Q1 2021 W. R. Berkley Corp Earnings Call
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Good day and welcome to W. R. Berkley Corporation's first quarter 2021 earnings Conference call Today's conference call is being recorded.
The speaker's remarks may contain forward looking statements.
On a forward looking statements can be identified by <unk>.
These forward looking boards, including without limitation beliefs expects or estimates we caution you that such forward looking statements should not be regarded as a representation by us that the future plans estimates or expectations contemplated by us will in fact be achieved.
Please refer to our annual report on form 10-K per the year ended December 31, 2020, and our other filings made with the SEC for a description of the business environment in which we operate and the important factors, which that may materially affect our results.
W. R. Berkley Corporation is not under any obligation and expressly disclaims any such obligation to update or alter its forward looking statements.
As a result of new information future events or otherwise.
Now, let's turn the call over to Mr. Rob Berkley. Please go ahead Sir.
Mike. Thank you very much and good afternoon, all and welcome to our Q1 'twenty one call.
On the call ambition to myself you also have bill Berkley, our executive Chairman and Rich Baio, Chief Financial Officer, we're going to follow a similar agenda to what we've done in the past.
Rich is going to do the initial heavy lift and walk us through the quarter on some of the highlights.
We'll follow in with a few comments and then we will be opening it up for Q&A and happy to take the conversation anywhere participants would like to take it.
So with that rich if you want to get us going please.
Sure Rob Thank you and good afternoon, everyone.
The headline this quarter is at record underwriting profit with premium growth of more than 11% and solid net investment income and gains which resulted in a return on beginning of your equity of 14, 5%.
The company reported net income of $230 million or $1 23 per share. The breakdown is operating income of $202 million on $1 <unk> per share in after tax net investment gains of $28 million or <unk> 15 per share.
Beginning with underwriting income and the components thereof.
Gross premiums written grew by more than $250 million or 11, 4% to almost $2 5 billion.
Net premiums written grew 11, 1% to more than $2 billion, reflecting an increase from both segments.
The insurance segment grew approximately 10% on list, one and three quarter $1 billion in the quarter.
With an increase in all lines of business with the exception of workers' compensation.
<unk> liability led this growth with 37, 6% followed by commercial auto a 21% other liability of 13, 1% and short tail lines of five 6%.
All lines of business grew in the reinsurance <unk> Monoline excess segment, increasing net premiums written by 18, 2% to more than $300 million.
Casualty reinsurance led this growth with 21, 9% followed by 13, 8% in property reinsurance and 13, 6% and mono line access.
The compounding rate improvement and excess of loss cost trends has partially contributed to the expansion of underwriting income.
Other contributors have included lower claims frequency in non cat property losses, along with growth in lines of business that are generating the best risk adjusted returns.
Underwriting income increased approximately 250% to $183 million.
The industry continued to experience above average catastrophe losses in the quarter, including the winter storms in Texas, and we have again been able to demonstrate our disciplined management to cat exposure.
Our current accident year catastrophe losses were approximately $36 million R. One nine loss ratio points, including 0.8 loss ratio points for COVID-19 related losses.
This compares with the prior year cat losses of $79 million or $4 seven loss ratio points, which included three loss ratio points for COVID-19 related losses.
The reported loss ratio was 66% in the current quarter compared with 65, 5% in 2020.
Prior year loss reserves developed favorably by $3 million or 0.2 loss ratio points from the current quarter. Accordingly, our current accident year loss ratio, excluding catastrophes was 58, 9% compared with 61% a year ago.
<unk> ratio was 29, 5%, reflecting an improvement of one nine points over the prior year quarter the.
The growth in net premiums earned continues to outpace underwriting expenses by a margin of almost 7% significantly benefiting the expense ratio. Although we continue to benefit from reduced costs associated with travel and entertainment due to the pandemic.
We are implementing initiatives that will enable us to operate more efficiently in the future.
Summing this up.
Our accident year combined ratio, excluding catastrophes was 88, 4% representing an improvement of four points over the prior year quarter.
Shifting gears to investment net investment income for the quarter was approximately $159 million the alternative investment portfolio, including investment funds and arbitrage trading account provided strong results.
The fixed maturity portfolio declined due to the lower interest rate environment, and higher cash and cash equivalent position we've maintained over the past few quarters.
We did begin to reinvest cash as interest rates rose in the quarter. However continue to maintain a defensive position with more than $2 billion in cash and cash equivalents.
Duration remains relatively short at two four years, enabling us to further benefit from future increases in interest rates and at the same time, our credit quality remains strong at a double a minus pre.
Pre tax net investment gains in the quarter of $35 million is primarily made up of realized gains on investments of $76 million, partially offset by a reduction in unrealized gains on equity securities of $24 million and an increase in the allowance for expected credit loss of $17 million.
The realized gain was primarily attributable to the sale of a private equity investment and real estate assets.
Corporate expense, partially increased due to debt extinguishment costs of $3 $6 million relating to the redemption of hybrid securities on March 1st in.
In line with our plans to benefit from the low interest rate environment. We've pre funded for a redemption and a couple of maturities in early 2022 to this and you will have seen that we announced the redemption of our hybrid securities for June 1st which will result in debt extinguishment costs in the second quarter of approximately 8 million.
Pre tax.
Stockholders' equity increased more than $100 million to approximately $6 $4 billion after share repurchases and dividends of $51 million in the quarter. The company repurchased approximately half a million shares for $30 million in 2021, and an average price per share of <unk> 63.
Dollars 82.
Our net unrealized gain position in stockholders equity declined by $90 million due to the rise in interest rates in the quarter. However, this was partially mitigated by our decision to maintain a relatively short duration book.
Book value per share grew two 4% before share repurchases and dividends.
And finally cash flow from operations more than doubled quarter over quarter to over $300 million.
And with that I'll turn it back to you Rob Thank you.
Rich thank you very much.
I noticed that there is a correlation here that the better of the quarter. The less you leave for me to comment on so I.
I guess I should be pleased and grateful that.
There is not much left from me, having said that let me offer a couple of comments are fair enough COVID-19 through repetitive on the heels of our richest covenants, but I think we'd like to flag a couple of things.
First off.
There is no doubt that there is a meaningful tailwind that exists in the commercial lines marketplace.
Certainly this organization is benefiting from that.
To that end our top line I think this is the highest growth rate we have seen since rich I think you have to go back to 2013, you had mentioned to me when you look back in the history book.
And not only the growth and market conditions attractive I think what's even more encouraging is that there is a growing amount of evidence that the momentum is going to vary from here and that there is a fair amount of runway still before us. So again, I think that bodes well for mattress sales.
We see the coming quarters unfold, but quite frankly in the next several years.
To that end clearly the.
Domestic economy, and certainly parts of the global economy are improving.
And without a doubt is going to benefit our top line.
Seeing the health and wellness of our Insureds.
Continuing to improve.
In addition to that the comment a moment ago, we continue to see the opportunity to push rate further.
You may have noticed that we got approaching 13 points of rate in the quarter.
Excluding workers' compensation.
You did have a little bit of a discussion internally and we dug into it as to how do you compare the approaching 13 points are right with what we saw on the fourth quarter and after a big interest.
Really what this is a reflection on others. There are parts of the portfolio where rate adequacy has gotten to the point, where we are so encouraged by the available on margin.
We are more interested in pushing harder on the exposure growth and not as preoccupied and pushing harder on the rates on.
Again, we view that as a real plus.
This is we are coming up for some of the major product lines on a third year in a row, where we are getting meaningful rate increases.
And at this stage, we are seeing as rich suggested rate on rate and in many product lines, where we have been getting rate on rate.
<unk> in excess of loss cost trend again, we think that is very encouraging from what that means for <unk>.
Margin.
Before I offer.
On the loss ratio.
The data points that Vincent occasion in the past renewal retention ratio in spite of what were pushing on with rate and all of the other underwriting actions that we're taking on.
Its still hanging in there at approximately 80% and our new business relativity metric, which is another data point, we've shared with many of you in the past.
And at one point or two 4%, which effectively what that means is on as much of an apples to apples basis. As we are able to create in comparing a new accounts versus a renewal accounts, we are effectively surcharges, a new account by two 4% more.
Why because a new piece of business you know Leslie.
About then obviously part of your portfolio that you have been on for some period of time and I think it's important because people need to understand when you look at the growth. Yes. It is rate, but its also exposure growth, but we are not compromising in that growth and the quality of the portfolio.
Rich gave you some detail, which complemented the relief on the loss ratio clearly as you suggested we're benefiting from the higher rates couple other data points I would suggest we are not taking a lot of credit for shift in terms and conditions. When we come up with many of our loss picks we will.
<unk> set them oftentimes, but certainly we are never taking full credit for it we want to see how that comes into focus so more to come on that front. The other piece and I suspect that there has been some other discussed around.
The impact on frequency due to Covid again that is something that we have been reluctant to declare victory on there certainly are some lines of business, where you have more immediate visibility as to what the impact of debt reduction in frequency there are other product lines.
There is less visibility.
Yeah.
That topic I did want to offer a couple of quick comments on on workers compensation, which is the one outlier as we've discussed in the past couple of quarters as far as the marketplace and where things are going.
Clearly workers' compensation has been a product line, where competition has been on the rise.
We have seen the axiom of state rating bureaus.
And ultimately we will net to see how that unfolds over time.
Two comments there one is from our perspective, it is likely the pendulum will swing too far.
On a certain direction.
And as a result of that as we have shared with people in the past that continues to be our view that we expect the workers comp market to likely begin in Q.
Bottom out more visibly by the end of this year or perhaps the first half of next year could it be a quarter or two later, yes, but generally speaking that's true.
See things coming into focus.
The other comment on workers comp that I would like to flag because there has been an observation or can you share it.
Around the loss picks that were carrying for the 2020 a year.
And given how benign the frequency has been in 2020 why have we not done anything with that pick them. It's very simple, we do not want to declare victory prematurely.
As we have in the past start out with what we believe is a measured pick and as that seasons, we will adjust as we see fit.
Fit and appropriate.
So the last comment on comp, which I will offer and I think I've made the comment in the past.
Is that I think that the.
The lack of frequency that is existed recently in the comp wanted due to COVID-19 as to a certain extent, perhaps subsidized ah severity trend, which looks pretty ugly in the comp line.
Certainly it is possible.
That the marketplace is setting itself up for disappointment. If there is not an appropriate level of attention paid to loss cost trend and really unpacking what is going on with severity what is going on with frequency and what one should expect as frequency.
Fee returns to a more traditional norm.
I will leave it there as far as confidence perhaps more than people were looking for.
Expense ratio again rich touched on.
As we've mentioned in the past.
Covid is offering effectively a benefit of about 50 basis points to the expense ratio so on.
<unk> sort of do the back of the envelope math, that's what we're backing back to the expense ratio, having said that it's also worth noting that we have some meaningful investments that are going on in the business in particular on the technology as well as the data analytics front.
And these are big lifts, which we think are clearly going to make us a better business more efficient and will allow us to be able to be making better more insightful decisions.
Let me just move on briefly to the investment portfolio I'm not going to get into too much detail here, because rich really covered it I would say that the U R.
Our approach to a focus on total return our emphasis on alternatives continues to pay off.
And quite frankly.
Helping to compensate and then some the discipline that we are exercising with how we are managing the fixed income portfolio.
As rich mentioned, we continue to maintain the duration on the shorter end at two four years.
And the quality is not something that we have or will be compromising on sitting there at a double a minus.
That being said, we are being rewarded for that discipline as you can see where our book value ended up for at the end of the quarter.
And while we were not completely insulated we were far less impacted.
Then those that have decided to take duration out farther.
I just want to offer a couple of quick comments on what I'll refer to as the cycle management.
From our perspective cycle management is the name of the game.
Knowing wanted to grow knowing one strength.
We as a team are very conscious of the fact that we cannot control. The market. We are very conscious of the fact that this is a cyclical industry and we are very aware of the reality that we are able to control is what we do.
Often times people will ask the chairman or rich or myself, where are the best opportunities and the answer we gave because we do not want to get into the detailed look at our business looked at our public information and look at where we're growing.
We grow where the margins are the growth where the opportunity is and we're not shy or scared or intimidated to let the business go when we don't think it is a good use of capital.
You can see that very clearly in our numbers right now you can see the discipline that our colleagues are exercising in the workers comp line.
You can see on other parts of the business, whether it be the primary insurance professional liability line or what's happening in parts of our reinsurance portfolio.
We are in the business of managing capital and we are going to deploy it where we think it makes sense and again, we don't have our eyes wide open.
Final comment from me before we open it up for questions.
And that is.
A bit of recognition.
Where we are.
This business from my perspective is particularly well positioned for the market conditions, we are in and likely what the market conditions will be.
Tomorrow.
We are here because we have a fabulous team.
We have 6543 people that work together as a team and the interest from all stakeholders.
And we were able to achieve this quarter because of their efforts in spite of the challenges that exist in the world, particularly over the past 12 years.
And we thank them for what they have done.
So.
I will pause there and we'd be very pleased to open it up for questions.
At this time I'd like to inform everyone.
Order to ask a question you on mute press star one on your telephone.
Withdraw your question perhaps per pounds. Please.
Please standby, while we compile the Q&A roster.
Your first question comes from.
Greenspan from Wells Fargo.
Please go ahead hi.
Hi, good afternoon.
Hi, good evening on.
My first question on just wanted to start on the pricing conversation. So alright. Thank you Pat just on your 13% on.
Workers comp and you guys sound pretty positive on me.
Factors out there that you continue with the momentum that per day here and perhaps into next year.
Does that 13% feels like a good number for the year.
And the second question I guess you guys also mentioned.
But as you kind of booked at that 13 and beneath the Hood Susan portion of your business.
We had equity given a percentage of your book that would fall within that fleet adequate bucket.
Well, thank you for the questions.
As far as a specific percentage, we don't but I would tell you it is a growing percentage.
Maybe the first question, we look at the business at a pretty granular level, we look at it by product line, we look at it by product line by operating unit.
And then of course, we are looking at a more macro level.
We have a view as to what is an appropriate risk adjusted return.
And depending on where we are visa b that return will guide us towards how much of a priority rate is versus once we get to a certain point while rate will remain a priority to what extent R. We focused on actually growing the.
Portfolio from an exposure perspective.
So.
As far as the 13% goes.
From.
I don't know for sure what Tomorrow will bring we continue to dissect the book and trying to evaluate it.
Could it go down a little bit could it go up a little bit I would caution you not to read too much into one quarter, one way or another but we.
We are very encouraged directionally with where things are going and again the margin that we're seeing come through in the book itself.
Okay. Thanks, and then my second question on you got around just over 200 basis points on underlying loss ratio improvement. This quarter that was down just a little bit relative to the Q4 and I know on past discussions you guys had mentioned that the rate versus trend.
More evident in 2021, I'm, assuming that comment still applies and can you just.
Kind of help us think through that and how we should think about palm weight.
Ernie and the book on during the next two quarters of the year.
So right, earning through in the next couple of quarters of the year. We can help you maybe we can take it offline and help you do the math on on how that is coming through on based on the public information that we have.
Made available I would tell you that.
Part of it depends on the loss trends that you are using and excellent on the loss trend what is leftover and then using a rough number obviously two thirds of that in there was to the benefit of the loss ratio on approximately one third of interest to us.
Associated with the expense so.
I would suggest that you'd like but we take it offline and we can sort of help you use the public information to do the math as to what the earned level would be and what that how one can extrapolate from there.
But clearly.
Given the.
The reality is on the.
Right on right that we are getting in excess of loss cost trend.
On a macro level.
That is going to enter to the the benefit obviously of the loss ratio.
Okay. That's helpful. Thanks for the color.
Our next question comes from Mike Zaremski from Credit Suisse. Please go ahead.
Good afternoon, Mike.
Hey, good afternoon, Rob.
Maybe we can stick with loss trend.
The earnings release.
The term persistent social inflation was used I think some of the data points we've seen on.
On an industry basis in terms of our paid loss ratio and some executives at some of your peers.
Kind of talking about.
On a near term lull in terms of maybe.
Maybe social inflation, but specifically claims frequencies carrier if you're if you're still experiencing kind of a lull on it is there kind of a COVID-19 benefit.
That's kind of been helping.
The underlying loss ratio on just the overall loss ratio.
Look I think clearly frequency has been impacted by Covid I think as the.
Our economy is opening up more and more every day.
That benefit is eroding eroding quickly I think also as youre going to see the legal system opening back up.
Particularly with specifically the court system opening back up I think youre going to see that erode as well, which is one of the reasons why we have been reluctant to reach a conclusion as to what it's going to look like when the dust settles that all being said clearly there is a benefit as it is.
A result of Covid on frequency trend.
Having said that the.
Big driver.
You will of social inflation has been more severity or what I would define as frequency or severity.
Okay.
Paul.
I guess shifting gears, a little bit back to the expense ratio, which has been a great story par.
For a while now.
Sure.
Yeah.
Is there a given your remarks, which sounded like you guys feel good about growth on continuing well in excess of loss.
<unk> expense inflation is.
We'll be thinking about kind of a.
Newer lower normal in the near term for the expense ratio are there still is I think maybe correct me if I'm wrong <unk> kind of level. We should you guys are kind of gravitating to for as a target.
I'm not in a position to give you a specific number Mike, but I can assure you that we as an organization all of us as a team collectively are focused on making sure that we have a competitive platform to be operating from.
And it is our goal to push through the 30 number.
Okay and.
Maybe lastly may.
Maybe I missed in the prepared remarks can you talk about any specific COVID-19 losses on this quarter that were taken and also if you can update us on approximately what percentage of your call that reserves are in the IV R bucket. Thanks.
Yes.
So.
We will have.
Enough information in the queue to make you go blind on Cove.
<unk>.
But as I think we made reference in the release.
On the current quarter, we had losses of approximately $15 million.
And again, we will have all kinds of additional information.
Tim Mchugh Covid is a tricky one.
Clearly given a lot of our exposure is associated with event cancellation.
So trying to figure out when the world is going to open up and be trying to figure out what are the options and trying to triage situation between a full cancellation versus.
Just maybe a partial event. So we continue to try and make sure that we are putting our best foot forward.
At the same time, we're conscious of the fact.
We have imperfect information.
Okay. Thank you very much.
Okay.
Your next question comes from Yun Kim from Goldman Sachs. Please go ahead.
Hi, good afternoon, everybody good evening.
Yeah.
My first question goes back to the rate.
Commentary I guess I'm, just trying to understand the willingness to take.
Take maybe less rate.
Increase in order to more aggressively go after business day.
There's more adequately price.
Is that a berkley specific phenomenon or is it something that you see for the industry as a whole on the reason I ask is I think you mentioned that the retention rates remained pretty steady on the in the eighties.
And I would have thought that if it were berkley specific phenomenon on maybe we would've seen some increase in the retention rate.
Well.
I think.
I can't speak to what others do.
Or for that matter, how theyre thinking about it I can just tell you that we are pretty comfortable with.
Certain product lines and what the available margin is and we are starting to push it on on.
Debt.
Do I think that it's going to materially.
Flow through.
At this stage no I don't think so as far as the retention ratio do I think as youre going to see that become more and more of the case with the portfolio, Yes, I think youll, probably see that a bit more.
Okay. That's helpful.
And then another question.
Regards to the reinsurance business.
I think in the packaging sub debt.
Some more opportunities or better rate adequacy in insurance over reinsurance.
And if debt.
That is indeed the case.
Can you maybe talk about why the rate of growth in reinsurance is actually exceeding three of top line growth.
Sure.
Book to the extent that I made that comment and I don't know if I did or didn't but if I did I assume it was some number of quarters ago, if not more.
So I would imagine that there was a moment in time when the insurance business was grown considerably quicker certainly parts of it we're growing considerably quicker than.
The reinsurance business and as a result of debt, that's where whether it made sense for us to deploy capital and Thats, where my colleagues would have been looking to grow.
So again.
Don't know when the.
Don't have a recollection of the comment or the timing of the comment.
What I can assure you of is that we are focused on growing the business in the areas at time that we think that margin is there.
Obviously, the reinsurance marketplace.
Going through a significant transition.
And our colleagues that have.
Through disciplined strength of the portfolio considerably are now finding it to be a marketplace that is much more attractive hence the growth youre seeing.
Okay. Thank you.
Thank you.
Your next question comes from Ryan Tunis from Autonomous Research. Please go ahead.
Hey, Thanks, good evening.
Good afternoon.
I guess I wanted to drill a little bit more down on the loss ratio and just looking at the ex cat loss ratio in insurance.
Interest.
It's kind of been hovering in that.
Call it 59% to 50 to one and a half range from the past several quarters.
Obviously, we've had.
Can't really think of a lot of season seasonality will be wondering on that seems like the magnitude of earned rate versus trend.
It should be widening so.
Maybe just a little bit of color on why we're not.
Being more.
Sequential improvement in the ex cat loss ratio on insurance.
Richard do you have any thoughts on that I have a comment or two but did you have anything.
So if I look at the.
For the insurance segment.
Year over year certainly.
It has improved by two points and for the reasons that we've been discussing I think if you look.
For the full year of 2020, you were just over 60%. So we did have some.
Proven and coming through and I think you'll probably discuss Rob I think part of it has been our conservative nature with regards to the.
The design ratios that we have as well in terms of making sure that we don't get too far ahead of ourselves with regards to how we're establishing our reserve position, but I'll defer that to you in terms of.
That discussion I.
I think Thats, correct, which I think is consistent with what we have suggested in the past that we're going to start out with a pretty measured picked and then we.
Tighten it up over time.
Workers compensation day in an example of what we talked about.
I think we referenced earlier on the call.
Okay.
And I guess I'm, just kind of on disclosures with the rate commentary youre feeling equally feel good debt book is more rate adequate.
I guess.
One observation I would make is if I go back to <unk> 19 Youre on.
Ex cat loss ratio was only two points lower on that was two years ago on we were kind of getting into the hard market.
These loss picks don't turn out to just be conservative it actually turned out to be prudent and correct.
Then I guess the question is why are you happy or why are you satisfied with just two points of loss ratio improvement.
On a point when youre willing to start thinking about below normal rate front.
Well I think that ultimately you got to remember that.
We have a bit of a bouquet here. So we don't while we do look at the portfolio and we do speak to you and others on a macro level. What we're trying to do is give you a little bit of insight there.
53 different operating units many of them with various product lines within each one of the operating units and there are components of that where we think that we are getting to a point that the rates are so attractive that we are prepared to maybe not push as hard on the rate front. There are many components of it as you can see given the way.
We continue to achieve where we think there is opportunity and quite frankly need to be getting more range.
So what we're trying to do is give you a sense and help you sort of think about the accuracy and how you can cure.
We got in the quarter with what we got in prior quarters.
But again.
At this stage I think it's very clear at least in our opinion that we continue to get something measured in the hundreds of basis points in excess of loss cost.
And we are doing that in most cases for a second time and on.
The stage is being set for us to do that for a third time.
Thank you.
Our next question comes from Meyer Shields from kidney W. Please go ahead.
Thanks Kyle.
Rob you talked about.
Workers compensation severity getting worse is that something you are seeing is that something you would expect is that tied to an economic recovery.
Yes.
Something that we have been observing in the data for some period of time and it's like many things you see a couple of isolated data points.
And then you start to pay more attention and you start to find more and more of them. So I don't think that we could give you a precise answer but directionally, that's what we're seeing happening.
Okay.
Got it.
Is it.
Standard to separate that from the decline in frequency I know they are not comparable but in personal auto.
Good day fell off a cliff and Skype severity skyrocketed I'm wondering with it.
Whether that same phenomenon where does definitely.
And as a result of that you saw less frequency, having said that again, we have noticed that severity seems to become.
It seems to be coming more and more of an issue.
Okay No that's helpful.
If I can just briefly talk a little bit about the technological investment.
Does that have any implications for the strategic.
Strategic decentralization of underwriting.
No we view, what we're doing on on that front, which will.
Perhaps bring some efficiency.
More often than just efficiency, it's also going to be empowering people with better tools and better information. So they can make better choices, but certainly there is from efficiency component as well.
Okay perfect. Thank you.
Your next question comes from Brian Meredith from UBS. Please go ahead.
Thanks Ethan.
Couple of quick questions. The first one this is just a numbers question.
The COVID-19 losses as that book from your Cat loss like you've typically done.
Yes, the $15 million that Richard referred to from the current quarter is in that so the actual if you will traditional cat member I think rich was about $21 million.
With the balance in Hong Kong.
In the quarter great. Okay.
Helpful. Thank you second question, Rob I Am curious are you seeing at all any appetite now by the standard market to kind of reach.
Up into the E&S market, we'll call it maybe.
Maybe.
Take some business, given where rates and stuff is gone, we're seeing any indication of that yet.
Non whatsoever that we are seeing if anything it continues to go on the other direction Bryan our submission flow is gaining momentum partly because of the economy, but partly because I think the standard market continues to revisit their appetite I think you can see that in part how they're pushing more for rate but simultaneously.
In Italy, there they are weeding out of the portfolio, where I think theyre revisiting what that appetite should be and that is creating opportunity for the specialty market in particular of the E&S carriers and we're certainly in the middle of that.
Gotcha and then my last question.
Just curious Rob so given all of the uncertainty with respect to what loss trend is going to be looking like there going forward.
Pointed out yourself.
Is the return on capital that you are looking at on on business higher today than it would have been a couple of years ago do you have to factor that into when Youre thinking on your pricing decision that uncertainty.
Back at prior cycle turns were.
You had you Didnt know what loss trend revenue was running on it was so high and from a massive price increases we ended up resulting in some massive reserve releases going forward, but how do you think about that.
We.
We have a view as to what the trend as we think.
Based on.
Reasonable fact that is available and analysis.
Quite frankly, I would expect that we will be over time reaping the benefits from certainly the rate that we're getting in excess of that day one.
Think that we are being overly conservative or overly optimistic with our picked on trend.
But do I think we are being thoughtful and measured yes, having said that.
As suggested earlier Brian.
Regardless of the trend number that you realistically want to use.
We are getting rate that is several hundred basis points.
Yes.
Any kind of number I've heard people use it.
Great. Thank you.
Thank you.
As a reminder to ask a question press star one on your telephone.
Our next question comes from Phil Stefano from Deutsche Bank. Please go ahead.
Yes, thanks, good afternoon.
So Rob.
Robin in your opening remarks, you had talked about there being a runway for growth on having a good bit of confidence on that.
I would assume that when you talk about that it's the product of both rate and exposure.
And it feels like we're focusing quite a bit on the rate side. So far so I guess the first question is my interpretation right and then maybe you could talk to us about exposure and the extent to which.
That might be driving top line growth as we see.
A potential slowdown on the rate that everyone as mentioned so far.
Okay, maybe a couple of things so first off I would encourage people not to get overly consumed on the fact that.
Our rate increase was only 13%, which I think by most measures.
As is reasonably robust.
Maybe that view is not shared by all.
That having been said I also think that in.
Generally understood at this stage and hopefully.
It continues that we have an economy.
It is getting back on its feet and building momentum.
As a result of that we think that youre going to see payrolls going up we think that youre going to see this.
Non of Commerce, youre going to see receipts going up you're going to see more economic activity.
Much of what we do is priced off of payrolls receipts or economic activity.
And I think that that bodes well for.
The growth. In addition to that you continue to see as I referenced a moment ago, our standard market revisiting its appetite and pushing business into the specialty in particular, the E&S market, which is very much our strike zone.
Which is why historically, we have done, particularly well in these type of market conditions, and we think there's early evidence to support that that will continue to be the case and we have no reason to believe.
It won't.
So we and I guess lastly, I should add that on the.
The topic of specialty and E&S.
A lot of small businesses that went out of business youre going to see them come on getting back on their feet, whether they are starting up again or starting something new and new businesses tend to.
Following their insurance coverage in the specialty in particular, the E&S market.
And lastly, I think I should add that I think there's a reasonable chance that there is going to be later this year and next year, a meaningful catch up on the audit premiums front. So when you put all of those pieces together.
In my opinion, while rate is and continues to be an important part of the story and certainly for the past many quarters. It has been at a rate centric discussion because of the need that the industry have per rate.
At this stage with an economy that is opening back up and cooperating I think that youre going to see great opportunity on the end of the top line.
Okay, No I think that makes sense.
Yeah.
Focusing back on the investments in technology that you had talked about I was hoping you could give a little more color. There is this something that COVID-19 triggered wasn't happening in the background that we just weren't talking about it.
And if you wanted to give us a flavor for any.
Is there expense pressures now from the build out that might abate in the near future, how we should be thinking about that.
No.
It is not something that was triggered in any way shape perform by Covid, it's rather a focus on how we continue to move the business forward and.
And how we use technology to make the business better we're able to use data and analytics to empower people to make more informed decisions.
As far as what does that mean.
Pacifically for the expense ratio.
I don't think its particularly earth shattering, but it certainly.
One thing to keep in line, certainly is something that rich and I.
Pay attention to that.
On the while it's not in the expense ratio per se, but as it relates to expenses.
One thing that.
I didn't mention I don't believe rich mentioned, we have done a fair amount of work.
On our balance sheet in this low interest rate environment and rich again, I think we both skipped over this but we wanted to give 30 seconds on what we've done on the <unk>.
Capital front please.
Sure Rob.
So I guess over the last 18 months, we've done a number of refinancings and capital transactions, we've raised about one and three quarter $1 billion of senior debt and hybrid capital with D and.
Intended use of proceeds to basically take out certain hybrid securities that were at higher costs in fund maturities that we had.
Through March of 2022, and so with that we would anticipate that.
Some of the results coming out of that would be an extended the average maturity.
About 10 years that we would be reducing our cost of capital.
By nearly 100 basis points and if you were to look at the interest expense probably end 2021, we'd see a reduction of a few million dollars in interest expense and then going into 2022, we'd see an additional 20 plus million dollars of interest expense reduction.
Building off of the 2021 number so definitely some good opportunity to take advantage of the low interest rate environment that we're seeing.
Thanks, Rich so Phil I know that doesn't get right at your expense ratio question, but obviously, it's a meaningful impact on our economic model.
Dawned on me, we should've flagged debt with everybody.
No that's great. Thank you I appreciate the color.
That was on our last question at this time I will turn the call over to Mr. Rob Berkley for closing comments.
Okay Mike.
Mike. Thank you very much and thank you all for dialing in we appreciate your questions on engagement.
I think by virtually any measure it was a very good quarter and we.
We remain quite convinced that there are more.
Good quarters to come.
Talk to you in 90 days. Thank you.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
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