility is going to stay low? Or we're just at a place right now in pricing where it just doesn't make sense to take on a lot of cat risk?
Yes. So let me start with that and then I'll ask John Doucette to jump in and add additional color to all of this. Josh, as you heard in my opening remarks, particularly at January 1, we increase the amount of limit that we deployed on the cat side. And we did that and feel very comfortable with it because of the pricing, the terms and conditions that we're getting. Look, at the end of the day, volatility in of itself is not a bad thing as long as you're getting paid for it.
And from our perspective, we were getting paid for it in January 1, we were getting paid for it throughout 2020. Now that being said, our goal is to build a diversified book of business, is not just to ride one pony, if you will. And so if the opportunities are there on CAF to be able to do it profitably, to get a good risk adjusted return, improve our ROEs, etcetera, we're going to do it. And you saw us do that in the renewal seasons of last year and really going into January 1. So the appetite is there, but it's there at a price and it's there at a point that makes sense to us economically.
So with that, let me turn it over to John Doucette and have him add some color as well.
Yeah. Thanks, Juan, and good morning, Josh. Yeah. Look, we had a very good oneone with significant rate increase. We saw double digit growth across many, many lines of business.
And in terms of property, we did see rate increases in The U. S. Five Percent to 10% in retro 10% to 15%. And really, was a question of how we allocated the book and where we decided to deploy the capacity. And so number one, where do we decide to deploy the capacity?
We also saw very good opportunities in the primary property space. So we deployed more capacity into both cat and to primary property quota share, which we like the risk return on that opportunity. So that's number one. Number two, as noted, we have increased the AUM in Logan and continue to look for ways to increase that and look to have that continue to be a very strategic part of our volatility management, capital management. And that will help decrease the volatility that you're seeing.
And then number three, as Juan said, a lot of this is about diversification. Diversification within the reinsurance, diversification by growing the insurance operations, so it's different lines, territories, products. And that will result in just a lower dollars may be flat or even up a little bit. But as a percentage of overall gross premium, the percentage of our cat load could be lower.
Well, thank you for all the answers. I appreciate it.
You, Josh.
Mike Zaremski with Credit Suisse. Your line is open.
Hey, great. Good morning. First is a follow-up to Josh's question. So I think a lot of us look at the historical cat load and we listened to your guidance and obviously you have a lot more info than us on the cat load of being six points. So to the answer to the last question, is Mount Logan taking a portion of the historical cat load, right?
So it's kind of it's going to other investors that aren't equity investors? And is that maybe the piece we as investors don't fully appreciate because you're ceding it to kind of a new set of investors versus pre Mount Logan it was all going to Everest?
Yeah, thanks, Mike. This is Juan. And again, let me start and then I'll ask John Doucette to jump in as well. I would say that on that 6% cat load that Mark was referring to, it's really a question of how we manage our exposure into reinsurance book and really what we have been doing frankly over the last eighteen months or so to make sure that we're in a better place, more profitable place, more sustainable place from a catastrophe standpoint. Again, I go back to what I said earlier.
We like cat, but it has to be priced right, has to be managed correctly. You've seen a lot of things that we have done that have been frankly reflected in some of the catastrophe loss numbers that we've put out in the third quarter and the fourth quarter. We have moved up to higher attachment points. We're writing less aggregate programs. We're frankly writing a more profitable book, a more sustainable book.
And so that's part of what you see there. The other part of that is our capital shield, our hedging strategy for the company. Logan certainly plays a role there. Our Kilimanjaro bonds certainly play a role there. And there's other things that we're doing at the same time.
You will see that we grew AUM in our Logan book, in our Logan vehicle to the beginning of this year. And that certainly helps as well in essentially protecting our net position within the company. But let me ask John Doucette to jump in and add some additional color.
Yes. Thanks, Juan. And so Mount Logan, we've been Mount Logan has been in effect since 2013. And it has grown and then came down a little bit in AUM and now it's starting back up. So I don't think it's a definitionally it used to go to Everest and now it goes to Logan.
It's part of a holistic suite of both what we're doing on the growth side, capital management side and the hedging side, and it's part of that. But it's clearly a core part of this of how we're thinking capital management and volatility management going forward. But I mean, we also saw, as Juan said earlier, while we did increase limits on the gross portfolio in our property book across property cat, retro We did increase that because of the opportunity set, but we saw an increase in overall premium and a larger increase in expected dollar margin and percentage margin and an increase in the ROE. So part of it is how we're thinking of what we want to keep on our balance sheet and other parts of the balance sheet.
But I do think it's more I think than your how you're focusing on it, It's more a function of the diversification. As a function of premium, it really has more to do with the diversification, the growth in the insurance operation as a percentage, the growth in reinsurance in different lines of business. We saw a lot of opportunities in casualty, continue to see opportunities in mortgage, professional liability, significant opportunities in FAC. And all of that is growing the denominator of the 6% cat load that you're talking about. And I think that is driving it more than specifically in Logan or outside of Logan.
Okay. That's very helpful, those answers. My last question is just thinking about the reserving additions that were added this past quarter, the 400,000,000 Should we be thinking stepping back, are you adopting a new reserving methodology at all in a portion of the portfolio? I guess sometimes we get questions at some of your peers. They seek to, I think, strategically kind of book or maybe just overbook and be releasers.
I'm just kind of curious, is there anything we should be thinking about that's kind of changing on a go forward basis versus how you historically picked?
Yeah, thanks, Mike. This is Juan. Look, I think, from my perspective, the company has a very disciplined and multifaceted approach to reserving and risk management and that doesn't change. But I bring you back to my earlier comments, there's always opportunities for improvement on how you look at the data. So from our perspective, the new senior management team that we have in place is very granular and very detailed in how we look at IBNR groups and how we look at accident years by portfolio, by segment, etcetera, etcetera.
And we're making fact based decisions based on the trending and the information that our reserving studies give us and what our actuarial department is able to provide to us. And so that is basically if there's a change, it's that it's the fact of that we're being a lot more granular in how we look at the portfolios, how we make decisions based on the information that it's there and how we react to that basically.
Thank you.
Thanks, Mike.
Ryan Tunis with Autonomous. Your line is open.
Hey, thanks. Good morning. I guess another follow-up on the charge and reinsurance. Just trying to get a little bit more texture. Is this mainly a few large programs or is it a little bit more broad based?
And then also just maybe you could give us some feel for how your reserve for those accident years 2015, '20 '18 relative to the loss ratio indications from the cedent? How your loss picks compared to the loss ratios being reported to you in those years?
Yes. So Ryan, this is Juan Andrade. Let me start and then I'll ask both Mark Kusiansic and Jim Williamson to add a little bit of color on this one. On the reinsurance strengthening that we took, it was really a factor of a few things. Number one, we had a few seasons with poor experience in those accident years.
And on those scenes, we have subsequently reduced our lines or essentially completely non renewed the affected account. So that's part of that. There's also the fact that we had some pretty large losses coming through in some of those years, whether it was wildfires, MGM, etcetera. And that's part of that. And then the other part of that is really just general social inflation or the trend that we saw out in the market that was generating some higher severity losses than what we anticipated to.
So that's basically what we saw in our reserving studies that essentially led to us, taking the strengthening actions that we did. But let me now turn it over to Mark and then Jim for a little bit of additional color on your question.
Just a bit more on that, Ryan. I think in addition to what Juan was saying, when we took a look at these individual lines and accident years, we were looking also at the magnitude of uncertainty. So in other words, where are we within the ranges? And I think the strengthening that we put up in these individual, years and lines, we feel pretty good about. So we feel like there's a good level of, prudence, that's been set up for these and it solves the problem, for us.
Yeah, and so I'll sort of close it out with just a little bit of color around the piece of your question that sort of looks to translate SEEDEN underlying loss ratio to what we're experiencing. I look, the reserving process is based on our own loss activity. And I think there are clearly areas where you can draw a more direct connection if you're talking about, for example, a quota share book. So in the cases where we're participating in a proportional fashion with our cedents and they're seeing social inflation, average claim sizes have increased on the casualty side or in the case of water damage claims that are elevating property losses, that's going be a more direct translation. Where I think that starts to break down those, when you start talking about treaty structures that are not a direct quota share participation, you can't always draw those direct lines.
And so I'd be a little bit careful about that. But if you think about the things and the general trends that have affected primary insurers in the 2015 to 2018 on the casualty, sort of 2016 to 2019 on property, it's sort of the same drivers of loss that we are seeing in our book are the ones you're hearing from other companies. So I think it's consistent in that fashion.
Got it. That was helpful. And I guess talking about like hearing you guys talk about how the loss picks in 2020 and also 2021 are more conservative. So obviously, you're taking a view on 2021. I'm just curious, thinking about the fifty eight percent -ish ex COVID accident or loss ratio to reinsurance, should we think that given the higher 2021 loss pick, how easy or difficult do you think it'll be to improve on that next year, also taking into consideration the rate backdrop?
Thanks.
Yes, Ryan, this is Juan. Thank you. Look, I go back to some of my earlier comments where for us it's not just simply about rate, but it's also about all the other levers that we have within the underwriting portfolio and within the underwriting toolkit that we're executing upon, right? So if you think about how John and his team are positioning the team from an attachment standpoint, from a structure in the treaties, how they're playing on pro rata to be able to take advantage of the improvement in primary rates, etcetera, etcetera. All of these are things that are going into the improvement of our underlying margin.
And frankly, why I said at the beginning of all of this that we are building meaningful margin momentum in our underlying book of business. And I feel pretty good about that. So the reality is, is we're working at this every day, whether it's in reinsurance on insurance, with the goal of continuing to improve our margins, improve our profitability, improve our loss ratios, etcetera, etcetera. So you're going to continue us seeing taking actions across the board. Again, not just necessarily all rate related, but there's a lot of things we can do in the portfolio that also influence that and we're doing them today.
Thank you.
Thanks, Ryan.
Brian Meredith with UBS. Your line is open.
Yes, thanks. I have two questions. The first one, Juan, just curious, if we look at the returns you're probably generating on new business right now, and just curious what your thoughts are on that, is that better than actually repurchasing your shares at this point, given that you're trading at a discount to book value?
Yeah. So look, I think a couple of things, and then I'll ask Marcos Yancek to jump in as well. From a capital management philosophy standpoint, our approach really hasn't changed. Number one, we invest in our company and in the organic growth that we see there. We happen to be at a place in time where we have terrific opportunities in the insurance side, on the reinsurance side.
And you see from our numbers, we're taking advantage of them. Fact is, we're leaning forward. The fact that we grew 15% in a pandemic year with an economic recession, exposure reductions, I think is a very good outcome. And I think that gives you a sense of how we're investing in our business to continue to grow and take advantage of those opportunities. At the same time, we also then look at other things that we can do to return capital to our shareholders.
And I'll let Mark talk a little bit about that.
So Brian, I think both parts are on the table. Obviously, the emphasis on franchise expansion in a hard market is paramount. This hasn't come along in quite some time. On the capital management side though, your points are well taken and that's clearly on our radar screen. I think share buybacks, the dividend policy, that's still all in play and very much in our line of sight.
But we do have, I think, a unique opportunity to capture a lot of benefits from this hard market.
And I guess you don't have the flexibility to do both at the same time?
Do. Have full capability on both sides. So whether it's you know, attacking the market and taking advantage of opportunities and doing the capital management aspects that you've seen in the past.
Yeah, Brian, and I would jump in there as well. You know, as I mentioned in the third earnings call, we have the capital flexibility to attack this market and we're doing it. As I mentioned earlier, based on the growth rates that you're seeing, we also did the $1,000,000,000 debt raise back in October of last year. And that has not been deployed for growth yet. That has been invested in our portfolio.
But we have dry powder. So we have the ability to continue to do what we need to do in this market and take advantage of the opportunities that we see in front us.
Real helpful. And then my second question one, I'm just curious, could you give us some perspective on where do you think we are with respect to COVID loss recognition? And
what are
the potential future exposures kind of related to COVID?
Yeah, no, thank you for that. Look, I feel very good and very confident where we are with our COVID numbers. We were very consistent in our reserving throughout 2020. Our processes were very good, very thorough. You know, as Mark mentioned in his remarks, we're at $511,000,000 for the year of 2020.
Over 80% of that is IBNR. We look at the claims activity that's been coming in. We have not been surprised. Everything has been tracking along sort of what we expected. So I feel very confident about where we are with those COVID numbers.
Now, all of that being said, the pandemic is still ongoing, right? That has not eased, it continues. And things that we look at are there going to be other legal regulatory legislative type things that happen that we haven't seen yet, right? So those are the things that are still out there potentially. The other thing that's out there is the fact as a reinsurer, we do get late information from our cedents.
But all of that being said, I feel very confident about where we are with that $511,000,000 that we took in 2020.
Derek Hahn with KBW.
Hi, this is Mayor. Is this me? Yes. Hi, Mayor. Great.
I'm sorry. I couldn't catch the name. So two quick questions. One, the cat load is consistent in terms of expectations on a year over year basis. And I was hoping you could break that down between business mix changes that had been driving down the cat less ratio in prior years and maybe just a more pessimistic expectation of losses because of climate change or other factors underlying trend.
Yeah, no, that's good. So let me start with that and then I'll ask John Doucette to come back into it. Again, think part of what you're seeing in that 6% cat load that Mark alluded to, it's essentially the end result of a lot of the management actions, the proactive underwriting actions that the team has taken really over the last twelve to eighteen months to better improve and better manage the volatility of our portfolio. So you're definitely seeing that essentially come through at the same time. Now, regarding the point on climate change, we are very mindful of that, right?
So one of the things that our modeling does, particularly under reinsurance division, is really look at the impact of a rise in sea temperatures that you can clearly see from 1995 on to current. And based on that, we have adapted our modeling, we have updated our points of view on risk, on pricing to better be able to manage that. So all of that is essentially baked into that. But let me turn it over to John Doucette and let him add a little bit of color on that as well.
Yes. Thanks, Juan. And yes, just to continue on. So two things we spend a lot of time thinking about in terms of how we manage the risk in our property portfolio. It's all the aspects of climate risk.
We spent a lot of time looking at wildfire and frankly derisking the wildfire exposure in our portfolio. Spent a lot of time looking at the warm sea surface temperature, looking at droughts and the propensity for drought. So a lot of how we deploy capacity, what should the right attachments, products, terms, conditions and frankly rate be looking at that. So number one is climate change. And number two, we've also been looking a lot at the different social inflation and risks that we've seen in the books, things like assignment of benefits to LAE, the increase in LAE that we've seen in different areas both in The U.
S. And outside The U. S. And so that's all factored into how we think about building portfolio, learning from the lessons that the industry has seen and really positioning our book on a go forward basis. And it also so it has some loss trends for the reasons I just mentioned climate and some of the social issues.
But it also we also are seeing the uplift that we're getting from improved rates, terms, conditions, occurrence clauses, hours clauses, etcetera, etcetera. So all of that is we have several countercurrents that result in the 6% you're looking at here.
Okay. That was great, Thoreau. Thanks. And then second, really quickly, can you give us some picture of expectations of ceding commissions, both what you're going to expect to pay in reinsurance and collect in insurance on a year over year basis?
Sure. So John Doucette, why don't you start with that and then we'll go to Mike Karn for the insurance piece of it.
Yes. Thanks, Juan. So it'll vary by line, by territory, etcetera, by loss experience of the client. So one of there's been significant underlying rate improvement, terms of condition improvement on casualty and professional liability. And so our view is that the casualty reinsurance market was rational.
For the most part, ceding commissions were about flat, but we did see an economic uplift at oneone just based on our exposure to the underlying terms and conditions. And then that would be very loss dependent. If somebody had bad poor loss experience, they could see a cut in the ceding commissions. And on property overall, we did see an improvement in the overall reinsurance terms and both in terms of like occurrence limits as well as ceding commissions. And I think that really was just a function of the overall capacity dearth on proportional reinsurance.
So we were able to deploy and wanted to deploy more into that space.
Yes, I think it really comes down from the insurance perspective, really on the value of the reinsurance relationships that we are successful in maintaining all the ceding conditions emissions that renewed over the last several months. I would say one comment is our books vary and we had certain portfolios like I mentioned, we had the beneficiary of that for some of the things Juan mentioned earlier about seating commissions that we gained by some of the portfolio mix in certain lines like specialty casualty and other specialty lines like transactional and credit political risk. So we tend to have really top talent in these areas, which I think have generated better terms and conditions for us in some of our reinsurance. But I think as we continue the journey, we see opportunity and we certainly think there's also opportunities for us to manage that more effectively.
Okay, great. Thank you very much.
We have time for one more question. Phil Stefano with Deutsche Bank. Your line is open.
Yes, thanks. I just wanted
to ask a follow-up to Brian's question about the COVID charges. Can you just provide us with a reminder of how to think about is there a date that you have booked this through? Is it just a calendar year 2020 losses? Or to what extent was 2020 and the potential ongoing nature of the pandemic contemplated in the five eleven reserves?
Yes, sure thing, Phil. Let me ask Jim Williamson to address that question for you. Yes, Phil to provide a little bit
of color. I think it's important to understand the process we go through to arrive at these estimates. It's incredibly granular. So we are basically reviewing each and every reinsurance contract we have in each of our markets around the world. We do that multiple times each quarter.
And the goal of those underwriter estimates is to get a total view of estimated losses for those contracts. And so it's not really isolated to any particular time period. It's focused on the extent of the contract and what we think those losses are going to be. So I mean, think that's the core of the answer to the question. I think it's important to note though that obviously our understanding of what that total is going to be is informed by the duration of the pandemic, etcetera, as well as the reporting lag that Juan pointed out.
But our goal is always to try to estimate the totality of loss.
Okay. And as we think about the growth that is coming into the business, and maybe this is more focused on insurance than reinsurance, but the potential for economies of scale as we think about nominal expenses moving forward, it feels like the insurance business had some investments in teams and the building out of functions and things like that. Does it feel like that should slow down and we return or we come to a point where expense growth on a dollar basis is much more inflation plus or minus? Or are there investments still to be made in helping us think about the economies of scale you can pull through?
Yeah, Phil, I think that's a great question. Look, insurance division is now a $3,200,000,000 business, right? So that's a good size insurance company. We are still making investments in technology and people, data and analytics, product expansion, a number of things. And that's not going to stop, right?
Because we think we have a terrific opportunity in front of us, particularly in this market to continue to be able to grow that. Now that being said, we also expect that we will continue to manage our expenses in a very disciplined way in the way we have been now. So focusing on things like digital automation, those types of things to make us more productive, much more efficient. Those are things that are very much top of mind and they're also being implemented as we go forward. So there will be investment that will continue in this business.
We will be reaching economies of scale, as you point out, I think we're pretty close to that. And the focus is on how do we become more productive, more effective, more efficient as we grow that business.
I'd now like to turn the call back over to management for final remarks.
Great. Thank you. So I think as you can see from our results, we have strong growth, we have strong underlying improvement and we have great momentum going into 2021. The company is very well positioned for this market. We have the financial strength, a preferred market presence, a diversified global platform.
We are nimble. We have a deep distribution relationship. We have great people and we have a great culture. We're very well positioned. So thank you for your time with us this quarter and for your support of our company.
This concludes today's conference call. We thank you for your participation. You may
now disconnect.