Everest Group Ltd

NYSE:EG

Q1-2025 Earnings Call

[Operator]

Good morning, and welcome to the Everest Group Limited First Quarter of 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Matthew Rohrmann, Head of Investor Relations. Please go ahead.

[Matthew Rohrmann, executive]

Thank you, Jason. Good morning, everyone, and welcome to the Everest Group Limited First Quarter of 2025 Earnings Conference Call. The Everest executives leading today's call are Jim Williamson, President and CEO; Mark Kociancic, Executive Vice President and CFO. We're also joined by other members of the Everest management team.

Before we begin, I'll preface the comments by noting that today's call will include forward-looking statements. Actual results may differ materially, and we undertake no obligation to publicly update forward-looking statements. Management comments regarding estimates, projections and similar are subject to the risks, uncertainties and assumptions as noted in Everest's SEC filings. Management may also refer to certain non-GAAP financial measures. Available explanations and reconciliations to GAAP can be found in our earnings release, investor presentation and financial supplement on our website.

With that, I'll turn the call over to Jim.

[James Williamson, executive]

Thanks, Matt, and good morning, everyone. Let me first acknowledge the significant catastrophic events from the first quarter. Beyond their financial impact, Everest recognizes the human toll. My team and I are proud to work in an industry and for a company that exists to support communities and businesses in their time of need.

As expected, given the California wildfire and aviation losses in the quarter, our combined ratio was elevated at 102.7%. Our actual losses from these various events are within our expected ranges. In the case of California, particularly, our share of loss, given Everest's size and scale in the U.S. market, demonstrates superior underwriting and risk selection. Total group written premium was $4.4 billion, similar to Q1 2024. You will hear a consistent theme across our divisions. We're growing at healthy rates, where risk-adjusted returns meet or exceed our thresholds. Where pricing is weak relative to risk, we are intentionally shrinking, in some cases, rapidly. Excluding the cat and aviation losses, our attritional loss ratios are on track, reflecting disciplined underwriting with conservative risk margins layered on top of our loss picks in both businesses.

Moving on to reinsurance. Total premiums increased from prior year, driven by approximately 16% growth in property lines or 8%, excluding reinstatement premiums, offset by ongoing actions in our casualty book. As I mentioned in the Q4 call, at the January 1, 2025 renewal, our overall book shrank marginally, reflecting 6% property growth, offset by cutbacks in casualty. At the April renewal, the book grew by 5%, again led by property growth of 15%.

Of note, given our strong value proposition, we continue to grow with our valued Japanese clients at attractive margins despite many programs being oversubscribed. We expect moderate cat pricing pressure for the remainder of 2025, but anticipate ample opportunities to deploy capital at attractive expected returns. We've said it before and it bears repeating, rate of price change is important, but expected returns determine our willingness to deploy capital. In property cat, expected returns are excellent.

Moving on to casualty. Pro rata written premium was down almost 22% in the quarter, driven by the portfolio actions we've taken since the January 1, 2024 renewal. Capacity in the casualty quota share market is abundant with many markets taking up risks we view as unprofitable. We believe ceding commissions have been unjustifiably sticky. Barring a change in the environment, our book will continue shrinking.

Our aviation losses in the quarter were consistent with our expectations. Out of prudence, we added 2.4 points to our overall reinsurance division loss ratio in the quarter to account for our full expected loss. Excluding that, our attritional loss ratio would be 57.4%, in line year-over-year. This reflects improvement as our book shifts towards property, offset by the conservative risk margin assumptions I noted earlier. Cat losses net of recoveries and reinstatements were $461 million, driven by $440 million from the California wildfire. This is consistent with our original expectations and does not account for potential subrogation recoveries.

Moving on to insurance. Written premium in the quarter was down 1.3% from prior year. Property lines grew 19%, while our specialty businesses grew 16%. This was offset by a 15% decline in our third-party book, driven by the remediation of our U.S. casualty portfolio. That remediation is proceeding according to plan and as I laid out on prior calls. In Q1, 50% of casualty written premium with renewal dates in the quarter was not renewed. This is more than prior quarters, but we are not budging on the changes needed to reach target profitability in one renewal cycle.

Casualty rate increases averaged approximately 20% across commercial auto, GL and excess umbrella, consistently above our conservative assumption for loss trend. Q4 2024 through Q2 2025 are what I would consider peak remediation. As I said on prior calls, this process will be completed by Q4. Property pricing in the U.S. is declining from previous highs. Despite this, we believe market pricing is adequate and will continue to be for the foreseeable future.

Our International Insurance business is developing in line with our expectations with strong growth in key markets at attractive loss ratios. The international business turned a modest profit in the quarter despite continued meaningful investment in people and technology. Excluding the aviation loss, our attritional loss ratio in the insurance business was 67.9% in the quarter, similar to our Q4 results. This was driven by an improving underlying loss ratio due to mix, offset by the ongoing prudent risk margin we apply to our picks.

Moving on to reserves. Everest's overall reserve position improved since the end of 2024. It's still early days in insurance, but our international business shows clear signs of strength, driven by excellent underwriting and prudent loss picks. In North America, our loss experience is in line with our actuarial central estimate. As I said earlier, our 2025 loss picks will include significant risk margin above actuarial central estimates, which should yield additional reserve strength over time.

In reinsurance, our analysis suggests robust favorable loss development in property lines. In casualty, loss activity remains in line with expectations. As I've said before, we will not take credit in our loss picks for underwriting actions until we know those actions are having the intended result.

Respecting group capital management, we repurchased $200 million of shares in the quarter at an average price just over $348 per share. This is consistent with the comments we made on the fourth quarter call and with Everest's commitment to delivering value to shareholders. Given our excess capital position, growth rate and valuation, share buybacks are a priority and will continue to be if those conditions persist.

I'll end with a brief word on the external environment. Everest has completed a thorough assessment of our exposure to the new tariff regime, and we believe prolonged tariffs at current levels would put modest upward pressure on loss cost trend. Our frequent analysis of trend assumptions will allow us to respond quickly should inflation creep upward.

And with that, I'll turn it over to Mark.

[Mark Kociancic, executive]

Thank you, Jim, and good morning, everyone. Everest delivered $276 million of operating income despite significant industry catastrophe loss activity in the first quarter. Our reinsurance franchise continues to perform strongly with successful January 1 and April 1 renewals as expected returns remain very attractive. We continue to progress on our 1 year -- one-renewal strategy in U.S. casualty lines within our insurance division, and we remain on track to complete this strategy later this year.

Starting with the group results. Everest reported gross written premiums of $4.4 billion, representing a 2% decrease in constant dollars and excluding reinstatement premiums. The combined ratio was 102.7% for the quarter. Catastrophe losses contributed 13.9 points to the combined ratio, largely driven by the California wildfires. And I would note, the prior year quarter had a much lower level of cat activity.

The group attritional loss ratio was 62.2%, a 330 basis point increase over the prior year's quarter. The increase was largely driven by aviation losses of $70 million, net of recoveries and reinstatement premiums, which contributed 2 points to the attritional loss ratio, as well as our conservative approach to setting initial loss picks in U.S. casualty lines, primarily within our insurance segment. The group's commission ratio was 21.4%, consistent with the prior year. The group expense ratio was 6.2% in the quarter as we continue to invest in talent and systems within both franchises.

Moving to the segment results and starting with reinsurance. Reinsurance gross premiums decreased 1.1% in constant dollars when adjusting for reinstatement premiums during the quarter. Consistent with prior quarters, double-digit increases in property lines were offset by continued discipline in growing casualty lines. The combined ratio was 103.3% in the first quarter of 2025, and included 18 points of catastrophe losses. The prior year first quarter combined ratio of 87.3% included 2.9 points of catastrophe losses.

This quarter's cat losses were largely driven by $442 million of losses from the California wildfires, net of recoveries and reinstatement premiums. Reinstatement premiums were $62 million in the quarter, while the prior year first quarter was not impacted by reinstatement premiums. The attritional loss ratio increased 260 basis points to 59.8%, which includes aviation losses of $61 million, net of recoveries and reinstatement premiums, contributing 2.4 points to the increase. The attritional combined ratio increased 270 basis points to 87.1%. The commission ratio and underwriting-related expense ratio each improved slightly to 24.3% and 2.4%, respectively.

Moving to Insurance. Gross premiums written were relatively flat in constant dollars at $1.1 billion, as we continue to improve the balance of the portfolio and shed underperforming U.S. casualty business. We made meaningful progress this quarter with property and specialty lines, each growing in the high teens, and this growth was offset by the aggressive underwriting action we are taking in Specialty Casualty lines centered around U.S. GL, commercial auto and excess liability. As a result, Specialty Casualty gross premiums written represent 25.1% of the insurance segment mix, a decrease of nearly 5 points from the prior year quarter.

The attritional loss ratio increased to 68.8% this quarter. Aviation losses of $6 million contributed 0.9 points to the segment's attritional loss ratio. As we discussed last quarter, we are being very disciplined in setting and sustaining prudent loss picks based on underlying loss trends and our view of the U.S. casualty risk profile. In U.S. casualty lines, rate increases of nearly 20% on average remain well in excess of trend. Our Q1 U.S. casualty loss experience is consistent with our actuarial central estimate, which, as a reminder, is meaningfully below management's best estimate.

Overall, we remain comfortable with the reserve position of our insurance division, and we're on track to publish our global loss triangles in June of this year. The combined ratio also included 1.1 points of catastrophe losses, primarily driven by the California wildfires. The prior year fourth quarter benefited from a relatively benign level of cat losses. The commission ratio increased 40 basis points, largely driven by business mix. The underwriting-related expense ratio was 18.1%, with the increase largely driven by the continued investment in our global platform and slower earned premium growth as we rationalize our U.S. casualty portfolio.

Our recently formed Other segment is performing in line with our expectations. The segment's gross written premiums reflect a limited number of renewed and new policies written on Everest paper by the acquirer of the Sports & Leisure business, which will continue for a finite period post closing. We booked this business very conservatively and expect the segment's contribution to the group's results to be de minimis.

Moving on, net investment income increased to $491 million for the quarter, driven primarily by higher assets under management. Alternative assets generated $55 million of net investment income, a decrease versus the strong returns from the prior year quarter. Overall, our book yield was relatively stable at 4.7%, and our reinvestment rate remains north of 5%. We continue to have a short asset duration of approximately 3.3 years and the fixed income portfolio benefits from an average credit rating of AA-. As economic uncertainty has increased globally, our high-quality conservative portfolio remains well positioned for the current environment with a relatively small exposure to investments that are meaningfully impacted by tariffs.

For the first quarter of 2025, our operating income tax rate was 16.1%, which was slightly lower than our working assumption of 17% to 18% for the year, driven by the jurisdictional mix of our profits in the quarter. Shareholders' equity ended the quarter at $14.1 billion or $14.7 billion, excluding $561 million of net unrealized depreciation on available-for-sale fixed income securities. The unrealized change was a decrease of $288 million as compared to the end of the prior year fourth quarter, and this was driven by interest rate decreases.

Cash flow from operations was $928 million during the quarter. Book value per share ended the quarter at $332.39, an improvement of 3.5% from year-end 2024 when adjusted for dividends of $2 per share year-to-date. Book value per share, excluding net unrealized depreciation on available-for-sale fixed income securities, stood at $345.57 versus $342.74 per share at year-end 2024, representing an increase of approximately 80 basis points.

Our annualized total shareholder return was 5.6%. Net debt leverage at quarter end stood at 15.4%, slightly lower from year-end 2024. Everest's strong capital position and earnings power continue to provide us the ability to pursue profitable growth and opportunistically repurchase shares. We repurchased 574,000 shares in the quarter, amounting to $200 million for an average of $348.43 per share. Assuming normal catastrophe activity, we expect to continue meaningfully repurchasing shares throughout 2025.

And with that, I'll turn the call back over to Matt.

[Matthew Rohrmann, executive]

Thanks, Mark. Jason, we're now ready to open the line for questions. [Operator Instructions] Jason, over to you.

[Operator]

[Operator Instructions] And our first question comes from Andrew Andersen from Jefferies.

[Andrew Andersen, analyst]

You mentioned some modest cat pressure for the rest of the year. Could you maybe just talk about the opportunity within Florida at midyear and how you're thinking about growth from either Florida domestics or more nationwide carriers?

[James Williamson, executive]

Sure, Andrew, it's Jim. Thanks for the question. Yes, I mean, our expectation is that the 06/01 renewal should be pretty attractive. Obviously, we'll have to see what terms and conditions look like, but I wouldn't be surprised if we take the opportunity to grow. And I think that would cut across both the demo tech companies where we've had really terrific results, and we have great relationships as well as our more nationwide partners.

We are seeing, I will note, some pretty meaningful increase in demand. And so a number of our clients are talking to us about buying more limit, which I think should be a favorable move around price. And obviously, that's offset by the fact that people have done incredibly well in property cat and people want to keep growing into the market. So I think it will be overall quite attractive.

[Andrew Andersen, analyst]

And then you also mentioned still attractive risk-adjusted returns on specialty lines. I think that was specific to reinsurance. And can you maybe just talk about the competitive market there, because it seems like it is getting increasingly competitive within Lloyd's.

[James Williamson, executive]

Yes. Well, so on the reinsurance side, and by the way, I think specialty lines are attractive across both of our divisions, both in reinsurance and insurance. For reinsurance, you did see just such a strong correction to most of the specialty lines after the beginning of the war in the Ukraine. Some of that's definitely come off, and you've seen people who have earned outsized profits are now looking to write more of that business. So it's becoming incrementally more competitive. But the bottom line is we still see tremendous opportunity across a number of our specialty underwriting areas.

And I would cite areas like engineering, our parametric business looked terrific. Marine and aviation still look pretty good. So I think we have incremental growth opportunities there at really attractive margins. And then I think the same thing applies to insurance. And certainly, both in North America and in our international markets, we've seen strong growth in our specialty lines businesses. And it looks like although there's a little bit of pricing giveback in a few areas, overall, rates are still well above what we would consider adequate, which is our trigger point for deciding to continue to grow.

[Operator]

The next question comes from Alex Scott from Barclays.

[Taylor Scott, analyst]

You talked a bit about growth just there, but you also mentioned the buyback and it being a bit of a priority and maybe meaningful for the rest of the year. And I just wanted to understand, at a high level, like how do you think about your capital capacity you have available? To what degree can you do what you want in terms of growth in midyear, but also repurchase at the level you did this quarter? Or should we think about that escalating upwards maybe?

[Mark Kociancic, executive]

Yes. Alex, it's Mark. I think we have the capacity to do both. When you take a look at how we're growing in the company, we're pretty much unconstrained with what we'd like to do in the operating plan for 2025. You've seen us grow meaningfully in property, in particular, on the reinsurance side, pulling back in treaty casualty and growing in certain spots of our insurance division and obviously shedding on the casualty side. So no issues there in supporting the growth or any of the opportunities that we see. We also view the share price as quite attractive in terms of share buybacks. So Q1, we printed $200 million of buyback. We think that's a meaningful number for the quarter, and I continue to see opportunities to deploy meaningful amounts of share buyback for the remainder of the year.

[Taylor Scott, analyst]

That's helpful. Second one I had is on the casualty reinsurance business. And the question is more about the underlying primaries. Are they, in your view, taking enough action in terms of pricing, that you're going to see that flow through on what you're retaining and it will be adequate? I just as an outside observer, looking at some of the indices out there, I mean, it's remained up while a lot of other lines are down, but it hasn't kind of sped upwards or something like that. So I just was interested in that perspective from the standpoint of will you potentially have to take more action than you were originally considering if there's not enough price coming through the primaries?

[James Williamson, executive]

Yes, sure, Alex. It's Jim. It's a good question. I mean, look, if you look at what's happening in the underlying market, pricing is obviously strong. I don't really see anybody slowing down in terms of price achievement, but it's way more than price, right? It's portfolio management, it's claims handling, it's distribution strategy. I mean all of those things contribute mightily to expected results. And so when we're evaluating the books of our quota share partners, we're looking across all those dimensions. And where we feel like the stars aren't aligning and where we think expected loss ratio exceeds the available economics in a deal, that's when we're walking away.

Now I think we've done a lot of the heavy lifting. I mean this process, as I've indicated a couple of times, started back in January of '24. We've moved away from about $800 million in casualty premiums that are exposed to North America. We've also, by the way, grown in some areas where we see people doing a really terrific job. And so my expectation for the outlook is probably more of the same. With continued underlying discipline, rate achievement, I think, will stay at elevated levels as long as people are concerned about social inflation. And for us, it's really then about how do you pick the best cedents to ensure that your loss picks hold and hopefully reveal margin over time.

[Operator]

The next question comes from Gregory Peters from Raymond James.

[Charles Peters, analyst]

I'm going to go back to your comments on the moderate pricing pressure you're seeing in cat versus your comment about expected return. I guess I'm trying to reconcile your targets with what we're hearing in the marketplace, especially like on the larger property schedules, where we're hearing about pretty substantial rate rollbacks. Maybe it's embedded in what's going on in the facultative market versus excess of loss market. But just trying to reconcile the pricing pressure we're hearing about versus your desire to grow. So I know you've already provided some answers to it, but maybe some additional clarity would be helpful.

[James Williamson, executive]

Yes. Sure, Greg. This is Jim. Before I answer your question, I just want to clarify, because it feels a little bit like you were talking reinsurance, but also insurance. So which one are you focused on in your question?

[Charles Peters, analyst]

Actually, both, but primarily reinsurance.

[James Williamson, executive]

Okay. So look, on the reinsurance side, starting at the 01/01/2023 renewal, we saw a sharp upward correction in pricing. I mean we achieved a 50% rate increase at 01/01/2023 in our U.S. treaty property book. And so the fact that rates are now coming off and you would have seen the 04/01 renewal in Japan, maybe that was down 10%, 01/01/2025 was down a bit. Yes, it's coming off a little bit. There's a lot of interest, I think, among a number of carriers to grow in that business because rates corrected to such a point that expected returns are still very, very healthy.

And so as long as that's true, those return expectations sustain themselves, I'm willing to continue to deploy capacity and capital to our best clients. And we've done very well with that strategy, and I expect that to sustain itself through 2025. I mean there's no sign in my mind that property cat in the reinsurance business is decreasing at a rate that would make it less attractive. The ROEs are still well in excess of my threshold for wanting to continue to deploy capital there.

In the insurance market, I would say sort of a similar set of facts insofar as we're coming off multiple years of rate on rate increases in property. So when you start to see decreases, you could still have situations, and I think we're there now where, yes, rates are down, but it's still very attractive. So you want to continue to grow. The only other thing I would add, if you look at our growth in the insurance business in the first quarter, we grew in both North America and international, but our growth is weighted toward international. And while there's some property pricing pressure internationally, it is not to the same extent as what you're seeing in some of the U.S. market. So bottom line, everywhere we're growing, all the points that I made in my prepared remarks around growing short tail, we're doing it because expected returns are exceptional. And that's really the only decision factor that is in our mind when we make those choices.

[Charles Peters, analyst]

Okay. I guess I could have a follow-up on that, but I'll delay and just pivot to the wildfire loss that you reported. Edison International is pretty much acknowledging that they're going to have some culpability in the event of the Eaton fire. So I'm just curious how reimbursements from the California wildfire fund might flow through and ultimately come through Everest's financials, if it were to happen?

[James Williamson, executive]

Sure. I mean, the vast majority of our wildfire loss, I mean, almost all of it is in reinsurance. And so to the extent that our clients receive recoveries, subrogation recoveries, what have you, that would flow back to -- that would inure to our benefit. You'll note in my prepared remarks, I was very clear that we are taking no credit for that. These processes tend to take a long time and subrogations often will take, in some cases, many years to unfold. So we're taking a wait-and-see approach, even though we do see some opportunities or some avenues where you could see subrogation and recoveries over time.

[Charles Peters, analyst]

Just to clarify, you would never sell your subrogation rights, correct?

[James Williamson, executive]

I wouldn't say we would never do it. I'm not really thinking about it for this particular situation. We have in the past. It really depends on the circumstances.

[Operator]

The next question comes from Josh Shanker from Bank of America.

[Joshua Shanker, analyst]

Yes. My first question on the insurance segment, flat premium year-over-year. Obviously, you're doing the one renewal plan to correct the book. A lot of that was price offset by some policy losses. But what about new business? Are there areas where you haven't had a big role before that you're taking share in right now?

[James Williamson, executive]

Josh, this is Jim. Are you talking specifically about casualty or the whole panoply?

[Joshua Shanker, analyst]

I'm talking about -- I mean, the insurance growth flat given your one-renewal strategy is a very good outcome, I think. And so I'm wondering what the mix of business is that's allowing you to maintain flat premium?

[James Williamson, executive]

Yes. Got you. No, it's a fair point. So a couple of things. One, just focusing on U.S. casualty. As I indicated, half of the premium that came up for renewal in the quarter wasn't renewed. I mean that's, call it, $150 million of premium. So very meaningful. That's going to get offset by both, significant rate, and I cited a number of around 20%, and then we did write some new business. New business in U.S. casualty is definitely lower than it was a year ago. And I think that's okay, because we're writing really excellent accounts. They're loss sensitive. They're in the right industries, they're well priced, with great clients, who we're usually selling multiple lines of business to. So that's a good outcome.

And then if you look at the rest of North America, specialty lines growing really well, over 20% in the quarter. Property growth was strong. I see longer term, our Accident & Health business is performing really well. And so that's been a great story. And then our international business really across all dimensions, we're getting incredible traction, particularly in the U.K., Europe and Asia, where we're writing best-in-class accounts, and that's property, accident and health, specialty lines, and casualty.

So it's really -- I mean, when you look at the area of the book that's really shrinking, it's all about U.S. casualty. A little bit in other pockets, workers' comp is sort of a push, financial lines coming off a bit. But pretty much everything else, we're seeing great opportunities. We're getting support from our broker partners to continue to write new business despite the remediation, and feeling good about the quality of the business that we're putting on the portfolio, maybe most importantly. So lots of good things happening in insurance.

[Joshua Shanker, analyst]

And then on the repurchase, there's nothing wrong with the $200 million, but it's only about 2% of the daily volume in your shares over the past quarter. You could be doing more. It looks like you made a hard stop at $200 million. Can you talk about the math, and given where the shares are trading right now, how you came to that number and what you're thinking?

[Mark Kociancic, executive]

Josh, it's Mark. So a couple of things. I think when we look at the share buybacks, obviously, in January, we were under -- we had the reserve charge. So we had material nonpublic information. So we were dealing with a shorter period of time within the quarter to perform the buybacks. That's something that impacts the level. But overall, I'd say the $200 million was a figure we were comfortable with in the first quarter. I think that's a starting point for the remainder of the year. As I indicated before, the growth rate of the company has subsided largely because of different reasons on casualty and reinsurance and insurance, but it's something that should allow us to generate additional retained earnings that can free up for buybacks.

We still enjoy a very good capital position, but we're also wary of the cat season, the hurricane season that's forthcoming. So I still see us being quite proactive on buybacks for the year and taking a look at where we are with the growth rate and overall payout ratio for the company and taking into account any potential volatility we might get from hurricane season. So I can see us continuing with the buybacks, maybe pausing somewhat in Q3, but still a very meaningful amount for 2025.

[Operator]

The next question comes from Meyer Shields from Keefe, Bruyette, & Woods.

[Meyer Shields, analyst]

I wanted to ask a quick question about tariffs, because I think you mentioned the ability to respond. And I just want to understand the mechanics of responding in time. Like if tariffs kick in on day X, you're still exposed to policies that were written and contracts that were written before that. So is there another piece of that, that I'm missing just in terms of the timing? I understand that it can be resolved over time.

[James Williamson, executive]

Yes, Meyer, it's Jim. Good question. During the last bout of inflationary pressure that we saw, and this is both the social inflation and material inflation during the last administration, we obviously saw an uptick in that. And one of the things that we did to enhance our disciplines in response to that was we increased the frequency with which we assess our loss trend assumptions. And so now it's very much quarterly and in some cases, we're testing within the quarters to make sure that if there's any sign that you're seeing an uptick in expectations, you respond immediately to it. I mean that's what I'm really talking about when I talk about response.

Now to your point, obviously, inflation can affect really any open claim, including prior year open claim. And that's one of the reasons why we've been so focused on when we talk about how we book our loss picks, how we made reserve decisions for 2024 in prior years, how we're thinking about the go-forward business with respect to layering on a very robust risk margin to our picks. All of that is in service of the idea that you could see some inflationary pressure, whether it's because of tariffs or any other factor and you need to be able to absorb that. So I feel pretty good. Everything that I've seen relative to what's been announced so far, what expectations are, I think we're in a really good spot relative to both the back book as well as how we manage the go forward.

[Meyer Shields, analyst]

Okay. Fantastic. That's very helpful. And then shifting to the midyear renewals. You talked about anticipating an uptick in demand. And between depopulations and maybe existing companies that are growing, is there any way of sort of ballparking how much of the increase in demand is at the lower layers, where I guess pricing is holding up better, and higher layers, where returns are still good, but we're not seeing the same pricing dynamics?

[James Williamson, executive]

Yes, Meyer, it's Jim again. I mean, it's a good question. I think it's difficult to answer that question with any degree of certainty because it's dynamic. So how much people want to buy at any particular level will be heavily influenced by how much it costs. And so all things being equal, I think a lot of our cedents, whether it's in Florida or in the Midwest or other parts of the country, would love to buy a lower level. but the required pricing to get those deals done is more than most people are willing to pay. So you usually don't see that incremental demand get fulfilled there. Based on all that, I would suspect, as we've seen in prior renewals, that more of the demand will be in the top end, where people want to guard against coming out the top side of their programs. But obviously, time will tell.

[Operator]

The next question comes from Elyse Greenspan from Wells Fargo.

[Elyse Greenspan, analyst]

My first question was just on the aviation loss in the quarter. I was hoping to get a sense of the industry loss. And then what kind of premium did you guys write associated with that loss?

[James Williamson, executive]

Sure, Elyse, it's Jim. Most of the industry loss estimates that I've seen are sort of in the neighborhood of $1 billion. There's not -- obviously, it's not like a major hurricane where you have multiple companies modeling it, et cetera. That's more of a ground-up analysis. So I would kind of calibrate to that. Our portfolio in our reinsurance book, where we took the vast majority of that loss is -- it's a few hundred million dollars. And as I had indicated in my prepared remarks, it's performed extremely well for us over the last several years post the Boeing losses, which is really when we started growing as the market corrected sharply. And knocking wood here, I think we still have a path to turning a profit for that portfolio in 2025 despite the fact that we had this pretty meaningful loss at the beginning of the year.

[Elyse Greenspan, analyst]

And then my follow-up question is, I guess, on both insurance and reinsurance. With the attritional loss ratios, and I guess, ex the aviation losses, are those the levels that we should think about in terms of modeling for the rest of the year in both insurance and reinsurance, just given your view of price as well as loss trend?

[Mark Kociancic, executive]

Elyse, it's Mark. Obviously, we're not providing guidance on a go-forward basis. What I will say is that, as you know, we are putting in a meaningful risk margin on the U.S. casualty lines in our insurance division in particular. One phenomenon that I would just highlight for everyone is, and it doesn't come clearly in the financials, you can see a meaningful reduction in casualty premium on the reinsurance side, for example. So it's quite a significant drop of gross written.

However, the gross -- or the net earned on the casualty pro rata is trailing. So while you see something approaching 25%, 26% reduction of top line premium, the net earned reduction is much slower. So it's a larger component. We have something approaching 11% reduction of the net earned from casualty pro rata. So what that does is it mitigates the impact of the mix relative to the written over time. So that's going to be something that just slows the mix of business improvement that we foresee based on the gross writings of the company.

[Elyse Greenspan, analyst]

That's helpful. And if I can just squeeze one more in because I did have a follow-up on the aviation. So you guys, I think the math comes to like a 7% to 8% share. Is that typical where you guys -- obviously, it's like a little bit of an extreme event. Were you guys just maybe a little bit overexposed there?

[James Williamson, executive]

Yes, Elyse, Jim again. First of all, I wouldn't say we were overexposed. I mean I think we have the best aviation underwriters. They're both based in London on both the reinsurance and the insurance side. These guys are really good. The book we write in reinsurance, we've been very careful to build mainly an excess of loss book. We really focus on that part of the equation. And we are a relatively leading reinsurer in a market that is heavily reinsured. So when you have a catastrophic aviation loss like a major -- an airline crash with 60-plus passengers killed, that is going to be a reinsurance event, and it's going to be an excess of loss event. So as I had indicated in my prepared remarks, there's nothing about our loss that surprises us. And barring any major changes in the market, there's nothing about our loss that would have us rewrite our book or approach things differently. This is what you would expect from an event like this.

[Operator]

The next question comes from David Motemaden from Evercore ISI.

[David Motemaden, analyst]

I had a question, Mark, maybe just following up on the reinsurance attritional loss ratio. So I hear your point on the written lagging -- or leading the earned a bit. But I think on the margin still, the mix to short tail should have accelerated this quarter and the attritional loss ratio has been improving, and that sort of stalled out excluding the aviation loss. So wondering if you could just unpack what else is going on in that reinsurance attritional? Is it just conservatism on the casualty side?

[Mark Kociancic, executive]

Yes. That's the lion's share of the issue there. There's really no other meaningful losses. We highlighted the aviation. That's obviously -- when you normalize for that, you get to the 57 and change attritional, but it's really the risk margin on the casualty side that's driving any difference.

[David Motemaden, analyst]

Got it. Understood. And then, Jim, I heard you loud and clear that the property cat business, even though the pricing is moderating, it's not moderating at a rate that would make it less attractive. I guess -- I don't even know if I'm thinking about this right, but what sort of reduction do you think the market can bear while still generating attractive returns on the property cat side?

[James Williamson, executive]

Yes, David, look, I don't think I want to answer that question because I don't want to give anybody any ideas. I mean, there's really excellent return profiles on offer here. And I think the reinsurance market has learned over the last several years, from really the end of '22 until today, that if we want to earn a reasonable overall return, over the cycle, with the volatility, that we have to accept. And you need look no further than the California wildfire. I mean that's a major loss right at the beginning of the year. We need to sustain prices in order for our market to work the way it needs to. We need discipline.

And my message to all my peers in the industry would be, at current pricing levels, I think we do reasonably well, and I think our clients are well served and it's sustainable. It can deal with the economic development, it can deal with climate change, et cetera. So my hope is that we don't have to test the limits of the underlying fundamentals of your question. But instead, we sustain pricing at levels that are reasonable and sustain the industry.

[Operator]

The next question comes from Michael Zaremski from BMO Capital Markets.

[Michael Zaremski, analyst]

A follow-up, I think, Jim, in response to a question earlier. You talked about doing reserve reviews on, I thought I heard, a different cadence than Everest has done historically. I thought historically, you do a ground up on each line of business once per year. I wasn't sure if you were -- in your response earlier to Meyer's question, you kind of were talking about changing that for certain lines of business. Or am I thinking about that incorrectly?

[James Williamson, executive]

Well, I think you may have just misheard where Meyer started with his question. He was asking about updates to our loss trend assumptions in response to tariffs and what gave us confidence, et cetera. And we had indicated that we've increased the frequency of reviewing loss trend assumptions. Our reserve deep dives are still conducted on an annual basis with obviously our quarterly process still in place. And I don't know, Mark, if there's anything you would add on reserve process, but that's where we began.

[Mark Kociancic, executive]

There's no difference in the cadence of the reserve reviews. I would just say there's a heightened awareness and alertness on the U.S. casualty lines, in particular, for all sources of data that can go into helping us on a quarterly basis of establishing best estimate liabilities. So I feel comfortable with that. And as I mentioned in my prepared remarks, in the first quarter, we're quite comfortable with our insurance reserves considering the issues we had in 2024.

[Michael Zaremski, analyst]

Okay. And my follow-up is on the higher-than-expected share repurchases. Is that being funded at all with the Federal Home Loan Bank borrowings, which has increased a bit over the past year? And maybe if you can -- what are the FHLB borrowings being used for?

[Mark Kociancic, executive]

Yes. So no, the funding for the buybacks is strictly out of excess capital. That's just -- the FHLB is just a spread trade that we established pretty much after I started back in 2021 -- or 2020, actually, the fourth quarter. And so that's essentially borrowing for a fixed rate term, investing at a higher set of yielding securities, posting the collateral and earning a spread. And that's something that we've been doing for several years. it's a modest amount of the FHLB capacity that we have and the 2 are mutually exclusive, nothing to do with each other, the buyback or the spread trade.

[Michael Zaremski, analyst]

Okay. So that's running through investment income, correct?

[Mark Kociancic, executive]

Yes, that's right.

[Operator]

[Operator Instructions] And our next question comes from Katie Sakys from Autonomous Research.

[Katie Sakys, analyst]

I wanted to circle back on the property cat portfolio. I think last quarter, you folks mentioned that you're seeing the need to charge a little bit more for the European cat exposures and increase your average model loss cost by about 10%. Just kind of curious, realizing that we're only a quarter in, how that's holding up and if you could perhaps extrapolate that shift in loss trend assumption to the global property cat portfolio.

[James Williamson, executive]

Sure, Katie. It's Jim. Well, first of all, our view on European cat was specific to Europe. And it's really just a phenomenon of -- put insured and reinsured losses aside, actual frequency and severity of the underlying weather pattern has changed dramatically and consistently over the last several years. And so our view was that whether it's the available models or market pricing hadn't responded to that correctly. We are not going to take risk we're not getting paid for. And so we raised the bar on what we wanted to get paid for European cat. And the net result of that is our European cat business got smaller, and that's okay.

And so that was a European phenomenon. I don't think that necessarily applies to other parts of the world other than to say that it's just so important in our business that we stay on the forefront of any developments in the underlying, whether it's weather or development patterns, which is why we maintain and invest in such a robust internal and proprietary modeling capability. And so we're making sure that we always have the latest view of loss costs, expected losses, so that we can price our business appropriately.

[Katie Sakys, analyst]

Okay. So to clarify, like no significant changes you guys are seeing to modeled loss expectations going into midyear renewals?

[James Williamson, executive]

No, nothing dramatic. I mean, it's an always moving reality. I mean we're always adjusting our models based on the latest data. But in terms of a dramatic move like what I described in European cat, there's nothing that comes to mind in other parts of the world.

[Katie Sakys, analyst]

Okay. And then to follow up on the question about sort of the timing of reserve reviews. I mean, I appreciate that Q1 isn't necessarily a significant time for reserve studies. But I mean, anecdotally, is there any additional color that you guys can give us as to how you think the charges from last year's reserve review are holding in?

[Mark Kociancic, executive]

Yes, Katie, it's Mark. So I think the bookings that we made are holding well. I made the point in my prepared remarks that we're performing well versus the actuarial central estimate. So the risk margin that's on top of that is extra at the current time, and we're seeing the performance of other lines, property, for example, in particular, or some of the other shorter tail lines building some nice margin within the portfolio. So at the present time, 1 quarter later, I'd say we're very comfortable with how we've progressed 3 months later after the charge.

[Operator]

The next question is a follow-up from Brian Meredith from UBS.

[Brian Meredith, analyst]

Jim, just a quick question here. As you look at the midyear renewals, maybe any changes you're anticipating and seeing with terms and conditions on any of the property reinsurance, maybe attachment points slowing down or anything?

[James Williamson, executive]

No, I don't expect any changes that way, Brian. One of the things that I've been gratified to see, I referred earlier to the need for discipline and maybe the area where we've seen the absolute most discipline has been on terms and conditions. That's been a major contributor to, I think, creating a more sustainable market and people are not giving up on whether it's hours clauses, attachment points, other contractual terms, and I don't expect any at the midyear renewal.

[Brian Meredith, analyst]

Great. That's helpful. And then just one follow-up. I know there's been a lot of questions about declining property rates and a bunch of stuff. A lot of moving pieces right now at Everest. If I think about your book of business as you look at it, factoring in all what's going on, would you say that the returns on capital in your business are getting better, getting worse or staying the same? Just thinking about the whole picture as we kind of look out here.

[James Williamson, executive]

Yes. I mean, look, I would say, if you look at the economic fundamentals, put aside the risk margin for a minute because obviously, that's going to affect the printed financials, I would say that the return on capital of both our businesses is improving. And I think that's a very good thing, and that's driven both by really attractive things that we can do in the market as well as just the fundamentals around mix, which is sort of where you started your question.

[Operator]

There are no more questions in the queue. This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.