Hello, and welcome to the Lancashire Holdings Limited half 2022 results call. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Please note this call is being recorded. Today, I'm pleased to present Alex Maloney, Group CEO, Natalie Kershaw, Group CFO, Paul Gregory, Group CUO. I will now hand over to Alex. Please begin your meeting. Okay. Thank you Operator. Good morning, everyone. We're gonna follow our usual format today. I'll give you a quick overview of H1. Paul will talk through what we achieved on the underwriting side, and then Natalie will go through some detailed financials. I think there's about five main points we're gonna talk about just on our first half year results. I think firstly, I think what you're seeing coming through the numbers now is, you know, the benefits of the investments that we've made on the underwriting side. You know, we've grown our product lines. We've hired a lot of good people in the last sort of four or five years, and I think you're starting to see that come through. I think that's, you know, it's very pleasing for us. You know, the teams have grown well with the market opportunity and obviously, you know, continued hardening of rates have benefited us as a business. When you look at the first half year, you know, it's not without incident. You know, obviously, we've got the ongoing war in Ukraine. There's been various weather events and some risk losses that we've sustained as well. To absorb them and produce a 78.2% combined ratio is very pleasing. I think that's a very strong underwriting result in the current climate. We're also, you know, what you're seeing as well is the profitable growth that is coming through, but that also helps our diversification play, and you're seeing strong benefits on our expense ratio. Everything that we planned to do at this stage of the cycle is starting to come through to the numbers. Just moving to the current rate environment, we continue to see positive rate momentum in pretty much every class of business that we have. Also I think, you know, our outlook is relatively strong. I think if we split it into two, if you look at the cat portfolio, we've seen continued hardening in the cat portfolio, and Paul can give you some of that detail later. We expect that to continue into 2023, even if the hurricane season is kind to the industry, and that's mainly been driven by, you know, supply and demand for cat business. We also expect rates to improve for our specialty portfolio. Clearly anything that's affected by Russia, Ukraine is gonna see some reasonable hardening in those markets, and that's a big part of what we do. You know, areas where we expect to see substantial hardening towards the end of the year and into 2023, we have a significant market presence. I think all in all, we're quite you know, strong on the outlook for continued rate momentum in some key areas for Lancashire. That all in all with our growth plans as well will help our you know, our underwriting earnings for the next few years. On growth, again, it's been a strong quarter for growth. As you know, our D&A is to grow when the underwriting opportunity gets better, and we've continued to do that. Some of that is existing business where we continue to get opportunity and rates. Obviously, as we said before, you know, we entered 2022 with a strong pipeline of new opportunities and as I said, that's from existing teams and new teams. You know, our budgeting is relatively conservative when we go into new product lines. I think it's a fair comment to say that, you know, most product lines have exceeded the relatively conservative budgets we had. Again, that's in line with our long-term strategy. We spoke about growth in Q1. You know, we do expect to grow throughout the whole of 2022. You know, we don't believe at this point it will be the same extent as we did in 2021, which was a material year for growth for us. Equally, we'll underwrite the opportunity in front of us and, you know, aviation would be a good example where, you know, it's hard to tell how strong that opportunity will be today. If that opportunity is stronger than we think, clearly we're gonna take the opportunity. We're definitely gonna grow strongly this year. To what degree, we don't know yet, but again, we will take the market as we see it. All in all, you know, our long-term strategy hasn't changed. You know, we believe in growth at this stage of the cycle and the underwriting opportunity continues to strengthen. Therefore, you should expect us just to continue to grow into it. Just moving on to Ukraine/Russia. You know, as you can see from our losses from Ukraine, we're at the lower end of the range that we gave in Q1. You know, we don't take too much credit for that. It's not really an area where we have a huge amount of exposure, but obviously these losses are very manageable. When it comes to Russia, you know, our position in Russia hasn't really changed, i.e. we don't really have any new news from Russia or for exposure that we may or may not have there. Again, I just want to reiterate that any exposure that we may or may not have is perfectly manageable. It doesn't change what we wanna do as a business. It doesn't change our plans. So we're as comfortable today as we were when we made those previous statements, but there's not much of an update there, 'cause clearly it's an ongoing event. Just in terms of the investment portfolio, obviously, you know, interest rates are rising quickly and, our investment portfolio on a mark-to-market basis is impacted. So again, our duration is short. We're not unduly worried about that. But we will see the benefit of better investment returns helping our overall earnings as a business. So that, you know, we see that as a positive. Just a general comment, I think like the end of free money is a positive for our business. I think interest rates going up is a good thing for us, but clearly there's gonna be a mark-to-market gap, which is also an industry problem. Finally, you know, I think in difficult times, having a strong balance sheet is key for a number of reasons. I think in a difficult world, there's gonna be. You know, we see opportunity in a difficult world, and having a strong balance sheet is definitely important at this stage of the cycle, and that will help us to continue to expand our business. Look, the general view is the uncertainty will bring opportunities. We're in a good position to take advantage of those, and we'll continue to do what we should do as part of the cycle. With that, I'll hand over to Paul. Thank you, Alex. At the beginning of the year, we expected to grow premiums ahead of rate. I'm pleased that we've been able to deliver on this with a very strong increase of nearly 35% in top line. We've been able to take advantage of growth opportunities in P&C reinsurance, P&C insurance, and marine. In these areas, we've added significant new business comfortably in excess of rate. Overall market conditions have remained favorable. In some instances, as Alex has mentioned, we're now seeing the rating environment improve more than we initially thought at the start of the year, and we anticipate our year-end RPI to be stronger than our half year RPI of 106%. On the following two slides, I'd just like to focus on a few key themes from our business segments. First of all, our newer products, casualty and financial lines reinsurance and accident and health, are key growth drivers within P&C reinsurance. Pleasingly, and as Alex has alluded to, these are maturing faster than we forecast. In catastrophe exposed reinsurance lines, 2022 has been about optimizing the portfolio that we grew in 2021, while taking the benefit of improved rate. In these cat classes in Q2, there was clearly a positive step change in rating. RPIs moved from high single digit increases that we saw in Q1 to double digit rate increases. There is noticeably less capacity available, which is squeezing rate rises higher. Now turning to the classes that are impacted by potential losses from Ukraine. In P&C insurance, terrorism and political violence rates have now started to turn. Rating in Q1 was broadly flat, but we're now starting to see rate rises slowly improve each month. We fully expect rates to continue their upward trajectory. H1 for aviation is never particularly material from a premium perspective and doesn't traditionally set the tone for market conditions. Obviously, there are a lot of dynamics at play in the aviation sector currently, and we expect a very different marketplace by the time we reach the year-end renewal season. There are some more competitive pressures in some of the subclasses of energy, particularly things like downstream energy, but importantly, most of the subclasses within energy, we're still seeing positive RPIs, albeit increasing at a slower pace than in recent years. Quickly turning to our new teams in construction, marine and energy liability, and Australian property, these have gotten off to a good start, and we are maintaining our guidance of $50 million-$60 million additional GWP for 2022. To sum up, our outlook for the market is more positive today than it was at the beginning of the year. As the new product lines we've been investing in continue to mature, we're starting to see the desired impact. We fundamentally believe that there are attractive returns to be made in catastrophe exposed products through the cycle. We also acknowledge that these products are inherently volatile. Building out the non-cat products provides a more robust portfolio to help dampen this volatility. Within the catastrophe exposed products, we've always aimed to take a conservative approach to our modeling and pricing of risk. We've always been believers that the model is only one tool in the toolbox of an underwriter. However, of course, we want to make sure this tool is as capable as possible. Throughout our history, we've constantly evolved our modeling and tried to employ lessons learned by applying loads to various different risk factors. As you can see from the chart on the slide, the recent BMA study showed that our loading factors we apply are significantly more conservative than our Bermuda peers. This does not mean we won't continue to refine our modeling, or indeed that it guarantees that you can generate profits. It just demonstrates that we have a more prudent approach to risk management when underwriting catastrophe exposed business. Quite rightly, the industry has been focused on inflation as an increased risk factor. We're acutely aware of the risk that inflation can bring. That said, we do believe that we're pretty well placed to manage this. Just a few key points to make here. The vast majority of our portfolio is short tail and renews annually. That portfolio renews over the course of a year. Our clients provide us with updated valuations at each renewal. We compare these updated values with our own view of inflation to ensure that the inflationary impact is captured within our exposure data. Our catastrophe model includes a general load for inflation on top of these valuation changes already factored in. When we report our RPIs to you, these are risk-adjusted rate changes. More generally, we've underwritten classes of business that face severe inflationary and deflationary pressures since our inception. There's no better example of this than in the energy sector, where the oil price has deviated from $100 - $30 and back again. It's important to remember that inflation is certainly not all negative. The positive to inflation is that as values increase, our clients buy more cover. That is limits required increase, which brings more demand to the market. Inflation is certainly a heightened risk, but a risk we believe we understand reasonably well and have the portfolio and tools to manage appropriately. I'm now gonna pass over to Natalie. Thanks, Paul. Our overall results for the quarter are summarized on slide 13. I'm very pleased with our underwriting performance for the first half of 2022. Our combined ratio was a solid 78.2%. This translates into a profit after tax of $74.4 million, an increase of 56% compared to the same period last year. The benefit of our growth over the last few years comes through in net premiums earned. These have increased by 40% to $440.5 million. With additional premiums written this year yet to earn through, we will continue to see the benefit of this growth over the next few years. Some of the newer lines of business that we are writing, such as casualty and financial lines, tend to earn over a longer period than our historical book. With our conservative reserving, we'll continue to deliver profits over a longer period. You can also see the benefit of our growth in the operating expense ratio, which has reduced to 15.5%. The small increase in dollar terms in G&A expenses is largely due to higher employment costs, which was somewhat offset by the favorable sterling to dollar exchange rate. The acquisition cost ratio is higher than the same period last year. 24.8% compared to 21.3%. As our business mix changes, you might continue to see some fluctuations in this ratio. I expect that the total expense ratio for 2022 will be consistent with the year to date and in the region of 40%. Overall, this is in line with previous guidance given. Our claims performance for the first half of 2022 is detailed on slide 14. Excluding Ukraine, there were no individually material losses of note. Having said that, the half year was reasonably active from a weather perspective, and we incurred some losses from the Australia and South Africa floods. We also incurred a number of risk losses across our energy book, some of which are attritional in size. Our attritional ratio at the half year is running at the high end of guidance. This is partly due to these small energy losses, but mainly due to business mix, which we have illustrated on the next slide. Given our current business mix, we will likely end the year at the top end of previous attritional guidance given. I have said it before, but to reiterate, the business mix changes are accretive to ROE, which is key for us and our shareholders. The favorable prior year development for the half year of $64.4 million was positively impacted by IBNR releases from 2021, as well as releases from individual losses from the 2017 and 2018 accident years. Our history of strong reserve releases is down to our conservative reserving approach. We are likely to end the year with higher releases than guidance, given the first half performance. From an overall combined ratio perspective, we are tracking in line with previous guidance and remain happy with consensus for the year. This slide shows how our business mix has changed since our inception. We have a clear strategy to grow when trading conditions improve, and you can see the extent of this growth as the underwriting conditions started to improve in 2017. Although our catastrophe exposed premium has grown in dollar terms in the last few years, it is proportionally a much smaller part of our business than historically. As the proportion of catastrophe exposed and volatile business has shrunk, we have expanded our exposure to more attritional but still very profitable lines of business. These lines are less exposed to catastrophe or large losses and have a low capital requirement, though they do have a higher attritional loss ratio. This means that these lines of business give us a stable earnings stream that is accretive to our returns. As Paul said, so far during 2022, we have been able to write more business than initially expected in the more attritional classes. We believe these changes will have a positive impact on profitability, although they do increase the underlying attritional ratio. This impact is more pronounced in the early years of writing new classes, where we tend to be especially prudent on our reserving. Slide 16. Our investment strategy has not changed. We continue to keep our duration short in line with our liabilities and are less concerned with short-term volatility. In the first half, we had unrealized mark-to-market investment losses as interest rates increased. The yield curve also flattened significantly and spreads widened for investment-grade corporate debt and bank loans. We maintain a conservative portfolio with an overall credit rating of A+. We aim to invest in largely low risk, short duration, and liquid investments while taking more risk on the underwriting side of the business. We do not intend any material changes to our investment strategy in the medium term, and we'll keep the overall portfolio duration short to help mitigate inflationary impacts. The current market yield is 3.5%, which we will benefit from going forward. Our short duration means we will benefit from the rising rates relatively quickly. On to slide nine. We end the quarter with a very strong balance sheet, which gives us the ability to support our planned business growth over the remainder of the year. On slide nine, the waterfall chart shows how our regulatory capital position has developed since the end of 2021, with an estimated position at H1 2022. This estimate incorporates the impacts of changes in business written plus some tweaks to our reinsurance program in the first half of 2022. Overall, these benefit the PMLs used in the rating agency and regulatory capital models, resulting in a very strong capital position. Most importantly, this diagram shows that we still maintain a very strong regulatory capital position following a one in 100 year Gulf of Mexico wind event of $328 million. In line with our stated dividend policy, we are declaring our normal interim dividend of $0.05 per share. With that, I'll now hand back to Alex to conclude. Thanks, Natalie. Just to conclude, you know, what you're seeing today is you're seeing the benefits of the investments we've made in a lot of the product lines in, you know, the last four or five years as the market turned. You're seeing the benefit of, you know, compound rate increases, which we expect to continue. Obviously, you know, we expect that to help our owners on a mean loss basis. As I said earlier as well, you know, higher interest rates is a good thing for our business, so we've got a number of things, you know, pulling us hopefully to, you know, a better return for our shareholders. Also, I think, you know, the world is pretty difficult at the moment. There's a lot of uncertainty, so having a very strong capital position is key. We do believe we're gonna see, you know, opportunity out of, you know, a difficult world. You know, with the people we have, you know, the capital and the runway, I suppose, I think we see a lot of opportunity for this year and beyond. With that, I think we'll go to the Operator for questions. Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please press zero one on your telephone keypad. The first question comes from the line of Kamran Hossain from JPMorgan. Please go ahead. Hi. Afternoon, everyone. Three questions. First one's, I guess, on the outlook. It seems a little bit earlier than usual that you're calling out the positive kind of environment for 2023. So just interested in that. Is this kind of primarily focused on reinsurance cat or kind of other places too? Just noting the capacity crunches that we saw at the half year. The second question is on the expense ratio. Understood on the kind of 40%, including the acquisition cost plus the expenses. But when we think about the 15%-ish that you had at the half year on, I guess, the G&A ratio, is there anything that would change that number materially for 2023? And then the final question, just around kind of attrition. I know you're gonna move away from this or hoping to kind of move us away from this. Is there any kind of big distortions in the, I guess, in the ratio? You know, you have called out things like Australia, but you haven't given us the numbers. Kind of what level of, or what makes a loss large enough to call out? What's the size that we should think about there? Thank you. Okay. On one, I'll just give you some high level and then Paul will, I'm sure, add some context. I think if we just split it into cats and specialty is the easiest way to do it. I think from the cat side, you know, there's been some quite public retrenchment of cat capacity. Look, you know, when you get past the jargon in our industry, it is about supply and demand. We just believe that there is gonna be less supply of capital supporting catastrophe business, mainly driven by climate change and people's appetite there. Equally, on the flip of that, you know, clients wanna buy more cover or even with inflation, you're seeing clients needing to buy more cat cover. It's the classic supply's going down, demand's going up. As I said, I think even a clean cat season won't change people's minds. I think that's why we're stronger than we normally are. Kamran, you are right on that. Then I think on the specialty side, you know, I wouldn't say that every single specialties line is gonna increase its rates. Areas that have been affected by, you know, Russia/Ukraine, you know, areas that we sort of have some pretty decent market presence. You know, already we're seeing material changes in reinsurance purchasing. I think that when you get to the depths of the Lloyd's planning season, you know, I'm pretty sure you're gonna see people pulling out of certain classes of business. You know, particularly on terror, there's been probably a mismatch of, you know, premiums versus reinsurance costs and some really poor underwriting and some, you know, broker facilities that remind me of some of the things that happened in the energy market in the late nineties. I think when you've got all that evidence in front of you, I think it does lead you to a stronger, you know, a stronger view of the future than we would normally give, I suppose. Yeah. Okay. Hi, Kamran. On the expense ratio question, obviously we'll update guidance for 2023 towards the end of this year. I would say that we do expect the expenses will increase, but they'll increase less than we expect the earned premium to increase going forward. On the attrition, we're at the high end of the guidance given. That's mainly due to business mix. If you think about that's a positive thing because it, you know, implies we've written more business than we were expecting at the start of the year. On your specific question about dollars, I think we've said before that we take any large risk losses above $5 million out of the attritional ratio. Okay, that's clear. Thank you. Plus cat losses. The next question comes from the line of Freya Kong from Bank of America. Please go ahead. Hi, good afternoon. Three questions please. Firstly, in your regulatory capital waterfall chart, you show that business mix changes and reinsurance has positively impacted your capital position. Could you give us a sense of the relative impacts of both changes? Can we assume a similar benefit also applies to your AM Best credit model? Secondly, you've reduced your cat exposed GWP from around 40% of the group to less than 30%. Given your continued growth outlook in non-cat lines, how do you see this business mix evolving, say, in the next five years? Lastly, is there any guidance you can give on your 2023 tax rate, given OECD reforms that were passed at the end of last year? Thanks. Okay. On the first question, on the regulatory capital waterfall chart, the main impact on that is really the changes in reinsurance purchasing and the slight tweaks that we made there. As we've mentioned before on previous calls, we've got a higher first event retention, but we did buy more aggregate protection and tail risk protection, which benefits the one in 250 PMLs and the required capital for regulators and rating agencies. You can't make a linear interpolation between the regulatory capital in the BSCR and the AM Best model. In particular, the AM Best model takes a one in 100 all risk PML off your capital. It's probably more similar to look at the stress position that we have on the slide there after we've taken a Gulf of Mexico wind event off the BSCR. I'll take your tax rate question. We don't expect any material changes next year. The OECD tax rate change is not gonna come in for another couple of years. I wouldn't expect. On your business mix question, Freya, I think, look, the answer as always from us will be, it will depend upon what the opportunity is in the market. Now, clearly, we've been growing our non-catastrophe lines as the market's been improving since 2018, and we fully expect to continue to do that. Exactly what the business mix will look like in five years, to be honest, I'm not gonna sit here and give you an answer because I just don't know what the market conditions will be. Our underwriting philosophy is very simple. It's if we see a good opportunity to make, you know, better returns for shareholders, then we'll take advantage of those opportunities. You know, in Q4, for example, as we've spoken about, we anticipate a reasonably dissipated aviation market, and if that transpires, we're, you know, we'll happily write a lot more aviation business if the rating environment is appropriate. Sorry I can't answer your question exactly, but our underwriting principles remain unchanged. Okay. Thank you. Can I just follow up on that, AM Best move? Your 250-year PML has come down, but your one-in-100-year goes up. What is the net benefit? Yeah, what's the net benefit on your AM Best capital? 'Cause there are two moving parts there. Yeah. I think you know, Freya, that we don't give any guidance on the AM Best capital. Okay. Fine. Thanks. The next question comes from the line of William Hardcastle from UBS. Please go ahead. Hello, Will, your line is open. Sorry, it was muted. Hopefully you can hear me. Two or three questions. The first one, on that solvency bridge, am I right in reading this that there's effectively another step up because of the business mix and reinsurance? 'Cause obviously we had the big step up when we backdated the full year. I guess, is it just mix that happened in Q2 on the revised update? The second question is just thinking about Florida renewal period, anything you can say regarding that. And potentially how would Demotech rating downgrades impact the look up? I appreciate this now looks like it's been deferred, but any commentary there. The final one is, can you give a bit of the detail on the older events where the reserve releases were stemming from? Peers discussed reducing their reserve buffer above best estimate due to IFRS 17. Have you done anything of the same, or is that on the cards? Thank you. Okay. Hi, Will. On your first question, the stock up that you see in the SCR ratio in Q2 is largely due to some additional reinsurance purchases we made in the quarter. We are seeing benefits of business mix, which I think I did say last quarter. We do get some diversification benefits in the model as well, which aids the capital, but it's largely due to reinsurance. On the reserve releases, the reserve releases we've got in the older years, 17 and 18, relate to specific events. You see this throughout our history, that specific events can go either way, but generally, over time, they tend to move for us positively because of our reserving approach, which is conservative. At the moment, we don't expect to make any significant changes on the. When we put IFRS 17 in. Obviously we look at it ongoing over time, and we'll aim to maintain our conservatism going forward. Will, sorry, could you repeat question two? I got the back end of it, but not the start. I think you were asking about renewals in Florida, but can- Yeah. Can you repeat the question, please? Florida renewal period. Just any comments on outcome. I guess the back end of that question was, you know, there's a pending rating downgrade potentially from Demotech. Just whether that would impact your business at all from a premium or a rebate perspective. Yeah, sure. Okay, fine. Yeah, look, the plan for us going into Florida was pretty much aligned with our overall plan for cat for the year, which was to broadly maintain limit and take, and take margin and optimize the portfolio, you know, in the areas that we could. As has been well publicized, there were some quite meaningful rate changes in Florida. Our book was no different to that. However, there was one large account that we non-renewed because we didn't feel that the renewal terms were adequate. Actually we did finish up with limiting Florida specifics down slightly year-on-year, albeit given the rating environment, our premiums were up. On the second part of your question, look, our focus is always from our portfolio. Our focus has always tended to be on the better capitalized Florida players. At the moment, I don't foresee any particular issues for the business that we've written. Thanks. The next question comes from the line of Faizan Lakhani from HSBC. Please go ahead. Good afternoon. This is Faizan Lakhani from HSBC. Thank you for taking my questions. My first one is on net cat exposure. From your slides, I can see the net cat exposure as a percentage of gross written premium has come down in 2022. On a tangible capital view, it's risen for all perils. Would the correct way of thinking about this be that on a written basis exposure is down, but on in force or earned basis, it's up going into hurricane season? I guess sort of bigger picture question, although your mix has shifted away from cat exposed premiums since 2017, by looking at PMLs in the last year, they've gone up quite significantly. How do I sort of tie that up? My second question is just coming back to reserve releases. You know, very robust reserve releases, and it seems to come in part from property and casualty reinsurance in terms of absolute dollar amount. How much of this is from an unwind prudence on your new lines of business versus a general IBNR release? Thank you. Hi. Look, I'll try and answer the first question, which I think I understand. Look, on the cat portfolio, the moving parts are pretty much in three areas. To start with, you know, as we said at the start of the year, our intention was to broadly maintain our cat footprint. The shape of the inward portfolio is broadly similar to last year. We have taken the opportunity in some areas to optimize the portfolio, and as I just mentioned on the previous question, you know, there are some areas where the renewal terms aren't adequate, so you know, sometimes limit comes down. The example I just gave being Florida. As a general comment, the inward portfolio remains broadly the same, and then we get the benefit of margin coming through on the increased rates. Post 1-1 we did talk about on the outward side, having a higher first event retention on our outwards protection, which is primarily due to market conditions. This is where you see this, the kind of small increases coming through in the one in 100 numbers, which you can see in the financial supplement. We also spoke about, and Natalie's already alluded to, we also bought more aggregate and tail protection. So this sits both on top of those core reinsurance programs and to the side of those core reinsurance programs. This is where you start to see the benefit come through in the one-in-250s, which as you can see are down, you know, reasonably significantly, but also helps, as Natalie just explained, both rating agency and regulatory capital. Hopefully that gives you the picture of the moving parts. Okay. On the reserve release question, yeah, if you look at our releases from the previous underwriting year, we generally release them. We say it's down to IBNR releases. It's almost the same thing as talking about prudence. You will see because we do reserve for our new lines of business, very prudently in the first few years. Given that level of prudence, you would expect to see good IBNR releases coming through in the following underwriting year. Hopefully that's helpful. Thank you. Could I just come back very quickly to the first question? That was very helpful in terms of detail. Just sort of thinking very simplistically, does that mean you're exposed more to higher frequency, lower severity events going forward? No, not necessarily. Okay. Thank you. The next question comes from the line of James Pearce from Jefferies. Please go ahead. Hey guys. Thanks for taking my questions. It's just three from me too, please. The first one is just on, you know, the potential losses from the aircraft stranded in Russia. Yeah, I know there's a lot of uncertainty here, and that we're not gonna know what the ultimate loss is for quite some time. Would you expect the industry, including yourselves, to start recognizing some sort of provision for any losses sooner than these claims actually being settled? If you do, what do you think the catalyst will be for insurers to start recognizing and disclosing those provisions? Next one, sorry, it's another one on capital. How should we think about the capital requirement strain as a percentage of premiums going forward? Should we expect that to be broadly flat relative to premiums, or will it continue to reduce given, I guess, rate increases and further growth in less capital intensive lines? Final one, you know, just based on your current capital ratio of 270%. Assuming we have a relatively normal year from a cat loss perspective, you know, it feels like you should have a decent amount of excess capital. I'm just interested to hear what your preference would be in terms of how that capital is deployed. Thanks. Right. Okay. On Russia, I'll start and then Paul can add if he wishes to. I think if you look at the commentary from some of our peers, I think we would agree with that. You know, it's an ongoing event. It's a difficult situation. I think ultimately what happens is, like most complex claims, it will probably take a number of years to settle whether the quantum loss is very debatable, if there is a loss at all. I think that, and obviously I can talk about it 'cause it's public, you know, if you look at AerCap being the world's largest leasing company has submitted a claim to the market. I think people are gonna keep you know very close eye on what happens there. Maybe that will be the path that others take. I think at this point, as we've said, that there's no real change to our position. You know, we're crystal clear on where exposure may or may not be. Doesn't affect anything we wanna do in our business, but it's just gonna take some time to come through. You know, maybe end of this year. You know, I just don't know. You know, we change our view on reserves when we have proper evidence and fact patterns, and nothing's changed from Q1 from our point of view. Hi, James. I think potentially the answer to your questions two and three is really the same thing in that, you know, we write the conditions that we see in front of us. The capital requirement going forward will very much depend on the market that we see in 2023. It's really the same answer for your third question on if we have excess capital, what are we going to do with it? We'd always prefer to use it for underwriting. If the market is good, that's what we will do. If not, we'd make the usual considerations of a special dividend or share repurchases. We make those decisions after wind season at the end of the year. Cool. Okay. Thank you. The next question comes from the line of Andrew Ritchie from Autonomous. Please go ahead. Oh, hi there. I think most of my questions have been answered, but could I just follow up on the PML changes? Can I just understand that you've taken. Obviously, I can see the benefit of the reinsurance of the one in 250, but I'm just trying to understand that your additional aggregate protection that you've bought, it kicks in presumably below one in 100. I see the one in 100s have gone up. I'm just trying to understand, I suppose, a rerun of a hurricane season type with, say, multiple one in 10 type events. Do you have material additional protection relative to what you used to have? 'Cause you said in answer to an earlier question that you're not necessarily exposed to more frequency. Cause the way you presented it is that you, the one in 100s jumped up in some perils quite a lot, but the one in 250 hasn't. I'm sort of left with the impression you're quite exposed up to multiple one in 100 events. Maybe just reassure me that's not the case, if you could. Then some of those PML growth, there was a lot of growth in certain perils and not in others. Is that just how it's fallen out with the shape of the reinsurance? Or you think things like, for example, European windstorm and all the Japanese perils are much better priced than Gulf of Mexico? My other two questions were quite specific ones on certain classes. On energy, I admit I'm just a bit confused on energy. I see lots of, you know, trade articles saying that pricing is softening a bit, and yet I'm hearing about lots of losses. I mean, maybe losses haven't affected you that much, but there seems to be quite a lot of large risk losses. There's possibly some inflationary aspects in that particular class also. I'm just confused, why is pricing sort of not behaving better there? Then final question on aviation, can we really get a dislocation in the market without clarity on the loss? I'd maybe just explain how that would be the case. Thanks. Okay. I think they're all for me, Andrew. Look, on the first point, on reinsurance, the one in 100 is obviously a single event, singular occurrence, metric. If we take more retention on our first event, and obviously aggregate kicks in beyond the first event, you're not gonna see any benefit from the aggregate protection there. The one in 250 changes driven by the additional tail, predominantly driven by the additional tail reinsurance that we'd spoken about previously. Then, yeah, the aggregate is effectively kicks in when you have a number of catastrophe losses. You then get the benefit of that if you ended up having more than one, say, second, third, fourth, for example. That that's how that works. Energy. Look, there's lots of parts of the energy book, and each subclass is performing differently at the moment. I think the subclass that's seeing probably the most competitive pressure, albeit I would say rates are broadly flat and are flat following a number of years of pretty decent rate momentum is downstream energy. Quite simply, like everything in our market, the market environment is driven by demand and supply. We have seen there has been some well-publicized losses in the downstream market quite recently, so it'll be interesting to see if that flat rate environment continues, but it will ultimately only be driven if people's appetite reduces. What I would say is those years of rate increases we've seen since 2018 has obviously pushed that market into a better rating adequacy position. In things like upstream, we've been very clear in our view that while we've been getting small rate increases for the past four or five years, it's not really getting back to a level where we want to increase our appetite to write more risk. We're just taking the rate because we feel from an adequacy perspective, the market gave up so much rate during the soft part of the cycle that we're not back to a position where we can really broaden our risk appetite. Nothing in that class is particularly changing. We're still seeing small single-digit rate increases. The two areas where we're seeing better rate increases, albeit in one of them is probably slower than we've seen before. Power is still seeing good rate increases for a number of years of good rate increases. I'd say that market is still interesting for us. Energy liability, which is a new sector, which gets the effects of the broader casualty hardening that we've seen in recent years. The rate environment there is still, you know, reasonably strong. Lots of different things impacting the overall energy book. We're still moving in the right direction, albeit some classes there's a little bit more competitive pressure. We're very aware of the inflationary impacts that can impact those various subclasses within the energy sector. We're used to dealing with those. We've dealt with those for a number of years. I think as I said in my script, we've seen oil price from $120 down to $30, and it's now gone, you know, back up the other way. That does bring risks. We're aware of those risks. It also brings more demand to the market and therefore more premium. Again, it's not all negative. On your aviation question, I think first of all, look, we're positive the market will change in Q4. The level to which it will change, we can't see it at the moment and suggest what that's going to be. We do expect dislocation. The reason we feel that it will change irrespective of what happens with Russia is I think people's perception of risk is different from what it was before. For me, perception of risk is generally what dislocates market more than the actual dollars of loss. That's the reason we feel that there'll be a change in the aviation market in Q4. Okay, that's great. Thanks. Maybe just on the PML question, just in simple terms, Paul, imagine a rerun of 2017. Would your net versus gross loss be lower with the new reinsurance in place? That was three events, wasn't it? I think it was actually more because you had things like earthquake in Mexico. Look, trying to run- Oh, sorry. Is it an aggregate across multi perils then? I thought it was just U.S. wind. Okay. Yeah. I think trying to get into the specifics of rerunning losses with, you know, the P&I inwards portfolio has changed, the dynamics of the reinsurance has changed. What I can tell you is we've got more aggregate protection than we did back then. But trying to get into the specifics of how the portfolio would perform exactly is, you know, quite difficult to do. Look, okay. There's more advantages than explaining it. Okay. Fair. Andrew, you have got 50% more rate in the portfolio than you had in 2017 as well. Very good point. Yeah, yeah. Fair point. You can never really assess if cat season because it doesn't really work that way. We've definitely got a lot more margin in the book as well. Okay, great. Thanks very much. Thanks, Andrew. The next question comes from the line of Ashik Musaddi from Morgan Stanley. Please go ahead. Thank you and good afternoon. I have just a couple of questions. I mean, first of all, if I think about the capital now, capital has been growing while you've been growing your business. I mean, first, earlier this year it was supported by the diversification benefit. This time it's supported by the reinsurance protection. How do we think about this capital going forward? I mean, if you keep growing the business, in second half and next year, I mean, would you say that the capital is now normalizing to a lower level? I mean, all I'm trying to understand is, I mean, are you actually using more capital to do more growth, or would you try to find some other ways to do the growth? Because in that case, we can get some visibility about some surplus capital return. That's the first question. Second thing is, I mean, as you mentioned that, the casualty business, non-CAT business is becoming a bit bigger, and it has a different earn through, so any visibility on well, how do we think about that duration of the earn through of the non-CAT business in next say couple of years? Thank you. Okay. Hi, Ashik. On the second question, on the earnings, I would say that on the new lines of business, we're looking more in the region overall of two to three years, where I think previously we said on our historic book more like 12-18 months. It does earn out a little bit longer on average. And on the capital question, I think you really mean capital headroom more than actual capital. As we've said, we'll look at that at the end of the year, see what we think the conditions will be like next year, what we need to write, what capital we need to write into those conditions, and then we'll make a decision on what to do. Anything to add, Paul? I mean, maybe just one follow-up. I mean, would you say that there are more tools you have or you're considering to further improve the headroom? Or, more or less you're done in terms of taking your own actions to improve the capital? Well, the one thing that will improve the capital headroom is the continued diversification that will give us benefits from a headroom perspective going forward, as well as the reinsurance purchasing. It's something that we look at all the time. Okay. Thank you. The next question comes from the line of Tryfonas Spyrou from Berenberg. Please go ahead. Yes. Hi, everyone. Just have a quick question on reserve releases. Can you give us a sense on how to think about this going forward, perhaps next year? Clearly you're a much bigger business now, and as you mentioned, there is a lot given the level of conservatism building these new lines. I was wondering when we should expect to see sort of a step-up change in the absolute amount of reserve releases and whether what we saw at the half year is perhaps the start of this. Thank you. Hi, Tiffany. I think for this year on reserve releases, you really just need to take the excess at the half year and add that onto the previous full year guidance to come up with a reasonable range for this year. Then going forward, as we said, we'll update guidance at the end of this year for next year when we have a better view ourselves. Okay. Thank you. The next question comes from the line of Andreas van Embden from Peel Hunt. Please go ahead. Yes, hello. Good afternoon. I just have a question or, well, two questions. One is on your reinsurance book. I just wondered now you've been growing that casualty book for I think nearly two years now. I just wonder how large that proportion that is within your property casualty reinsurance book. I mean, just that growth alone, you know, in the first half of this year, it seems to me that within that sort of six-month premium, you've got already, you know, 1/3 of that portfolio is casualty classes. But I just want to double check whether that's the case, and if not, what proportion it is. And also, what type of casualty business are you writing at the moment? You've mentioned FIG, but you know, is that a really diversified book or are you know, growing in some concentration, more concentrated lines of business, such as FIG? The second question is actually on the insurance, property casualty insurance book. You're saying, you know, most of this growth is coming from D&F, and I just wondered if you're keeping your property casualty reinsurance exposure flat. Are you moving your cat exposure towards the insurance classes? And does this give you some diversification benefit in your capital model? Thanks. Okay. Fine. On the first point, Andreas, you're right. A lot of the growth in P&C reinsurance is indeed coming from the casualty reinsurance portfolio. I think. I mean, we don't split out those premiums, but what we have said previously on casualty reinsurance or casualty lines, that we anticipate it to be at mature state, you know, in and around 10%-15% of overall GWP. I think it's still a growing book. It's 18 months we've been in it. It is ahead of schedule, but it is definitely not outside of that range that we'd previously given. I think going to the casualty book itself, I mean, the play in casualty has very much been a macro one, and the vast majority of that portfolio is U.S. focused and quota share in nature. You know, small shares of large U.S. companies, broad casualty books, so there's not any particular focus on individual areas. We've got a broad spread of all the casualty lines. As you know, casualty is a very broad church. By supporting core clients with quota share capacity, we're getting a spread of the broader casualty market risk. On your second question on P&C insurance and growth coming through D&F. Yes, we have been growing our D&F portfolio. You'll recall a couple of years ago, historically, we've written this through our syndicate. We also expanded to offer this through our company platform. That's been growing. Also within that though, some of the growth in P&C insurance is coming through our new operation in Australia. Also our property and construction team. It's probably worth noting that, of course, not all D&F is cat exposed. There is obviously a fair amount that's cat exposed, but not all that growth will just be pure cat. As a general comment, when we talk about our cat footprint, we don't just refer to our reinsurance lines. We are talking about our overall cat portfolio as a group, which does include our D&F writings. I think it's fair to say that protecting a D&F book is certainly easier from a market conditions perspective than protecting a cat XL book, because the retro market, as we all know, has hardened reasonably significantly in recent years. As I said, look, when we look at our cat footprint, we take all of the lines of business that contribute into account. As we've said, you know, our inwards portfolio as a whole is, you know, broadly the same shape as it was last year. Noting of course that we grew that reasonably significantly in 2021. Yeah. Andreas, on the point on the cat models that you asked on the diversification. You don't really get diversification benefits between different types of cat. The benefit comes between cat and non-cat exposed lines of business. Sorry. Okay. It's the casualty growth that's giving you that diversification benefit. Yeah. Yeah. those other lines of business that we invested in over the years, you know, energy, aviation, et cetera. With the double-digit rate increases in reinsurance, you know, at the U.S. renewals. Do you feel those rates are, you know, adequate or do you see the rate adequacy really being more attractive in the cat D&F book? Yeah, look, we're really happy with what we've seen in the rating environment. Both actually in the reinsurance lines and in D&F. In fact, I'd say both of them have been better than we originally anticipated at the start of the year. You know, obviously more rate just improves adequacy. We're more than happy to take that margin. Okay. Thanks a lot. We do have time for one last question. Our last question comes from the line of Iain Pearce from Credit Suisse. Please go ahead. Hi. Thanks for taking my questions. I mean, it just comes back to the optimization that you've done around the catastrophe exposures and the movement in the PMLs really. I'm just trying to understand the logic and what's driving some of these decisions. Because it feels like you're doing things quite differently to what we hear sort of most people are doing in the market or what's being reported, at least in the market, in terms of people trying to write higher up layers, you know, access to aggregate covers. People reducing those aggregate reinsurance covers that they have. Reducing limits on single loss events, these sorts of things. It feels like you're doing something a little bit different from what's going on in the market. Really what's driving that decision? Is it where you're seeing better pricing or better returns on capital? Or is it just from a capital efficiency perspective that writing with this sort of structure is more optimal? On the retro protections that you bought, those aggregate covers, you know, that is gonna be a core part of your overall retro protection going forward? Or was that sort of an opportunistic purchase that you made at the start of the year? I think, you know, at a high level, everything we're doing is what we plan to do at this stage of the cycle. Every product line we've gone into, we've gone into because the underwriting opportunity has improved. You know, we went into casualty when that market was pretty horrible and there was some material changes to the casualty market. We continue to write cat portfolio as rates increase. I think, you know, when we think about how we underwrite and how we want to position ourselves, it's very much based on the underwriting opportunity. Then what you're seeing around diversification and everything else is kind of, I would say, a secondary benefit. You know, we don't you know look to only go into a product line because it's going to help our solvency ratio. Obviously when we've been expanding the non-cat business, that's naturally what happens. You know, your capital works better for you. It has to start with the underwriting opportunity, writing the right business at the right time in the cycle, and making sure you know take advantage of good underwriting conditions. Look, some people are going the other way for various different reasons. Some people have a different view to us, that's fine. We fundamentally believe in, you know, the growth. A part of the underwriting cycle, and there'll be a point when, you know, we don't grow as much or we grow very little, and others will be much braver than us, and that's the cycle for you. Just to clarify on a couple of points, and apologies if I'm repeating a few things that I said earlier. The shape of the inwards portfolio is broadly the same as last year. As I said, there's, you know, there'll be certain tweaks in certain regions, but to be absolutely clear, we're not writing lower down the curve. The broad shape of the portfolio is similar to last year. We obviously can't talk to other people's businesses, but that from our perspective, that's what the inwards portfolio is doing. In terms of the question on aggregate protection, again, I think you have to add context. You know, we haven't traditionally. We've had elements of aggregate protection, but not particularly material in our overall reinsurance spend or program. Us buying more is not, you know, particularly difficult given that we started at a low base. It may be some of our peers had more aggregate protection and therefore it's difficult to source that because we know aggregate is difficult to buy and therefore that may be the reason that other people's has gone down, but they're coming from a different base. When it comes to reinsurance strategy, that we assess the market that's in front of us, a bit like we do on the inwards, and then we try and buy the most appropriate reinsurance structure for the inwards book we anticipate writing. Hopefully that provides a little bit more clarity. Yeah, that's perfect. Thanks. Okay, thanks for your questions today, and we'll close the call there. Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.