Chubb Limited (CB) CEO Evan Greenberg on Q1 2019 Results - Earnings Call Transcript

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About: Chubb Limited (CB)
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Earning Call Audio

Chubb Limited (NYSE:CB) Q1 2019 Earnings Conference Call May 1, 2019 8:30 AM ET

Company Participants

Karen Beyer - Senior Vice President of Investor Relations

Evan Greenberg - Chairman and Chief Executive Officer

Philip Bancroft - Executive Vice President and Chief Financial Officer

Michael Smith - Senior Vice President and Global Claims Officer

John Keogh - Executive Vice Chairman and Chief Operating Officer

Conference Call Participants

Elyse Greenspan - Wells Fargo Securities, LLC

Jay Gelb - Barclays Capital

Brian Meredith - UBS Group AG

Michael Phillips - Morgan Stanley

Jay Cohen - Bank of America Merrill Lynch

Yaron Kinar - Goldman Sachs

Meyer Shields - Keefe Bruyette & Woods

Ryan Tunis - Autonomous Research LLP

Mark Dwelle - RBC Capital Markets

Operator

Good day and welcome to the Chubb Limited First Quarter 2019 Earnings Conference Call. Today's call is being recorded. [Operator Instructions]

For opening remarks and introductions, I would like to turn the call over Karen Beyer, Senior Vice President, Investor Relations. Please go ahead.

Karen Beyer

Thank you and good morning, everyone. Welcome to Chubb's March 31, 2019 first quarter earnings conference call.

Our report today will contain forward-looking statements, including statements relating to company performance and growth opportunities, pricing and business mix, and economic and market conditions, which are subject to risks and uncertainties, and actual results may differ materially.

See our recent SEC filings, earnings release and financial supplement, which are available on our website at investors.chubb.com for more information on factors that could affect these matters. We will also refer today to non-GAAP financial measures, reconciliations of which to the most direct comparable GAAP measures and related details are provided in our earnings press release and financial supplement.

And now, it's my pleasure to introduce our speakers this morning. First, we have Evan Greenberg, Chairman and Chief Executive Officer; followed by Phil Bancroft, our Chief Financial Officer. We'll then take your questions. Also with us today to assist with your questions are several members of our management team.

And now, I'll turn the call over to Evan.

Evan Greenberg

Good morning. We had a very good first quarter, highlighted by good underwriting results, strong premium revenue growth globally, and the best pricing environment in U.S. and London wholesale market in maybe 5 years.

Core operating income of $2.54 per share was up 8.5% from prior year. Book and tangible book value per share were up 4.3% and about 7% respectively in the quarter. We reported a P&C combined ratio of 89.2%, which included 3.8 points of CAT losses, and favorable prior period reserve development of 3.1 points, to $104 million pre-tax.

On a current accident year basis, excluding CAT, the P&C combined ratio was 88.5%, simply world class. Phil will have more to say about investment income, book value, CAT, prior period reserve development.

P&C premium revenue growth in the quarter, in constant dollars was quite strong, and frankly, better than we anticipated in our plans for the quarter. Net premiums grew just over 5%. Our foreign exchange given the strength of the dollar then had a negative impact of 2.2 percentage points.

During the quarter and through April, the pricing environment continued to improve with overall price change in North America on a written basis equaled the loss cost trend. In addition to property, pricing improved throughout the quarter in many casualty related areas including general casualty, both primary and excess, and D&O and professional lines.

Renewal price change, which includes both rate and exposure, was up over 5%. Retention of our customers remained strong across all of our North America Commercial and Personal P&C businesses, with renewal retention as measured by premium of over 94%. In major accounts in specialty commercial, excluding agriculture, premiums were up 4%. Renewal price change for major accounts was 4.8%, with risk management pricing up 5%, excess casualty up 7% and property up nearly 9%.

Public D&O rates increased 5.5%. In our Westchester E&S business, renewal pricing was up 8%.

Turning to our middle market and small commercial business in North America, premiums overall were up about 6.5%, our strongest quarter in terms of growth since the merger. New business was up 13% and renewal retention in our middle market business was over 91%. Middle market pricing was up 3%. And excluding workers' comp, it was up 4.2%, again, that's the best we've seen in a number of years.

The middle market pricing for primary casualty, pricing was up about 7%. Excess umbrella was up 4.3%, and D&O was up 9%. In our U.S. small commercial business, premium revenue continued its positive growth momentum, with net premiums up over 40%.

In our North America personal lines business, net premiums written in the quarter were up 1%, adjusted for the expanded quota share session we discussed last quarter, net premiums were up about 2.5%. Retention remained quite strong at over 96%, with homeowners pricing was up over 8% in the quarter.

Turning to Overseas General Insurance operations, we had reasonable growth, which we expect to accelerate as the year moves along, particularly in Asia. Net premiums written for our international retail division were up 5.7% in constant dollar. And FX then had a negative impact of 5.8 percentage points. Growth was led by Latin America, premiums up almost 13%, while premiums in Europe were up 4.2%, and Asia was up 4% or 8% adjusting for a onetime positive item last year.

International growth in the quarter was driven by both commercial and consumer lines. Consumer lines were up 6%, personal lines were up 5% and driven by Latin America growth of 17.5% and A&H was up 5%, driven by double-digit growth in both Latin America and Japan.

Net premiums for our London market wholesale business were up nearly 15% in the quarter in constant dollar. As I noted last quarter, this business is growing again on the back of improved pricing after several years of shrinking. Pricing conditions in our international retail and London wholesale businesses vary by line and by country.

Overall rates in our retail were up 2%, while rates in London wholesale open market business were up over 8%. Property up over 8%, financial lines up 13% and marine up about 6.5%, and finally aviation up 18%. John Keogh, John Lupica, Paul Krump and Juan Andrade can provide further color on the quarter, including current market conditions and pricing trends. Since the beginning of the year, we've completed a couple of important transactions that represent important opportunities, which will feed growth in the future.

In January, we entered into a 15-year exclusive distribution agreement with Banco de Chile. The largest bank based in that country. We will distribute life and general insurance products to their customers throughout their branches, telemarketing and digital channels. Banco de Chile has a long track record, it successfully marketing insurance to its more than 2 million banking customers.

In March, we received approval to increase our ownership in Huatai Insurance Group, a holding company of P&C, life and asset management subsidiaries. Huatai Group's insurance operations have more than 600 branches and 11 million customers. With our increased stake, Huatai Group became the first domestic Chinese financial services holding company to convert to a foreign invested joint venture. Our increased ownership is an important milestone towards our future goal of majority ownership.

In closing, we're off to a good start to the year. We're achieving increased growth in many of our businesses globally and momentum continues to build, a benefit of our broadly diversified presence and capabilities. We are experiencing continued and even accelerated pricing increases.

With that, I'll turn the call over to Phil numbering back and take your questions.

Philip Bancroft

Thank you, Evan. We are starting out the year in an exceptionally strong financial position. We have a very strong balance sheet to support our business activities with total capital exceeding $65 billion. We also have a $105 billion portfolio of cash and investments, it's highly rated in liquid and we generated operating cash flow of $1.3 billion in the quarter.

Among the capital related actions in the quarter, we've returned $702 million to shareholders, including $335 million in dividends and $367 million in share repurchases. Though yesterday, we repurchased shares for over $435 million and an average price of $134.17 per share.

Since the Chubb acquisition, we have reduced our dilution on tangible book value per share from 29% to about 2.5%. Our annualized core operating ROE was 9.2% and our annualized core operating return on tangible equity was 15.1%.

Net realized and unrealized gains for the quarter were $1.6 billion after-tax. There was a gain of $1.4 billion in the investment portfolio due to decline in interest rates and $50 million gain from our variable annuity portfolio, primarily from the improvement in the equity markets. We also had a gain of $150 million from FX.

The current quarter investment income of $882 million was within our previously communicated range. We continue to expect our quarterly adjusted net investment income run rate to be in the range of $880 million to $890 million.

As a remainder, as we discussed previously, we reduced the utilization of our cash liquidity program. On a basis of utilization comparable to last year's first quarter, our investment income would have been $902 million, $20 million higher than reported this quarter. And our interest expense would have been $165 million, also $20 million higher than reported in the quarter.

Pre-tax catastrophe losses for the quarter were $250 million, 90% from weather-related events in the U.S. and the balance from international events, primarily in Australia. The catastrophe losses were about 20% higher than we expected, which was worth about $0.06 on our EPS.

We had favorable prior period development in the quarter of $240 million - $204 million pre-tax or $161 million after-tax, which included $61 million pre-tax related to the 2018 crop year loss estimates. The remaining favorable development is split approximately 60% from short-tail lines and 40% long-tail, primarily from accident years 2014 and prior.

Net loss reserves increased $39 million or decrease $63 million on a constant dollar basis, reflecting the impact of prior period development and catastrophe and crop insurance payments in the quarter.

Underlying reserves increased about $560 million. On a reported basis, the paid-to-incurred ratio was 98% for the quarter. After adjusting for the items noted previously, the paid-to-incurred ratio was 86%.

Our core operating effective tax rate for the quarter was 14.7%, which is in line with our expected range of 14% to 16%.

I'll turn the call back over to Karen.

Karen Beyer

Thank you. At this point, we're happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question from Elyse Greenspan with Wells Fargo. Please go ahead.

Elyse Greenspan

Hi, good - thank you. Good morning. My first question just, Evan, going back to some of your pricing and loss cost commentary from your prepared remarks, in North America specifically you said that written rate is now equal to loss trend. In your annual letter that recently came out, you did say that pricing in the U.S. and some other market is not keeping pace with loss trend. So is that something that we saw change towards the end of the quarter and into April? If you could just expand on that and then give us your view for the rate versus trend that you see over the balance of this year.

Evan Greenberg

Yeah. First of all, I'll answer your last part. I hardly - if I had that insight, I wouldn't be doing this job if I could read the future that way, Elyse, I would probably be in Vegas. But when I wrote my shareholder letter, it was about 2018 year, and it wasn't about the first quarter of 2019.

And in 2019, in fact, in the first quarter, in total, all lines aggregated, rate on a written basis equaled loss cost trend and that is a change. The rate of increase is accelerating in short-tail and long-tail lines in the United States and in London wholesale in particular.

Elyse Greenspan

Does this feel like a market, where when you think, obviously, you don't want to project going forward? But does this feel like we're starting to get into a market where we can think about seeing some underlying margin improvement given that you made a point of saying that things really improved as we got into April?

Evan Greenberg

Well, I didn't say they really improved. I said, they continue to improve. And I don't want to prognosticate the future. Frankly, Chubb runs a world-class combined ratio. And if we can continue to achieve rate that equals loss cost trend in areas that are adequately priced, that's brilliant. If we can achieve rate in excess of loss cost trend in those areas that need rate, because margin is not adequate, that too is the objective, and we'll how it plays out and whether it continues to accelerate.

I like the tone of the market. I like what I see and what I feel. It's rational and I see what appears to be continued forward momentum.

Elyse Greenspan

Okay, thanks, and then a couple of just quick numbers questions.

Evan Greenberg

And that's particularly in large account and in E&S business. Middle market, I would make the same comment, but it is not at the same rate of change that I observe in large account and E&S and that is wholesome as I think I can be with you.

Elyse Greenspan

Okay, thanks. That's very helpful. And then a couple of quick numbers questions for Phil. Can we get the FX impact on EPS in the quarter?

Philip Bancroft

Well, it was $23 million.

Evan Greenberg

We gave it on the first page of the press release.

Philip Bancroft

Yeah.

Elyse Greenspan

Okay, great.

Philip Bancroft

$23 million was the - that's on core operating income and it was about $18 million on underwriting.

Elyse Greenspan

Okay, great.

Evan Greenberg

And the percentage points are right on the first page of the press release.

Elyse Greenspan

And then, my last question, Phil, you said that net investment income and interest expense kind of had offsetting impacts of the $20 million. Is the Q1 interest expense the right way to think about using that number as a run rate?

Philip Bancroft

Yes, I would say that, I would use the netted number, right. So the - I would take $20 million out of the number that I gave for both investment income and for interest expense.

Evan Greenberg

You would add it to investment income. You'd take it away from interest expense.

Philip Bancroft

Interest income will down to the range of [80 to 890] [ph].

Evan Greenberg

Yes.

Philip Bancroft

And I take it out of interest expense.

Evan Greenberg

Correct.

Elyse Greenspan

Okay, great. That's very helpful. Thank you.

Operator

And our next question will come from Jay Gelb with Barclays. Please go ahead.

Jay Gelb

Thanks. Thank you and good morning. For the Chubb team, there's been a number of fairly significant aircrafts, terrorism and likely ongoing cyber claims in the industry. Can you talk about how you manage those exposures and maybe your typical net risk after reinsurance protection on those types of risks?

Evan Greenberg

Well, you're talking about a variety of classes and we don't talk about - I'm not sure we're going to answer much of your question. We don't talk about individual losses. And the net limits we retain per risk really vary by risk and by class of business. And that's not something we really disclose and talk much about. But it's all - it is all rolled up. All the experience related to loss events are all rolled up in that combined ratio you're looking at.

Jay Gelb

It would be fair to say though, Evan, right, that it's - reinsurance is probably a significant risk mitigation factor in those type of exposures?

Evan Greenberg

Not necessarily. You don't know what risks we're on. And so, you're referring right now Boeing and then certain cyber events. And those are just individual insureds. And we're not - and some of them we're on and some of them we have modest exposures, some we have more exposure. It varies a whole lot.

Jay Gelb

Okay. Fair enough.

Evan Greenberg

But I have to say this. There is nothing we see in losses occurring in the industry that gives us any pause about Chubb's underwriting of any of those risks.

Jay Gelb

Understood, okay. And then…

Evan Greenberg

We do - we're underwriters, so we do post-claim underwriting reviews, when we see losses come in and we're in the business of losses. And what we really look for is are we proud of the underwriting, do we think the judgments and the appetite were correct, and the pricing was and the terms and conditions, and there's nothing in what we've seen that gives us pause.

Jay Gelb

I see. Okay. The broader question I had was, clearly, there is some favorable momentum in primarily commercial lines. If 2019 is not a major CAT year like we saw in the past two years, which I believe was the largest ever two-year period for the industry in terms of catastrophe experience. Do you believe that this positive price momentum can persist, if it is not a big CAT year, this year?

Evan Greenberg

I do. Because - look, time will tell. But I frankly do, because this is becoming casualty driven. And remember casualty entails insurance companies, not short-tail property. And casualty, you just all casualty related, so I'm using the term in a broad way with the exception of one or two classes, rate and loss cost trends have been going in the opposite direction. And loss cost trend depending on the class and the jurisdiction have worsened in some cases, because there is more pressure, because of the things that we know.

And the industry has experienced in that. And I think many are just waking up to the results that are emerging for behaviors that have occurred over a number of years. So I think this is a rational reaction and I imagine it to continue.

Jay Gelb

Thank you, Evan. Does that mean that for maybe some of your weaker position competitors that they haven't trued up with their underwriting reserve position might be, if it's going to be the casualty-driven term?

Evan Greenberg

Well, you have to ask them. I'm not - I really can't speculate on that, because I don't know what they know and don't know.

Jay Gelb

Thank you.

Evan Greenberg

If they all want to share their books with me, I'll tell you.

Operator

And our next question will come from Brian Meredith with UBS. Please go ahead.

Brian Meredith

Yeah. Thank you. Thanks. A couple of questions here for you. First one, I just notice North America, a big increase in the amount of ceded reinsurance. Did you change reinsurance buying habits this year?

Evan Greenberg

No. We didn't change. So that would just be idiosyncratic to the business in the quarter.

Brian Meredith

Okay. Just allocation and stuff like that…

Evan Greenberg

No. Risk management or crop insurance adjustments or any of that.

Brian Meredith

Okay. Okay. Excellent. And then, Evan, my second question…

Evan Greenberg

And then you do know though on personal lines we increased the quota share.

Brian Meredith

Right. Right. I was looking more…

Evan Greenberg

We [expanding] [ph] the quota share, as we told you last quarter that has an impact on that line of business. It's not that material to the overall North America.

Brian Meredith

Got you. Got you. I was looking more into your North America commercial operations. It was like 18.5% increase in ceded premium?

Evan Greenberg

Yeah. Not just - that's just the timing quarter-to-quarter.

Brian Meredith

Great. Great. And then I'm just curious, you're making a lot of contingent investments in emerging growth areas, China, et cetera. What are the margins on that business like versus your - kind of overall business? Is it better or worse? How should we think about that potentially over the long-term impacting your business?

Evan Greenberg

Yeah. I think, when you look at the - it varies. When you look at something like Banco de Chile or Banamex or some of the major bank related distribution agreements we have made. Those are at the kind of business that produces is at the lower end of our combined ratio of range. By the nature of the business, its consumer business and small commercial and accident and health, et cetera.

China - and we're not consolidating China now, I hope that will occur in the medium-term, when we cross the majority ownership market. We're in the midst of our activity in front of us is to acquire more ownership. We're engaged in that activity though I can't give a precise timing. The life business is a fast growing business, and it is generating. It is now turning the corner and beginning to generate positive GAAP earnings, and I believe the biggest opportunity in China is Life Insurance.

Brian Meredith

Okay.

Evan Greenberg

Just given them to macro. And we've got licenses, Huatai Life has licenses in all - in fundamentally, all the provinces. And the majority of those offices of 600 or life-related got 43,000 agents. Though, for China, that's small. I can imagine a company with 250,000. It would be years from now.

The P&C business will run a combined ratio that will produce an underwriting profit. And it will - it won't be Chubb's average combined - the average of Chubb's combined ratio. It will be at the higher-end spectrum likely for a while. But that has - that too has very good potential. And I think, when I think of it in the early days right now. As we - when I say early days, the next few years. I imagine that when we consolidate, it will be at least neutral to our ROE.

Brian Meredith

Okay. And does that also go for the PICC relationship we have.

Evan Greenberg

Well, the PICC relationship is different. That's a venture to where we're like really the international arm of the PICC. Our Chinese business, it's overseas. And we do with the underwriting and the servicing and they do the marketing and relationship and sales side of it, and we share the business together.

Brian Meredith

Okay. Got you. Thank you.

Operator

And our next question comes from Michael Philips with Morgan Stanley. Please go ahead.

Michael Phillips

Thank you. Good morning. I kind of want to touch this. A lot of comments on the rates and how they changed now or at the point where as you say were equal to loss cost trend. And it kind of a follow-up, I guess, to Jay Gelb's question a second ago. Maybe you could spend a little more time talking - help us understand the other side of equation, the loss cost trends. You said it worsened this year. It's casualty driven. And the rates and loss cost are moving in the opposite direction, and now it's not the case.

But can you talk a little bit more about what you see in the loss cost? Where are they worsened, and maybe just more to the extent that they are worse this year versus last year?

Evan Greenberg

I did not say they're worse this year than last year. So please listen to what…

Michael Phillips

No. Right. Loss cost trends, it worsened, I heard you said them. Okay.

Evan Greenberg

No. No. I did not say they worsened. So again, please, you'll read the transcript and the question, I didn't say that. I said the overall - overall loss cost is behaving. We haven't seen a deterioration in overall loss cost trend. I was speaking about there are specific classes and that it's a mixed bag of some behaving, some not. And when you rapid altogether, I don't see a deterioration in the overall.

But I did say these rates have not kept pace with loss cost in a number of years. And that naturally from the math is pretty simple as to what that equals. It equals margin pressure. And if you don't have margin pressure then I guarantee you've got reserve pressure.

And that the industry is response to that, right now, I think, is rational. And I see it having legs based on all I know right now.

Michael Phillips

Okay. Thank you for that clarification. I appreciate it. I guess, just a quick numbers question on the reserve side. Do you have any exposure to what - I guess, what [Travers had mentioned for that] [ph] Child Victims Act in New York, and so were there any reserves because of that?

Evan Greenberg

No. Mike, you want to…

Michael Smith

Sure. Evan, you'll recall, we recorded additional IBNR in the fourth quarter response to the difficult environment around molestation and abuse. That was not specifically related to the Child Victims Act, but it was in part a response to the trend in certain states to introduce revival legislation. By the way, I should also remind you a large number of states don't constitutionally allow for such legislation.

At the New York, specifically, it's a fluid situation, it's too early predict the outcomes of any claims since the statue doesn't even take effect until August. So therefore, it's really premature to talk about in the potential impact.

Michael Phillips

Okay. Great. Thank you very much.

Operator

And our next question comes from Jay Cohen of Bank of America Merrill Lynch. Please go ahead.

Jay Cohen

Thank you. Yeah, just a quick one on the Overseas General business, the - there was the - the development was very minimal in the quarter. I just didn't know if you had any exposure to spillover from events that occurred in 2018?

Evan Greenberg

No. We did not, Jay. We don't actually review much in the way of reserves in Overseas General in the first quarter. It's a couple of regions, there are short-tail business that we review in the quarter. And so you see that sometime just bounce around a bit. But nothing - there was no development in the quarter and we had no [jebby] [ph] development. By the way, which is what everyone's trying to talk about.

Jay Cohen

Exactly. Thanks, Evan.

Evan Greenberg

You're welcome.

Operator

And our next question comes from Yaron Kinar from Goldman Sachs.

Yaron Kinar

Good morning, everybody. First question is around the normalized CAT load. So I think you said that CATs were about $20 million in excess of your expectations. I think that gets about 3.5% CAT load…

Evan Greenberg

It was 20% more than our expectation.

Yaron Kinar

Oh, 20%.

Evan Greenberg

Right.

Yaron Kinar

Okay. I missed that. Okay. That's helpful. And is there a reason that you stopped offering the normalized CAT load in the supplement?

Evan Greenberg

The normalized - oh, the ROE normalized CAT load? John?

John Keogh

We decided to put it into the commentary. There was no conscious…

Evan Greenberg

Yeah, there was nothing - yeah, there was no signal there that we - yeah.

Yaron Kinar

Okay. Okay.

Evan Greenberg

There was nothing like we were - we had some change of philosophy or this or that. It wasn't - it was an item that we put in, particularly when we saw - when there was elevated CATs of significance, where it was a real CAT event quarter. And we just didn't see it this quarter is that. That's all.

Yaron Kinar

Fair. And given this quarter was ratably benign quarter from an industry perspective from a CAT load perspective. I guess, I was just a little bit surprised to see the CAT load being kind of close to 4% for the quarter. Are you still comfortable with your longer-term guidance or targets of under 4% for the year?

Evan Greenberg

Yeah. I - we are - we really are and when you think about how we do, which we've been quite transparent and we think that The Street's estimate are a pretty good proxy for what is our own work on expected CAT. And the way it's done. We model, obviously, the perils that have good models, hurricane and earthquake have reasonable models and we model our exposure based on that.

And then, on non-model, tornado activity and flood and the like we look at long-term averages. We trend them, we adjust for our exposure. We adjust for reinsurance. And when you bake all that in, The Street's summary is pretty good. When I look at the number over our quote on quote expected. And expected is a quarter.

In a quarter, you're just going to have volatility around that. And by the way on any annual basis, of course, you're going to have volatility. You're never - it's so hard that you're going to hit the actual expected. You're either going to be under it a little bit, you're going to be over it a little bit. I mean, that's just real world. And in any quarter, you're going to have a little volatility.

Some of that was international related, because we had Australia. And I don't think - I'm not sure how you guys think about all that. And then, the balance was just in the homeowners' line and the winter storms that occurred and that's about it.

So it didn't fuss us at all as we looked at it. And it didn't have us re-imagine CAT losses on an expected basis.

Yaron Kinar

Okay. That's helpful. And then when I look at the expense ratio and overseas general and global reinsurance, it seems to go up a little bit. Is that just business mix shift? Is there an FX impact there? Could you maybe walk us through what drove the increase?

Evan Greenberg

Yeah, in overseas general, very simple, last year we had onetime items that benefited, and they were all around pension and compensation. And they were one time. And that we had over-accrual and that came down. And you normalize for that and the expense ratio is flat.

Yaron Kinar

Okay, and in global reinsurance?

Evan Greenberg

Global reinsurance is a mix of business question.

Yaron Kinar

Okay. Thank you very much.

Evan Greenberg

You're welcome.

Operator

And we will take our next question from Meyer Shields with KBW. Please go ahead.

Meyer Shields

Thank you. Good morning. When we're in an environment where rate increases are matching loss trends, is there an internal expectation that various underwriting efforts should translate into margin expansion, because the external catalysts are neutral?

Evan Greenberg

Very line specific, where lines of business are more stressed or don't meet our combined ratio standards, then there we drive for more rate. We drive for change in terms and we reshape portfolio. And that is actively going on, Meyer.

Meyer Shields

Okay, perfect. That's all I had. Thank you.

Evan Greenberg

You're welcome.

Operator

And our next question will come from Ryan Tunis with Autonomous Research. Please go ahead.

Ryan Tunis

Hey, thanks. Good morning. Just following up on the question Meyer had, I mean, there is clearly some lines, we're seeing a lot of rate - excess casualty. And you said, plus 7, the middle market was just plus 3. I mean, I don't know, I guess, I'm curious, is there [8] [ph] in the pricing even a good indicator of - on a line-by-line basis of what's happening with margins? Like for instance, are the lines that are getting plus 7 likely to see more margin improvement than the lines that are only getting plus 3 or is that really just based on relative need?

Evan Greenberg

It's all based on relative need. You can't translate it. We can, but we don't - we're not disclosing that and we don't go there.

Ryan Tunis

So what are some areas, where you think that loss trend is - I'm sorry, the rate is below loss trend, what are some lines that jump out to you?

Evan Greenberg

Where rate remains below loss trend? A lot of E&S casualty, it varies by line of business. But rate continues and not below loss trend, it's actually above loss trend. I shouldn't say that, let me take that back. But it needs more rate, because you look at the - you look at the combined ratio starting point in those lines.

I see this - I see stressed lines right now. And the better way of saying it, because I'm not going to give it to you by line, in real specific detail, but I see stressed lines getting above loss cost trend. And it need to, which helps to begin to improve the margin in that area. Now, in many of those areas we shrank and shrank substantially, because that you could see it in our numbers. We talked about it. Go back in how we talked about shrinking our Westchester business, our London E&S business, our reinsurance business, as examples, because of the competitive environment.

And in those areas, some of them have classes where we see growth opportunity right now, because rate is exceeding loss cost trend and it presents opportunity. Some rate is exceeding loss cost trend. We right a modest portfolio, and we're - but it's still not adequate enough where we want to grow that business.

Ryan Tunis

That's helpful. And then, Evan, I know you don't want to prognosticate…

Evan Greenberg

I believe there are some lines - there are some lines where rate frankly is still not adequate relative to loss cost trend. And they're coming up, but they're still not there yet.

Ryan Tunis

Got you. And again, I know you don't want to prognosticate on pricing. But I am curious, how much - how important is - what's going on with reinsurance pricing do you think in terms of - how much primary pricing can continue to improve? Is it such that - as we understand in what happens there, you can tell most of this story or is it still a situation where you have a primary company or [lease are inadequate] [ph] and you think you could continue to have [lease firming in] [ph] primary while reinsurance stays sort of not so spectacular?

Evan Greenberg

Right now, this is primary insurer driven. It's not reinsurance market driven.

Ryan Tunis

Thank you very much.

Evan Greenberg

You're welcome.

Operator

And we will take our final question from Mark Dwelle from RBC Capital Markets. Please go ahead.

Mark Dwelle

Yeah, good morning. Just a question related to the agriculture business with the various flooding and other events that we've seen so far. Does that likely to have any impact on either the premium or potentially how you might think about losses this year?

Evan Greenberg

Frankly, the - let's take it in two pieces. The wet season and how people think about late plantings and all of that. The planting season right now and the pace of it is really the same as last year. And you know how last year turned out. So it's very early days and - but right now planting conditions are pretty good and improving. And then, on the loss side from flooding, most of the flood - most of that flooding occurred in flood plain areas.

And from a loss point of view, therefore it's - when we look at our portfolio, it's really about late planting question. And as I said, we see the conditions of that equal to last year.

Mark Dwelle

That's helpful. Thanks very much. That's my only question.

Operator

And I'd like to now turn the call back over to Ms. Karen Beyer for any additional or closing remarks.

Karen Beyer

Thank you, everyone, for joining us this morning. We look forward to speaking with you again next quarter. Have a great day.

Operator

And this concludes today's conference. Thank you for your participation and you may now disconnect.