Verisk Analytics Inc (VRSK) — Q1 2024 Earnings Call Transcript

Thank you, operator, and good day, everyone. We appreciate you joining us today for a discussion of our first quarter 2024 financial results. On the call today are Lee Shavel, Verisk 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. 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 result because of the unreasonable effort and high 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, gain/loss from dispositions, and other nonrecurring expenses, the effect of which may be significant. And now, I'd like to turn the call over to Lee Shavel.

Thanks, Stacey. Good morning, and thank you for participating in this morning's call. 2024 is off to a solid start at Verisk as we are building upon the strong performance we delivered in 2023. Elizabeth will provide the detailed financials, but I am pleased to share that we delivered 6.9% organic constant currency revenue growth with strong underlying subscription growth of 7.8% that was broad-based across most of our businesses. Our focus on cost discipline and operating efficiency produced strong double-digit organic constant currency adjusted EBITDA growth and healthy margin expansion, translating into 26% adjusted EPS growth. This quarter's performance was in line with our 2024 guidance. We are driving predictable and consistent growth by harnessing the power of our more integrated insurance-focused company and executing against our strategy to partner with the insurance ecosystem to help all participants address their most pressing challenges. Our execution priorities are unchanged from those that we communicated to you a year ago at Investor Day. We are building on the progress that we made in 2023 as we continue to focus on three key things: one, delivering consistent and predictable revenue growth; two, driving operating efficiency and profitability; and three, allocating our strong free cash flow with discipline and a focus on return on investment. I've spoken on this call many times about our efforts to engage with our clients on a more strategic level. To that end, in April, we hosted the Verisk Insurance Conference, or VIC as it is affectionately known in the industry, which attracted a record number of attendees from across the global insurance ecosystem, including representatives from the carriers, reinsurers, regulators, and our channel partners. VIC is our flagship event where we strategically engage with all our ecosystem clients and partners through joint discussions and presentations as an integrated One Verisk. This year's event featured over 70 different educational sessions and panel discussions on some of the industry's top-of-mind issues, including fairness, generative AI, fraud, climate risk, rate adequacy, and social inflation. One of the best attended sessions was a panel discussion about Florida property insurance and featured representatives from key market players, including the carriers, regulators, legislators, and Verisk. The discussion focused on lessons learned from the insurance crisis in this important and high-risk market and what other states can learn from this experience. The event also featured a solutions gallery that showcased many of our offerings, covering risk, natural perils, commercial property, home and auto, as well as several of our key technology ecosystem partners. The event has generated strong collaboration ideas with our clients and partners as well as leads for our sales teams. It also builds upon the goal that we set last year to elevate the strategic dialogue with our clients and continue our path to serve as a data and technology partner to the global insurance ecosystem. During the Verisk Insurance Conference, our Extreme Events division unveiled its latest innovation, Next Generation Models, or NGM, for insurers, brokers, and reinsurers. Verisk is the first firm to release its full suite of over 100 models across all perils and geographies to a next-generation financial modeling framework. And these models are all now accessible via our Touchstone platform. As the rising cost of catastrophes and an increase in losses from frequency-driven perils such as severe convective storms has challenged the industry, Next Generation Models provide a better quantification of uncertainty and enhanced capabilities to assess insured losses across the insurance industry more accurately. With next-generation models, our clients can make better financial assessments of loss potential and more accurately represent the risk to their policyholders, their businesses, and their partners. NGM also offers new advantages to support complex insurance policy structures and deal with new terms and conditions that previously went unmodeled. Clients can effectively manage risk, both at the portfolio and individual levels using the NGM suite of models. NGM represents the next step in our journey towards a fully SaaS native platform, underscoring our commitment to continuous investment in advanced data and technologies and capabilities on behalf of the industry. Next, I'd like to provide you with an update on our Core Lines Reimagine program. As previously mentioned, we are on a journey to digitize and enhance our essential suite of industry standard solutions to make our forms, rules, and loss cost content easier to access, use, and customize, and provide much-needed updates and insights. We have made good progress in modernizing our internal systems and processes for digital-first content creation, enabling us to deliver new client-facing modules. We recently introduced Filing Intelligence, which is accessible on our new platform. This tool simplifies our filings delivery process by consolidating all necessary documents, forms, rules, and loss costs into one accessible interface, eliminating the need for manual review and piecing together multiple documents. Filing Intelligence digitally connects all documents related to each filing, streamlining the process for users and ensuring seamless access to essential information. On the actuarial front, we recently added Actuarial Hub to the new platform. Within the hub, clients can access new insights such as the ISO Experience Index, the loss cost activity dashboard, and a new series of actuarial prospective articles. These resources offer deeper insights into our filings and data, empowering our clients to make quicker, well-informed decisions. Looking ahead, we plan to launch additional customer-facing modules that will provide even more value to our clients by introducing new proprietary analytics, workflow tools, and insights to further streamline processes and enhance underwriting accuracy for our clients. Overall, we're excited about the progress of the Reimagine program. This initiative is already driving returns for Verisk as we are receiving positive client feedback and experiencing better price realization in contract renewals. Lastly, today is an important day as May 1 is officially Verisk Generative AI day. Our technology teams from across our global offices and business units are gathered at our Jersey City headquarters to collaborate and share best practices and learnings on their work with GenAI for both customer-facing initiatives and internal efficiencies. More specifically, all of our divisions have active GenAI pilots running with many other areas in active development. And within our claims business, we have three solutions in production and available today for clients. Generative AI continues to be top of mind for our clients and is a topic of much discussion in my conversations with industry executives. One very promising application that I'm seeing is the use of generative AI to gather and predigest massive amounts of information to organize and distill it for the insurance professional, improving and focusing their expertise, not replacing it. This is a natural fit and opportunity for the work we do in curating and managing the needs of the global insurance industry to facilitate more effective and efficient workflows. As we have done with other forms of advanced technology, GenAI is an area where we can invest for the benefit of the industry at a lower cost of investment and ownership than any single client can do on their own. With that, I will turn it over to Elizabeth to cover the detailed financial review.

Thanks, Lee, and good day to everyone on the call. I am pleased to share that Verisk delivered a solid first quarter of 2024. On a consolidated and GAAP basis, first quarter revenue was $704 million, up 8% versus the prior year, reflecting solid growth in underwriting and more modest growth in claims. Income from continuing operations was $219 million, up 12.9% versus the prior year, while diluted GAAP earnings per share from continuing operations were $1.52, up 19.7% versus the prior year. This level of EPS growth reflects strong revenue and profit growth, combined with a lower effective tax rate and a lower average share count due to the large accelerated share repurchase program in 2023. Moving to our organic constant currency results for the first quarter. Adjusted for nonoperating items, as defined in the non-GAAP financial measures section of our press release, our operating results demonstrated solid growth for most of our businesses. OCC revenues grew 6.9% with growth of 7.8% in underwriting and 4.7% in claims. This was an acceleration from the fourth quarter in both subsegments and was in line with our expectations and 2024 financial guidance. Our subscription revenues, which comprised 80% of our total revenue in the quarter, grew 7.8% on an OCC basis during the first quarter. We experienced broad-based growth across most of our subscription-based solutions, with strong renewals and expanded relationships with existing customers and solid sales of new solutions. The largest contributor to subscription growth was forms, rules, and loss costs. We are benefiting from a stronger renewal cycle and improved price realization as we continue to modernize our platform and deliver more value and insights to our clients through our Core Lines Reimagine program that Lee spoke about earlier. In anti-fraud, we experienced underlying strength in the business with growth augmented by the continued benefit from the conversion to subscription from previously transactional customers that we mentioned throughout 2023. Most of our clients have successfully completed this transition. Therefore, the benefit will continue to taper throughout 2024. And within underwriting data solutions, we are seeing a positive client response to our enhanced commercial lines property solutions, which have benefited from our expanded coverage as our database of commercial property records has grown by over 200% since 2020 and now has over 15.9 million records. Our transactional revenues, representing 20% of total revenue in the first quarter, increased 3.1% on an OCC basis, reflecting a tough comparison versus the prior year which benefited from the strong auto shopping activity and nonreaction activity. During the quarter, we saw continued growth across our auto suite of solutions, though growth rates have moderated as we expected. Regarding auto, due to recent changes in our data source, we have decided to discontinue our existing telematics offering. The impact of this is immaterial in 2024 with less than $1 million of revenue impact. We do not expect this to have any impact on the remainder of our auto solutions. Our transactional revenue growth also benefited from double-digit growth within life insurance solutions as we saw strong customer demand for incremental services. And within our extreme events business, we saw better-than-expected transactional growth driven by securitization. This was offset in part by lower weather-related transaction volumes in property estimating solutions and the impact of the conversion to subscription within our anti-fraud business. Moving now to our adjusted EBITDA results. OCC adjusted EBITDA growth was 10.6% in the quarter, while total adjusted EBIT margin, which includes both organic and inorganic results, was 54%, up 180 basis points from the reported results in the prior year. 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 useful to look at our margin on a trailing 12-month basis which, as of March 31, 2024, was 53.9%, up 120 basis points over last year's level. This level of margin expansion reflects the positive impact of sales leverage and cost discipline. We also experienced a modest margin benefit from nonoperating items, including foreign currency changes, but this was largely offset by margin impact from recent acquisitions. Our current margin rate also reflects continued organic investment for future growth, including our Reimagine program, the replatforming of key solutions in extreme events and property estimating solutions, our new financial and human capital systems, as well as exploration of advanced technologies like GenAI. We remain confident in our ability to meet our margin expansion targets while strategically investing in future growth opportunities. Continuing down the income statement. Net interest expense was $29 million for the first quarter compared to $26 million in the prior year. The current level of net interest expense reflects interest income on lower cash balances than one year previously. Our reported effective tax rate was 20.3% compared to 27.1% in the prior year quarter. The year-over-year decrease in the tax rate is primarily due to tax charges incurred in structuring the sale of our energy business last year as well as certain discrete items that we do not expect to repeat in the remaining quarters of the year. We continue to believe that our tax rate for the full year 2024 will be in the 23% to 25% range, so there could be some quarterly variability related to employee stock option exercise activity. Adjusted net income increased 19% to $234 million, and diluted adjusted EPS increased 26% to $1.63 for the quarter. The increase is primarily driven by solid revenue growth, strong margin expansion, a lower effective tax rate, and a lower average share count. Our lower average share count reflects the impact of the large accelerated share repurchase program we completed in 2023 using the proceeds from the divestitures. This was partially offset by higher depreciation and amortization and higher net interest expense. From a cash flow perspective, on a reported basis, net cash from operating activities increased 1.9% to $372 million, while free cash flow increased 4.2% to $317 million. Both cash flow metrics reflect the impact of our indemnification obligation related to our former financial services business, which we accrued for in 2023. It is also important to note that the prior year cash flow figures still include the results of our previously divested energy business. So these growth figures understate the cash flow growth of our insurance-only business. We are committed to returning capital to shareholders. During the first quarter, we initiated a $200 million accelerated share repurchase program, which was completed in April. Our $0.39 per share dividend was up 15% from the prior year. We continue to have $1.4 billion in capacity remaining under our repurchase authorization. We are pleased with our results for the first quarter and reiterate our outlook for 2024. More specifically, we continue to expect consolidated revenue for 2024 to be in the range of $2.84 billion to $2.9 billion. We expect adjusted EBITDA to be in the range of $1.54 billion to $1.6 billion and adjusted EBITDA margin in the 54% to 55% range. We expect our tax rate to be in the range of 23% to 25% and adjusted earnings in the range of $6.30 to $6.60 per share. 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. And now, I will turn the call back over to Lee for some closing comments.

Thanks, Elizabeth. In summary, our execution priorities remain consistent with those communicated at Investor Day, continued focus on revenue growth, operating efficiency, and disciplined cash flow allocation. Following a strong 2023, we are pleased to see 2024 off to a strong start with implied growth of 7% in consolidated revenue and 9.5% in adjusted EBITDA, at the midpoint of our 2024 financial guidance. Our focus on heightened strategic engagement with clients has strengthened relationships and fostered new product and business opportunities for the industry where we can invest at scale to drive value for our clients, employees, and shareholders. 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.

How would you assess the health of your clients, meaning the P&C insurance industry now versus three or really kind of six months ago and how might that impact Verisk this year?

Thank you, Andrew. I believe our clients are in a very solid position. Compared to two or three years ago, the industry is showing significant premium growth, which reflects the hard market and improved profitability with stronger combined ratios. This growth, along with enhanced profitability and some reserve strengthening, is helping to offset the increased catastrophic losses they have encountered. Consequently, they feel positive about the outlook and their ability to achieve better pricing and rate adequacy. However, they still face risks such as heightened catastrophic losses, cyber exposure, and rising casualty losses. Overall, their stronger financial position benefits us as we participate in their premium growth, and their financial strength encourages them to invest in improving their businesses, whether in underwriting or operational efficiency.

Yes. So Lee, that all sounds like the industry is going to start to lean in more on marketing, and it seems like we've seen some signs that marketing spend is positively inflecting following a challenging period. But you continue to call out headwinds in your marketing solution revenue. So maybe talk through that and if it's just a lag effect and a pipe is building.

Yes. Thank you, Jeff. I think that's an accurate observation. I think we are beginning to see some early signs that marketing is picking up. Within the industry, there is a lag impact. And so we will continue to look forward to hopefully seeing some of that translate into our business. That is a small business, so it may not be discernible overall within our business. But we do think that's a positive trend.

I wanted to focus on the solid sales of new solutions. The question there was, Lee, thanks for providing some good details on the GenAI, but I was wondering if you could provide an example of new solutions that are gaining traction. And then at the Investor Day, the new initiative was expected to generate 150 to 200 basis points of incremental revenue growth going into 2025. And I was just wondering if you could comment on how that's tracking.

Thank you, Ashish. Let me take the first question since you're kind of referencing Investor Day, and I'll let Elizabeth add to this if she feels necessary. But what we outlined at Investor Day was incorporated into our guidance in terms of where we felt we could achieve incremental revenue growth. Naturally, we saw the performance in 2023, which was a representative of achieving those higher growth rates. We're really pleased in the first quarter to be able to similarly deliver strong growth on top of that. And so we have kind of a compounding effect. And I think that reflects in large part, the achievement of some of that revenue growth upside. So I would look to the fact that we are meeting and exceeding the guidance that we set at Investor Day.

Yes, I agree with Lee there. In terms of examples of new products gaining traction, we've discussed them on recent calls, such as the Discovery Navigator product in claims, which now incorporates GenAI. We've also mentioned image forensics in the anti-fraud space and various innovations related to our core products, including Core Lines Reimagine and Next Generation Models for extreme events.

Thank you, Elizabeth, for starting the first part of the question. In response to Jeff's inquiry regarding some challenges in marketing, I want to mention that we are experiencing significant growth in our life insurance offerings. Our no-code solutions are highly applicable in this sector, and we've seen strong adoption from major industry players on our new white space platform. Additionally, as we expand our products internationally, we are observing impressive double-digit growth in those markets. It's also important to recognize the strong reception to our existing product investments, such as Core Lines Reimagine and the enhancements we've made to products like LightSpeed. We have added value to these offerings and incorporated generative AI, which contributes to new product adoption by generating additional revenue. This growth is evident in our overall revenue increase as well.

This is Tom Roesch on for Andrew. I wanted to ask about the pricing environment. It sounds like insurers are starting off the year on good footing. So I was wondering just kind of how the pricing environment, how you think about it this year relative to last year? And then also as it relates to those contracts that are tied to prior year net premium, just kind of how you think about those, too, this year.

Sure.

Thank you for the question, Tom. Yes, that's a good context. Lee discussed the industry and its current strength, including the competitive market we are experiencing. As he pointed out, for our contracts linked to net written premium growth, we are observing generally positive trends, similar to last year. The key focus for us regarding pricing is the enhanced engagement we have with our clients. You can see the positive impact of our investments in our products, which are leading to strong renewals and favorable outcomes in pricing discussions.

Yes. I would say that we see a receptive environment because the industry is performing well, and there is growing recognition of the value of our products. Additionally, our efforts to enhance our go-to-market strategy are leading to a more effective sales organization, which is positively impacting our pricing outcomes. Overall, we are optimistic about the changes we implemented in 2024 as we carefully assessed our opportunities for improvement.

During the prepared remarks, you mentioned you're discontinuing the auto telematic offering. I was wondering, clearly, it's not generating much revenue for you, but what prompted deciding to discontinue it? Was the data not valuable? Was it costly to maintain? Just any color there.

Certainly. Thank you, Toni. And the short answer is, and first, it was a small financial impact for us. The simple answer is that the entities that were providing that data to us decided to discontinue collecting that data. And so there was really not sufficient analytical value in that without the data that was being provided. And I think it's fair to assume that it's a function of some of the media attention to collect connected car data. So that really was the simple reason. It had been an area where we felt it was worth investing. We do believe in looking at broad data sets that are useful in evaluating driver risk. But I would emphasize that while we have discontinued that operation, and it was immaterial from a financial standpoint, we do continue to serve auto insurers in a significant way with a wide variety of products, including our LightSpeed auto, our coverage verifier, damage assessment from a claims perspective. So this is a very substantial business for us, and the discontinuation of the Verisk Data Exchange will not have any impact in our legacy auto businesses.

I wanted to talk about subscription growth. You mentioned the stronger renewal cycle and the price realization, but I'm curious if you held this level of subscription growth is normal for this year. And help us better understand some of the factors that can impact us.

Yes. Faiza, thanks for the question. In terms of quarterly variations, there can always be minor puts and takes as things move from quarter-to-quarter, but nothing that we see at this point that would indicate significant quarterly changes. The drivers of strength for us this quarter have been really broad-based across the business. Forms, rules, and loss cost has been the largest driver as the largest business, and we talked about some of the trends benefiting it there. We've had strong strength in the antifraud business. I would call that both absolute strength as well as benefiting from the conversion from transaction to subscription. And the extreme events business actually had strong subscription growth as well given the demonstrated value there.

Yes. To add some additional insight, we have discussed the environment and the advantages of partnering with our key clients, which has greatly assisted us, especially at a senior level, in helping our clients appreciate the value we offer across their organizations. In terms of sustainability and growth, we are focused on increasing subscription revenues whenever possible. Following extensive engagement with senior leaders in 2023, three clients from different sectors have approached us with ideas for products we could co-develop or distribute. This highlights our potential to create new revenue streams. While this was part of our initial strategy, we are excited to see that this engagement has led to tangible commercial opportunities that we are currently exploring and structuring. This clearly represents a key path for us to maintain and enhance subscription growth.

I know you talked in the past about three, I guess, buckets of investment. You talked about the Core Lines Reimagine, investing in your sales force, and investing in AI. Can we just get a refresh in terms of how much you're thinking of spending in those areas and where we are in that process?

Yes. Thanks for the question, Jeff. We don't break out sort of specific areas of investment by element. I think on the last quarter call, I mentioned those as some of the top areas for investment this year. And I think our investment in those areas is pretty much in line with our expectation for the year and embedded in the margin that you're seeing and the guidance for the full year.

So I'm going to focus on the transactional revenue piece because if I look at the quarterly numbers last year, you had some pretty strong results for second and third quarter. Given the conversion of the antifraud business, is it your expectation that the transactional piece of OCC will be having some headwinds for the next couple of quarters? Or any sort of visibility there would be helpful.

Yes, I’m glad to address that, Greg. You’re correct that we are experiencing challenges in transactional revenue, primarily due to the strong comparisons from last year. We had double-digit growth in transactional revenue for about a year last year. Key areas facing tough comparisons include auto transactional shopping activity, which was a significant strength last year, as well as non-rate action activity that improved in the first quarter of last year. We’re beginning to anniversary that growth now. The shopping activity remained strong in the first quarter, but starting next quarter, we will be comparing against substantial growth. Another area with potential tough comparisons is weather activity; we highlighted the heightened weather patterns we saw throughout 2023, which could impact us this year. Additionally, securitization activity was very strong last year during extreme events, so we are monitoring that as well. Overall, we are focusing on these areas. This quarter reflects the robustness of our business model, with the majority of our revenue coming from subscription revenue, which continues to demonstrate considerable strength, even when factoring in those difficult comparisons.

I guess, I'll just ask on capital allocation. It sounds like you guys are starting on the ASR, so that seems to be the priority. But maybe what does the small- to medium-sized kind of M&A pipeline look like, some of the stuff that you've been doing over the last couple of years?

Thank you, Manav. I think I heard that. I think the focus is on capital allocation and how does the outlook for small- and medium-sized M&A opportunities. I would describe them as they are out there, that I think that valuations remain really high for those entities. Our focus is always on how can we add value with our distribution, our data, our relationships. That has been a good equation for us. And valuations kind of continue to make that challenging for us to generate attractive returns. But we are very engaged in that market and always looking for products that have achieved traction with the industry where we think we can accelerate the adoption and deliver value, both to our clients and to our shareholders.

Just a question around the internal investments. So when we think about the Core Lines Reimagine or replatforming or AI, how should we think about the absolute level of investment from the perspective of how much of this is part of a normal spend cycle? And then maybe how much is maybe a little bit elevated and perhaps how we might expect CapEx to evolve, so far, whether it's this year or the next couple of years?

Thank you, Surinder. I can't provide specific numerical details. However, we have discussed the various projects we are currently investing in. These projects have a set timeline, and we plan to complete them. Some aspects involve updating or reinvesting in technology that has been needed for some time, such as our internal ERP systems. Areas where we are replatforming technology fall into this category. This level of investment may be higher for now, but we might not need to maintain it at that level going forward. We will continuously invest in our products to keep them at the forefront of innovation. After we complete the Core Lines Reimagine project, we will keep investing and evolving with new initiatives that we might not fully define yet.

I think the short answer is that we are integrating generative AI technology into our existing products, and our businesses are incorporating this into their financial models and capital deployment strategies. We've identified some interesting applications for new products that we want to invest heavily in or accelerate, which presents an opportunity for targeted capital investment. Currently, after evaluating a couple of opportunities, we believe maintaining our organic investment level is the best course of action, though this could change in the future. As Elizabeth mentioned, we're working to integrate this investment into our businesses while also investing significantly in an ERP upgrade that we expect will enhance our operational efficiency and information advantages over time. Once we complete this investment, it may create opportunities for us to invest further, but if not, we'll return that capital as we typically do, with careful consideration.

You mentioned in the opening remarks, Lee, that you'd rolled out the next-generation nat peril model. I was wondering if you could explain the additional upside opportunity for Verisk, considering you're already experiencing strong subscription revenue growth in the extreme events business. I also wanted to clarify something regarding pricing; you noted that you have been able to achieve higher prices on renewals due to the product upgrades. Is this in line with your expectations and already incorporated into your guidance for 2024, or does it present a potential upside opportunity?

Thank you, Russell. First, regarding the Next Generation Models, this is a significant improvement in the complexity of the models, enabling our clients to better assess and quantify their loss uncertainties across the industry. The Next Generation Models incorporate various environmental and physical weather risks and translate them into actual costs related to damage, restructuring, and more. This allows us to apply it to all our risks and geographical areas, marking a significant enhancement to our product portfolio. It also boosts our capability to manage complex insurance policy structures and address new terms and conditions that were not effectively covered by the previous models. Additionally, this is an important step towards our SaaS model. Establishing the next-generation financial model was essential, and we've learned from our clients that this was their top priority. We can now enhance its functionality and efficiency. We truly believe this presents a substantial opportunity to provide greater value to our risk modeling clients, and our expectations are reflected in our guidance. We see this as a chance to further expand our services for clients in this area. Regarding your question about pricing upside, that is included in our guidance. We are happy with the progress we've made and the positive client response to the investments in our products, which is reflected in our guidance for the future.

Just maybe quickly on the international side. I think 23% growth year-over-year. I know that's not organic, but still pretty impressive. Can you just maybe give us an update where you're seeing the most growth in those businesses? And then maybe related to that, as historically viewed, those businesses are a disparate collection of different businesses in different regions. So curious if there's any efforts to maybe bring those businesses closer together or if you're already seeing any synergies between those businesses or if it is still just a lot of different disparate things.

Thank you, Alex. That's a great question. The first part relates to our overall growth. When we examine the businesses on an organic basis, we believe they have been and will continue to drive double-digit growth. This is our baseline, and we see ongoing opportunities in that area. Your question about coordination is significant. Each of these businesses serves distinct segments of the insurance industry. The goal has been less about integrating all products from a single client perspective and more about collaborating effectively with our U.S. team and international team to ensure we're utilizing our expertise and data, along with some investments made in the U.S., to enhance our product offerings. We are indeed seeing improved partnerships in this area, but not necessarily in aligning claims and underwriting businesses. Additionally, we see opportunities to partner with institutions in Europe that recognize the value we offer and can leverage their distribution networks to help us deliver value in collaboration with other market players. This represents an enhancement opportunity for our products, including some of our U.S.-based products and technology that can be utilized there.

I was really curious about the catastrophe bond piece of your business. There's been some really strong data out there, and it seems like there's some outlook for continuation of that. What's driving that? And can you also remind us just how you benefit from strength in that market?

Yes, thanks, Heather. It is a strong market. What’s driving it is both the increased catastrophe risk and the need for a diverse set of investors in that risk area. New investors are looking to diversify and find uncorrelated investment opportunities. This has contributed to the strength in the cat bond market. We benefit from this because our extreme event business is a key provider of models and risk assessments, allowing investors and issuers of those cat bonds to agree on pricing by evaluating the risk.

Heather, what we are noticing is that there is strong demand from investors for returns that are not correlated with traditional markets, especially in the current challenging insurance landscape where there are perceived opportunities for more attractive returns. We are also observing an increase in capital flowing into excess and surplus lines as well as reinsurance overall. This reflects the ongoing evolution and growing sophistication of active portfolio management within the insurance industry, which presents a significant opportunity for us based on our modeling capabilities, loss costs, and rate modeling efforts. We have been considering how we can contribute to the advancement of that market at an enterprise level. One example is the category of insurers that are managers of insurance-linked securities, which have been utilizing our models and also provide avenues for us to strengthen our relationships and tailor our products to meet their needs as they navigate external capital sources.

In the early part of last year, subscription revenue growth was in the 9% range. And over the past two quarters, growth was in the 7% to 8% range. What's a reasonable and sustainable rate of growth for subscription revenue? And what are the top 1 or 2 factors that you believe will drive either acceleration or deceleration from current levels?

Thank you, George. We do not provide a forecast for subscription growth. However, we have shared our medium-term target for overall revenue growth, which is 6% to 8% in organic constant currency, with subscription typically accounting for 80% of that. Regarding factors influencing growth rates, we believe that our investments in product development, customer engagement, and industry expertise positively impact subscription revenue through renewals, new customer acquisition, and pricing strategies. Potential challenges may arise from attrition or industry consolidation, as we have discussed previously.

Great, so Lee, in your comments, you talked about the hard market in non-life insurance. And one of the things that's becoming apparent is that the pricing trends are going to begin to moderate. So building on Elizabeth's last answer, how does a market that's more normal affect subscription and transactional revenue growth as we look ahead?

Thank you, Greg, and I'm glad to have you back. We are observing ongoing pressures in the industry due to continuing inflation and increased risks that seem to be supporting premium growth and natural coverage expansion. Based on financial reports and client interactions, we haven't seen early indications of market changes. Many reports suggest that the market remains firm. However, we should be prepared for potential margin pressures in the future. In light of this, our products and services are crucial for achieving higher operational efficiency, which is essential for maintaining or improving our combined ratio and making sound underwriting decisions. I believe generative AI presents a significant opportunity in processing the information that the insurance industry needs to evaluate policy submissions and risk, allowing human experts to concentrate on underwriting and risk-return decisions. This trend is likely to continue as technology advances and data increases, providing us with opportunities to add value to the industry. While premium growth is beneficial in fostering a positive outlook, the industry will still face various challenges, regardless of market conditions. This represents our core opportunity.