Lee Shavel
President and Chief Executive Officer at Verisk Analytics
Thank you, Stacey. Good morning, everyone, and thank you for participating in this morning's call. I am pleased to be here today to recap what was an exceptional year for Verisk, marked by strategic, organizational and cultural change, matched with outstanding financial performance and value creation for clients and shareholders alike. Elizabeth will provide the financial detail, but in summary, we delivered 8.7% organic constant currency revenue growth in 2023, the strongest performance on record since our initial public offering back in 2009, and we exceeded the expectations we set at Investor Day in March.
We combined this with double digit organic constant currency adjusted EBITDA growth and 150 basis points of margin expansion on an insurance only basis, achieving the low end of the initial margin improvement goal of 300 basis points, one year earlier than our original target of 2024, and we have plans in place to build on that in 2024 and beyond.
Despite the separation of our noninsurance business, we still grew free cash flow 6% to over $800 million and above our 2022 level on an unadjusted basis. Over the past two years, we demonstrated capital discipline by returning over $4 billion in proceeds from recent dispositions to shareholders through share repurchases, reducing our share base by about 10%. This also served to substantially improve our capital efficiency and boost our returns on invested capital.
And while our strong 2023 revenue growth was exceptional, the long-term opportunity of addressing our clients' most pressing needs gives me confidence in our strategy to drive consistent and predictable growth in 2024 and beyond.
The insurance industry backdrop in which we are operating is relatively comparable to 2023. Insurance carriers continue to deal with cyclical challenges on profitability, resulting from higher losses and the lagging effects of inflation by restricting new business in profit challenged markets. The most recent A.M. Best data shows losses for the first nine months of 2023 were $32.2 billion, a further deterioration from the $24.5 billion in net losses recorded through the first six months of the year, and tracking way ahead of the pace of losses in 2022.
This caused A.M. Best to downgrade their outlook for the homeowners' line from stable to negative while also maintaining their negative outlook on personal auto. To some extent, profitability challenges in the industry were the result of higher catastrophe related losses. Our own PCS data points out that 2023 was the highest year on record for frequency of catastrophe activity with 74 events.
While 2023 did not have a major tropical hurricane make U.S. landfall, wind and severe convective storms were dominant and the major source of events in the year. That said, the fourth quarter of 2023 was a relatively quiet period with only seven events, and was lower than the fourth quarter of 2022, which experienced 13 events.
On the more positive end, carriers are having success raising rates and driving premium growth and are taking the very early steps in certain lines to unwind restrictions on writing new business, as they achieve rate adequacy. In fact, net written premium growth increased 10.8% for the first nine months of 2023.
More structurally, the insurance industry continues to be challenged by the rapid pace of technological change, including digitalization and cloud migration. This is being compounded by the fact that the industry also faces technological debt and aging legacy systems. In addition, the industry continues to experience growing regulatory focus on issues of data privacy, fairness and climate risk.
Our business model and strategy are designed to address our customers' most pressing needs, both from a cyclical and structural perspective. We invest on behalf of the industry, applying our industry knowledge and technical expertise at scale to deliver value to our clients at a lower cost of investment and ownership than any one participant can achieve individually. As we work with our clients on a more integrated basis, the opportunities to develop new solutions expands.
We are focused on the three key priorities we articulated back at Investor Day, namely, delivering consistent and predictable top line growth, driving operating efficiency and profitability, and ensuring disciplined capital allocation.
Let me spend a few minutes on how we plan to go after each in 2024 and beyond. Our first priority is delivering consistent and predictable growth through strategic dialogue with clients and innovation.
Throughout 2023, we made substantial progress on our initiative to elevate the strategic dialogue with our clients, and to become their strategic data analytic and technology partner. During the year, I met with over three dozen client CEOs and senior leaders representing over half of the U.S. property and casualty insurance industry direct written premium to discuss how we could better support their objectives.
Three primary themes came up repeatedly -- How can you accelerate and expand the delivery of data and analytics to our organization? How can Verisk augment the capabilities of our colleagues to improve their ability to manage the amount of information they receive? And finally, how can Verisk help better connect the ecosystems we operate in to improve our efficiency?
On the acceleration point, we are intensively addressing this opportunity across our businesses, but perhaps most significantly in our core lines Reimagine project to reengineer how we deliver our core data sets and analytics to meet the rapidly evolving ingestion demands of our clients. Prospectively, we see the application of low, no code and micro-services technology that we have successfully deployed in the life insurance industry, having material significance to the property and casualty segment, and have been working with clients on testing applications.
On augmentation, we have already been applying generative AI technology through our Discovery Navigator solution to dramatically accelerate the summarization of large and complex medical files in our casualty business. Prospectively, we have been developing and working with clients to refine several augmented underwriting applications.
On connectivity, we have been investing in our Xactware platform to support the integration of more ecosystem partners. Last week, I attended our Elevate Conference in Salt Lake City, which had record attendance from our insurance contractor, adjuster clients and over 30 ecosystem partners. Both clients and partners expressed enthusiasm for our delivery of improved connectivity and efficiency, demonstrating the network potential of this business.
Finally, on connectivity, we were thrilled at last week's announcement of Marsh's expansion of its digital trading initiative on the Verisk White Space platform. This builds on a successful pilot in 2023, which traded over $400 million in premium and is a gratifying endorsement by a world leading insurance broker that should draw more participation onto a Data First platform that will drive greater efficiency for the market.
With expansion across its U.K. specialty and international placement business, Marsh anticipates that over 90% of all client premium in that segment will flow through the platform by the end of 2024.
Our strategic conversations are also helping to drive more informed innovation. In our conversations with clients, we repeatedly hear about the increasing regulatory focus and reporting requirements on fairness and unfair discrimination. To address this need, during the fourth quarter, we launched FairCheck, a solution designed to address issues of fairness and discrimination in the underwriting process. FairCheck helps insurers test their personal lines, models and variables to respond to regulatory change and to evaluate and mitigate the potential for unfairly discriminatory outcomes. This solution is an extension of the work we did internally to assess Verisk's own personal auto rating model, to determine whether there were unfair pricing outcomes regarding race. We recently signed a national property and casualty carrier to be our first customer.
Internally during 2023, we worked with an outside consultant to sharpen our go-to-market strategy and are implementing the first steps of this changed approach in 2024. This includes an investment behind sales effectiveness, incorporating a change to the composition of incentives to be more in line with industry best practices. In addition, we have identified pricing and packaging opportunities within property estimating solutions and extreme event solutions, and we will be bringing them to market throughout this year.
Our second priority from Investor Day is driving operating efficiency and profitability. We remain committed to driving operating efficiency and margin expansion over time. We are leaning into our global talent optimization initiative, tapping into the talent rich and low-cost markets like Krakow, Poland and Hyderabad, India. We have recently expanded our real estate footprint in both markets to support our growth.
Additionally, we should continue to achieve savings as we modernize and optimize our technology infrastructure across all our legacy systems, including our internal financial and human capital ERP upgrade, which is underway, and which should start delivering early efficiency benefits in 2025 with the full impact to be achieved in two to three years.
As we look out, we see opportunity in improving our operational efficiency by careful reviews of our workflow and processes. We will continue to deploy our lean Six Sigma program to drive additional savings and continue to focus on our organizational structure and efficiency.
And finally, our third priority is disciplined capital allocation. Disciplined capital allocation underscores all our decision making at Verisk. We invest our strong, free cash flow into value creating opportunities that support growth with attractive returns. Excess capital is returned to shareholders through dividends and share repurchases.
In 2023, our return on invested capital was approximately 26%, with incremental returns on capital at approximately 19%, as we continue to invest our capital at high internal rates of return. We are excited about the many opportunities we have to invest across our business in emerging technologies, including generative AI, low no code applications and international expansion.
We also are investing behind upgrades and re-platforming of our core solutions, some of which have been underinvested, and need modernization to support future innovation. The most notable example is our Core Lines Reimagined project. As we highlighted before, we are about one-third of the way through this project from an investment perspective and we are engaging our clients as we plan for customer facing modules launching in 2024.
While there is still much work to be done, we are already driving returns through strong contract renewals with our largest customers as they recognize the value of the program. We are also investing in modernizing our property estimating solutions platform to advance our strategic goal of creating a more open ecosystem that is resilient, redundant and available for all stakeholders. We are simplifying partner integration and developing new services to enable deeper workflow integration, richer solutions and better client services.
This initiative should increase our agility and create a more dynamic work environment for both our clients and our development teams. We are also excited about the opportunities to continue to create incremental value in our insurance related acquisitions. For example, in claims, we are driving growth in synergies in our three recent acquisitions in Germany, where we have a leading market position in the bodily injury space, and are adding services and technology offerings in the auto and property spaces through the acquisitions of Actineo, Krug and Rocket respectively. These acquisitions enabled us to deliver solutions and add value to our German customers across the entire claims lifecycle.
Before we close, I want to address the recent leadership announcements naming three new business leaders to the Verisk Senior operating committee. Rob Newbold was named President, Extreme Events, taking over the reins from Bill Cherney, who retired at the end of the year, and Doug Caccese and Saurabh Khemka were recently named co-presidents of Underwriting Solutions, replacing Neil Spector, who has moved into a strategic advisory role. All three leaders are evidence of our deeply talented management bench and focused leadership development and succession planning process.
I want to thank both Bill and Neil for their many contributions to Verisk and to me personally as I stepped into the role of CEO, and while we will miss them, they have left their business in the very capable hands of talented, experienced and energized leaders.
2023 was a demonstration of Verisk's evolving culture. We delivered strong financial success while absorbing organizational and leadership change, and I am excited about having the fresh perspective and energy of these three leaders as we move into 2024.
With that, I'll hand it over to Elizabeth to review our financial results.
