RE
#It won't be there at all in 2018.
Is that a Lloyd's question or an overall insurance question.
Oh, okay.
I would expect that to drift down slightly in 2017 and then, frankly, level out maybe ---+ and slightly again in 2018 but then level out from there.
I don't believe that we will get back to our historical expense ratio.
You have to remember that we now have a different distribution model.
So, previously, we were primarily an MGA-focused insurance operation.
Today we are more of a direct brokerage operation, which by definition if we are getting even the commission element of it, just the general expense ratio element of it requires different types of resources and different systems.
So it will not get back to maybe what you would have seen historically from us.
Having said that, I think if you ---+ our expectation would be as we, even today, we have a much better expense ratio than the industry, we expect that gap to remain.
We are always surprised because, if I said we weren't surprised, we would have put out a higher number back in 2015.
Yes, it is a surprise.
And with reserves, you never know what an increased level of frequency or severity might, in fact, do to you.
But, as I mentioned, our other pieces of our portfolio that are active are, in fact, running at ---+ this past year, produced a redundancy.
So we are confident that those reserves are, frankly, in good order.
But, again, in the context of our overall balance sheet, our reserve position is quite strong.
And I think that applies to the various segments as well, even though I know I keep emphasizing the overall balance sheet, which is important and worth emphasizing, we do want to go through each of our segments to make sure that we have got positive reserve or a strong reserve position in each of those segments.
I will let <UNK> answer that.
Good morning.
This is <UNK>.
So, a couple of things.
The strategic relationship we entered as a reinsurance opportunity with the buyer of Heartland has a couple of advantages for us.
First of all, it runs, we believe, to a meaningful improvement in expenses.
And because of just economies of scale that we were unable to achieve on our own book given the size of the premium.
And then secondly, we also had struggled in our insurance book to develop a broad, diversified portfolio.
And so individual localized weather events were causing more problems for us and caused more volatility in the book as an insurance play.
What we're going to get is the benefit of a much, much larger book ---+ a share of that book on a reinsurance quota share basis.
So we think we're going to run to a better combined ratio meaningfully, and we think there's going to be less volatility in the results.
I don't know specifically what you're talking about and if you're talking about it as an insurance play or as a reinsurance play.
We would think as a reinsurance play, it's low 90s%.
I'm actually going to ask ---+ I'm going to make a few comments and then ask <UNK> to set the comment on it as well.
But also ---+ but keep in mind that, yes, it was a heightened year.
Many of the losses, though, were low on the attachment point.
A lot of the losses were assumed by primary, and what is consistent with what we've said is through all the last couple of years, given risk-adjusted pricing ---+ in order to maintain our level of risk-adjusted pricing, we have moved attachment point, gotten off of certain things that we didn't like the pricing on, and we believe that that has had an impact on our result relative to what the overall levels of tax were in the industry.
So I think that's just the general comment, and maybe <UNK> <UNK> might have some ---+ something to add to that.
Yes, <UNK>, I think a couple of things.
The reinsurance strategy, we continue to look to how we can improve the book and deploy and take cat risk better and deploy it and build a better and better portfolio.
And taking into account market conditions but also the buying habits of global companies, regional companies, and global clients.
So to the extent that we ---+ the global ---+ take the global clients.
To the extent that they are looking to do more across the board and across multiple lines of business and multiple territories with companies like Everest, we are deploying more cat capacity to them.
And that usually means given the retentions that they want to take in order to control the pricing of the reinsurance program, they typically are protecting against the real major losses.
Very big earthquakes, very big hurricanes, etc.
And so that wouldn't necessarily impact us as much in a year like this with the exception of Canadian wildfires and Hurricane Matthew.
And then we also ---+ as <UNK> said, we are trying to shift our book, and we have been moving not in every case, but generally, we have been moving up the tower.
That also means it takes larger losses to affect us.
But then I would also highlight the different hedges that we have in place, including Mt.
Logan, and Mt.
Logan continues to be a strategic platform for Everest, and we saw some benefits from that in 2016 with recoveries that we saw from both Matthew and Fort McMurray wildfire losses in Canada, as well as some other smaller losses around the group.
So we think that that helps mitigate some of the cat loss activity that Everest faces on its inward book of business through the various hedges that we have in place as well.
I'm going to answer that as really an overall question as opposed to specifically to insurance.
Overall, we still have about the same level of what we call excess excess capital, and so all of the metrics that we use to measure what our economic capital needs to be remain about the same.
So that capital growth basically is supporting all of the lines of business, both insurance and reinsurance.
Remembering that we're doing some different things on the reinsurance side that consume different levels of capital.
This is <UNK>.
We did not make much of a shift.
What we did do was shift it a little bit, as I mentioned, last quarter and within the alternative capital or alternative investment buckets.
But overall, the portfolio remains very stable, very high credit quality, investment-grade bonds, and it makes up the majority of the portfolio and then we have alternative investments.
The new money rate that you are suggesting is about the same ---+ about 2.8% compared to what the current yield is at 2.8% as well.
In return, the yield that you're referencing is essentially what happened in the fourth quarter ---+ it all depends on timing of the limited partnership and alternative investment income.
And that can get a little lumpy.
So we are pleased that, frankly, year-over-year investment income was flat.
We think that was a pretty terrific outcome.
We're going to expand a little bit.
Right now, we're running over.
But perhaps we got a little wordy in our opening remarks.
So we'll extend beyond our usual hour, and if there's one of two more questions that perhaps we can entertain.
I'm sure you won't mind.
Well, I still think the same factors are at play.
Scale, being one of the more relevant factors, continues to put pressure on many of our competitors to seek partners, and that's not necessarily a bad thing.
And I think that will continue to be the trend going forward: scale and efficiency.
For us, as you know, our strategy remains the same.
We are not a big fan of putting a ton of goodwill on the books, and frankly, acquisitions are difficult to ---+ in our view, others have ---+ certainly could have a different business model, but in our view, acquisitions are difficult to assimilate and with it comes perhaps elements of the portfolio that you don't wish to be engaged in, that requires some remediation, and we think it's a lot cleaner to get the talent that we think we can secure.
We have good talent and build out the portfolio in the matter and shape that we feel is most desirable.
So that is kind of our continued strategy.
If there are things that we don't think we can build out on our own successfully, meaning elements of the different lines of business, very focused areas, we continue to look at things, but I'm not giving it a high likelihood that would be ---+ we would see something in that regard.
But I wouldn't rule it out completely.
<UNK>, I think you said the Ogden rate table.
(multiple speakers) You broke up a little bit, yes.
So we write business all over the world.
We write a very little bit of motor business.
In the context of our overall over $4 billion of premium, it's not material to us.
So the short answer to your question is we watch that.
We look at the rates.
We are probably a little less ---+ we are probably a little more pessimistic on that over the last couple of years.
So we have not deployed that much capital in that respective area.
So we do not think it's material to us.
So we have ---+ it really applies to a lot of different things.
It applies to strategic relationships that we are trying to build with some of our core clients.
We have added some of those in 2016.
We have somewhere between a half a dozen and a dozen of these core strategic relationships.
We are looking to expand that and continue to deploy that where we really become a strategic partner to the clients and not just a large reinsurer to them, and that has worked out very well for us.
We continue to deploy and really holistically deploy capacity with the global clients, and we see that as a big opportunity for us in the future as they want to trade more with companies like Everest and less with others, either because of too much concentration with some of the big directs or they want to narrow their reinsurance panels.
We're spending more time really strategizing about how we ---+ as one of the very largest broker market reinsurers, how we can grow more with the brokers in the reinsurance area, and we think that's something that will be to the benefit of both of us, and we expect to continue to make headway on that in different products that they have, different initiatives and different strategies with that going forward.
And then, frankly, just a lot of these new alternative ---+ really building out what we call the nontraditional space, where there is a product ---+ new products, new distribution, new clients ---+ and we're making some good headway there both hiring people, developing resources internally, and have had recently some few nice wins in that space, and we look to continue to deploy that going forward.
Thank you, <UNK>, and thanks to all for participating in this morning's call.
Apologies for going a little longer, but we had questions in queue.
We obviously were pleased with our performance this past year, and we recognized as do you that it's a very challenging market.
But we're still quite confident that we can outperform on an absolute ---+ on a relative basis and an absolute basis.
My colleagues here this morning outlined some of the new things we are doing, and I have highlighted our balance sheet strength, reserve position which certainly bodes well for the future.
So we are very confident that we can continue to perform well, and that is not without taking an increased level of risk.
It is continuing to do what we do.
It is to underwrite through the different parts of the cycle and diversifying.
Diversifying into new products and new areas and continue to expand our franchise.
In particular, expand the insurance franchise, which we think is one of the ways forward, as well as product diversification on the reinsurance side.
So thank you very much for your interest and your participation this morning.
We look forward to seeing you probably over the next several weeks.
Thank you.
