Q1 2020 Earnings Call
[music].
Good day and welcome to W.R. Berkley corporations first quarter 2020 earnings Conference call. Today's conference call is being recorded the speakers remarks may contain forward looking statements. Some of the forward looking statements can be identified by the used to forward looking work, including without limitation believes expects or estimates.
We caution you that such forward looking statements should not be regarded that's representation bias that the future plans estimates or expectations contemplated by US we'll look back the achieved.
Please refer to our annual report on form 10-K for the year ended December 30, Onest 2019, and the other filings made with the FCC for a description of the business environment in which we operate and the important factors that may materially affect our results W.R. Berkley Corporation, it's not under any obligation and expressly disclaims any such obligation to update or alter its what.
We're looking statements whether as a result of information future events or otherwise I'd like to turn the call over to Mr. Rob Berkley. Please go ahead Sir.
Thank you Jimmy and good afternoon, everyone. Thank you for joining us in our first quarter call.
In addition to me on this and you also have bill, Berkeley, or executive Chairman and rich back to she Oh.
Oh, we're going to follow similar agenda to what we used in the past.
In short order I'm gonna be handing it off to a rich she's going to walk through some highlights of the quarter.
Then I'll be offering a few comments and then we'll be opening it up for two and I and we'll be happy to take the conversation anywhere that participants would like to take it.
But before I hand, it over to rich.
Let me just offer one or two quick thoughts.
We have been living through a period of time.
And continue to live through a moment in time.
Which I think couldn't be described as unimaginable.
And I'm not going to consume and have your valuable time by reciting what you read in the newspaper or whatever your source of news and information is.
But I did not want the opportunity to pass.
I would out on behalf of my colleagues and myself.
Expressing our hurt felt concern for all of those that have been affected by this horrific situation stemming from covert 19.
In particular, it's worth noting the first responders and the medical workers, who are giving up themselves in a manner that few of us could even imagine.
And in some cases they are.
Actually giving a in a way that is the ultimate sacrifice.
Beyond that obviously there are many members of society that are trying to do their part two yet our lives back on their their feet and to move things forward.
Included in that would be these 6560 colleagues of hours that have the same challenges every day and their personal lives and managing through the situations, where all managing through.
But in spite of those challenges there is still doing their part to ensure that this business continues to function and function well.
We are issuing policies, we are paying claims we're doing our part to ensure that society moves forward.
And I wanted to thank them as well.
So with that I'm going to handed over to rich and rich if you would walk us through your thoughts on the floor.
Certainly thank you Rob.
Starting with our premium production, which was it but between favorable in the quarter with growth in gross and net written premium of 9% and 8% respectively.
Overall net premiums written was $1.85 billion in the current quarter insurance segment was about $1.6 billion, representing an increase of 5.7% growth.
Growth in the quarter was led by other liability of 14.7% followed by 11.5% <unk> professional liability and 10.4% in short tail line.
The workers compensation and commercial auto liability line decreased 7.6% and 3.5% respectively.
The reinsurance Enanta line access segment grew 23.7% to $263 million led by an increase in casualty reinsurance of 37.3% minor line access of 11% and property reinsurance of 9.7%.
Pre tax underwriting income of $52 million was adversely impacted in the quarter due to a provision of $66.5 million for closing 19 related losses.
This compares with $90 million for the prior year underwriting income [noise].
The reported combined ratio was 96.9% in 2020 compared with 94.3% in 2019.
Catastrophe losses contributed largely to this increase with 5.2 and 0.8 loss ratio points in comparable periods.
<unk> 19 contributed 3.9 loss ratio points to the first quarter 2020 catastrophe losses.
Finally prior year loss reserves developed favorably by $4 million, representing approximately 0.2 loss ratio points. Accordingly, our current accident year loss ratio, excluding catastrophes was 60.5% in the current quarter compared with 61.7% in the prior year.
Expense ratio was 31.4%, reflecting a decrease of 0.9% from a year ago and relatively flat to the 2019 full year.
The gross and net premiums written earn through the income statement our expense ratio benefits from higher net earned premium. In addition efficiencies from our operations allowed us to grow the business without increasing our compensation costs at the same pace of growth in premium.
Other underwriting costs also decreased in the quarter due to lower professional fees and less travel as we've indicated on prior earnings calls our expense ratio may experience. Some variability as we continue to make investments in the business.
In addition, the uncertainties surrounding the Covance pandemic could impact our 2020 expected expense ratio of 31, 32% referenced on her last earnings call.
The accident year combined ratio, excluding catastrophes, and cobot 19 to 2020 with 91.9% compared with 94% in the prior period.
Net investment income increased 10.4% to $175 million.
Income from the core portfolio was largely unchanged from the prior year, despite a lower interest rate environment.
Book yield for the quarter to the fixed maturity portfolio was 3.4% investment funds reported an above average quarterly result of $41 million compared with $11 million in the prior year.
Please remember that we report our investment funds on a quarterly lag and accordingly, the results in the first quarter, reflecting the funds performance from fourth quarter 2019 to that end. It's important to note that the effects of the market downturn. During the first quarter of 2020 will be reflected in our second quarter results.
We do anticipate a meaningful decline in energy and transportation funds in next quarter's results.
The investment portfolio is well positioned to deal with market downturns that we've seen in the first quarter of 2020 due to the high credit quality of double a minus and the average duration of 2.7 years for fixed maturity securities, including cash and cash equivalents.
Foreign currency gains were $22 million in the quarter compared with $7 million in the prior year. The U.S. dollar strengthened relative to the UK Sterling and Argentine peso, which contributed to these gains in the quarter.
This brings our operating earnings to approximately $133 million or 69 cents per share compared with $129 million is 67 cents per share in the prior year.
Pre tax income was impacted by pre tax net investment losses in the quarter of $177 million comprised of three components, including realized gains of $11 million largely due to the sale of a private equity investment a reduction in unrealized gains in equity securities.
$154 million, primarily driven by Fannie and Freddie preferred stock.
And an increase and allowance for credit loss of $34 million.
You May recall effective January one 2020, new accounting rules supplied addressing current expected credit losses, otherwise known as Cecil on financial instruments. As a result, we've established and initial cumulative effect adjustment to opening stockholders' equity with the change in allowance for credit loss to be reflected.
Net investment losses, the change from adoption is a $34 million I just referenced a moment ago.
Finally, our net loss for the quarter after reflecting the impact of the net investment losses is approximately $4 million.
Stockholders' equity was approximately $5.5 billion or $30.55 per share the company repurchased approximately 3.7 million shares for $203 million in the quarter and return capital to shareholders through an ordinary dividend of approximately 20 million.
We had cash flow from operations in the quarter of $153 million and maintain strong liquidity throughout the organization, including more than $1.3 billion in cash and liquid investments at the holding company.
Thanks, Rob rich thank you very much.
So.
Before I offer a triple or somebody from on the quarter.
Maybe just a quick macro observation I think is.
Worth, noting that we've done my opinion.
We all understand that these your extraordinary terms.
And there are tremendous challenges and there is quite frankly, a great deal of pain that society is grappling with.
And natural reaction is to try and eliminate or at a minimum reduce their pain.
Many people are looking to the insurance industry for a solution.
And unfortunately, they're looking for the solution, even when the product they purchased does not provide one.
Much of the plaintiff bar with the support.
The litigation funding vehicles that are out there seem to subscribe to the unfortunate idea of never letting a crisis go to waste.
Some seem to be unencumbered by what the words in a policy says.
And our very skilled at managing the media.
Well I think it is unlikely that these groups will achieve broad success.
It is important to note.
It is important to recognize that any success that they achieve will ultimately come at a price to society.
Overall.
[noise] insurance is fundamentally nothing more than a tool or mechanism, if you like to spread risk.
If loss costs go up insurance pricing ultimately goes up.
If politicians that imports allow much of the plaintiff bar to get what they are seeking.
And this regard the words in the contract or the policy.
And then it is very likely that society will pay if your price because ultimately the cost of insurance will be going up.
The parts of the plaintiff bar and those that provided litigation funding will win and the rest of boss.
[laughter].
Yes.
In the past, we have talked about social inflation.
We've referenced things such as the Med Mal.
Okay.
We've talked about.
It's unfolding in past quarters.
If this unfold the way the plaintiff bar would like you are too low I think it is highly unlikely.
We will see a level of social inflation that the industry is trying to keep up with like we have not seen in generations.
Ultimately society is going to have to make a choice.
Whether contracts matter, whether wordings and policies matter or not and how much were price is society willing to pay.
Hopefully they have the foresight to understand the circumstance.
Turning to the quarter Oh, it's always a rich did a great job covering it for a couple of observations from from me obviously, the the growth was a was reasonably healthy both on the growth and and the net as always a a bunch of moving pieces one of the headlines that clearly picked.
But from the press release was the rate increases that continue to progress, which is really just our response to past conversations around social inflation and keeping up with loss costs.
One of the things that we have also mentioned in the past is well you all cash the headlines there are lot of moving pieces under the surface. So for example, if we were to pick on commercial auto in January we have a large book drove a commercial auto in Germany and we.
Actively or with non renewed if you will approximately $30 million of business or that book of German commercial auto.
I draw your attention to that because of this helps you hopefully I understand that we'd have a lot of different moving pieces and it's not solely just.
Looking at rate.
Other aspects of it.
Renewal retention or ratio continues to hanging at 80%, which.
Gives us the confidence in the comfort the rate increases are coming about and a healthy and constructive way.
Rich, obviously talked about the loss ratio and clearly impacted.
By our allowance for four or provisional allowance for cobot 19 related losses.
The vast majority of what we put up is I'd be NR. We are over the view that one can not just said and take a completely wait and see attitude given what we see out on the horizon, we felt as though it's our job to be proactive answer would be thoughtful so.
Undoubtedly the various analysis that we went through to come up with this number will not proved to be spot on but we felt as though we needed to do something and that is how we came up with this number based on the information we have I can't tell you whether we got the got it.
The poured too hot or too cold, but it is our best estimate and again most of that is is I'd be an arm.
I'm on the the expense ratio again rich touched on a we continue to be pleased with the improvement, but as rich referenced.
We're going to have to see how the story unfolds from here and while we have a lot of earned premium that is coming through in the business continues to grow given the instability in the broader economy will have to see what that means for us.
When comment just going back to the losses I think it's important that people not misconstrue the provision that we put up.
Our policy wording was from my perspective are very thoughtful we have the appropriate exclusions in place when it comes to things such as viruses and of course, we have the additional triggers.
That would need to be a doubt our in place to make sure.
There is required in order to trigger business interruption, but nevertheless, there's still a lot is unknown.
[noise] be in investment portfolio again, a rich touched on this so I'm not going to add much other than obviously, we have been relatively rewarded for the fact that we keep a very high quality portfolio as well as keeping the duration short a rich touched on liquidity, which again I think.
Bodes well for the position that were in particular the liquidity at this stage while it comes at a bit of a cost. We think is it costs were bearing.
So I'm going to pause there and we will turn it over time for questions.
I think we all are very comfortable in spite of the challenges ahead that we are very well positioned.
Sure me could we open it up for questions. Please.
Certainly as a reminder to ask a question you will need to press Star then one on your touched on telephone to withdraw your question press the pound.
Tim.
First.
Good afternoon my.
Could you provide more details on the I'd been are mostly I've been out related provision you put up per call, but maybe I missed it but.
Any color on you know what lines of business reinsurance versus primary any texture, there so that kind of better sense of.
Or whether we should expect.
More to potentially come as fee as this unfolds, yeah I think.
I don't mean took the carrying down the road, but you'll probably see him some disclosure in the queue around us and and such a sensitive topic and being mindful of the FCC I don't want to get ahead of that document, but I can assure you that.
We did the best weaker to look at our whole portfolio and assess where our exposures are and to the extent that we will be utilizing reinsurance of course, we took into account or reinstatement costs as well.
Okay, all right. So I'll look out for the Q on next.
No I was a little surprised to hear that you talked about the 31 30.
2% expense ratio guidance I was probably.
Might not be likely I've, given you keep kind of talk about given a big percentage of your book is workers comp, which is tied to payrolls. If I'm correct should we should should we be expecting a considerable decline in the topline in two.
Q to the extent this this terrible situation persists.
For another.
Through the rest of the quarter.
And or is there are other levers you're pulling such as kind of.
Cutting some some fixed expenses to to be able to.
To weather the storm per se.
Mark first of I don't think we meant to leave you with the impression that the idea that the expense ratio is going to rapidly erode is our expectation it is not our expectation.
Whatsoever.
When when we look out on the horizon, we are not naive or blind to the challenge is that.
Both the domestic and international economies are facing.
And while we have not seen any evidence so far.
That's our customers will be a shrinking dramatically or going out of business in the broad sense. We are again mindful of those realities.
I would remind you that a large component of our expense ratio is commissions and obviously.
That will float along with some other aspects of our expense ratio, but I think what rich and I. We're trying to messages that we understand that the world is facing a very challenging moment.
And we are as an organization are not completely and totally insulated from the health and wellbeing of our insurance.
And as a result of that and our discipline and are responding to those realities. There is a possibility that the expense ratio could tick up modestly do we see is exploding no.
Do we continue to have initiatives internally to help try and drive that down from here, yes, but there are certain things that are out of our control and it would be wrong for us to pretend those do not exist.
That's that's helpful. Lastly, and then I'll come back in the Q.
And others I know this is a rapidly evolving.
Environment.
And one of your competitors are there today kind of mentioned specifically.
Certain states expanding the companys ability of the workers comp.
D is this the system a major issue her workers comp right writers or is this just more about.
This is likely to have a minor impact.
To the extent insurers are willing to accept some other decisions that are being made I.
I think ultimately it depends on as perhaps it would suggest sounds like from your comments as suggested by others. It depends on the state and it depends on how much they broadly want to expanded.
I would I would tell you that are there has been some analysis done by many organizations, including NCC I.
And others.
I would encourage you to look into.
Certainly as being brought to the attention of both regulators and politicians to make sure that they understand the situation fully and the costs by broadening.
Who would be covered for covert 19.
So we'll have to see how it unfolds.
I think it is meaningful but I at this stage I don't think we expected to be a problematic.
Or overwhelming for us as an organization, but I do think it could be very challenging for some people if governors and other politicians choose to broaden this in a very wide manner.
Thank you very much I would encourage you to.
Get hold of some of those.
Studies that have been done by NCC, I and others. I think you would find to be time will strengthen and hopefully the people that are making these decisions are investing the time to make sure that they are informed decisions.
Okay. One other comment on that but you know the world when it comes to these type of issues and other issues is sort of tried to pit itself against the insurance industry and I think that that is very short sighted which is one of the reasons why putting the insurance industry. Aside you have seen many other.
Small business and large business trade associations trying to express their concern around some of the potential actions that some of these states will take because they understand very clearly that some of these actions could have a dramatic impact on their costs of workers compensation.
And whether it be that they buy first dollar or even in cases, where they self insured to an extent.
Thank you.
Thank you and our next question comes from Yon cannot with Goldman Sachs. Your line is now open.
Hi, good afternoon.
Robert and in your opening statements you talked about some of the.
The language that you have been business interruption, paulson, namely the Apollo exclusion and.
Physical damage trigger.
One thing that we've been struggling with anything has outside of the to try and.
Kind of the difference in standard all season, and more Vms or specialty RV, who maybe help us understand or think about your overall portfolio.
Roughly what portion of that portfolio would have.
Explicit viral exclusion language.
So I don't have specific numbers in front of me, but I would tell you.
Virtually.
I hate to say all because it's so definitive to the best to my knowledge virtually all of our property policies require physical damage in order for there to be business interruption.
Beyond that the vast vast majority of our property policies. In addition to that trigger I just referenced also have a virus exclusion.
Okay, that's helpful and I'll be your commercial property portfolio.
Lastly, how many accounts per hour to bring them.
Actually purchase business interruption.
No I don't I don't have that number four.
Oh, that's off the top of my head, but if you'd like nothing I can Paul on Florida will do the best return to answer your question.
Okay.
Right and other costs I have no clearly, we're seeing a continuation and acceleration the rate improvement soy.
I think that in the context of the current economy and the struggles that your accounts, we're going through that this would be sustainable or would you expect to see some pressure on rate.
We do more severe.
And I think it's a little bit early to even tried to speculate I, but I would I would tell you. Obviously this circumstance in this country really started to.
Get momentum in March two and really towards the end of March.
And you know we have a little bit of data in April, but I I don't think that we can reach a conclusion, but something that I think is an important too to mention here is that we have a view as to what an adequate rate is.
And we saying that if we cannot achieve that rate then we will not sell the policy.
And it simply because we feel an obligation to a variety of stakeholders and we need to run a healthy and sound business.
To ensure the weekend live up to our obligations to many including policyholders.
And it needs to be a sound thoughtful business and an important component of that is adequate pricing.
I would make sense I appreciate that and if I could sneak one last quick one up can you maybe talk about the decision to classify that as the cause of losses as a catastrophe losses as opposed to underline.
You know I guess it will just for a lack of any other way to label it I mean honestly.
There there is tornadoes and hail every year and every couple of years, we have you know I heard green and occasional earthquake.
Hopefully.
This type of pandemic will happen far less frequently than any of those consequently, I think if there was ever sort of a one off can.
This would probably belong under that category, we tried to in our both our releases wells and Rich's comments, specifically break it out for people. So you had the clarity around what is I guess traditional cat if you will versus what is.
You know again, hopefully just truly the extraordinary circumstance. So yeah, we've never really been big believers in the but for if you will.
And how the industry tends to come back out cash.
You know from from our perspective.
This is truly an extraordinary circumstance.
Our responsibility we own it but we did want to provide the clarity.
Understood Okay.
Thank you.
Thank you and our next question comes from Meyer Shields KBW. Your line is now open.
Uh huh.
How are your up.
Good how are you.
I'm doing one thing I was hoping you could give us some.
An update on new money, we reinvestment rate I'm, just trying to get a sense in terms of whether we should expect.
Oppressor or other opportunities with spreads widen.
So.
At this stage or is there pressure there's probably.
As much pressure today is there was yesterday I think you only have differences there's.
As we were chatting internally recently, there's just more risk.
So if you think about you know where there will be available rates are its probably not dissimilar to what we saw not that long ago.
But if you think about the risk adjusted return, it's probably even lousy or.
So at this stage, our general defaulters to something that would be more of a defensive nature.
Though I think it's important to flagged that we certainly are willing to be thoughtful and opportunistic if we see a and attractive opportunity present itself.
It's one of the benefits that we have a very significant liquidity that we maintain both in the insurance companies as well as at the holding company.
Okay. That's helpful.
Was there anything unusual in the reinsurance segment.
Yeah, I'm asking into contact the big fish improvement there on a year over year basis.
On the extend its rich speaking.
On the expense ratio it it's really on as I was alluding to in my opening comments attributable to some of those reduced professional fees, so things like our consulting and.
Legal costs, and then out or.
It is pretty much flat.
[laughter] quite or an increase in net earned premium.
From the first quarter.
Hello.
The next.
And we would expect uptrend.
Sure to continue because you can see the growth in Britain, and obviously, though trickle through to the or overtime.
Perfect. Okay. Thank you very much.
Thank you.
Thank you our next question comes or Brian Meredith.
Your line is now open.
Hi, Brian good afternoon.
Okay Yeah.
[noise] because it my team yeah, I mean, our estimate.
What is your exposure what do you think about some of them are economically sensitive lines like security is that going to create some additional loss activity.
Where's your book of business as we kind of look forward here over the next 12 months since this would get a pretty weak economy, and then maybe even on the energy surety side do you have exposure there.
Yeah.
On the surety front, we feel very good.
Our our book.
It's a combination of both or commercial land and contract a though it's weighted towards the contract side.
When we looked at the health of our clients when we look at the financial strength for them. When we look at the type of collateral that we have we are very comfortable you know to my my colleagues our colleagues credit that they're running with Oh that business are they first role or.
Good stuff.
On the operators true.
Good for started so.
They had the everything batten down well in advance of this coming to ahead. So we.
We all have things that are on our mind or that we worry about and that is certainly not at the top of my list.
Great. Thanks, and then second Rob there's been no. Some discussion I understand this whole breast interruption, just as far as the policy forms and you know whether the policy forms kind of quarter internationally than it is not likely.
What do you see.
Thanks, Jason that it could potentially be more excuse me international prior policy for questions the west.
[noise]. So we are by and large are not a large property market outside of the United States.
And with the modest amount of business that we I mean that we write even outside of the United States. Most of that is U.S. business.
Are you look the Lloyds.
So.
We have looked at our policy forms and.
Based on everything that I have been advised in what has been reviewed by people that.
No far more about this and I do we're in a pretty good place.
I certainly have heard some of the commentary about others.
Particularly in the UK that perhaps their policy reform. It has been suggested by some may prove to be problematic I have not review their policy form in detail.
Spend the vast majority of my time worrying about this organization not other people's organizations.
Makes sense. Thanks, and then one just last just quick numbers question is a possibly give a sense of what is your kind of acquisition cost ratio Commission ratio. So we can take a look at what's the kind of variability.
And your expenses based upon what could happen no premiums.
[noise] Ryan we don't have that at our fingertips would it be okay. If either Karen are leveraged followed up with you could do that color.
I think it'd be great appreciate it.
Good.
Thanks, Thank you.
Thank you and our next question comes from fills the funnel with Deutsche Bank. Your line is now open.
I feel good afternoon.
Yeah. Good afternoon. Thanks, Thanks for taking the questions. They really shouldn't take a step back in talk about the.
65 million I view in are largely I'd be DARPA, the the cobot scrubbers Parisian different better than Katherine just trying to get an understanding of what it would exactly those is this a best estimate.
Oh, all future losses, <unk> that you would think me driven bobbi Coco environment, but I understand there's a lot of volatility and uncertainty around this but maybe it's just a kind of a onetime hits or is there the potential for underlying pressure as we think about the sport.
So the way I would encourage you to think about this is we took a snapshot.
At the end of the corridor.
And we looked at that snapshot and loved it everything that we know and based on what we know we did our best to come up with what an appropriate estimate we thought would be based on the available information at the time.
I can't under promise you that the number won't go up or the number won't go down what I can promise you is based on the available information at that moment, we did our best to estimate what we think the cost will be for this company. So.
No. This is not just sort of claims that have come over the transom.
It is not that at all it is our best estimate understanding the situation in understanding our portfolio what do we see the costs associated with the circumstance being.
Got it won't all the things that I guess in my mind I'm trying to play through is the.
The creativity of the plaintiff bar and and the fact that the injury industry thing these losses should be minimal or at least most manageable.
But to the extent that people are putting I'd be in our numbers out there is there the potential for for the plaintiff bar to say look. This is this is proof that these are walk you should be covered the industry's coding putting dollars aside.
I'm curious if you have any thoughts about those you know those competing forces and why did you pick about.
It's still can I just make sure I understand a question you years. She just given the fact that we're putting dollars. Aside is that we're basically acknowledging that theres coverages that the question.
Yeah, I mean, it's easy.
To what extent exactly potential <unk> yeah.
No. We do not think that that is the case at all.
I mean.
From from our perspective, the money to set aside for some a variety of different reasons, which we will articulate to the extent, we think makes sense in the Q.
But no way shape or form should this be interpreted by anybody.
We are acknowledging this is not a statement about coverage or anything related to that topic.
Got it and just one more quick numbers question did it for that the covered provision do you have a breakout between insurance and reinsurance.
[noise], a we have not made that a available but I'll tell you one or two things will happen, either you'll hear from Karen or or rich or I expect it will be in the in the queue. So one of the too.
Got it looked like in the banking so much I appreciate it thank you.
[laughter].
Thank you and our next question comes to Ryan Tunis with Autonomous Research. Your line is now open.
Hi, Thanks, Good evening I wanted to I guess keep harping on this idea in our.
It's it's just there's one number out there so just trying to get a few all of the texture on it.
Any context as to how much of that is sort of like casualty related stuff, whether its workers comp on reliability broadly versus short tail and age.
Property or I'll go back cancellation.
[noise] so.
I'm not trying to be difficult, though I feel like I may be though the one that's running on afraid.
I want to be mindful of our obligations to all interested parties and we're going to put this some detailed information in the Q.
And I, what I would tell you is that we looked at our portfolio across the board.
And we tried to make some informed judgments.
And that's how we came up with this number.
And again, a apologies for for not giving you more color at this time it will be made available in the queue and I think that will hopefully.
I hope you a clear understanding.
Understood I guess.
Well I think what number though just trying to stress in a bit is you know when you got it out.
Where are the sensitivities is that you know if this is three months rather than one month or is it but the duration of the lock down that would make that growing size. So no one carrier on the number what I would tell you is are we.
And again apologies if this does not answer your question as completely as you'd like.
We looked at our entire portfolio.
And we acknowledge the fact that we don't know.
When this will end.
And we made some judgments.
In addition to that we make judgments around reinsurance recoveries.
And costs server surrounding reinstatements.
And that is how we came up was Ah I keep saying about 65, I guess was 66 point something rather bio knows how many basis points.
Got it.
The one other coverage question I had a whole one on the buyback.
[noise], how obviously excess workers' comp book respond to.
Frequency versus severity is that that you need really severe single likes losses job losses or is it that youd yammer huge number I'm just trying to think about the risk to that book.
I'm, sending their stuff going to stay level.
Oh, Yeah, you know as far as the specifics of the but the excess calm portfolios. It again, rich or Karen can try and get into some of that where the offline.
But what I, what I would tell you is that that is certainly a part of our book that we looked at carefully we looked at our attachment points, we looked at the mechanics of how the policy.
Works and it was appropriately considered.
Is that likely that there will be comp losses, yes, when we look at our attachment point do we think it's possible some things could touch US yes, do we think that is it's going to prove to be a widespread issue no.
Hi, My last one is our.
I mean, the buyback was pretty substantial supersonic seen that turned out very very long time, and I guess I'm just trying to marry that decision with.
It seems like a message around.
Some uncertainty here.
Well I.
Oh I I'll I guess my my two senses, we still as referenced by rich and myself and you could see in the release maintain a significant amount of liquidity at the holding company.
But the good news is you came out a more complete.
Response around our philosophy around it because the head of our repurchase stuff this year.
So the answer this bill Burke like these the answer is right now.
Hello, we have we have a very very.
Simple process for deciding when we're buying back stock buyback stock when we think its attractively priced relative to our assessment of the intrinsic value of the enterprise.
And while there was a lot of noise in this quarter.
While there's been a larger than we'd like to everything that's been going on from the end of last year forward.
At the same time that was happening.
People decided they didnt like stock on our stock traded down a lot.
And therefore, it became attractive to buy.
And using that capital, which we believe was.
Stan truly redundant capital.
Was a good use of money.
And while it was $200 million it was sort of 15% of the capital we had at the holding company.
No actually a little less than that.
So we really weren't particularly concerned.
And we just felt it was a attractive price attractive value and the intrinsic value of the enterprise we thought it was okay.
It always happens when there's a lot of noise.
That's when you can find good opportunity in our case in buying back stock. It's when we've been able to buy back stock throughout our history.
Going back to 2000.
[noise] lots of Lois.
Sorry, and then you feel that the liquidity levels at the Holdco are supportive of.
More share repurchases here in the second quarter should should the more I I didn't say anything about the future.
I didn't say anything about the future I simply said, we still have a billion degree of liquidity at the holding company I'm very comfortable with that.
And I'm very happy with the intrinsic values within our enterprise.
And so we'll make each of those decisions.
At the moment.
No one ever.
Okay.
Jimmy any other questions.
What do you have a question from Ron Bobman with capital returns. Your line is now open.
Hi, Thanks, a lot, let's hope the chairman of the buyback desk comes into the office Tomorrow.
I had a question Rob I think at the yearend call your five itself [laughter].
I see a rod you commented that the yearend call I guess, a couple of months ago about rip and the the Fawcett off the wall and letting it but in the opportunity sort of flow in heavy because of.
It was moving in track attractive directionally opportunities et cetera, and I'm wondering of late.
Most recently in sort of the traditional.
Commercial insurance area, but in particular sort of E N S.
How the the quoting volume and the binding volume is.
It is going.
For Berkeley in essence or are you, having a much greater yield as far as.
Quotes resulting in buying thanks.
Yeah, I don't have the.
The April information a in front of me. So I don't really have a sense of how this month loves but certainly we saw no pause even towards the latter half of March and a if you use rate achieved as an indicator we got more rate in March.
Arch than we did in February.
So again I am.
I don't have the information for April and in front I mean, even if I did try some longer we're talking them out to tell you but.
No. We're gonna have to see was gonna have to see.
Whether the concern in the standard market continues to grow at such a pace, but that continues to drive business to the non standard market and whether that out paces quite frankly, some of the strain that exists.
In the broader economy, and the health and wellbeing of some of the insurance.
So I don't have an answer to that for you for April but certainly we do not see that in March.
Thanks, a lot best of luck guys.
Thank you.
[noise] [noise] [laughter].
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to the speakers for any closing remarks.
Okay, Jimmy Thank you very much but thank you all for joining us.
From our perspective in spite of they challenges this organization remains very well positioned to navigate its way forward.
It's not that we underestimate the challenges it's more that we're acutely aware of how healthy and well positioned the company is.
So again, thank you for calling in and we will speak to you.
In about 90 days.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program you may now disconnect.
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Good day and welcome to W.R. Berkley corporations first quarter 2020 earnings Conference call Today's conference call is being recorded.
Because remarks may contain forward looking statement.
We're looking statements can be identified by these forward looking worth including without limitation believes expects or estimates.
We caution you that such forward looking statements should not be regarded that's representation biased to the future plans estimates or expectations contemplated by us well in fact the achieved.
Please refer to our annual report on form 10-K for the year ended December 31st 2019, and the other filings made with the FCC for a description of the business environment in which we operate and the important factors that may materially affect our results have you R. Berkley Corporation, that's all under any obligation and expressly disclaims any such obligation to update our altering.
Forward looking statements, whether as a result formation future events or otherwise.
I'd now like to turn the call over to Mr. Rob Berkley. Please go ahead Sir.
Thank you Jamie and good afternoon, everyone. Thank you for joining us on our first quarter call.
In addition to me on this and you also have Bill Berkeley, our executive Chairman and rich fail.
Yes.
Oh, we're going to follow a similar agenda to what we used in the past.
In short order I'm going to be handing it off to a rich she's going to walk through some highlights on the quarter.
Dan I'll be offering a few comments and then we'll be opening it up for two and I'll be happy to take the conversation anywhere that participants would like to take it.
But before I hand, it over to rich.
Let me just offer one or two quick thoughts.
We have been living through a period of time.
And continue to live to do a moment in time.
Which I think could be described as unimaginable.
And I'm not going to consume many of your valuable time by reciting what do you read in the newspaper or whatever your source.
News and information is.
But I did not want the opportunity to pass.
Went out on behalf of my colleagues and myself.
Expressing our heartfelt concern for all those that have been affected by this horrific situation stemming from Kogut 19.
In particular, it's worth noting the first responders and the medical workers, who are giving up themselves in a manner that few of us could even imagine.
And in some cases they are.
Actually giving a in a way that is the ultimate sacrifice.
Beyond that obviously there are many members of society that are trying to do their part she yet our lives back on their their feet and to move things forward.
Included in that would be the 6560 colleagues of hours that have the same challenges every day and their personal lives and managing through the situations, where all managing through.
But in spite of those challenges there still doing their part to ensure that this business continues to function and function well.
We are issuing policies, we are paying claims we're doing our part.
Sure that society moves forward.
And I wanted to thank them as well.
So with that I'm going to hand, it over to rich and if you would walk us through your thoughts on the floor.
Certainly thank you Rob.
Starting with our premium production, which was which was favorable in the quarter with growth in gross and net written premiums of 9% and 8% respectively.
Overall net premiums written was $1.85 billion in the current quarter. The insurance segment was about $1.6 billion, representing an increase of 5.7% growth.
Growth in the quarter was led by other liability of 14.7% followed by 11.5% in professional liability and 10.4% in short tail line.
Workers' compensation and commercial auto liability line decreased 7.6% and 3.5% respectively.
The reinsurance and model line access segment grew 23.7% to $263 million led by an increase in casualty reinsurance of 37.3% minor line access of 11% and property reinsurance of 9.7%.
Pretax underwriting income of $52 million was adversely impacted in the quarter due to a provision of $66.5 million for coven 19 related losses.
Compared with $90 million for the prior year underwriting income.
The reported combined ratio was 96.9%.
In 2020, compared with 94.3% in 2019.
Catastrophe losses contributed largely to this increase with 5.20 0.8 loss ratio points in comparable periods.
Kovac 19 contributed 3.9 loss ratio points to the first quarter 2020 catastrophe losses.
Finally prior year loss reserves developed favorably by $4 million, representing approximately 0.2 loss ratio points.
Accordingly, our current accident year loss ratio, excluding catastrophes was 16.5% in the current quarter compared with 61.7% in the prior year.
The expense ratio this 31.4%, reflecting a decrease of 0.9% from a year ago and relatively flat to the 2019 full year.
As the growth in net premiums written earns through the income statement our expense ratio benefits from higher net earned premium.
In addition efficiencies from our operations allowed us to grow the business without increasing our compensation costs at the same pace of growth in premium.
Other underwriting costs also decreased in the quarter due to lower professional fees and less travel.
As we've indicated on prior earnings calls our expense ratio may experience. Some variability as we continue to make investments in the business.
In addition, the uncertainties surrounding the Covance pandemic could impact our 2020 expected expense ratio was 31, 32% referenced on our last earnings call.
The accident year combined ratio, excluding catastrophes, and cobot 19 to 2020 with 91.9% compared with 94% prior period.
Net investment income increased 10.4% to $175 million.
Income from the core portfolio was largely unchanged from the prior year, despite a lower interest rate environment.
Book yield for the quarter to the fixed maturity portfolio was 3.4% investment funds reported an above average quarterly result to $41 million compared with $11 million in the prior year.
Please remember that we report our investment funds on a quarterly lab and accordingly, the results in the first quarter, reflecting the funds performance from fourth quarter 2019 to that end, it's important to note that the effects in the market downturn during the first quarter of Twentytwenty will be reflected in our second quarter results.
So we.
Dissipate a meaningful decline in energy and transportation funds in next quarter's results.
The investment portfolio is well positioned to deal with market downturns that we've seen in the first quarter of 2020 due to the high credit quality of doubling minus and the average duration of 2.7 years for fixed maturity securities, including cash and cash equivalents.
Foreign currency gains were $22 million in the quarter compared with $7 million in the prior year.
Yes dollar strengthened relative to the UK Sterling and Argentine peso, which contributed to these gains in the quarter.
This brings our operating earnings to approximately $133 million or 69 cents per share compared with $129 million.67 per share in the prior year.
Pre tax income was impacted by pre tax net investment losses in the quarter of $177 million comprised of three components, including realized gains at $11 million largely due to the sale of a private equity investment a reduction in unrealized gains in equity securities of 100.
$54 million, primarily driven by Fannie and Freddie preferred stock.
And an increase and allowance for credit loss of $34 million.
You May recall effective January one 2020, new accounting rules applied addressing current expected credit losses, otherwise known as Cecil on financial instruments. As a result, we've established an initial cumulative effect adjustment to opening stockholders' equity with the change in allowance for credit loss to be reflected.
Net investment losses that change from adoption is a $34 million I just referenced a moment ago.
Finally, our net loss for the quarter after reflecting the impact of the net investment losses is approximately $4 million.
Stockholders' equity was approximately $5.5 billion, where $30 in 55 cents per share. The company. We purchased approximately 3.7 million shares for $203 million in the quarter and return capital to shareholders through an ordinary dividend of approximately 20 million.
We had cash flow from operations in the quarter of $153 million and maintains strong liquidity throughout the organization, including more than $1.3 billion in cash and liquid investments at the holding company.
Thanks, Rob rich thank you very much.
So.
Before I offer a triple or found both on the quarter.
Maybe just a quick macro observation I think is.
Worth, noting at least in my opinion.
We all understand that these are extraordinary times.
And there are tremendous challenges and there is quite frankly, a great deal of obtain that society is grappling with.
And natural reaction is to try and eliminate or at a minimum reduce that pain.
Many people are looking to the insurance industry for a solution.
And unfortunately, they're looking for the solution, even when the product they purchased does not provide one.
Much of the plaintiff bar with the support.
The litigation funding vehicles that are out there seem to subscribe to the unfortunate idea of never lending crisis go to waste.
Some seem to be unencumbered by what the words and a policy says.
And our very skilled at managing the media.
Well I think it is unlikely that these groups will achieve broad success.
It is important to note.
It is important to recognize that any success that they achieve will ultimately come at a price to society.
Overall.
Insurance is fundamentally nothing more than a tool or a mechanism if you like to spread risk.
It lost costs go up insurance pricing ultimately goes up.
If politicians and courts allow much of the plaintiff bar to get what they are seeking.
And this regard the words in the contract or the policy.
And then it is very likely that society will pay if your price because ultimately the cost of insurance will be going up.
The parts of the plaintiff bar and those that provided litigation funding will win.
And the rest of us as a society will lose.
In the past, we have talked about social inflation.
We have reference things such as the Med Mal crisis.
We've talked about how we see this unfolding in past quarters.
If this unfolds the way the plaintiff bar would like it too, though I think it is highly unlikely.
We will see a level of social inflation that the industry is trying to keep up with like we have not seen in generations.
Ultimately society is going to have to make a choice.
Whether contracts matter, whether wordings in policies matter or not and how much of a price is society willing to pay.
Hopefully they have the foresight to understand the circumstance.
Turning to the quarter as always rich did a great job covering it but a couple of observations from from me obviously, the the growth was a was reasonably healthy both on the growth and than that.
As always a bunch of moving pieces one of the headlines are clearly picked up on from the press release was the rate increases that continue to progress, which is really just our response to past conversations around social inflation and keeping up with loss costs.
One of the thing that we have also mentioned in the past is well you all cash the headlines there are lot of moving pieces under the surface. So My example, if we were to pick on commercial auto.
In January we have a large book of commercial auto in Germany, and we effectively our non renewed if you will approximately $30 million business or that book of German commercial auto.
I draw your attention to that because of this helps your hopefully I understand that we have a lot of different moving pieces and it's not so im just.
Looking at rate.
There are other aspects of it.
Renewal retention or ratio continues to hang in at 80%, which.
Gives us the confidence in the comfort the rate increases are coming about in a healthier constructive way.
Rich, obviously talked about the loss ratio clearly impacted.
By our allowance for four or provisional allowance for cobot 19 related losses.
The vast majority of what we put up is Ivy NR. We are of the view that one can not just said and take a completely wait and see attitude given what we see out on the horizon, we felt as though it's our job to be proactive and should be thoughtful so.
Undoubtedly the various analysis that we went through to come up with this number will not proved to be spot on but we felt as though.
We needed to do something and that is how we came up with this number based on the information we have.
I can't tell you, whether we got the.
Got it.
Or you hot or too cold, but.
It is our best estimate and again most of that is is I'd be in our.
On the the expense ratio enriched touched on that we continue to be pleased with the improvement, but as rich referenced.
We're going to have to see how the story unfolds from here.
And while we have a lot of earned premium that is coming through in the business continues to grow given the instability in the broader economy will have to see what that means for us.
Want to comment just going back to the losses I think it's important that people not misconstrue.
The provision that we put up.
Our policy wording was from my perspective are very thoughtful we had would be appropriate exclusions in place when it comes to things such as viruses and of course, we have the additional triggers.
That would need to be that are in place to make sure physical damage is required in order to trigger business interruption.
Nevertheless, theres still a lot unknown.
The investment portfolio again, Rick touched on this so I'm not going to add much other than obviously, we have been relatively rewarded for the fact that we keep a very high quality portfolio as well as keeping the duration short.
Rich touched on liquidity, which again I think bodes well for the position that were in particular the liquidity at this stage well it comes at a bit of cost. We think is costs were up there and.
So I'm going to pause there and we will turn it over time for questions.
I think we all are very comfortable in spite of the challenges ahead that we are very well positioned.
Jamie.
Could we open it up for questions. Please.
Certainly as a reminder to ask a question you will need to press Star then 100 touched on telephone to withdraw your question press the pound.
Please standby will become the culinary roster.
Our first question comes from Mike Zaremski with Credit Suisse. Your line is now open.
And then Mike.
Hi, good afternoon.
First question.
You provide more details on the I've been are mostly I've been out related provision you put up per call, but maybe I missed it but any color on.
What lines of business reinsurance versus primary and texture. There so it kind of better sense of.
Whether we should expect.
More to potentially come as he has this unfold.
I think.
I don't think took the can down the road, but you'll probably see some disclosure in the Q.
Around this and.
On such a sensitive topic and being mindful of the FCC I don't want to get ahead of that document, but I can assure you that.
We did the best we could to look at our whole portfolio and assess where our exposures are and to the extent that we will be utilizing reinsurance of course, we took into account reinstatement costs as well.
Okay, all right so.
I'll look up for the Q.
Next.
Yes, I was a little surprised to hear that you talked about the 31 30.
2% expense ratio guidance probably.
Might not be likely.
Given keep kind of talk about given a big percentage of your book is workers comp, which is tied to payrolls.
Correct, Yes should we should should we be expecting.
Considerable decline in the topline in Twoq you to the extent this this terrible situation persists for for another.
Through the rest of the quarter.
And or is there are other levers you're pulling such as kind of.
Cutting some some fixed expenses to be able to.
To weather the storm per se.
My first I don't think we meant to leave you with the impression that the idea that the expense ratio is going to rapidly erode is our expectation it is not our expectation.
Whatsoever.
When when we look out on the horizon, we are not naive or blind to the challenges that.
Both the domestic and international economies are facing.
And while we have not seen any evidence so far.
Our customers will be.
Shrinking dramatically or going out of business in the broad sense, we are again mindful of those realities.
I would remind you that a large component of our expense ratio is commissions and obviously.
That will float along with some other aspects of our expense ratio, but I think what rich and I.
We're trying to messages that we understand that the world is facing a very challenging moment.
And we as an organization are not completely and totally insulated from the health and wellbeing of our insurance.
And as a result of that and to our discipline and are responding to those realities. There is a possibility that the expense ratio could tick up modestly do we see is exploding no.
Doing continued to have initiatives internally to help try and drive that downturn here, yes, but there are certain things that are out of our control and it would be wrong for us to pretend those do not exist.
That's that's helpful. Lastly, and then I'll cut back on the Q.
There's no this is our rapidly evolving.
Environment.
And one of your competitors are there today kind of mentioned specifically.
Certain states expanding the.
Sensibility of workers comp on D. is this the system a major issue or co workers comp right riders or is this the smart.
It's likely to have a minor impact.
To the extent insurers are willing to accept some other decisions that are being made.
I think ultimately it depends on as perhaps it would suggest sounds like from your comments there as suggested by others. It depends on the state and it depends on how much they broadly want to expanded.
I would I would tell you that.
There has been some analysis done by many organizations, including NCC online.
And others.
I would encourage you to look into.
Certainly as being brought to the attention of both regulators and politicians to make sure that they understand the situation fully and costs by broadening.
Who will be covered for Covance 19.
So we'll have to see how it unfolds.
I think it is meaningful but I at this stage I don't think we expected to be.
Problematic.
Or overwhelming for us as an organization, but I do think it could be very challenging for some people if governors and other politicians choose to broaden this in a very wide manner.
Thank you very high wouldn't urge you to.
Get hold of some of those.
Studies that have been done by NCCN, others, I think you would find to be time, well spent and and hopefully the people that are making these decisions or invest in the time to make sure that they are informed decisions.
One other comment on that but the world when it comes to these type of issues and other issues as sort of chart. The pit itself against the insurance industry and I think that that is very short sighted which is one of the reasons why put any insurance industry. Aside you have seen many other.
Small business and large business trade associations trying to express their concern around some of the potential actions that some of these states will take because they understand very clearly.
Some of these actions could have a dramatic impact on their costs of workers compensation, whether it be that they buy first dollar or even in cases, where they self insure to an extent.
Thank you.
Thank you and our next question comes from your on cannot with Goldman Sachs. Your line is now open.
Hi, good afternoon.
Robert and in your opening statements you talked about some of the.
The language, but you haven't but will come through ups and Paul, namely the Apollo exclusion and.
Physical damage trigger.
One thing that we've been struggling where they think as outside of the to try and part of the difference in standard all season, and more you announced or specialty coffee.
Maybe help us understand or think about your overall portfolio.
Roughly what portion of that portfolio would have.
Okay, let's say viral exclusion language.
So I don't have specific numbers in front of me, but I would tell you.
Virtually.
I hate to say all because it's so definitive to the best to my knowledge virtually all of our property policies.
Acquire physical damage in order for there to be business interruption.
Beyond that the vast vast majority of our property policies. In addition to that trigger I just referenced also have a virus exclusion.
Okay, that's helpful and I'll be your commercial property portfolio.
Lastly, how many accounts or how much of premium.
Actually purchase business interruption.
No I don't I don't have that number or.
It's off the top of my head, but if you'd like public I can Paul on Florida will do the best return to answer your question.
Okay.
All right. Another question I have clearly, we're seeing a continuation and acceleration the rate improvement story.
I think that in the context of the current economy and the struggles that your accounts are going through that this would be sustainable or would you expect to see some pressure on rate.
We've proven Sylvia.
And I think it's a little bit early to even tried to speculate I would I would tell you. Obviously this circumstance in this country really started to.
Get momentum in March two and really towards the end of March.
And we have a little bit of data in April, but I don't think that we can reach a conclusion, but something that I think as an important too to mention here is that we have a view as to what an adequate rate is.
And we saying that if we cannot achieve that rate and we will not sell the policy.
And it simply because we feel an obligation to a variety of stakeholders and we need to run a healthy and sound business.
To ensure that weekend live up to our obligations to many including policyholders.
And it needs to be a sound thoughtful business and an important component of that is adequate pricing.
I would make sense I appreciate that and if I could sneak one last quick one can you maybe talk about the decision to classify been at the corporate losses as a catastrophe losses as opposed to underlying.
You know I guess it will just for a lack of any other away to label it I mean honestly.
No there there's tornadoes and hail every year and every couple of years we have.
You know I heard Jane and occasional earthquake.
Hopefully.
This type of pandemic will happen far less frequently than any of those consequently, I think if there was ever sort of a one off cat.
This would probably belong under that category, we've tried to in our at both our release as wells and Rich's comments, specifically break it out for people. So you had the clarity around what is I guess traditional cat if you will versus what is.
You know again, hopefully this truly the extraordinary circumstance. So we've never really been big believers in the but for if you will.
And how the industry tends to come back out cats.
You know from from our perspective.
This is truly an extraordinary circumstance.
Our responsibility we own it but we did want to provide the clarity.
Understood.
Thank you.
Thank you and our next question comes from Meyer Shields KBW. Your line is now open.
Uh huh.
How are your up.
Good how are you.
I'm doing one thing I was hoping you could give us some.
An update on.
New money, we reinvestment rate Im just trying to get a sense in terms of whether we should expect.
Compressor or other opportunity, but spreads have widened.
So yes.
This stage is there pressure, there's probably as much pressure today is there was yesterday I think the only differences there.
As we were chatting internally.
Recently, there's just more risk.
So if you think about you know where there will be available rates are its probably not dissimilar to what we saw not that long ago.
But if you think about the risk adjusted return, it's probably been lousy or.
So at this stage our general default is just something that would be more of a defensive nature.
Though I think it's important to flag that we certainly are willing to be thoughtful and opportunistic if we see an attractive opportunity present itself.
It's one of the benefits that we have.
The significant liquidity that we maintain both in the insurance companies as well as at the holding company.
Okay. That's helpful.
Was there anything unusual in the reinsurance segment.
In the context, the big sensation improvements there on a year over year basis.
On the extend its rich speaking.
On the expense ratio it it's really on as I was alluding to in my opening comments attributable to some of those reduced professional fees, so things like consulting and.
Legal costs, and then our salary expenses pretty much flat.
Quarter over quarter and with the increase in net earned premium from the first quarter of last year that helps the expense ratio as well.
And we would expect us.
To to continue because your consumer growth in the written and obviously that will trickle through to the earned over time.
Perfect. Thank you very much.
Thank you.
Okay.
Thank you. Our next question comes or Brian Meredith WPS. Your line is now open.
Hi, Brian good afternoon.
Yep.
So Rob just two questions first I'm just curious you provided us the covered 19 I've been our estimate.
What is your exposure what do you think about some of them are economically sensitive lines like security is that going to create some additional loss activity and then kind of where is your book of business. As we can look forward here over the next 12 months is we've got a pretty weak economy, and then maybe even on the energy surety side do you have exposure there.
Yes, so on the surety front, we feel very good about our our book.
The combination of both commercial and contract.
It's weighted towards the contract side.
When we looked at the health of our clients when we look at the financial strength of them. When we looked at the type of collateral that we have we are very comfortable.
To my my colleagues, our colleagues credit that they're running with a that business.
First of all are good sound operators to begin with who happen to also have pretty good foresighted. So.
They had a everything batten down well in advance of this coming to ahead. So we.
I think we all have things that are on our mind or that we worry about.
And that is certainly a top of my list.
Great. Thanks, and then second Rob there's been no. Some discussion on this done this whole business interruption. This is part of the policy forms and.
Weather and policy forms kind of broader internationally than it is domestically.
What do you see is there any kind of differentiation there that could potentially be more issues and the international Potter policy or versus the less.
So we are by and large are not a large property market outside of the United States.
And with the modest amount of business that we I mean that we write even outside of the United States. Most of that is us business.
You look through Lloyds.
So.
We have looked at our policy forms and.
Based on everything that I have been advised in what has been reviewed by people that.
No far more about this and I do we are in a pretty good place I.
I certainly have heard some of the commentary about others.
Particularly in the UK that perhaps their policy form.
It has been suggested by some.
May prove to be problematic I have not review their policy form in detail I spend the vast majority of my time worrying about this organization that other people's organizations.
Makes sense. Thanks, and then one this last just quick numbers question.
As it possibly give us a sense of what is your kind of acquisition cost ratio Commission ratio. So when we can take a look at what the kind of variability.
And your expenses based upon what could happen premiums.
Right and we don't have that at our fingertips would it be okay, if either current or which followed up with your distributor that color.
That would be great appreciate it.
Okay.
Thanks, Thank you.
Thank you. My next question comes from fills the funnel with Deutsche Bank. Your line is now open.
I felt good afternoon.
Yeah. Good afternoon. Thanks, Thanks for taking my question.
We'll take a step back in talk about the.
The 65 million ideas are largely I'd be NRE for the the Cobas burgers Parisian different other than Katherine just trying to get an understanding what exactly is this.
Is this a best estimate.
All future losses.
You would think me driven bobbi Coco environment, but I understand there's a lot of volatility and uncertainty around those but is this a kind of a one time, it's or is there the potential for for underlying pressure as we think about this forward.
So the way I would encourage you to think about this is we took a snapshot at the end of the quarter.
And then we'd love to that snapshot and looked at everything that window and based on what we knew we did our best to come up with what an appropriate estimate we thought would be based on the available information at the time.
I can't I am just promise you that the number won't go up or the number won't go down what I can promise you is based on the available information at that moment, we did our best to estimate what we think the cost will be for this company. So.
No. This is not just sort of claims that have come over the transom.
It is not that at all it is our best estimate understanding the situation in understanding our portfolio what do we see the costs associated with this circumstance being.
Got it no one knows the things that I guess in my mind I'm trying to play through is the.
The creativity of the plaintiff bar and the fact that the injury industry thing these losses should be minimal or at least most manageable.
But to the extent that people are putting I'd be in our numbers out there is there the potential for the plaintiff bar to say look. This is this improved but these are walk you should be covered the industry's putting putting dollars. The side I'm curious if you have any thoughts about those you know those competing forces. The why did you pick about this.
I talked about just make sure I understand a question you're suggesting the fact that we're putting dollars. Aside is that we're basically acknowledging that theres coverage is that the question.
Yeah I mean.
To what extent is that the potential <unk> yeah.
No. We do not think that that is the case at all.
[noise] from from our perspective, the money set aside for a.
A variety of different reasons, which we will articulate to the extent, we think makes sense in the Q.
It's a in no way shape or form should this be interpreted by anybody that we are acknowledging this is not a statement about coverage or anything related to that topic.
Got it and just one more quick numbers question did it for that the covered provision do you have a break out between insurance and reinsurance.
We have not made data available, but I'll tell you one or two things will happen either you'll hear from Karen or or a rich or I expect it will be in the in the queue. So one of the too.
Got it looked like in the banking so much I appreciate it thank you.
Thank you and our next question comes to Ryan Tunis with Autonomous Research. Your line is now open.
Hi, Thanks, good evening.
One of the I guess keep trying on this idea in our.
Since you said Theres one number out there so just trying to get a few all the of the texture on that.
Any context as to how much of that is sort of like casualty related stuff, whether its workers comp.
Reliability broadly versus short tail in each property or I'll go back cancellation.
So.
I'm not trying to be difficult, though I feel like I may be though the one that raining on parade.
I want to be mindful of our obligations to all interested parties.
And we're going to put this some detailed information in the Q.
And I would I would tell you is that we looked at our portfolio across the board.
And we tried to make some informed judgments and that's how we came up with this number.
And again, a apologies for for not giving you more color at this time it will be made available in the Q.
And I think that will hopefully.
I hope you have a clear understanding.
Understood I guess.
Well I think what number though just trying to stress it a bit.
When you got it out.
Where are the sensitivities that you know if this is three months rather than one month or is it the duration of the locked down that would.
Make that growing size. So no early on here on the number what I would tell you is a we and again apologies. If this does not answer your question as completely as you'd like.
We looked at our entire portfolio.
And we acknowledge the fact that we don't know.
When this will end.
And we made some judgments.
In addition to that we made judgments around reinsurance recoveries.
And costs are surrounding reinstatements.
And that is how it came up with I keep saying about 65, I guess was 66 point something rather, but I don't know 70 basis points.
Got it.
The one other coverage question I had a hole on the buyback.
[noise], how obviously excess workers' comp book respond to.
Frequency versus severity is that is that you need really severe single lace losses job losses or is it.
Yes.
Number I'm just trying to think about the risk to that book.
Some of this stuff going on at the state level.
Yeah, you know as far as the specifics of the fifth or the excess calm portfolios again, rich or Karen can try and get into some of that with you offline.
But what I, what I would tell you is that that is certainly a part of our book that we looked at carefully we looked at our attachment points, we looked at the mechanics of how the policy.
Works.
And it was a appropriately considered.
Is it.
Likely that there will be comp losses, yes.
When we look at our attachment point do you think it's possible some things could touch US yes, do we think that is going to prove to be a widespread issue no.
Got it.
Last one is our.
I mean, the buyback was pretty substantial supersonic seen that turned out very very long time, and I guess I'm just trying to marry that decision with which seems like a message around.
Some uncertainty here.
Well.
Oh, I I'll I guess my two senses, we still as referenced by a rich and myself and you could see in the release maintain a significant amount of liquidity at the holding company.
But the good news is you came out a more complete.
Response around our philosophy around it because the head of our repurchase desk is here.
So the answer this bill Berkeley the answer is.
Hello, we have we have a very very.
Simple process for deciding when we're buying back stock.
You'd buy back stock when we think its attractively priced relative to our assessment of the intrinsic value of the enterprise.
And while there was a lot of noise in this quarter.
While there's been a larger than we'd like to everything that's been going on from the end of last year forward.
At the same time that was happening.
People decided they didnt like stock on our stock traded down why.
And therefore, it became attractive Dubai.
And using that capital, which we believe was.
Sam should we redundant capital.
Was a good use of money.
And while it was $200 million it was sort of 15% of the capital we had at the holding company.
No actually a little less than that.
So we really weren't particularly concerned.
And we just felt it was a attractive price attractive value and the intrinsic value of the enterprise we thought.
Okay.
There are always happens when there's a lot of noise.
That's when you can find good opportunity in our case in buying back stock. It's when we've been able to buy back stock throughout our history.
Going back to 2000.
Lots of noise.
Sorry, and you feel that the liquidity levels at the Holdco are supportive of.
More share repurchases during the second quarter should should the Mark I didn't say anything about the future.
I didn't say anything about the future I simply said, we still have a billion free.
But if the at the holding company.
I'm very comfortable with that.
And I'm very happy with the intrinsic values within our enterprise.
And we'll make each of those decisions.
At the moment.
No no.
Okay.
Jimmy any other questions.
Well if you have a question from Ron Bobman with capital returns. Your line is now open.
Hi, Thanks, a lot, let's hope the chairman of the buyback desk comes into the office Tomorrow.
I had a question Rob I think at the year end call your five itself [laughter].
I see a broad you commented that the yearend call I guess, a couple of months ago about rip and the the Fawcett off the wall and letting it button the opportunity sort of.
Flow in heavy because the rate was moving and track attractive directionally opportunities et cetera.
And I'm wondering of late I'm sort of most recently in sort of the traditional.
Commercial insurance area, but in particular sort of E N S.
How the quoting volume and the binding volume is.
It is going.
For Berkeley in essence or are you, having a much greater yield as far as.
Quotes resulting in buying thanks.
Yeah, I don't have the.
The April information a in front of May So I don't really have a sensor hub. This month logs, but certainly we saw no pause even towards the latter half of March and a if you use rate achieved as an indicator we got more rate in March.
Arch than we did in February.
So again I am.
I don't have the information for April and front I mean, even if I did talk some longer we're talking I'm not allowed to tell you but.
No. We're gonna have to see we're gonna have to see.
Whether the concern in the standard market continues to grow at such a pace, but that continues to drive business to the non standard market and whether that out paces quite frankly, some of the strain that exists.
In the broader economy, and the health and wellbeing of some of the insurance.
So I don't have an answer to the for you for April but certainly we did not see that in March. Thanks, a lot best of luck guys.
Thank you.
[noise] [noise] [noise], Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to the speakers for any closing remarks.
Okay, Jimmy Thank you very much.
Thank you all for joining us.
And our perspective in spite of the challenges this organization remains very well positioned to navigate its way forward.
It's not that we underestimated the challenges it's more that we're acutely aware of how healthy and well positioned the company is.
So again, thank you for calling in and we will speak review.
In about 90 days.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your programming you may now disconnect.