Alex Scott: Got it. Very helpful. I wanted to ask a follow-up on the comments you made on casualty reinsurance. And I’m just interested in what is changing that’s causing more of this commentary to sort of bubble to the surface? I mean, we’ve heard it from some of the European reinsurers as well. Is it I mean, is it truly just that they’re starting to see reserves develop in a poor way for some companies? Or is there something that’s changed about the social inflation environment? I mean what do you think is the underlying driver or drivers?
Marc Grandisson: Yes. I think the industry is — there’s a couple of things going on at the same time, and they unfortunately don’t go in the right direction for both for all our industry if you have written casualty. First, we have — as I mentioned in my comments, we had a bit of a slowdown in activity including core activity, settlement activity. And we also have, as we all know, there’s a lot of litigation funding, it’s a bit more aggressive is coming from the platelet bar, and that’s certainly something that you could describe to be social inflation, but that’s not really something new. But there was sort of a lull in this market. It was sort of a spike, if you will, between 2020, ’21 to really middle of this year, early this year.
So, I think right now, we have sort of a refresh reupdating all the information about the losses of where we are and what could happen with the demand being updated and made more current. At the same time, we have price that business as an industry in 1,519 with inflation at 2%. Now inflation is north of 5, 6, 7, depending on where you look at. So at the same time, of course, we open things are being adjudicated reanalyzed, you have to account for a higher inflation number. And that is a classic case of having a couple of things going against you, nothing that the industry did on its own. It’s just the economy and the environment and the risk in it and the environment. So I think that we’re facing all collectively as an industry, that phenomenon.
And what I like about the industry’s capability is, it’s reacting and that’s what you hear. That’s something that we should be very, very happy for collective as an industry. The other calls that you heard this quarter recognize it, and once you recognize an issue and a problem, people are very good and very adept at addressing it. And I think that’s what’s going on there are couple combination coming in very, very short order because of the surrounding environment. I think this is what largely drives what’s going on right now.
Operator: Our next question comes from the line of Michael Zaremski from BMO Capital Markets.
Michael Zaremski: Switching gears to the to the investment portfolio. So the net realized losses were somewhat outsized again this quarter. I know they run below the line, but any color — are those — are you actually crystalizing to take advantage of the higher rates? Or is there noise in there from unrealized stuff or maybe the LPT transactions in the past?
François Morin: Yes. I mean it’s mostly around kind of crystallizing some losses. I think it’s a process we go through for each security on the fixed income side, where we make the determination. Is it appropriate to sell some of those and redeploy the proceeds and higher yields and our investment team does that. So yes, there are going to be some realized losses coming through the fixed income. Obviously, the equity portfolio, which is not huge, but still there’s FBO securities like fair value option securities, including equities that are effectively mark to market, and that comes through the realized gains of losses line in the income statement. So those are the two big items. There’s a little bit of other stuff going on that is a little bit of the wheat. So, I wouldn’t want to go there, but that’s directionally hopefully that’s just normal course of action.
Michael Zaremski: Okay. And lastly, on — is my understanding for me to put out there a second comment letter, maybe it’s different, they call something else. But on the potential tax changes that will take place. Are — any way you could offer us some color on what’s — how things are going to play out base case over the coming year two or? Or does the step-up — if everything goes as planned, does the step-up in tax rate happen in ’24? Or is it a ’25 event or both?
François Morin: Yes. It’s, again, very early. So too early, unfortunately, to give clear or kind of views on what we think could happen or because they’re still developing the laws and we expect more progress on that before the end of the year. But at a high level, it doesn’t start at one start if it goes through until 2025. So, there’s no impact for 2024 and we will be evaluating the and may publish some target tax rate that they will try to get to. But again, more to come, I think we’ll do our best to keep you apprised of how we think about it probably on the next call. But until we have work to now any more clarity on where it’s going to land, I think it’s a bit premature to give you too much do any details here.
Operator: Our next question comes from the line of Meyer Shields from Keefe, Bruyette & Woods.
Meyer Shields: First question on, I guess, casualty reinsurance. This year, like January 2023, we saw not only significant increases in property capital. We saw changes in program structures with higher attachment points. Is there anything analogous to that, that we should see on the casualty reside in 2024? Or is it just going to be a great story?
Marc Grandisson: Probably more of a great story. The buying pattern on GL is mostly on a quota share. There’s a lot of quota share being purchased in that segment. That’s also certainly something we prefer to focus our capacity on those of you who followed us for years, this is where we prefer to focus on capacity. On the excess of loss, my people don’t really buy a lot. People don’t put out is like $60 million, $80 million, $100 million limit. So, we don’t have a similar kind of risk — the risk vertical is not as big. And in terms of events, like a cat portfolio, you could see where things are accumulating can generate hundreds and hundreds million dollars of exposure. In the liability side, it’s not the same. You already have a necessarily one or two events that could really impact such a wide area of your GL.
So, I think we’ll see a lot more filters more on a quota share basis and some of the excess of look here and there. It’s not very similar — it’s not at all similar to the property market.
Meyer Shields: Okay. That’s very helpful. And second question, and hopefully, I can ask this in a way that makes sense. When we talk about reserve problems from older accident years, ultimately driving casualty rate increases to accelerate. Is that the industry can over earn in 2024 and backfill? Or is it because the recalculated full year’s losses mean that current rates are actually not as adequate as we thought?
Marc Grandisson: I think it’s the latter. I mean it’s a bit of the former, to be honest with you, people have to recognize those losses if they have them. I do believe — as we talk about Meyer, you know that as well as we do, you’re going to enter yourself, the reserving process feeds the pricing process. And clearly, if we have a reserving that’s a bit higher than you would have expected, it will help inform your loss ratio historically. You have to put a trend on them, to the on-level analysis that helps get you to the price increase that you’re looking at. So the past as it’s developing, will inevitably lead you to having to charge more. And the reason we’ll do a whole lot of large GL for that matter is precisely because of your second point, which has been historically a little bit wanting on the rate level and the rate level side.
