Ryan Tunis: Hey, thanks. Good morning. So I just have one, and I guess it’s on the Kilimanjaro bond. So earlier in the year, it looked like you guys let a couple of hundred million of those expire without replacing them. And it looks like there’s almost another $0.5 billion of those that expire at year-end. And I’m just curious if there is a plan to replace those with some other form of reinsurance? Or should we think about the capital raise you did earlier this year is potentially going to fill a little bit of that.
Mark Kociancic: Ryan, it’s Mark. So let me take a shot at this. I think whenever we talk about our capital shield, we always start with the gross risk that we are underwriting. We essentially want to be gross underwriters. It’s not a flow-through or anything else in terms of the use of retrocession cat bonds, et cetera. So that’s kind of the starting point. So we have a substantial laddering of Cat bonds, typically over a 4- or 5-year type of duration. There are different layers at which they attach and our book changes as well on the growth side from time to time. So we take the gross portfolio that we are underwriting into account. We take our overall cat position into our account, and then we start to modify. And there’s a couple of other factors that would go into it.
So let me just start with the easy stuff. So we always — we have the ability to use and we prefer to use Mt. Logan, our third-party sidecar vehicle as much as we can in terms of hedging and aligning it with the kind of risk we are taking in property cat. Tactical use of ILWs on a periodic basis is another tool that we use, and we use this proactively, depending on where the efficiency of the pricing and the placements are for cat bonds and ILWs and then Logan, of course. So we also take into account the capital position. You referenced the capital raise in May as an additional source of capital base for the company. So that definitely enters the equation. And lastly, I would throw into the mix the economic capital at risk graph that we talk about frequently in our investor deck.
And essentially, that space that we are comfortable playing in shows that we have a lot of room to expand risk appetite within our tolerances for tail risk, earnings at risk. And we tend to do that, especially when we see superior margin on the types of risks that we are underwriting, particularly property cat. And so we take all of these factors that I’ve mentioned to plan out our capital shield going forward. And so obviously, we had a conscious decision to not renew the — I think we had two bonds in the spring. We did add another one at a different layer, but net-net, there was a reduction. We’ve got significant capacity that’s up for maturity in — I believe it’s November, December. And that’s something that we are taking into account now, but I’ve given you the framework of how we look at it.
So I can assure you that given our ambition as a gross underwriter and pursuing superior risk adjusted returns, we are going to look at the options on the capital shield side relative to our gross book as we make those decisions.
Ryan Tunis: Thank you. That’s helpful.
Operator: The next question comes from the line of Gregory Peters with Raymond James. Please go ahead.
Gregory Peters: Good morning, everyone. I guess I wanted to step back with the substantial growth as you’re leaning into the market and property and the reinsurance side, I mean you’re also reporting the growth in the insurance operations on property short tail. Could you just talk to us about how you’re managing risk aggregation because it’s a lot of growth and just I’m sure there’s a lot of involvement in managing your risk, but give us some perspective there?
James Williamson: Yes, Greg, this is Jim Williamson. It’s clearly an important topic. We have a very robust risk management process at Everest that spans both our reinsurance and our insurance business across really all aspects of the risk we are taking, whether it’s property cat, it’s credit risk, casualty, et cetera. And there are robust processes underneath that framework where underwriters in the respective divisions are analyzing our aggregation, assessing risk reward. We have a companywide risk reward scorecard that shows us where we are getting best paid for capital deployment. And we leverage that process to ensure that we are moving capacity to the areas of the business that drive the best returns. And so what you would have seen, for example, earlier this year, if we rewind the clock in those discussions, Mike Karm and I were staying very close on what was happening in the reinsurance market.
And so reinsurance started consuming more of the available capacity because that’s where the opportunities lie. That started to balance out a little bit more now as the opportunity in insurance has strengthened so much. So that’s the process we use. If you look at our PMLs by peak zone, we are still in really good shape in all of our peak zones. We do monitor it very carefully. But as Mark indicated, on an earnings and capital at risk, or if you look at our stated risk tolerances in our ORSA filings, et cetera, we are all well within risk tolerances, which gives us room to grow both reinsurance and insurance as these opportunities emerge.
Juan Andrade: Yes, Greg. And one thing that I would add to what Jim just said, and this is Juan. A lot of it is rate, not necessarily exposure, right? And that’s the trade that we’ve talked about in the past that is an excellent trade for us, which is, we are able to get significant rate for similar exposure and significantly better risk adjusted returns. And that’s our focus right now, and basically we are achieving that.
Mark Kociancic: Yes. Sorry, I guess you’re going to get all four of us, Greg, it’s Mark here, and then I’ll let Mike finish it off. I just want to add two points. So number one, we have very clearly defined risk tolerances inside the company for how much risk we are willing to take. Those are not going to be breached. Those are governed at the Board level, respected by management, and we have a clear process to manage that stuff, a lot of flexibility there as well. And number two, we are fairly diversified and broad based with our exposures as well on a geographic and line basis, which also helps. You’re not seeing single concentrations that are onerous in the different zones. Mike?
Michael Karmilowicz: Sure. Yes. And I’ll finish it off. I guess just from a perspective, you’ve seen over the last few years in insurance, we’ve meaningfully derisked a lot of the portfolio, particularly in the peak zones. Over the last 2 years alone, you saw us exit the Florida condo business, not just because it wasn’t profitable, but because it really didn’t meet our risk-adjusted returns and we just saw the regulatory environment and litigation environment changing. And then more importantly, the specific portfolio actions we’ve taken around our hurricane 100 PML over 40%, we reduced that. We took our gross limits in our wholesale, which is more cat-prone again and reduce that over 40% deployed limits over the last year.
And what you’re seeing from us right now is basically getting much, much better risk adjusted returns, but really derisking our concentration around these P zones and really basically diversifying the portfolio, not just domestically, but globally as well.
Gregory Peters: Well, that’s good detail. Juan, I think you mentioned the durability of the market in your prepared remarks and I know very well, many of us are focused on wind in North America wind and which has not been an issue this year, at least in a sort of material way. But there hasn’t been many losses in fire at DIC in North America either. And I’m just curious, I know it’s rather a specific question, but do you see any change in pricing or terms in fire or DIC going into 1/1 considering the lack of any loss there?
