Verisk Analytics Inc (VRSK) — Q3 2023 Earnings Call Transcript

Thank you, Sheryl, and good day, everyone. We appreciate you joining us today for a discussion of our third quarter 2023 financial results. On the call today are Lee Shavel, Verisk's President and Chief Executive Officer; and Elizabeth Mann, Chief Financial Officer. The earnings release referenced on this call, as well as our traditional quarterly earnings presentation and the associated 10-Q can be found in the Investors section of our website, verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC. A replay of this call will be available for 30 days on our website and by dial-in. As set forth in more detail in today's earnings release, I will remind everyone today's call may include forward-looking statements about Verisk's future performance, including those related to our financial guidance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is contained in our recent SEC filings. Finally, I'd also like to remind everyone that the financial results for recent dispositions are included in our consolidated and GAAP results but are excluded from all organic constant currency growth figures. A reconciliation of reported and historic non-GAAP financial measures discussed on this call is provided in our 8-K and today's earnings presentation posted on the Investors section of our website, verisk.com. However, we are not able to provide a reconciliation of projected adjusted EBITDA and adjusted EBITDA margin to the most directly comparable expected GAAP results because of the unreasonably high effort and unpredictability of estimating certain items that are excluded from projected non-GAAP adjusted EBITDA and adjusted EBITDA margin, including, for example, tax consequences, acquisition-related costs, gains and loss from dispositions and other non-recurring expenses, the effect of which may be significant. And now, I'd like to turn the call over to Lee Shavel.

Good morning, and thank you for joining our third quarter earnings call. I'm glad to share updates on the progress our team at Verisk is making in driving our strategy and achieving strong growth and value for our clients and shareholders. Elizabeth will walk you through the financial details. In short, we had another strong quarter with solid organic revenue growth in most of our businesses, healthy margin expansion, and double-digit profit growth. We are confident in our ability to meet our 2023 guidance as well as the long-term goals we discussed in March during Investor Day. The industry is facing significant challenges. Insurance companies are grappling with the effects of inflation and increased losses, which are hurting profitability. A.M. Best data for the first half of 2023 shows a $24.5 billion net underwriting loss for the U.S. Property and Casualty Insurance sector, surpassing the pace set in full-year 2022, which had net underwriting losses of $26.9 billion. A.M. Best points out that homeowner lines are the primary reason for these declines. In response, insurers are exiting key catastrophe-prone markets, dropping unprofitable lines, and laying off part of their workforce. They are also raising rates to cope with rising inflation and losses, resulting in net written premium growth of 9.7% for the first six months of 2023. In light of this environment, Verisk is working closely with our clients to tackle their most pressing challenges, providing high-value solutions with strong returns on investment. We are involving our clients earlier in the innovation process to ensure we deliver the right solutions with straightforward implementations, enhancing the success and adoption rates of new solutions. A core aspect of our strategy is to deepen our strategic discussions with clients and to become their trusted partner in data, analytics, and technology. During the third quarter, we engaged with clients multiple times and at various venues, including the Verisk Insurance Conference in London. This year, we combined several Verisk events to simplify the exploration of how we can add value and enhance operational efficiency. For instance, in London, we brought together events focused on underwriting, claims, specialty insurance, and extreme event modeling into one client-focused experience showcasing Verisk solutions. I delivered one of the keynote speeches, and the entire Verisk Senior Operating Committee attended, underscoring our commitment to our customers. A solutions gallery displayed both Verisk solutions and those of our ecosystem partners, with 35 concurrent educational sessions held. We concluded with a dinner where carriers, brokers, and managing general agents engaged in discussions about common challenges faced across the insurance value chain. Enterprise-wide risk management is a key concern for many of our clients in London, as they deal with large and complex risk portfolios across multiple types of business and global insurance markets. To address this need, we recently launched Enterprise Exposure Manager, a collaborative effort between specialty business solutions and extreme events, providing a cloud-native and scalable tool that allows insurers and reinsurers to make more informed decisions by offering a comprehensive view of risks across large property portfolios. As we engage with customers at these events and in numerous one-on-one meetings throughout the year, we hear consistent themes. One major theme is Digital Transformation, which presents a huge opportunity for the global insurance sector. Our clients want to modernize their systems, improve integrations, reduce costs, and enhance operational efficiency, and we are partnering with them on this journey. Verisk is rolling out solutions that enhance operational efficiency for some of their most labor and paperwork-intensive processes. For example, in our casualty division, we recently launched Discovery Navigator, which is already seeing early success. Discovery Navigator utilizes artificial intelligence and machine learning along with Verisk's data and years of clinical and legal expertise to identify and extract key medical data points from unstructured records related to bodily injury claims. The complexity of these cases can mean hundreds to thousands of medical pages. Verisk has automated the organization, review, and summary of these unstructured documents, enabling insurers to adjust, negotiate, and settle claims more efficiently. Discovery Navigator integrates smoothly into clients' workflows through API or online, providing up to 90% time savings and 95% accuracy for an average 10x return on investment for clients. Moreover, it is a versatile tool driving innovation and can be combined with other Verisk solutions like Liability Navigator to enhance workflow automation, decision support, and overall efficiency. Our clients are also expressing a strong need for deeper data insights. Inflation trends over the past year have highlighted the importance of accurate, up-to-date, and detailed data to inform underwriting, risk management, reinsurance, and claims decisions. No one is better positioned to meet this need than Verisk with our extensive proprietary data assets. Our Verisk property estimating solutions address these challenges head-on, offering a comprehensive set of tools based on timely proprietary data, allowing clients to produce highly accurate estimates on their first attempt. This reduces the risks of over- and underpayments while improving cycle times. Central to this is XactXpert, our new rules engine that helps estimators avoid unnecessary costs in their estimates. We also provide our customers' quality assurance teams with tools to evaluate all data throughout the process, ensuring correct claim payments from the outset. Finally, generative AI is frequently discussed with clients regarding both its transformative potential and the associated risks. We believe generative AI can enhance efficiency at Verisk and in our client-facing solutions, starting with our underwriting and life insurance divisions where we are actively exploring new product development and enhancements to existing offerings. We plan to increase our investments in generative AI, as our clients recognize that partnering with Verisk allows them to leverage advanced technology more efficiently than they could achieve independently. We are committed to doing this while prioritizing fairness and value-centric governance. Regarding investment, I want to update you on our core lines reimagine project. We are about one-third complete in what is expected to be a five-year effort to modernize our forms, rules, and loss costs along with related solutions. We are progressing in streamlining our internal processes, including ratemaking operations to enable efficient scaling of innovations in both current and new solutions. We are expanding our industry-leading contributory database by adding new data contributors and enhancing the quality of our collected data. Additionally, we are working to improve the recency of our data in analytics. On the client-facing side, we have introduced new proprietary analytics and workflow tools, including executive and client insight reports tailored for senior leaders across homeowners and business owners lines, with plans to expand into other major insurance lines over time. Recently, we launched our Legislative Monitoring application in the new platform for select clients. This cloud-native application revolutionizes the previous document-based method of tracking insurance-related legal, regulatory, and legislative developments, turning it into a data-driven digital monitoring and efficiency tool with a superior customer interface. Legislative Monitoring is the first of many new features that will be released on the platform over the coming years. Overall, customer feedback on the reimagine project has been very positive, especially regarding the custom analytics and the Legislative Monitoring application, generating excitement for future developments within core lines. This enthusiasm is fostering more productive, value-driven discussions with our clients as we collaborate with them on their digital transformation journeys. We are making these investments to provide higher value for our clients through improved underwriting accuracy and efficiency. With that, I'll pass the time to Elizabeth for a review of our financial results.

Thanks, Lee, and good day to everyone on the call. I am pleased to share that Verisk delivered strong third quarter financial results. On a consolidated and GAAP basis, revenue was $678 million, up 11% versus the prior year, and income from continuing operations was $187 million, up 13% versus the prior year, reflecting strong growth across both underwriting and claims. Diluted GAAP earnings per share from continuing operations were $1.29, up 23% versus the prior year. This quarter's reported results included a $19 million litigation reserve expense associated with an indemnification for an ongoing inquiry related to our former Financial Services segment, which was sold in April 2022. Moving to our organic constant currency results adjusted for non-operating items as defined in the non-GAAP financial measures section of our press release, our operating results demonstrated strong and broad-based growth from most of our businesses, aided by some in-period transactional benefits. In the third quarter, OCC revenues grew 9.4%, with growth of 8.3% in underwriting and 12.2% in claims. Our subscription revenues, which comprised 80% of our total revenue in the quarter, grew 9.3% on an OCC basis, with growth in almost all our subscription-based solutions. More specifically on the drivers of growth in subscription revenues during the quarter, we experienced the continued benefit on certain of our revenues from the stronger net premium growth in 2021, which is currently reflected in some of our contract pricing as well as a lower level of attrition and consolidation across the industry. Within property estimating solutions, our efforts to expand the ecosystem and drive new innovations like XactXpert are paying dividends through higher levels of customer retention for our contractor customers. In anti-fraud, we saw underlying strength in the business with growth augmented by the continued benefit from the conversion to subscription from previously transactional customers through our claims essentials bundle. And finally, within extreme events solutions, we are benefiting from strong renewals and new customer wins. Our transactional revenues representing 20% of total revenue in the third quarter grew 10.2% on an OCC basis. The largest contributor to growth was again from our auto solutions, driven by better than expected shopping activity by consumers and the continued benefit from the large non-rate action deal with a national insurer that we previously communicated. Our trends track consistently with the recent J.D. Power data, which pointed to a 12% increase in shopping activity for auto insurance in the third quarter as customers continue to respond to rate increases. That said we will begin to anniversary the elevated shopping activity in the fourth quarter, so we are expecting that growth to moderate. In addition to gains in auto, our transactional revenue growth also benefited from double-digit growth from life insurance solutions as we are seeing strong customer demand for incremental services. And within our property estimating solutions business, we saw strong transactional growth generated by our expanded set of distribution partners within our ecosystem and from elevated weather events, although not to the level of a large-scale catastrophe. In fact, according to Verisk's PCS data, the third quarter of 2023 had 73 days out of 92 that included a PCS event in the U.S. And 2023 is on track to become a new high for catastrophe frequency likely to surpass 2021, which was the highest year on record to date. Moving now to our adjusted EBITDA results. OCC adjusted EBITDA growth was 11.8% in the third quarter, while total adjusted EBITDA margin, which includes both organic and inorganic results was 54%, up 70 basis points from the reported results in the prior year. This margin rate reflects core operating leverage from the strong revenue growth and cost discipline across the organization. As we've said in the past, the margin rate in any given quarter can be influenced by revenue mix and timing of spending. So we think it's best to look at our margins on a trailing 12-month basis, which in the third quarter were 53.3%, up 150 basis points over last year's level. Continuing down the income statement, net interest expense was $29 million for the third quarter, compared to $34 million in the prior year. The current level of net interest expense reflects lower year-over-year debt balances as we paid down our revolving credit facility as well as higher interest on cash balances. Our reported effective tax rate was 25% compared to 24.2% in the prior year quarter. The year-over-year change in the tax rate is related to the $19 million litigation reserve expense that we mentioned earlier, partially offset by higher stock compensation benefits in this quarter versus the prior year's period. Going forward, we expect the tax rate for the full-year 2023 to be near the high end of the originally guided range of 23% to 25%. Adjusted net income increased 17% to $221 million, and diluted adjusted EPS increased 27% to $1.52 for the third quarter 2023. These changes reflect organic growth in the business, contributions from acquisitions, and a lower average share count. The share count reflects the impact of our $2.5 billion accelerated share repurchase plan that we entered into in March, as well as an additional $50 million worth of share repurchase that we completed in the third quarter. Regarding the share count, you can see that while our weighted average diluted shares outstanding declined 7.7% year-over-year, it was essentially flat sequentially. From a cash flow perspective, on a reported basis, net cash from operating activities decreased 11% to $250 million, while free cash declined 9% to $196 million. The decline in both cash flow metrics is a function of the fact that prior year cash flow metrics include the results from previously divested businesses as well as a favorable cash tax impact in the prior year from the sale of our environmental, health and safety business. Adjusted for these items, both cash flow metrics increased year-over-year during the third quarter. We are very pleased with robust year-to-date performance. Our guidance for 2023 remains unchanged. We now expect revenue to be towards the high end of our range of $2.63 billion to $2.66 billion. Adjusted EBITDA is still expected to be between $1.39 billion to $1.43 billion. Adjusted EBITDA margin in the 53% to 54% range and adjusted EPS in the range of $5.50 to $5.70. A complete listing of all guidance measures can be found in the earnings slide deck, which has been posted to the Investors section of our website, verisk.com. We do want to remind you that the fourth quarter of 2022 included $6 million in revenue associated with Hurricane Ian as well as a tax benefit associated with the divestiture of Wood Mackenzie. And now, I will turn the call back over to Lee for some closing comments.

Thanks, Elizabeth. In summary, we are excited about our business momentum and the opportunity ahead. Our motivating purpose is to partner with our clients in building resilience for individuals, communities, and businesses globally. The combination of our focused business model, deep customer relationships, and strategy to deliver value for clients through improved decision-making and operational efficiency is a formula that will also deliver value to our shareholders through growth and returns. We continue to appreciate the support and interest in Verisk, given the large number of analysts we have covering us, we ask that you limit yourself to one question. With that, I'll ask the operator to open the line for questions.

Hi, thanks. Can you talk a little bit about what you're seeing with insurance marketing budgets, especially in the current rate and inflation environment and if you're seeing any sort of a pullback from insurance carriers?

Yes. Thank you, George. I appreciate the question. So the short answer is yes. I think the dynamic that we're observing is that because of the loss environment and the frustrations that the insurers or the carriers generally have had in getting rate increases to compensate them for the increased risk and the increased replacement costs driven by replacement. Right now they are focused on achieving profitability off of their existing books and that has resulted in a lower level of advertising by the carriers as they are kind of working with their existing book. We have seen, as Elizabeth described, a lot of shopping activity, but that is consumer driven and is a response to the higher rates that almost everyone is experiencing right now. The consequences of that for us is that in our Verisk marketing solutions business, we have seen declines within that business because of lower overall advertising spend by the carriers as a function of this environment.

Next question, please.

Thank you. I guess I'll just ask the question around the guidance that was maintained. I mean, this quarter came in, I think above at least our expectations and probably yours. Correct me if I'm wrong there, but if the subscription growth stays steady like it usually does, are you implying that the transaction piece could see some material declines? Just would love any help with just trying to bridge that.

Yes. Thanks very much, Manav. On the guidance, we're very proud of our results year-to-date. We've given full-year guidance in order to bring additional transparency and for folks to see how the business is going. We did update that mid-year after seeing significant shifts in the environment. But our full-year guidance does imply revenue growth of approximately 8% to 9% on a reported basis that's above our long-term targets. As we look at the fourth quarter, no specific comments on the fourth quarter other than what I highlighted, which is to remind that the growth comparisons do get tougher in the fourth quarter due to the storm revenue and the tax benefit there.

Yes. Hey, good morning, everyone. Just Lee, you keep on talking about the strategic dialogue you have with customers at a high level. It sounds like some of this stuff is resonating. I guess I'm curious, are you actually measuring success in any way yet or is this too early? I mean, should we be looking for larger, I don't know, outsourcing deals or maybe again specifically like any revenues that you're tracking that you can already talk about?

Thank you, Alex. I’m glad to address that. We have observed clear benefits in various areas. Firstly, we have been engaging in strategic discussions, and I’ve had over a dozen meetings with client CEOs. A key focus in these discussions has been understanding their broader enterprise challenges in the current environment while also exploring how Verisk can assist them, particularly through existing products that could be valuable right now. Specifically, we've helped carriers assess their rate adequacy and pinpoint opportunities for rate improvements in their auto business and other areas. This approach has created new pathways for us, overcoming previous barriers within organizations. By clearly outlining the strategic and financial benefits, we are receiving increased support from the top levels of many clients. Secondly, we are gaining insights into emerging areas where clients face challenges or are interested in new technologies. This understanding allows us to tailor our projects, such as core lines and generative AI initiatives, to fit their strategic needs. Our investment in generative AI applications has greatly benefited from the insights and buy-in from these discussions. For instance, one CEO expressed a willingness to invest significantly in generative AI but wanted to see results. They were open to testing a pilot we develop. This is a clear example of how we are transforming strategic dialogues into focused product developments more swiftly than before. I believe these efforts will help drive additional growth for us in 2024, supporting our core business.

Great. Good morning, everyone. I will focus my question on Slide 6 of your investor deck where you breakout subscription and non-subscription growth. And I guess I'm going to come at the non-subscription piece where you callout auto underwriting, property estimating, and life insurance. And clearly, you're doing really well this year. But we're also dealing with some really unusual profitability challenges inside auto and property. Would you expect that the non-subscription organic growth rate would inversely correlate with sort of the underwriting cycle for your carrier partners, or am I missing something?

Thank you for the question, Greg. I think it's somewhat difficult to reach that conclusion. The transactional revenue stems from several different areas, and we've pointed out the key contributors to the growth. The auto underwriting and shopping activities have been significant factors, along with the property estimating solutions, which are influenced by weather activity, and then life from the additional services. Therefore, I wouldn't say there's a direct inverse correlation to the underwriting environment.

Thank you. Good morning. Appreciate you taking the question. Elizabeth, could you give us an update on the state of two markets? One, Florida, just an update on liquidations, and how that's impacting your outlook for the fourth quarter. And also California, I know there's been I think Lee referred to in your prepared remarks, some disruption in, especially homeowners, underwriting in California and some challenges that carriers are facing raising rates. Just wondering if there are any updates in either of those areas as it pertains to the guidance and maybe the longer-term outlook too.

Yes. Hey, Andrew, this is Lee. I know you directed that to Elizabeth, but we have Neil Spector who runs our underwriting business for us, and I think he's been closest to that. So let me give him an opportunity to give you a read from what we're seeing in those markets.

Sure. Thanks. Well, first, I'm sure you've seen the news that several large national carriers have kind of withdrawn writing new business in both those markets due to the challenges. However, in Florida specifically, we haven't seen any additional liquidations and there's been no reduction in the ratings of the carriers that are there. So there's still availability in that market of carriers. And you may have seen recently a press release we put out in the last quarter showing how citizens, which is the state-run insurer is leveraging some of our aerial imagery data to help with evaluation of properties in Florida. So that's really stable as far as between the last time we reported. And now California, there's certainly challenges both in the amount of time it takes to get rates approved and also in what tools you're allowed to use in Florida as far as pricing goes and those continue although the regulators in California are seriously looking at the potential to use more tools in the future to help with challenges like wildfire.

And I would add to that, Andrew, and I think that gives a great kind of current sense of where things are. Neil and I were in Washington, D.C. last week meeting with a number of the trade associations just to understand how we can be helpful to the industry from a data perspective. And one thing that was very clear is that the Florida and California are both very engaged with the industry to understand what steps could be taken to improve the health of those markets. I think they understand the risk and the challenges. They obviously face some political pressure, but we've been encouraged by their openness to discussing how they can improve the market dynamic for the carriers within each of those markets. And that's an intense level of dialogue that could ameliorate some of kind of the early pressures that we saw.

Yes. I'd imagine we're at the time of year where you're starting to send invoices on 2024 pricing. So can you just talk through how you're thinking about it relative to the historical context, just given the cross currents of still elevated inflation, but maybe it's coming down the P&C insurance, industry profitability challenges and then just not sure how things like core lines play into that pricing realization versus discrete upsell. Thank you.

Thank you for the question. We're currently assessing the situation, but it's still early to provide specific numbers or insights for 2024. Preliminary data for 2022 indicates that net written premium growth remains elevated at slightly above 8%, which is a decrease from the growth observed in 2021, yet still relatively high compared to historical trends. As Lee mentioned, this reflects both the industry environment and the need for our carriers and customers to focus on profitability. We are considering both factors as we prepare for the pricing cycle for next year.

I think those are the two core elements. One, the impact of premium growth, which as we indicated, remains strong, as well as the value that we are creating, particularly in core lines where we've increased the number of data sets, we've increased the ability of our clients to utilize that data. And so we certainly look to capture the value that we're creating for our clients there and all of those factor into our pricing considerations.

Lee Shavel: Russell, are you there?

Moving to the next question.

Thank you. Lee, could you discuss the M&A pipeline? Are there specific areas of interest, perhaps in technology, considering you mentioned the digital transformation theme earlier? I'm curious about what you find intriguing and how you perceive the current levels of assets. Thanks.

Thank you, Toni. First, I want to highlight that our primary focus has been on improving our internal operations and what we can achieve with our core business. We are particularly concentrated on meeting our growth and margin objectives. It's crucial for us, especially following Investor Day, to show what our core franchise can deliver. In this context, we are not pursuing any major acquisitions that would transform the company. Our focus is entirely on insurance at this time. We are actively looking at smaller to mid-sized opportunities, typically under $100 million, where we see potential for high-quality products that have gained initial industry traction, and where we can significantly enhance their adoption. Many clients prefer to adopt products knowing they have our stability and capabilities behind them, or because we can improve the product through better data, efficiency, or technology. We have successfully done this in several areas, most notably with our acquisition of FAST in the life insurance sector, which serves as a prime example of the value we can add. We are still optimistic about marketing opportunities despite the challenges posed by the advertising environment. We recognize a broader demand across all our businesses for relevant technology, products, or data sets, and we want to ensure that we do not overlook chances to enhance any of our businesses if a truly beneficial opportunity arises.

Hi, Elizabeth, you pointed to the high end of the 2023 guidance range now being expected. Was that just for revenues or for other figures as well? And then, when I look at the high end for the 2023 revenue guide, I get an implied revenue growth for the fourth quarter of plus 4%, of course, that would be as reported. Could you help us with the counterpart the OCC revenue growth implied in the fourth quarter?

Yes. Thanks for the question, Andrew. That comment about the high end was specific and confined to revenues and did not apply to the other line items. And I'm not here to comment on the fourth quarter in specific, other than the points I made about the year-over-year comps.

Thanks so much. I'm going to ask a question about 2024, but not a numbers question. I'm just curious, compared to a year ago, what areas of your business are you feeling more confident about it as we head into the next year? And conversely, what areas might be a bit more concerning for you than they were a year ago? Thanks.

Thank you, Jeff. That's an interesting question. At a high level, I believe that the strategic engagement we've had has opened up broader opportunities for us to advance in several businesses by more effectively communicating our value to enterprises. We are also confident in the core lines reimagine investment we have made and our ability to provide greater value to our clients in the coming years. Additionally, we are noticing trends in the property market focusing on profitability and the opportunity to serve our clients more extensively. This year, we've benefited from a higher level of transactional activity, particularly in the automotive sector, due to increased shopper engagement contributing to our growth rate, which may not continue into 2024. Similarly, there has been increased activity in the property sector contributing to strong growth. Overall, we are pleased with the growth we achieved in 2023, which had some supportive factors. We aren’t providing guidance for 2024 at this moment; we need to reassess our position, and we'll do that in the first quarter. Strategically and from an investment perspective, we are excited about our investments in core lines and generative AI, as well as broadening our ecosystem and integrating partners that add value to our customers. We will continue to work on offsetting and mitigating any transactional benefits experienced in 2023.

Hi, good morning. Thanks for taking my question. I wanted to ask a modeling one that isn't necessarily specific to the fourth quarter of 2023. The last half decade has been quite eventful, with many moving parts regarding the current state of the business. How would you describe the seasonality of transaction revenue? If we consider 2025 or 2026, should we expect a typical cadence for the non-subscription revenue based on the composition of the underlying businesses? Thank you.

Yes. Thanks for the question, Andrew. The biggest component of the transaction revenue that has some seasonality to it, there's two that come to mind. One is the weather, the weather-related seasonality in property estimating solutions that on a long-term historical basis tends to occasionally get a boost in the third quarter as a function of Atlantic hurricanes last year in 2022 that happened to hit in October and fell in the fourth quarter. The other element that you saw last quarter, the securitization market can sometimes that hits in the second quarter primarily. That's a relatively small part in our business. The other elements of transactional revenue don't necessarily have a seasonal pattern to them, the life insurance services, the auto, underwriting product is more a function of their own markets.

Hey, thank you for taking my question. I was hoping you could update us on your expense program where you are today. Are there any other areas that you're identifying in terms of opportunity as we move forward? Thanks.

Yes, Heather, thanks for the question. Our expense program, as we highlighted in the past, I think we said sort of over 90% of the benefit is experienced in 2023. So I think of those original set of actions, we think they've largely been action that are expressing themselves in the margin expansion that you're seeing today. There is continued focus on cost efficiency at Verisk. And so we're looking in the future for opportunities based on our global talent outsourcing program and based well on investments in internal efficiency that will play out over time like the ERP program that we've talked about.

Yes. And Heather, I would say, look, we're very focused on the margin objectives that we set at Investor Day and I think we had a very good start and what we have delivered and have been realizing the benefits of that. But it's a continuous process for us and we're always going to look for where we can achieve greater efficiencies throughout the business. Elizabeth mentioned several, but as we have been able to make the business a more integrated business focused on insurance, I think we've identified some areas where we can improve both effectiveness and efficiency in the organization and we'll expect to be pursuing those in 2024 to continue that momentum.

Thanks. Good morning, and thanks for taking my question. I was interested in your comment in the prepared remarks about incremental business on the life side. I'm wondering if you could just unpack that a little bit and talk about customer appetite for more cross-selling and taking more solutions here in this environment. Thank you.

Yes. So, Seth, thank you for the question. And I'm going to ask Neil to talk about where we see incremental opportunities within the life space. I think it's not only clients, but also thinking about kind of the nature of their technology, that low-code, no-code approach and its applicability more broadly here in the industry.

Yes. Thanks, Lee. So our solution in life is a low-code, no-code software platform that helps a life insurer from the policy administration distribution claims from a full lifecycle. And what we've seen is even in the current environment, there is a huge need in the life industry to modernize technology. They're behind P&C as far as modernization of systems. And as Lee pointed out, because our system is a low-code, no-code, we have the opportunity to potentially lower the operating costs of deployed lines of business on our platform pretty substantially versus legacy solutions. So there's a strong incentive for life insurers to move on to these more flexible and lower cost operating environments. We've also seen a huge need from our customers in support of their transformation and that has driven some of our service or transactional revenue for our existing customers because of their desire to have us support their implementation efforts.

Thank you. Lee, could you please discuss maybe the performance in the international business, maybe what's driving growth there and how that kind of differs from the U.S. and maybe even some product plans or how you expect to kind of further offering out there.

Thank you, Surinder. We have been pleased with the international growth rates across the organization, which can be categorized into three areas. First, our specialty business solutions are primarily based in London and focus on the Lloyd's and excess and surplus market. They have successfully delivered workflow and automation efficiencies through the software platform they have developed, integrating additional components. We believe this adds significant value for market participants, contributing to our overall growth. On the underwriting side, our life, health, and travel business has performed well, especially with the resurgence of global travel following the pandemic. Although it has since normalized, we still see opportunities for further growth. Now, I will turn it over to Maroun Mourad, who has experience with several international businesses on the claims side, to share our insights there as well.

Thank you, Lee. Thank you, Surinder for the question. As I may have mentioned in previous calls, we had made a decision within the international claims business to reorganize the units splitting the UK and Europe about a year ago to drive more focus and growth. And that approach and the execution of the strategy has paid dividend. I'll talk about the UK first, which is growing with speed and focus under the leadership of Chris Sawford and his team innovating on existing property, bodily injury and auto, or motor as we call it across upon solutions. And more recently, there's been a focus on the anti-fraud space within the UK. On the European side, under the leadership of Samer Abou-Jaoudé and his team, we had entered the bodily injury market through Germany a couple of years ago through the acquisition of ACTINEO as a matter of fact, I was just in Cologne where we hosted a market event attended by over 70 customers who showed greater support for the bodily injury solutions and product offering, as well as an appetite to engage more frequently with Verisk to on the motor side, where we have a few months back made the Krug acquisition on the motor side and that integration is proceeding well and delivering on plan. And last but not least, we have our Mavera acquisition in Scandinavia based out of Sweden that delivers technology solutions for the bodily injury space. And finally, from an operating model perspective, we are leveraging our position in multiple territories with single finance, human resources, marketing, legal, as well as technology platforms.

And Surinder, just to kind of put it in context, the international revenues represent about 17% of our total, as you probably would see in the investor presentation. And I think the characteristic is that this is an opportunity for us to penetrate new markets. It is diverse, as you can hear from a lot of the businesses. So we have a number of growth factors and I would end by saying a focus also on elevating our dialogue to articulate the strategic value to international institutions is part of our strategy as well. So we're happy with the progress that we're making. We continue to see that as a substantial growth opportunity for us.

Thank you for taking my question. Lee, you mentioned generative AI several times and discussed improving existing products as well as launching new ones utilizing generative AI. My question is about how we should approach the monetization of generative AI. Could you provide some examples of products that are being introduced to the market? How will we handle monetization? Will it be available for free, or will there be an additional charge for generative AI? Lastly, what is the expected timeline for these product launches? Thank you.

Yes. Well, thank you, Ashish. So let me give you a couple of responses to that. So first, I have to say, generative AI is something that is certainly relatively new and so there is a developing aspect to this technology and its application. And so there will be dimensions of this that we're still in the process of piloting and testing. But let me refer you back to the comments that I made around Discovery Navigator and what we are doing in the casualty space where we are already utilizing AI, including some generative AI elements in that solution. And so generative AI is a component kind of similar to traditional AI or machine learning that is a tool to help our clients gather data, consolidate and interpret and then utilize data. So as it relates to Discovery Navigator, there are some generative AI elements that are included in that, that we are in the process of monitoring by demonstrating the substantial ROIs by improving the speed with which they can gather that data from a workers' comp claim through all of those medical records. So that's in flight we have other dimensions of that in certain businesses. The second example I would give is in utilizing generative AI from a coding perspective to improve efficiency is something that we have been exploring and testing and we think there are internal efficiencies for us in adapting some of that technology. And then, finally, what is on the horizon that I referenced in speaking to our client engagement and their enthusiasm for us to developing a product is something that would be a co-pilot in an underwriting context that utilizes our data sets, our experience in supporting from an actuarial standpoint from a rating standpoint, the underwriting process that is specifically targeted to a line of business. And that is something that is on more of the front end that we are testing and developing. In the first instance, that's something that we are monetizing with Discovery Navigator in the second instance, that's something that we hope to begin to deploy so that we can achieve efficiency in our overall coding. And in the third instance that's going to be something that hopefully we develop a product. There's been a strong appetite and interest from our clients. And so if we can deliver something that would be something we would hope to begin to monetize in the 2024/2025 timeframe based upon what our product development is. So a range of that, but it's a component of and an additional tool to a lot of the data and analytics work that we do.

Thank you for following up, and I apologize for the technology issues. Could you provide us with the growth rate for the extreme events solutions revenues in the third quarter and year-to-date? You mentioned some trends in your prepared remarks, Elizabeth, but could you elaborate on what you observed in the third quarter and what you're currently seeing in the fourth quarter? I’m also curious about the assumptions you've made for your full-year guidance for the fourth quarter in this business area.

Yes. Hey Russell, glad you're able to join us. Sorry, we don't provide specific disclosure on the extreme events business and certainly not quarterly. So sorry I can't comment on that.