Good day, and welcome to the Everest Re Group first quarter 2018 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Beth Farrell, Vice President of Investor Relations. Ma'am, please go ahead.
Thank you, Travis. Good morning, and welcome to Everest Re Group's first quarter 2018 earnings conference call. On the call with me today are Dom Addesso, the company's President and Chief Executive Officer, Craig Howie, Chief Financial Officer, John Doucette, President and CEO of Reinsurance Operations, and Jonathan Zaffino, President and CEO of Insurance Operations. Before we begin, I will preface our comments by noting that our SEC filings include extensive disclosures with respect to forward-looking statements. In that regard, I note that statements made during today's call, which are forward-looking in nature, such as statements about projections, estimates, expectations, and the like, are subject to various risks. As you know, actual results could differ materially from current projections or expectations. Our SEC filings have a full listing of the risks that investors should consider in connection with such statements. Let me turn the call over to Dom.
Thanks, Beth. Good morning, and welcome to the call this morning. As noted in the published financials, the core attritional results of the company continue to be quite favorable. Despite the prior year cats recorded this quarter, the operating ROE of 10.5% is quite strong. Our reinsurance book produced a $96 million underwriting profit in the quarter, and our insurance franchise more than doubled its underwriting profit to $12.5 million for the quarter. This reflects a continuing diversification effort into classes of business that have adequate margins. With respect to the reinsurance segment, the underwriting profit is a consequence of improving margins in our property book, which I will get back to in a minute, but also expanded writings in casualty, mortgage, and structured products.
While mortgage and structured products have generally had excellent margins, we are finding the general casualty market is now firming, perhaps in part due to less than expected improvement in companies' margins on property business. However, more prominent in the casualty market is the demand side. As underwriting income in primary markets has been under pressure due to property results, buyers have become more attuned to reducing volatility generally across their entire portfolio, driving more demand for casualty and whole account solutions. Industry consolidation oddly plays a part in that due to large buyers needing capacity and quality markets that can support them. With respect to the property market in general, the renewal season for reinsurance offered up better terms but was somewhat below our expectation. This resulted in us reducing our participation in certain areas.
Our first quarter premiums were above the prior year due to rate and select new opportunities. These two factors, of course, lead to increased margin per dollar of PML year-over-year. April is a key renewal for the Japan and Asia markets, which saw a slight improvement in rates, the bright spot was the Caribbean renewals, which, of course, were loss-affected. On balance, the reinsurance property market remains inconsistent in that there is less business that meets our current return hurdles, enough that allowed us to increase our margin year-over-year. Our approach to different parts of the cycle has been to match capacity to capital at the most efficient point in the curve. That means periods of contraction, expansion, attachment point change, et cetera. Whatever suits that particular period in the market. Over time, we tend to outperform the market.
We think the reinsurance book has continued that trend here in the first quarter. Our insurance operation continues its tremendous progress. While it may not be obvious given the similar attritional combined ratio year-over-year, in fact, the North American operation produced a 95.7 combined ratio in the quarter. The headwind, of course, is the international insurance build-out, which was in the plan. During the balance of 2018, we expect the international operation to improve substantially as we are beginning to see our investments there pay off. Insurance premium growth remains healthy, this growth creates a pull on earnings as earned premium lags the resource investment required. Some of our newer product offerings with lower expected loss ratios have not yet fully had their impact as the earned premium build is still developing.
The year progresses, we expect our expense ratio and loss ratio to improve as the accelerated growth in premium becomes earned in conjunction with a more normalized resource growth. We are quite optimistic about the ability of the insurance group to increase this level of profitability. The market will likely make that a challenging objective. We have demonstrated that our product diversity and scale is one that allows us to find the right opportunities. This is not unlike what I described regarding the reinsurance operations cycle management. Before I end my comments about the underwriting operations, you surely want my comments regarding the wildfire losses booked this quarter. Let me say that this tragic event was so much more devastating than people imagined. These record events late last year were obviously hard to evaluate, especially as a reinsurer who is one further step removed.
Our loss selection for any particular event is based on a three-pronged approach that takes into consideration the estimated industry loss, modeled estimates, and client discussions. We place greater weight on the highest of these outputs when establishing our reserves for catastrophe events. The models for these wildfire events were the lowest of the various estimates, the reserves were largely based on our clients' insights into their expected loss. Many of you know our reserving philosophy, we believe that due to our various methodologies, our estimate was conservative. This turned out not to be the case, we continue to expect that our overall 2017 year-end reserve position will prove to be more than adequate to cover all losses that occurred in 2017 and prior, including cats.
Finally, let me touch on investment income, which remains strong and is reflective of a continual evaluation of our asset allocation in a low but rising interest rate environment, coupled with increasing volatility in the equity markets. Our slight rotation and allocation to the private equity markets with a bias towards fixed income from public equities has resulted in a pickup in investment income. Nevertheless, our core portfolio remains investment grade and naturally, with the recent rise in rates, has negatively affected our market values, thereby constraining our growth in book value. This is a relatively short-term challenge as our portfolio is on the shorter end with a duration of three years. This, of course, means that over time, these bonds will accrete to par, and we will benefit from higher rates going forward.
In summary, based on the first quarter and what we see ahead, we remain quite optimistic and would expect to continue to produce a double-digit ROE, including an expected cat load. This is a result of our diversified portfolio and strong market position, as well as a solid balance sheet. Thanks for your participation this morning. I look forward to the discussion later. Now to Craig for the financial report.
Thank you, Dom, good morning, everyone. Everest had another solid quarter of earnings, with net income of $210 million for the first quarter of 2018. This compares to net income of $292 million for the first quarter of 2017. The 2018 result represents an annualized net income return on equity of 10%. Net income included $19 million of net after-tax realized capital losses, compared to $32 million of capital gains in the first quarter last year. The 2018 capital losses were primarily attributable to fair value adjustments on the public equity portfolio. After-tax operating income for the first quarter was $220 million, compared to $267 million in 2017. As previously announced, the company's reporting of operating income now excludes foreign exchange gains and losses.
The overall underwriting gain for the group was $108 million for the quarter, compared to an underwriting gain of $183 million in the same period last year. In the first quarter of 2018, Everest saw $100 million of catastrophe losses related to the 2017 California wildfires, compared to $20 million of catastrophe losses reported during the first quarter of 2017. In comparing reported losses against our prior year catastrophe loss estimates and the impact of aggregate covers on attachment to specific events, we revised the ultimate loss estimates by event and by segment with no change in the overall loss estimates, except the California wildfires, as previously announced. No other events breached our $10 million catastrophe threshold in the first quarter of 2018. Therefore, any losses arising from these events were more than covered in our attritional loss estimates, which include a load for events less than $10 million.
The overall current year attritional combined ratio was 87.1%, up from 84.5% in the first quarter of 2017, primarily due to changes in business mix and higher retrocessional costs in 2018. John Doucette will explain more about these changes in his comments. Our reported combined ratio of 93% was higher than first quarter last year, primarily due to the higher reported catastrophe losses in 2018. For investments, pre-tax investment income was $138 million for the quarter on our $18 billion investment portfolio. Investment income was 13% above last year. This result was primarily driven by the increase in limited partnership income, which was up $12 million from first quarter of 2017, and the investment-grade fixed income portfolio, which had a higher asset base this year. The pre-tax yield on the overall portfolio was 3%, with a duration of just over three years. Foreign exchange is reported in other income.
For the first quarter of 2018, foreign exchange gains were $10 million compared to $4 million of losses in the first quarter of 2017. Other income also included less than $1 million of earnings and fees from Mt. Logan Re, compared to $2 million of income in the first quarter last year. On income taxes, the 6% effective tax rate on operating income was at the low end of our expected range of 7% to 8% for the full year. The effective tax rate is an annualized calculation that includes planned catastrophe losses for the rest of the year. Should catastrophe losses come in lower than this estimate, it would be expected that the tax rate would go up. Shareholders' equity for the group was $8.3 billion at the end of the first quarter, relatively flat compared to year-end 2017.
This is after taking into account the mark-to-market impact on the investment portfolio and capital return through $53 million of dividends paid in the first quarter of 2018. Our capital position remains very strong. Thank you. Now John Doucette will provide a review of the reinsurance operations.
Thank you, Craig. Good morning. The reinsurance division delivered a strong first quarter with $96 million of underwriting profit, premium growth of 22%, and a better risk-adjusted portfolio as compared to Q1 2017. After the record of loss activity in 2017, rates were up as we indicated last quarter. At this pivotal 1-1 renewal, we focused on improving the quality of our portfolio, including its diversification by line of business and geography. To this end, we were successful. Our clients and brokers increasingly gravitate to Everest as an enduring, relevant, long-term trading partner. Against this backdrop of increasing uncertainty for some of our competitors who are distracted by M&A activity, Everest provides stability and focus to the customer.
Our growing global reinsurance franchise with broad product and distribution capabilities, an industry-leading expense advantage, and sophisticated capital and hedging capabilities position us to maximize opportunities born from the continued disruption and evolution of the reinsurance market. This is further enhanced by the growing number of strategic partnerships that we are adding and developing across our entire organization. Our deepening relationships continue with our core clients and partners and extend beyond the traditional P&C landscape. These strategic relationships come in various forms, including global clients, quality upcoming underwriting organizations staffed with underwriters we know well and respect, cutting-edge insurers, brokers with specialized distribution capabilities, niche businesses accessing unique and diversifying risks, highly specialized MGAs, and asset managers and alternative capital investors.
Combining the accompanying enhanced capabilities derived from these partnerships with our nimble execution, we are better positioned to thrive where the continuum of asset risk and insurance risk is blurred. Before I comment on recent renewals, here is an overview of the reinsurance division's results. Overall, reinsurance premiums showed strong growth at $1.4 billion, an increase of 22% from the first quarter of 2017. This was driven by broad growth across the U.S., Middle East and Africa, Latin America, and European operations, including both rate increases and a higher volume from pro-rata contracts. Our loss ratio was elevated by 9.8 points, with 6.5 points due to the $100 million of loss emanating from the California wildfires in our U.S. operations.
Adjusting for these wildfire catastrophe losses and per-year development, the attritional loss ratio is up 3.2 points due to business mix with a higher share of new property and casualty pro-rata opportunities, additional long-tail treaties, some loss portfolio transfer business, and higher retrocessional costs in the quarter compared to Q1 2017. Our estimates for the Harvey, Irma, and Maria losses remain unchanged in total across the group. The losses both across business segments and by event have been allocated differently as more data became available. Directionally, we saw upward movement on Irma estimates due to increased loss adjustment expenses, while we saw reductions on Maria and Mexican earthquake estimates as development has not been as significant as initially estimated. For some additional comments by reinsurance segment.
In our U.S. reinsurance segment, we saw first quarter premium increase 11% year-over-year to $644 million, benefiting from post-loss rate increases, additional property and professional liability pro-rata business, and increased structured products writings. The attritional loss ratio is up 3.4 points, primarily due to higher corporate retrocessional costs recorded to this segment and the impact of business mix. The 14-point loss ratio improvement seen in our Bermuda segment and the 22-point improvement in the international segment are due to the aforementioned reallocation of cat losses between segments. Our Bermuda reinsurance segment premium grew 29% in U.S. dollars to $416 million and 25% on a constant dollar basis.
Some of the growth was recognition of written premiums from prior underwriting years, with the balance supported by new professional liability and casualty quota share business, capital relief trades, and new reinsurance opportunities, as many Lloyd's markets increased their hedging activity amidst adjustments to their underwriting strategies. Adjusting for cats and prior year development, the attritional loss ratio was up about five points, mostly due to business mix. The international reinsurance segment premium was up 38% to $367 million. Premium growth was broad-based across Latin America, Middle East and Africa, Canada, Singapore, and facultative markets. Some growth was due to timing of premiums on certain accounts. However, the current year attritional underwriting result was largely stable compared to Q1 2017. In terms of catastrophe capital management, we recently executed on reinsurance protection supported by two new Kilimanjaro cat bonds.
These new cat bonds, with total capacity of $525 million, replace expiring bonds, protecting us from hurricanes and earthquakes in the U.S., Canada, and some areas in the Caribbean. The maturities are split into four-year and five-year terms and all provide annual aggregate protection. The overall retro costs are up year-over-year because of the additional Kilimanjaro II cat bonds that were issued in Q2 last year. This additional coverage, along with Mount Logan and traditional reinsurance and retrocessional hedges, protect our group's PMLs holistically, allowing us to prudently manage within our cat risk appetite across all reinsurance and insurance segments. I will provide a brief update on recent renewal activity. In our property operations, we have captured double-digit rate increases in loss-affected markets, while ceding commissions were largely stable. Competition from ILS capital prevented further rises in rates.
At Everest, we focused on improving the risk-reward balance as we led the market with corrective rate increases on deals, while also finding new attractive opportunities. In casualty markets, there is a modest firming of reinsurance terms. Casualty excess rates are generally up in the single digits and ceding commissions down for our U.S. deals. Internationally, ceding commissions are stable. April 1st renewals in Asia would best be described as stable pricing with some increase in demand, particularly from the larger companies and mutuals, such as in Japan. We also renewed some loss-affected areas such as the Caribbean, where prices were up, reflective of the 2017 loss activity. In these areas, we have been able to deploy the same or more capacity at increased rates. Alternative capital and M&A is a presence in our business.
Given this reality, Everest has taken the opportunity to step up as a stable partner, capable of navigating the increasingly dynamic reinsurance markets. This resulted in better access to good business through increased signings on layers we found attractively priced, including some private deals not shown to the full reinsurance market. We also provide assistance to some of our clients experiencing operational disruption through both traditional and structured solutions tailored to address the evolving needs. A key lesson so far in 2018 that is already well-known, but perhaps underappreciated, is that reinsurers cannot rely on hard markets to offset subpar results in non-loss years. Having understood this to be the case for some time, Everest will continue to develop its capabilities to maintain relevance. Namely, global breadth of capabilities across various classes of business while continuing our territorial expansion and developing new products.
Creative structuring to deliver customized solutions to our clients. Meaningful capacity supported by advanced capital and hedging capabilities through Mt. Logan, Kilimanjaro cat bonds, traditional reinsurance and retro, and ILWs. All supported by an efficient expense structure and nimble execution in size, leveraging our flat and empowered organization. Sustainable franchises must maintain relevance and profitability and the ability to trade forward through major industry losses to ultimately be successful in the long term. Thank you. Now I will turn it over to John Zaffino to review our insurance operations.
Thank you, John, and good morning. We are pleased to report a solid start of the year for our global insurance operations. As measured across numerous metrics, we are beginning to realize the benefits of the many strategic and tactical actions taken over the past several years to position our insurance operations for sustainable success. This, of course, includes the achievement of consistent underwriting profits across our steadily expanding portfolios. Globally, gross written premium was $505 million for the quarter, a 16% increase over the first quarter of 2017, and the strongest first quarter production we have experienced in the history of Everest Insurance. We continue to invest in thoughtful and focused growth within our chosen product segments across our global operations, and this quarter's results are a testament to that.
Most importantly in the quarter, this growth resulted in underwriting profit of $12.5 million, more than double the $5.1 million underwriting profit from the first quarter of 2017. Further, our attritional loss and loss adjustment expense ratio improved 1.7 points to 66.1%, reflecting the continued migration toward the higher value and diversified specialty books of business and the earned premium impact of these businesses into the P&L. These more recently established portfolios accounted for a record 22% of our net earned premium in the quarter and will continue to expand in the quarters ahead. We remain confident that our vision to organically build a world-class specialty diversified insurance organization is being realized. As we have reported in prior calls, our leadership and underwriting teams in place across the globe continue to execute on their individual and collective mandates.
Our teams remain focused, our opportunity set, measured by our robust submission flows across lines of business, continues to grow. We will look to build on this momentum throughout the year. Turning to the financial highlights, as mentioned, the global insurance operations produced $505 million in gross written premium in the first quarter, an increase of $71 million or 16% over first quarter 2017. Another solid quarter showing steady improvement and evidence of our growing relevance in the specialty insurance market. As in prior quarters, contributions remain balanced across the diverse group of property and casualty and accident and health underwriting divisions within our global insurance operations. Further, this represents the 13th consecutive quarter of growth across the insurance organization. Turning to net premiums, for the first quarter of 2018, net premiums grew by 12% to $386 million.
Net earned premium in the quarter was $393 million, an increase of $69 million or 21%. Net written premium will lag gross written premium as we continue to take a fairly conservative reinsurance position, which we believe supports our growth across our underwriting divisions. Our reported GAAP combined ratio for the quarter was 96.8%, an improvement of 1.6 points over first quarter 2017. The attritional combined ratio was 98% in the quarter, which compares favorably to the first quarter 2017 attritional of 98.1% and is roughly in line with the fourth quarter 2017 attritional combined ratio of 97.8%. That stated, in this year's first quarter, the North American operations, where 94% of the premium volume resided, achieved a 95.7% combined ratio, along with a full point improvement in the attritional loss and loss adjustment expense ratio.
The overall reported GAAP loss ratio for the first quarter of 2018 was 64.9%, improving 3.3 points over last year's 68.2%. In addition to the attritional improvement, the loss ratio was beneficially impacted by 1.2 points of favorable prior year development from 2016 cat activity, again, reflecting our conservative reserving position on these events. As anticipated, the downward drift in the attritional loss ratio continues. This is a result of an improved mix of business, the benefits from the many new businesses launched, and the strategic underwriting actions of the past three years. Turning to the expense ratio, due to the timing of certain one-time expense items and the lag in earned premium from the build-out of new businesses, our expense ratio in the first quarter was 31.9%, up from the 30.2% from the same period of 2017.
We expect our expense ratio to improve throughout the year and to remain in a competitive range. It's important to remember that we continue to invest in all facets of our organization while maintaining underwriting discipline. As a result, written premiums may fluctuate somewhat from quarter to quarter, as will the expense ratio. However, we anticipate the annual expense ratio to be within our expectations. I'll turn now to the market conditions and in particular, offer some commentary on the rate environment. As the quarter progressed, we saw an improved P&C pricing trend across the organization. Overall, rate levels for Everest Insurance were slightly negative, decreasing by 2.4 points in the quarter. However, it should be noted that this rate study was derived from a renewal book that was lighter than usual based on lower planned retention.
The retention softness was influenced by deliberate underwriting actions impacting our U.S. property portfolio and our delegated authority operation, Everest Underwriting Partners. If we exclude the work comp book, the rate change for the organization was plus 4.6% for the first quarter, with a steadily progressing level of rates being achieved across a number of lines each month. This is more than double the increase from the fourth quarter of 2017, where we experienced a 2% increase on the same basis and is the highest aggregate price change we have experienced in 10 quarters. This result was led by various lines of business, notably property and commercial auto. Let me spend a minute on the property book, as it is one area of the market experiencing a notable degree of transition.
We currently underwrite property portfolios across the globe with a concentration in the U.S. market through both retail and wholesale channels. Within the U.S. market, we have now experienced six consecutive months of positive rate change in our property portfolio, ending the first quarter at +13% on a risk-adjusted basis. As HIM-exposed renewals come up in the second quarter, we expect continued pricing improvement of a similar magnitude. Overall, we do believe there is a need for further rate firming within the property market, CAT and non-CAT alike, and across other markets as well. Turning to other lines, commercial auto continues to see meaningful increases, again, in the low double-digit range across our various portfolios. We continue to see slightly positive rate movement for GL and excess lines, each registering positive rate changes in the quarter.
We believe continued rate adjustments are needed within these areas as we move through 2018. Various professional lines continue to see some rate pressure, although this trend is moderating in the first quarter, particularly in March. Work comp markets remain competitive, with single-digit rate decreases being common. We continue to feel comfortable with the composition of our workers' comp book, the margin associated with it, and our underwriting strategies going forward. We have been in this market for many years and will continue to take a cautious view in this or any area of the market should rate pressures continue. The bottom line for us is that we are focused on the need to achieve adequate technical pricing across our portfolio and are working diligently toward that objective every day. In conclusion, the momentum we established in 2017 across our global specialty insurance operations has continued into 2018.
Strong premium growth and solid profitability are being achieved alongside continued investments across our platform. We continue to thoughtfully invest to ensure we have the talents, capabilities, and resources to profitably expand our franchise while building increased resiliency across our business. We look forward to continuing our momentum and reporting back to you next quarter. Now back to Beth for Q&A.
Yes, Travis, we are now open for questions.
Yes, ma'am. If you would like to ask a question, please press the star key followed by the one key on your touchtone phone now. Questions will be taken in the order in which they are received. If at any time you would like to remove yourself from the questioning queue, just press star two. Again, to ask a question, please press star one now. Our first question comes from Joshua Shanker, Deutsche Bank.
Yeah, thank you very much. Post-tax reform, I would've thought in my mind that this means that more reinsurance business will be written onshore in the U.S. The way your segment reporting works, it seems that the greatest amount of growth is in international and Bermuda. Then the weakest in U.S. reinsurance. I'm wondering if there's something to that. Maybe you can disabuse me of some facts that I have that are incorrect or whatnot.
Josh, this is Craig. Technically, the tax rate is based on the operating tax based on geographic region and where that income is coming from. What we had done throughout this year, and that includes, by the way, catastrophes and any reserve development as well. What you saw in the first quarter, and the reason for a lower tax rate, is the fact that we had the catastrophe losses were emanating from the U.S., and the majority of those releases were coming from the other segments, including the Bermuda segment.
Well, not so much on tax rate, just about where clients put their reinsurance business. Is more business going to be written in the U.S. going forward, just in general post-tax reform, or is that an incorrect way of thinking about things?
Hi, Josh. It's John. I don't know if we can speak for other people because I think part of it's going to be a function of what the capital structures of different reinsurers are. A couple of things. We have a fair bit of capital both in the U.S. and outside the U.S., we are going to continue to try to access the business in the most advantageous way that we see based on our underwriting expertise, based on our connection to brokers and clients and things like that. It really is opportunity dependent as to where we're going to write the business, whether it's going to be in the U.S. reinsurance segment, the Bermuda reinsurance segment, or the international segment.
Okay. As we head into midyear renewals, compared to what you saw at the beginning of the year, what is the trend on international property and U.S. property, I guess? Do we think that it'll be about the same? Do we think that 1-1 deployment was the way to go? What's sort of your finger in the air at this point in time?
As we talked about last quarter, I think it really depends on geographically where the business is and what the loss impact was by the specific business. That would drive a lot of what the rate discussions are going forward. No surprise areas that had been affected by the HIM losses or the California wildfires saw more rate increase at one-one. As we mentioned earlier in our script, when it came to April 1st, which is a big Asia renewal, particularly Japan, it was a lot closer to stable. We did see rate increases in some of the Caribbean areas that did have the losses. I think it does follow the loss events. In terms of where it's going to go at the upcoming renewals, we think that would also hold directionally true, that the areas that had more losses would have upward pressure on rates.
We'll see what happens, and we're positioned to take advantage of it based on what the rating environment is and what product set we think is most attractive. As we talked about and you saw in this quarter, sometimes that'll be excess of loss, sometimes that'll be proportional, sometimes it'll be reinsurance, sometimes it'll be retro. We try to really capture where we think we're getting the best risk-adjusted return, irrespective of the product. That results in some of the changes you saw in this quarter. We are comfortable that no matter where the rate changes and the rate pressures are or are not, and trends, we'll be able to capture that.
I'll add to that, as I mentioned as well in our opening comments, is that there's an improving trend in casualty as well. Increased opportunity there to meet our margin requirements.
Thank you very much, and good luck with the rest of the year.
Thank you, Josh.
Our next question comes from Kai Pan, Morgan Stanley.
Thank you, and good morning. I just wonder, could you break down the impact from both mix change as well as the high retro cost on the deterioration of attritional combined ratio, about 260 basis point year-over-year? Just wonder what are the sort of one-time impact, or this could be dragging on for the rest of the year?
The one-time impact from the change in the attritional?
Yes.
I'll ask my colleagues to comment as well, but let me just first make the comment that the change in the attritional is largely due to mix of business. An influx of pro-rata business in the first quarter was driving up the attritional. Remember that overall, that earned premium will be coming in for the balance of the year and will serve to increase our overall margin. Even though the ratios might be going up, because it's pro-rata business, there's a lot more premium on the books, and therefore that will contribute to an increased underwriting margin. We have to be careful about whether we're talking about ratios or margin.
Okay.
John may have a comment here as well.
Yeah, Kai, just a little more color on that. We alluded to it a couple of times, but if you recall in Q2 2017, we issued what was called Kilimanjaro II catastrophe bond. That was in from second quarter last year and remains in effect now. It was not in Q1 2017, and that's part of the elevated, because of that additional issuance of catastrophe bond back in the second quarter but not in the first. That's why the Q1 to Q1 comparison reflects that.
That's about one full point in the quarter.
The second quarter year-over-year comparison will be one point easier?
It will be more comparative in the second quarter because it was issued in April of last year.
Okay, got you. Okay. The point is that the revenue will grow faster, but the ratio, attritional combined ratio, will go higher because of mix change, but the net dollar amounts margin, underwriting margin, expected margin will be higher.
That's our belief.
Okay, great. Can you talk about the loss cost trend, especially in the casualty lines?
I'll ask John Zaffino because that's heavily impacted in the insurance book, but of course, it's a direct carryover to reinsurance. John, maybe you can-
Sure
highlight some of the trends we're seeing.
Sure, John. Thanks. Good morning, Kai. As is the usual sort of caveat, loss cost trends do vary widely from line to line, from geography to geography, from program structure to program structure. I'll tell you in general, we see a relatively consistent picture over the prior few quarters. If we were to aggregate our books based on premium weightings, the short, medium, long tail lines, I think we feel we're in about that 3% range, 2.5% to 3% could be higher, could be lower in certain areas. For instance, commercial auto, we think, is running above that. Some of the comp lines depend on geography, territory could be a little bit below. It's been relatively what we expected and anticipated.
We are certainly looking at various frequency and severity trends quarter to quarter, each one of our various books of business studies that we conduct throughout the year, and keeping an eye on that. It's as we expected at this point, based on what we thought the pricing would be, based on where we reserve our books. It's been kind of in line for our early expectations.
I think the way to summarize that would be really nothing in excess or out of bounds relative to what we see as general inflation across the entire economy.
Okay, great. My last one, if I may, is just on industry consolidation. Do you see any opportunities for Everest Re?
This comes up frequently. As I think I've mentioned many times, we look at probably all of the opportunities that are around in the marketplace. Generally, while there will potentially be opportunity, certainly nothing that we can speak to today. Generally, we have concluded in all of these that in part because of the price of many of these properties and probably more importantly, the integration challenges, in particular, and the expense challenge of integrating operations, we tilt towards an organic build. I think we've demonstrated that we can do that successfully. An organic build, you end up knowing exactly what you've got, and you can shape and mold the operation to your liking, as opposed to having to tear something apart.
That's our preference. It doesn't mean that something wouldn't come along that would fit strategically for us in an area that we've not yet fully developed. That's how I think about it.
That's great. Thank you so much.
Go ahead.
Just to add a little more color, outside of the M&A question, the fact that there's a lot of M&A and activity and discussion we think does present opportunities for us, particularly on the reinsurance side. As Dom alluded to in his opening comments, some of the consolidation results in some of the We've seen the large globals buying more, and they want to buy from companies like Everest that have a strong balance sheet and right P&C lines of business all over the world. Their capacity demands are increasing, and we're seeing some of the large global insurers buying more in the casualty and professional lines. That was part of the reason why we had the growth that we had in Q1.
Thank you, John.
Just a reminder, if you would like to ask a question, please press star one. Our next question comes from Meyer Shields, KBW.
Thanks. Good morning. I want to dig in a little bit to John Doucette's comments on relevance. Am I oversimplifying if I interpret that as implying sort of a desire to more rapidly increase your casualty book in reinsurance?
In reinsurance or insurance?
In reinsurance.
Meyer, we don't start with we want to write more casualty business. We start with where can we build a footprint that makes the most sense on a diversified global portfolio across as many lines of business and make the best risk-adjusted portfolio we can. We are seeing opportunities in the casualty space more than we had. We have been fairly negative on casualty and professional liability for the last several years, maybe a little bit ahead of the curve, and we think that was the right call, and we are now seeing more opportunities. It's more a function of what we think the risk-adjusted pricing is.
The point of the relevance is that we have the ability, we have the underwriting expertise, we have the market expertise in local markets all around the globe, and we have the relationships with the brokers and clients to be able to deploy the capacity in any property and casualty line as we see fit and as our clients need to buy. We think that helps us, along with the alternative capital that we can use to deploy in the property space, we think helps us be more relevant to our clients.
It doesn't necessarily suggest that we're writing business at any cost. Again, get back to whether it's in the reinsurance operation or the insurance operation, a heavy emphasis on cycle management, and that applies line by line. At the same time, we are trying to achieve greater diversification, too. These are all things that I think have led to a more stable result for the group and will continue to do so.
Okay. Yeah, I didn't mean to suggest you were accepting underpriced business. I just wanted to know whether strategically clients recognize that there's maybe more underwriting expertise at Everest than premium volumes themselves would suggest.
Oh, I think that's absolutely the case. Even more importantly, that's clearly the case in insurance, where the brand is being more fully developed.
That's helpful. Second question, if I can, just looking at the comments on larger global insurers looking for more reinsurance, are they a tougher customer to deal with maybe because of additional sophistication?
This is John. I think there's pluses and minuses with every type of client that we trade with. They bring stability. They bring diversity. They bring, again, to our point of trying to have a diverse portfolio, they are buying from us in Latin America and Asia and Europe, and obviously in North America and Bermuda and London. It allows us to, across that relationship, have a more stable relationship. Again, some of them are more or less reinsurance dependent than if you go to the other end of the spectrum of much, much smaller clients that are very reinsurance dependent given their capital structure and their writings. There's pluses and minuses of all types of clients that we trade with.
Meyer, I don't believe it's a negative to have a sophisticated trading partner. In fact, I think it could be quite a positive because they more easily recognize the strength and the value that Everest can bring to the transaction. I view it as a positive. As John was really highlighting, I think we find that having those broader and larger relationships tends to, over time, we tend to have a more stable margin. In any one area, you might be tilted sideways a bit, but across the entire account, we tend to have greater stability.
That's very helpful. Thank you so much.
Thanks, Meyer.
Our next question comes from Elyse Greenspan, Wells Fargo.
Hi. Good morning. A couple of questions. My first question, in terms of the premium growth, I guess this is tied specifically to reinsurance. Do you see you guys being able to maintain the same growth level that we saw in the first quarter as you think about these new opportunities that you're seeing for the balance of the year? Also, if we could just get the color from most of your segments you really highlighted where you're growing geographically, a little bit more color by line, and how much more crop and even credit mortgage business is within the growth that we saw in the first quarter?
Good morning, Elyse. It's John. In terms of the growth, part of the growth is kind of a two-pronged issue. We wrote business, including proportional business at 1/1, and we wrote more, and we would see that earn in over the next several quarters. We will see some growth tied to that. In terms of whether we see new business that incepts and we put on the books in future quarters, we think so. We don't know if it's going to be at the same rate that we've seen so far. It's a lot harder for us to predict that. There is the embedded growth that we've had from the business we've already put on the books.
We do think that we have been expanding our opportunity set, for example developing political risk and trade credit in our Zurich operation as just one of the many examples around the group that we've been doing to try to build out our opportunity set, expand that, and therefore that gives us the opportunity to grow more. You mentioned crop. Crop was fairly flat. The growth isn't really coming there. We are seeing more both in the U.S., Bermuda and in our Bermuda operation in London. We are seeing more casualty professional and some whole account opportunities. We continue, as we've said on the last several quarters, we are writing the mortgage business. That's up a little bit or close to flat, but we do continue to see new opportunities in the mortgage space and think we'll be able to deploy capacity on an attractive risk-adjusted basis there.
As you may recall, a lot of the mortgage deals that are done with the GSEs are multi-year deals. We have effectively IBNR premium coming in over the next many years for deals that we've already put on the books.
How much mortgage business is within the reinsurance segment today?
We have a run rate of about $150 million-$175 million, give or take. That's of the new business origination.
That's an annual number?
Yeah.
Okay. In terms of, you guys didn't see any reserve development in the quarter away from the cats. Was there any movements? It was just kind of net neutral within all the segments in the quarter?
Elyse, as you know, we do our reserve studies, the bulk of our reserve studies, in the latter part of the year in the fourth quarter. Of the other metrics that we use to evaluate reserves along the way or at each quarter end, something we call actual versus expected, we're all trending favorable. As a consequence, we don't make reserve adjustments based on those metrics. We wait for the reserve studies. The trends, the metrics that we use are all favorable.
Okay, great. One last question. In terms of the primary insurance business, Dom, when you, in your initial remarks, you said that the expense ratio and loss ratio would improve as the year progresses. I guess is the goal, should we think about modeling for the back three quarters that you guys will be in kind of that low nineties overall underlying margin within the primary insurance business?
We have said last quarter's call and low to mid nineties is kind of what our target is. It's a little difficult to give you a precise number, but it will certainly be a measurable improvement over last year.
Okay, great. Thank you very much.
Thank you, Elyse. Thank you.
Okay, we have no further questions in the queue.
All right. Thank you very much. Let me conclude with just a few thoughts. We're off to a great start for the year. The changing mix, which we've talked about already, while certainly impacting the attritional ratios, will in fact produce an overall increase to the total dollar margin as the year develops. We fully expect, as you've heard from my colleagues, rates to be improving in both property and the casualty areas in certainly sufficient quantity in different classes of business to allow us to increase our overall returns. Again, we are confident about our ROEs. Finally, if you just give me one second, I'd like to close with a tribute to our colleague, Beth Farrell, who is retiring in early May after 15+ years with Everest. I know she's been a valuable resource to those on the call.
I certainly appreciate the support she has given me. We will miss her, but wish her and her husband a full and enjoyable retirement. Thank you so much, Beth.
Thank you.
Again, thank you all for your interest this morning, and look forward to our future discussions over the weeks ahead. Thank you.
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.