Q1 2022 W R Berkley Corp Earnings Call
And welcome to the W. R. Berkley Corporation's first quarter 2022 earnings Conference call Today's conference call is being recorded.
The speaker's remarks may contain forward looking statements.
Some of the forward looking statements can be identified by the use of forward looking words, including without limitation believes expects or estimates.
We caution 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 for the year ended December 31, 2021, and our other filings made with the S. E. C for a description of the business environment in which we operate and the important factors that may material 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, whether as a result of new information future events or otherwise I would now like to turn the call over to Mr. Rob Berkley. Please go ahead Sir.
Thank you very much and good afternoon, all and thank you for finding time to join US for our Q1 call on this end of the call. In addition to myself you also have bill Berkley executive chair as well as rich.
CFO .
Going to follow the usual agenda, where I'm in short order going to hand, it over to rich he is going to walk through the highlights of the quarter.
Then once he has completed his comments I'll tag along with a few of my own observations.
And shortly thereafter will be opening it up for Q&A and happy to take the conversation in any direction participants we'd like to do so.
That having been said, but before I do hand, it over to rich because I always like to feel at least a little bit of his thunder, though I don't think the comments will come as a surprise to anyone that has had an opportunity to.
To review the release.
It was a terrific quarter for the organization.
Really by any metric.
To say, the least and quite frankly, we.
We're able to achieve these results because of the efforts of the full team across the country and around the world All working together to achieve these types of outcomes I think whats important to that point is to remind ourselves of remind each other that this effort.
This is a team sport as I've commented in the past, it's not an individual sport.
And quite frankly, this isn't rocket science, what we're doing yes. We are very fortunate that we have a lot of very intelligent people on the team working very hard but a lot of our success comes about because of discipline, because we focus on blocking and tackling in a thoughtful and consistent way every day.
Because we are not only consumed by what's in the rearview mirror, but we are paying close attention to what we see.
Front windshield.
It seems like common sense, but quite frankly, it requires great effort every day and again I think we're achieving these types of results because of the efforts of the full team so congratulations to all.
I think beyond just the results, which again I think speak for themselves.
Would suggest that perhaps whats as if not more exciting as quite frankly, how the table has been set for what is likely going to be a very strong balance of 22. Additionally of how things are being set up for what should be a very strong 23 and with every passing.
Today, there are more pieces being put into place that would suggest that it's more likely than not that 24 will also be very promising as well.
So we as an organization continues to be very focused on building book value.
We have an obsession around the concept of risk adjusted return.
I think that came into focus not just in this quarter, but in our ability to generate good returns regardless of what may have happened on the cat front in any quarter. It's the consistency of strong results that differentiate us in the marketplace. So with that let me hand, it over to rich to walk us through.
Some of the highlights and I will be back on the heels of this comments rich if you would please.
Thanks, Rob appreciate it.
The company continues to operate extremely well as Robert pointed out reporting record quarterly underwriting income and net investment gains both of which led to the 157% growth to record quarterly net income of $591 million or $2 12 per share on our common stock split effected.
Basis operating earnings also improved 52% to $307 million or $1 10 per share on our common stock split effected basis.
Primary contributors were improvement in underwriting results by two three points to a calendar year combined ratio of 87, 8% and gross and net investment income of almost nine 5%.
Going more into the details with our topline first gross premiums written grew 15, 1% to a quarterly record of approximately $2 $9 billion. Net premiums written also grew 17, 7% to a record of more than $2 $4 billion. The higher gross and net premiums written is driven by our disc.
Asian to retain more business, which is evidenced by the lower session rate.
In the insurance segment all lines of business grew generating a COVID-19, 2% increase to total net premiums written of almost $2 $1 billion. The reinsurance <unk> Monoline excess segment also increased nine 6% to more than $300 million driven by growth in casualty reinsurance.
And mono line access this represents the fifth consecutive quarter of double digit growth in premium, which will continue to earn through the income statement and can be seen by the higher growth rate in net premiums earned compared with net premiums written.
Record pre tax quarterly underwriting income was $274 million surpassed multiple quarterly records last year.
Quarter improved $92 million and more than 50% over the prior year.
Catastrophe losses were well within expectations at $29 million or one three loss ratio points. This compares with $36 million or $1 nine loss ratio points in the first quarter of 2021.
The current accident year loss ratio, excluding catastrophes improved 0.6 loss ratio points to 58, 3%, primarily driven by rate improvement.
Our year loss reserves developed favorably by almost $1 million in the current quarter, bringing our calendar year loss ratio to 59, 5%.
The expense ratio was in line with expectations at 28, 3%, reflecting an improvement of 1.2 points over the prior year's quarter.
As previously mentioned the growth in net premiums earned continues to benefit the expense ratio, even with higher fixed costs coming from compensation, new operating unit and increasing travel and entertainment and.
In summary, these components contributed to our current accident year combined ratio, excluding catastrophes of 86, 5% for the quarter compared with 88, 4% for the first quarter of 2021.
Net investment income increased almost nine 5% to $174 million for the quarter. The growth is primarily related to an improvement in investment funds of 33, 6% in the core portfolio of 11, 7% investment funds outperformed and the real estate financial services.
And transportation funds in the core portfolio benefited from rising interest rates and dividends received on equity securities.
The investment portfolio also maintain the same duration of two four years and credit quality of a double a minus in addition, our strong operating cash flow has enabled us to put more money to work despite retaining a significant position in cash and cash equivalents of approximately $2 $1 billion.
Record pre tax net investment gains in the quarter of $366 million is primarily made up of net realized gains on investments.
$277 million and the change in unrealized gains on equity securities of $93 million. The key contributor to the realized gains was the sale of the real estate investment in London of $317 million gross or $251 million net of transaction expenses and the foreign currency.
Packed including the reversal of the currency translation adjustment.
Corporate expenses increased primarily due to performance based compensation arising in connection with the record level of earnings.
The effective tax rate was 19% in the quarter, reflecting a one time benefit from the release of evaluation allowance arising from the utilization of tax attributes as well as investments in tax exempt securities and dividend paying equity securities.
Stockholders' equity increased to almost $6 $9 billion.
The end of the first quarter, representing an increase of three 2% over the prior year and book value per share before dividends increased three 5% in the quarter and would've marginally increase even without the gain from the sale of the real estate investment in London.
The annualized return on beginning of your equity was 35, 5% for the quarter and 18, 5% on an operating earnings basis.
Rob I'll turn it back to you for further comments.
Okay rich. Thank you very much that was great.
Let me keep this somewhat brief because I'm sure people have their own topics and questions.
To get onto but.
Maybe just through my lens, a couple of sound bites the topline, obviously just shy of 18%.
From my perspective by any measure is very healthy and if we unpack that a little bit a couple of other data points for folks as far as the rate increase.
Ponant in there.
Comp it came in at $8 three and let me give you a couple of the numbers and then I wanted to dig into this a little bit more so.
Business relativity, which is a metric that we've shared with some of you in the past is how we measure our new business pricing relative to our renewal pricing from a macro perspective.
You look at new business, one needs to recognize that there are oftentimes not always but often plans could be more risk associated with it. Your renewal book you know more about new business you know less about.
Long story short, our new business relativity for the quarter came in at one point <unk> eight so what does that mean that means based on our macro measurements were charging just shy of 2% more for new business relative to renewal business.
Other.
At least in my opinion relevant data point is our renewal retention ratio came in at 82% and change why is that important because it tells you that were to get the growth. We're not churning. The book, we are keeping the portfolio impact and from our perspective that is a.
A very healthy number and certainly from our perspective also.
Is.
Invitation, if you will to keep pursuing.
Additional rate.
I think that when you look at the eight 3%. It's also important that people understand that there are several dimensions that we're able to see that perhaps those from the outside looking in can't see we look at this business by operating unit byproduct line and are constantly.
Assessing the margin that we believe exists in the business and there is a constant balance or rebalancing that we are doing on a daily basis.
What type of rate, we need what margin. We think is in the business and at what point in time, when we see the margin that is available is growth of exposure.
The priority or is the priority in between those two components, which one is more of a priority. So at this stage, we feel very good about the available margin and as a result in many product lines. We are willing to allow exposure growth to be the priority over.
All right, but not across the board.
I also want to spend a couple of moments talking about staying.
Staying on the topic of exposure because obviously for some number of years.
We've been beating the drum about social inflation I think we were on the earlier side compared to many of our peers until Smith labeled as chicken little but nevertheless, I am grateful that our colleagues have the insight and we took the action that we did.
That having been said obviously as of late.
This concept of economic or financial inflation seems to be getting all the headlines with good reason and it's important I think for observers to understand to take into account that the.
And our organizations case, I can't speak to others, but in this organization case, the majority of the policies that we write.
Or based on or priced off of if you will exposure.
So what do I mean by that I mean, we price our policies of payroll off of receipts or revenue or off of appraised value, which is done in a very timely manner at the time when we are underwriting the policy. So I mentioned this because as a people.
Are grappling with what is the impact of economic inflation on our business model certainly we are not insulated from it we will in a couple of moments to potentially get into the discussion around what does it mean for the investment portfolio, but from an underwriting perspective, while we are not completely insulated the majority of our business.
<unk> activities.
Racing, if you will feed off of it.
<unk> I E. In other words, if you own a deli and you are charging a dollar more a sandwich and we're placing your GL. We are pricing off of your revenue and your receipts. Consequently, the premium is going up as your revenue and receipts are going up that is separate and distinct.
From rates.
Right as a separate activity, if you will and how one thinks about it from exposure growth and again, obviously inflation to a great extent economic inflation to a great extent is contemplated.
And exposure growth.
Couple of quick soundbites on the loss ratio.
Continued improvement.
From there as rich.
Mentioned, we did have some cat activity really the two pieces that are most noteworthy would be.
One.
European storms during the quarter as well as the Australian floods.
To the extent people want more detail, we can certainly get into that in the Q&A here.
Probably best is to pick it up in the to the other piece I wanted to flag on the loss ratio and I may have touched on this.
Last quarter.
Remember.
Didn't go back and look at the transcript.
Something I look at and perhaps it's of interest to others and that is the paid loss ratio I'm, just going to which came in in the quarter at a 45 three I would like to give you a couple of historical data points, which you can always pick up on your own but let me save you the work and the numbers I'm going to read off our over the past couple of years.
For the first quarter, what the paid loss ratio was and I want to give it to you for the corresponding periods because that way, we're getting as close to apples to apples as possible.
Not a perfect comparison because of the mix of business et cetera, but again 22 2022 for the quarter. It came in at a $45. Three so let's go back to 2017. If you go back to 2017 Q1 paid loss ratio 50 552018 Q1.
Paid loss ratio 50, 882019 paid loss ratio of 54 to 2020 loss paid loss ratio 50, 612021 paid loss ratio.
For the first quarter 48 point too.
So.
I flagged it because it is one of the first things that my father taught me about the insurance business.
Loss ratio there is really not much room for gray, it's a black and white number it's a real number and again I think that is one data point, which people can interpret anywhere they want but I think it's in my opinion, a helpful indicator or trend as to where things are going.
Rich talked about the expenses obviously there are two things that were experienced a three things that we're experiencing there.
Earned premium continues to grow we're getting a benefit there going the other way <unk> is starting to pick up again as Fortunately knock on wood program and hopefully in.
In the rearview mirror and shrinking.
And then lastly, we have won new operation, which now is feeding into the reported expense ratio.
Takes time for it to scale as we've discussed in the past and we are confident it will be accretive over time.
Let me offer a couple of quick soundbites on the investment portfolio, and then I promise I'll be finishing up and it'll be the participants turn.
The investment portfolio I think is a great example of some of the comments that I offered earlier around a focus towards discipline a focus out the front windshield not just the rearview mirror and quite frankly, I think we started to see some benefit.
Hum.
Towards the end of last year and that benefit is really starting to crystallize and likely more to come so as rich mentioned duration.
For the portfolio at the end of the quarter was two four years.
Another data point the book yield on the portfolio was two 2%.
Given where interest rates have gone our new money rate in the quarter is approximately 100 basis points above that so as they say.
You can do the math and figure out what is a 100 basis points benefit mean.
For our investment income on our fixed for our investment income given the movement in rates that we're seeing on the fixed income portfolio. So when we talk about the table being set for the future and the opportunities coming our way and what this means for our economic model and the earnings power of the business I think that's an important data point for people to be considering.
Again in my opinion.
Another point that I'd like to make and quite frankly, it's a little bit of a pet peeve around here and that has to do with gains certainly we've noticed that people have a tendency to back gains out of our results and quite frankly people can look at the numbers anyway, they want but from.
Our perspective, we think that.
That's just not appropriate we give up a fair amount of operating income if you will.
In alternatives, particularly some of the activities that have a focus towards gain.
We are focused on total return and we think that is what is in the best interest of the shareholders and again, obviously, we've taken approach very focused on risk adjusted return. So I think that we are already benefiting from the discipline that we have exercised over the past several years.
That duration short I think that benefit is going to be coming more and more into focus over the coming quarters and years.
And quite frankly, I think it was a few quarters ago, we talked about how quite frankly, if rates move up we didn't think that we were getting paid enough by taking the duration out I think that reality has come into focus and I think in part that was demonstrated as rich referenced a few moments ago, but if you look at our book value.
Even if you chose which I do not agree with but even if you chose to back out the gain from the building that we sold in London. Our book value in spite of what happened with interest rates still went up.
I think given what has happened in the bond market is pretty outstanding. So again, congratulations job well done to my colleagues on the investment side.
That was probably a lot more than anyone was looking for a bargain for but thank you for your patience and listening to me.
Why don't I pause, there and let's open it up for questions.
Thank you.
I'd like to ask a question at this time press Star then the number one on your telephone keypad. If you would like to withdraw your question again press the star one.
Your first question today comes from Elyse Greenspan with Wells Fargo. Your line is now open at least good afternoon.
Hi, Thanks. Good evening. My first question I was hoping to get just more color on what you guys are broadly seeing within the E&S market. It seems from the growth in the commentary right that youre not seeing competition pick up there just any color there and Rob when you think out over the balance of this year.
How do you expect the underlying dynamics between the standard in the E&S market to play out.
So Microsoft well first thanks for the question and second of all when we look at the.
Submission flow, that's coming into our specialty businesses in general in particular, the E&S businesses, but the specialty businesses in general it was very strong in the quarter.
My observations from a distance and again, we are much much much more of a specialty player than than not but it would seem again from a distance the standard market.
They have a very firm view as to what is in their appetite what isn't and their appetite and if it's out of their appetite weeded out of there very quickly and very abruptly, but if its staying in their appetite they seem to be apparently very very aggressive it's almost if they don't understand the inflationary environment that we're operating in.
But you know we're a specialty player more than not so maybe I'm mistaken long story short flow of submissions remains very encouraging.
And quite frankly in particular noticed March was particularly strong. So there's really nothing that we're seeing that would suggest that the momentum is getting derailed in the specialty specifically E&S space I think was your question, but across the board.
Okay. Thanks, and then you guys you know.
It's still pretty positive on pricing.
So how should we think about the rate.
Versus loss trend dynamic as we think about what can be earned and over the balance of the year.
Would you expect within range of I guess, the 60 basis points that we saw this quarter.
Well.
I.
Think of a limit as to how far I can go without the room online getting storm by lawyers, but what I would tell you is this.
I think that.
This stage based on how we think about loss cost trend.
And.
The rate that we're achieving there is reasonably compelling evidence that the rate. We are achieving is in excess of loss cost trend by something that would be measured in hundreds of basis points.
How quickly we recognize that.
It's not lost on us how leverage some of these assumptions are and I think as at least we have discussed in the past on calls like this.
We're just not going to push it it's a it's a.
Complicated environment with a lot of unknowns of businesses running.
From our perspective quite well, we think we're on a good trajectory, but again when we do the math, we think that.
It's a it's a.
Pretty healthy Delta.
Okay, great. Thanks for the color. Thank.
Thank you.
Your next question comes from Mark Hughes with curious your line is now open.
Good evening Mark Yes.
Good evening.
How much of the improvement in paid loss ratio do you think comes from.
Planes.
Dynamic frequency or severity.
How much are they bouncing back relative to kind of pre COVID-19 or is that all <unk>.
<unk> dynamic.
Look I think we.
We will not have clarity around that other than through the passage of time.
That having been said.
Literally there was a pinch point if you will.
The claims activity due to Covid, though we think it's gradually catching up.
From my perspective, I think we are in a pretty good place and to my many colleagues credit I think much of the improvement you're seeing is as a result of that.
Our efforts in their performance and haven't been said, we will have greater clarity to your question with the with time and I would be reluctant to try and answer it in a definitive way, but certainly there are a lot of encouraging signs, but that having been said that's why we are carrying of the loss picks.
And what I would define as a thoughtful and measured manner.
And not wanting to declare a victory prematurely, but even with that.
Taking a measured approach obviously the business continues to perform at a very healthy return.
With or without getting understood.
And thank you for that and rich the reserve development in the quarter what was that again overall and then do you have it by segment by any chance.
Yeah.
In total it was about $1 million of favorable development and we don't typically provide the split between segments sweep disclosed that information in the 10-Q.
Thank you.
Your next question comes from Michael Phillips with Morgan Stanley . Your line is now open.
Michael.
Okay. Thanks, Good evening, Rob I guess more on the on the loss trend.
<unk>.
You talked last couple of quarters about kind of the picture is pretty foggy.
I imagine it's.
I'm going to ask is it more or less foggy today than it was say three quarters ago.
Is it harder to put numbers around that today than it was three quarters. It was kind of the question and the reason I ask is because when you talk about that rate versus loss trend in excess of 100 basis points.
I think it's pretty close to what you said the last couple of quarters as well. So I'm just curious how you look at that differential if foggy picture is perhaps even further than it was three quarters ago I don't think I think actually with every passing day.
No.
The underwriting years become more seasoned and we can.
The policy years, I should say become more seasoned.
We have greater clarity as to what the ultimate outcome will be but obviously during COVID-19 . There was a bit of a pinch point in the legal system and how quickly things were getting resolved from our perspective.
With every passing day, we have more clarity around.
The 2020 one year.
And we are refining our views.
Even as I said with a what I would define as a thoughtful and measured.
Loss pick.
We are still comfortably clearing that hurdle by what would be measured in hundreds of basis points.
Okay. Thanks, Rob that's helpful.
Second question is just kind of more general higher level, but clearly our specialty player one of the best out there that we're in specialty is getting up. Moreover, you today than than probably social inflation was part of Covid.
And I ask that if you feel the.
Ziv nature in your business has it changed any and say I'm not talking last three months or the next few months, but it's more like last five years are there more players that are interested in that space. When you talk where the case again a longer term horizon, because it's a term that everybody's kind of talking about.
Well everybody wants to be special I guess, when we all are special right.
Uh huh.
Right.
Okay.
We certainly have we do have peripheral vision, but we spend a lot of time, just trying to focus on what we need to be doing what our goals are how we need to execute.
<unk> are the one of the things at least I think is important to keep in mind.
May want to consider is that as opposed to past cycles, what's becoming more and more of the cases that different product line.
Our marching through the cycle on their own they're not all in perfect lockstep.
So as a result of that.
Different product lines are in different places there are certain product lines, where we're watching the competition increase there are certain product lines, where we're watching the competition diminish but overall in the specialty space.
The competitors that we view as real competitors the ones that we respect.
They're basically the same names today as they were two years ago.
We've been doing the specialty business. If you will it's been a focus of ours since the 1979. So it's not that the world is stagnant, it's not that any of US live in a vacuum obviously, it's continuing to change.
But we have a lot of expertise we got a lot of data we've got a lot of intellectual capital and quite frankly tribal knowledge and relationships that exist within the organization and I think that bodes well for us, but that all having been said.
In spite of a lot of the chatter.
The competitors that we respect today tend to be by and large the same list that existed.
2345 years ago.
Yeah. Okay. Thank you for your time I. Appreciate your comments. Thank you for your question appreciate your engagement.
Your next question comes from the line of Yaron Qunar with Jefferies. Your line is now open.
Hi, good afternoon, thanks for taking my questions.
That's all I'll continue beating the sum this.
I guess on loss trends.
Do you think that you have several hundred basis points in excess of trend here.
Right I think you made that comment.
You are too as well.
So.
I guess with that.
When when do we start seeing some of that develop more fully in the fix themselves.
How many years of maturation do you need in the portfolio I guess, what I'd tier two is your comment around 2024.
I guess you are becoming more confident in how that will play out is that essentially going to come through reserve releases as you start gaining more and more confidence in the maturity of that portfolio.
Look I think to your point.
It takes time for this to come through.
And we'll have to see how it develops the assumption that I'm, making a statement or that I was suggesting that I was alluding to around 20. The balance of this year 23, and 'twenty four first off obviously, we all know how the timing difference between written versus earned.
Second of all as far as next year goes.
Clearly some of the business that we write on the reinsurance side that positions us well I think the other piece is that we understand what new money rates are and we know that's going to mean for our economic model as well so again with every passing day.
I would suggest that the table is being set for tomorrow.
We are banking on positive reserve development in the statement I made no. Sir we're not doing that do I think that we are being measured in our picks and there is a.
Certainly a chance that things could work out better than what we are carrying a reserve that yes, I do well that come into focus over time as we have more clarity that is the expectation, but in part as I think we've discussed as a group in the past.
Covid.
Perhaps create a delay in how quickly things are coming into focus I think there are some people that would suggest that there's a year, maybe 18 months of a delay in aspects of the legal system.
And we're just not going to declare victory prematurely. So it's going to take some time, we're going to see how things play out over the coming quarters and into next year and as we have more clarity you'll see us.
Taking the action that we think is appropriate with the loss picks that we're currently carrying.
Okay.
My second question goes to premium growth.
You had 19% net premiums written growth in insurance I think at a conference a month or two ago, you talked about maybe 15% to 25% growth for.
For 2002, so it seems like Youre kind of in the middle of that range, but <unk> 'twenty, one seems to be a little bit of an easier comps in the rest of the year. So can you help us think through that 15% to 25% growth number.
The ultimately.
From our perspective as I suggested earlier there is certainly evidence that would suggest there continues to be great opportunity for specialty players.
I can't promise to anyone including myself, what tomorrow will bring but I can share with you my interpretation of the available data and when we look at the strength of the submission flow, particularly in the specialty space in <unk>.
Including the E&S space in the quarter, including what we saw later in the quarter, we're feeling pretty good about it could may or June or something could have turned out to be something very different absolutely.
See that as the likely outcome no sorry, I do not.
Thank you.
Okay.
Your next question comes from the line of Ryan Tunis with Autonomous Research. Your line is now Bryan Bryan good afternoon.
Hey, good afternoon.
First question on the expense ratio.
Noticed in the past couple of years is a little bit elevated in the first quarter relative to the remainder of the year or is there something.
Is there something seasonal or of that and is there a reason to think that might be true this year as well.
Okay.
Yeah.
Richie I don't know is there any.
Anything around the remuneration.
I'd like to say I think it might be attributed to the incentive compensation, because we obviously accrue throughout the year based on our best.
Views of what the year is going to play out for but then ultimately we wait until the year end and then make any adjustments with regards to bonus accruals that are going to get paid out profit sharing long term incentive comp and alike.
Understood and then Brian This is Rick.
That would be that's not an overwhelming some that would be.
Well, whatever 10 20 basis points, something like that right right, Yes, that's right.
Understood and then.
Yes, Robin in your prepared remarks to comment on not feeling good about just 20 degree, but also some some confidence in 'twenty four.
Ah.
But you said you're not it's not based on your banking on reserve releases. So.
Maybe you could just go a little bit more into the specifics about whats, giving you that level of visibility was that a comment about.
Growth pricing or just no visibility into solid underlying trends.
So you know.
From my perspective, a couple of things, Brian first off I think we need to.
I think you have but I'm not sure if others have given appropriate consideration.
What this change in interest rate environment means for our economic model.
I tried to flag that when you think about what our book yield is today versus what our new money rate is and where that's likely to go.
But let's put the investments to the side for a moment. The other piece is every day that we're writing business in 'twenty two.
That goes by and we're earning it in over 12 months and we're achieving rate that we believe is comfortably above trend.
That bodes well for what the outcome is likely to be.
And number three I, just don't see things going.
On off switch the market doesn't be on a great trajectory and then all of a sudden the bottom falls out.
The last comment and I apologize for being a bit repetitive but.
I think that youre going to see certain product lines that had been doing particularly well.
Over the recent past at some point theyre going to peak out, but I think simultaneous with some of the product lines that perhaps hasn't been as robust.
At some point youre going to see them start to kick up so let's use worker's compensation as a example workers comp for the past several years, it's been that way.
Very competitive market state rating bureaus have been taken the action, we've been taking and ultimately if history is any indicator for what to what we should all be expecting eventually it will end in tears for the industry.
Commercial.
Workers comp was one of the largest components of the commercial lines marketplace.
Turn that is going to be offsetting.
I'm, suggesting other product lines that may have peaked and are going the other way. So again I think that there is a lot of momentum out there today I think that there are a lot of pieces in place that will bode well for tomorrow and I think that there is argument that youre going to be seeing as the cycle.
What has changed and all product lines aren't marching in lockstep youre going to see other things that will come along and perhaps lift certain portfolios for certain carriers.
Thank you.
Thank you.
Your next question comes from Alex Scott with Goldman Sachs. Your line is now open.
Hey, Thanks for taking the question.
So I wanted to ask about this balance between growth and rate taking.
Just listening to.
Your comments it sounds like maybe in more products then.
Our growing number of products here you have an exposure growth be the priority when we think about that.
Which is sort of separate from what you were saying on exposure growth from inflation, where that directly feeds the premiums and then its sources separate from right I mean.
Because of that decision to maybe lean a little more into growth in certain product lines should we expect to see maybe even more of an inflection in terms of the amount of growth that you can get despite rate.
Decelerating a little bit.
Well.
A couple of things there just to make sure. We're on the same page I think clearly as we are seeing inflation in the economy and we are seeing prices go up on goods and services, we're seeing wage inflation, which has an impact on payrolls that is.
The impact and exposure growth.
And as we write the business, we priced the business off of exposure.
To a great extent.
That is as you pointed out separate and distinct from <unk>.
So when we think about rate going up in.
Rate going up in excess of our view on trend in other words that could suggest that.
That you will see further margin expansion on a policy year basis.
Furthermore, again as I've said in the aggregate.
Okay.
Our rate increases are outpacing what we believe our loss cost trend is and.
That is the case in the aggregate and that is the case in the majority of the product lines we write.
Did I answer your question.
Yes.
I think you did.
Yes.
Yes, I think you've got it maybe just for a follow up.
Separately on net investment income.
Do you mind, giving an update on just how you're feeling about the duration at this point.
At what point would you consider lengthening out the duration I mean, I think the EPS sensitivity to your links and edited out to where liabilities are as you know.
Reasonably material. So I'm just trying to understand over what time period, you'd consider looking to do to do something.
Something that we're looking at every day.
The states take starting to buy bonds at five and 10 year range.
We don't think it really at the moment getting paid for it.
But it's certainly something that we're paying attention to and.
As.
Mike.
From our perspective.
We are paying close attention to it but taking out the duration is an option that we have but we're going to exercise that option. When we think it makes economic sense again through a lens of risk adjusted return.
Do you want to add.
When we say we think that the.
The uncertainty.
Inflation when it when it is going to end the call.
How quickly it ends as well as.
Issues about flow of funds.
Well as <unk>.
Invest.
Sure.
Non government securities.
All together make us want to be a little hesitant so.
For now.
If you said you aren't your duration to go from two four years to two five years, yes that would be great.
Last year.
Duration go to three years now we I don't think so.
We're happy where we are going out a little bit maybe.
Not yet.
Comfortable that this is where we should start to move it out.
And just as a reminder, we have a lot of runway ahead of us because the average duration of our liabilities is Richie I believe it's about four years yeah. That's.
That's correct.
Thank you.
Thanks for the question.
Your next question comes from the line of Meyer Shields with K at VW. Your line is now open.
Hi, Mark good afternoon, Hi.
Hi, Rob how are you.
Good how are you.
Okay. Thanks, Greg.
Listen I guess, it looks like growth in the reinsurance segment slowed more quickly than in the insurance segment and I'm wondering if there's anything meaningful on that.
Not really.
Quite frankly.
I think what does it mean, obviously on the surface I mean, we wrote less.
Reinsurance business.
Our insurance business, our reinsurance and access business, but I would suggest that people not leap.
Leaf to any conclusions on that we obviously are paying attention to it but we're not really bothered by it at all and we'll see what what the balance of the year holds.
But again I would encourage you not to read too deeply into that well, we'll see what the.
But unfolds from here.
Okay.
Helpful.
I mentioned on the insurance segment lower session, but I was wondering if there's any.
The profile of that that you could provide a retaining more lower level of risk or is there. Some other component of reinsurance buying that seems less necessary.
When you look at everything we do.
We buy.
And we think about is it something that we think makes sense, how do we think about the risk and the return how do we think about the volatility how do we think about the rate that we're playing and ultimately we also have a panel of reinsurers. Some of our partners. Some are people that are just.
People that we trade with.
So long story short.
We have the luxury of buying reinsurance when we think it makes economic sense.
For the company to a great extent, because again, we as an organization are not a big limits player for the most part approximately 90% or so of our policies have a limit of $2 million or less.
At the same time.
We buy when we think it makes sense for the shareholders and at the same time of course, we are conscious of our long term relationships with our partners on the reinsurance side.
So long story short.
We.
We're happy with how we are and we look at what makes sense for the company.
Okay understood and one last question if I can throw it in.
You talked about that one 8% premium on new business versus renewal.
1112.
<unk>.
Yes.
Okay.
Uh huh.
So historically, we've looked at that as sort of a reflection of competitive competition in the industry, where its below one.
Maybe the industry as being more competitive, but I'm wondering if you could talk about how that delta actually.
How well does it represent the lack of knowledge in newer business is is that enough of a premium should it be bigger could it be smaller.
Look.
The long story short one you need to understand Thats, an aggregation of 57 different operating units.
So please keep that in mind.
<unk> two.
Is it enough if you will cushion or we appropriately taking into account the risks.
I guess the short answer is that yes, I think so my colleagues that are selecting on placing risks are I think very skilled very thoughtful and generally speaking very experienced and it's not like it's just.
Whatever being thrown over the transom or spaghetti being thrown against the wall and we see what sticks. These people are experts in their field. They understand the exposures and they are able to make judgments as to what's an appropriate rate.
So is that the right number I guess, we will all see with time, but do I think it's sensible and reasonable yes I do.
Okay perfect. Thanks, so much thank you.
Your next question comes from the line of David <unk> with Evercore. Your line is now open.
Good afternoon, David.
Hey, good afternoon. Thanks.
I guess, just maybe just a question on the loss trend assumption and if you made any changes to that during the quarter.
Whether that be on.
The property side with regards to your higher CPI inflation or also just on the liability side.
And maybe if you could just comment on what you're seeing from a court activity standpoint.
You're seeing it start to fall in the legal system.
Thus far during.
During the year.
So the short answer is we are constantly thinking about our loss picks.
And we are equally conscious of what economic inflation means for our loss picks just as we are continue to be preoccupied with what do we think social inflation needs for our loss picks.
I don't think it makes sense for us to get into the nooks and crannies as to what it means for these various different product line, but what I can tell you is by operating unit by product line, we have and continue to do in a pretty timely way.
A drains up review around what do these various components mean for loss trend and how it may impact our costs.
Sorry, the second piece I beg your pardon Sir.
I guess I'm just wondering in terms of specifically this year.
But youre seeing eagleson system.
Are you seeing.
And our verdict or the size of the verdict that you are seeing or there was notable noticeably higher I think that they were in the past social inflation persists anyone who doesn't see it probably the need to flip on the glasses are look a little closer.
Anyone who doesn't appreciate again, it's a very much a reality.
It's more severe in certain regions of the country than others, but I would say just generally speaking is pervasive across the nation, there's probably a variety of contributing factors clearly societies opening up and that includes the legal system.
Have we completely caught up.
<unk> not but are we in the process of catching up yes gradually would be my estimation.
Got it Okay. That's helpful and then if I could just sneak one more in.
You mentioned it just the.
Our standard lines players you know within there.
Defined risk appetite competition appears to be picking back up are you seeing them expand at all into some of those higher excess layers and casualty lines are starting to maybe expand what what's in there.
Our risk appetite or is that just still not happened yet not really.
Honestly my I.
I got a lot of colleagues that could probably answer the question better than I, but based on my engagement with them and what they've shared with me.
I think it is still it is still a very good market for us and we are looking forward to making continuing to make as much as we can while the opportunity continues to present itself, but no where the standard market.
Based on the flow that we're seeing they seem to continue to be in a moment, where there contrasting much of their appetite, but again from a distance it looks like whatever is still within their strike zone. They are really leaning into.
Bizarre to me just to digress for a moment it kind of makes me Wonder you don't do they really understand what the impact of social inflation are they fully contemplating certain aspects.
Economic in place and what that May mean for their portfolio that may not necessarily be being captured in the exposure component, but look.
We've got enough to worry about on our end.
With the business that we all work for.
I'm sure they know what they're doing so we wish them well and we hope they with us the best too.
Got it thank you.
Thank you.
Your next question comes from the line of Josh Shanker with Bank of America. Your line is now open.
Josh Good afternoon, good afternoon to you.
A lot of moving parts in the quarter you guys.
It's sold this wonderful building in London, and a big profit and you grew book value of course, there should be very proud of that but I want to be able to compare your results apples to apples with everybody else and obviously you are a different kind of Apple can.
Can you talk a little bit about what the mark to Mark on the bond portfolio was your shorter than everyone else I assume that youre going to compare very favorably on that compared to others.
Rich.
Do you have that number handy.
Forgive me, Josh I don't have it off the top of my head Richard If you don't have it.
Josh can we circle back with you.
Josh <unk>.
Disclosed in the supplemental information I think that was page seven I believe from memory the movement.
From year end to the end of first quarter was about $425 million after tax.
That's great. Thank you and.
In terms of thinking about your various alternatives styles of investments.
Is this a time to be deploying into arbitrage is this a time to be deploying capital into the partnerships and or maybe real estate. How are you thinking about the nontraditional aspects of the investment portfolio.
Josh from from my perspective, no different than on the investment side.
A lot of very capable people that understand the goal of the exercise is a good risk adjusted return, but obviously with an eye towards total return.
From when we think about it.
We are happy to wait all day long for our pitch.
And I think the teams have done a great job doing that over the years. So there's a lot of challenge and Theres a lot of opportunity out there and I expect they'll continue to do a great job separating the wheat from the chaff, but I don't think we have any specifics that I don't know you may have additional comments no I think that.
Over the past year reduced our exposure in real estate by substantial amount.
I think I think we're constantly opportunistic.
Looking individually at the kinds of things we do.
Uh huh.
And we'll continue to do that.
Oh, yes.
Yes.
No individual.
The thing that's going to make us change our mind at all.
At least that I can see.
So do you have another one that would be a reasonable yes. Just one quick one this is probably maybe longer but can you compare and contrast or anything we should take away different that's going on in the workers' comp market versus the excess workers' comp market.
I think the it would seem as though at least in the recent past.
Primary comp market.
He has been <unk>.
Notably competitive.
It would be wrong to suggest that the excess comp is not competitive.
But I would suggest that the primary comp.
It is probably even more so.
Obviously that <unk>.
There is based on region or specialty.
But we have noticed in the comp market.
Putting aside rating Bureau action, we have seen certain players.
Looking for ways to buy market share through increase in commissions, we have seen examples where it would appear as though people are mis categorizing exposures in order to justify how they can write premium and again Josh look.
My Crystal ball is no clearer than anyone elses, probably would help if I change the batteries in it but the long story short.
I think comp.
It's going to have a bumpy road over the next.
I don't know.
More than 12 less than 36 months, but thats, just one person's personal view.
That's a very reasonable view.
Thank you very much for the answers thanks for the questions.
Your next question comes from the line of Mark Hughes with <unk>. Your line is now open.
Yes. Thank you just a quick question the investment funds I think many of those are priced on a one quarter lag.
Any early read on what we might expect when you report Q2.
Nothing that's particularly noteworthy at this stage and that's not leading then one way or the other it's just weak for a lot of it we don't have the information yet.
A lot of the funds you know that it takes them some time to to.
The marks and deliver to us so we'll see how it plays out but we don't have clarity to share with you at this stage.
Yes.
Thank you.
But just one thing to the extent that it is helpful.
We're not a heavy participant in the tech space, if you would.
If that's.
Of interest.
Thank you.
Thanks for the question.
Your next question comes from the line of Brian Meredith with UBS. Your line is now open.
Bryan good afternoon.
Afternoon evening, a couple ones here for you first I'm, just curious noticed kind of a meaningful slowdown in the growth in professional liability and commercial auto.
Noteworthy there and then particularly on commercial auto just kind of given the hiring environment that we're hearing about in the trucking business any any caution there with respect to potential frequency.
I think the maybe taken given the opposite order if you don't mind as far as commercial auto I think that there's clearly a shortage of drivers it's been a problem. It's a bigger problem today than it was yesterday, but it was a problem yesterday.
Clearly training and experience is also something that I think one needs to.
To recognize and what does that mean, presumably people take that into account. We are certainly trying to take it into account when we're looking at exposures in how we underwrite.
Whether it would be purely in the underwriting and the data and the information that we collect on the employees and the hiring practices and so on and the training obviously, we're getting into that in our loss engineering, our loss control as well so it's a.
It's an important piece and I share the question and quite frankly, the concern Brian I would suggest that one could expand that a bit.
But even beyond that.
The challenges that the commercial auto space spaces.
The broader the reality is it's a very tight labor market.
As we have shared the observation in the past oftentimes that will lead to people working overtime, that's when things.
Lyons can go wrong in addition to that.
Oftentimes you'll have people that are not as well trained and positions and that can lead to unfortunate situations as well as far as the professional liability space I would suggest that you not read too much into it.
There is one piece.
Of the professional liability space.
I think we have an appropriate level of severe caution around.
That is a large law firms and that may be a contributing factor to what you're referring to but generally speaking, we still see a lot of opportunity and the vast majority of the professional space.
It's still a cyclical business, but at the moment and for the foreseeable future we like the opportunities.
Great and then my follow up question here, if I look at your short tail lines, so pretty good growth how much of that growth is coming from your homeowners insurance business and also on that are you seeing more opportunities in that high net worth homeowners business just given the incredible increase we've seen in housing prices in the U S.
So first of all certainly the meaning.
Meaning full percentage is coming from the high net worth operation, but it's also coming from lots of other parts of the business that are writing property. So it's not all on on their shoulders, if shared amongst many as far as your specific questions on the high net worth space.
As far as I'm concerned while I'm sure. There are some outside of the organization that may disagree I think by a wide margin and we have the best team in the business.
And it's all about knowledge expertise.
And quite frankly, how they work as a team.
So I think the value proposition that they bring to the marketplace is second to none.
I think that is quite frankly reflected and how the distribution and by extension customers are responding and engaging with them. So lots of good momentum there and I think it's really just a reflection of the people.
Terrific. Thank you thank.
Thank you.
Your next question today comes from the line of Alex Scott with Goldman Sachs. Your line is now open.
Hey, Thanks for taking the follow up question I just wanted to ask if you could comment at all on just the Russia, Ukraine conflict and if you have any exposure, we should think about and if you have been if there was a small amount. If you had any claims associated with it.
So we have to see.
Limited would probably be overstating it dramatically.
We're closer to none then then limited and.
During the quarter I think we had claims associated with the with that of Richie Youll correct me here, if I'm wrong, but I think it was about $2 5 million Bucks.
Yes on a net basis Thats right.
So again I.
It's a very concerning situation our hearts go out to those that are affected but as far as the business and the exposure.
On the underwriting side or the investment side.
Barely rounding if that.
Thanks.
Yes.
There are no further questions at this time, Mr. Rob Berkley I turn the call back over to you.
Okay. Thank.
Thank you very much we appreciate your assistance of the call and also thank you very much to all those that dialed in we appreciate your engagement too.
I think again as suggested earlier the quarter clearly speaks for itself I think that what is more exciting and hopefully appreciated by those that are observing the business is not performing well today, but.
Everything is sort of lined up planets and stars for us to have a very very attractive 22, likely 'twenty three and ever more increasingly likely 24 as well. So thanks for dialing in and we'll talk to you in 90 days or so.
Good night.
This concludes today's conference call. Thank you for attending you may now disconnect.
[music].
Okay.