Q2 2022 W R Berkley Corp Earnings Call
Speaker 1: Co-hosting with me this afternoon is Bill Berkeley, our Executive Chairman, as well as Rich Baer, our Executive Vice President and Chief Financial Officer.
Speaker 1: We're gonna follow the usual agenda where I'm gonna hand it over to Rich momentarily. He's gonna run through some highlights of the quarter. Once Rich has completed his comments, I'll receive the beton back from him, offer a few thoughts of my own and then we'll be pleased to open it up for Q&A and take the conversation anywhere participants would like to take it. But before I hand it over to Rich, there is a one pointer or topic.
Speaker 1: uh... that i did want to flag and it's something that we talk about with some regularity within our shop and i don't think it's a unique observation i'm sure everyone on the call and beyond is acutely aware of this point but nevertheless i think it easily falls off the radar screen as we can easily get consumed by other aspects of the industry
Speaker 1: And that is the macro observation or reality that this is a very unusual industry for a variety of reasons.
Speaker 1: But one of them is, this is an industry where you do not know your costs of goods sold until oftentimes many years after the transaction has actually occurred.
Speaker 2: That creates...
Speaker 1: Additional complexity and how one operates the business.
Speaker 1: It's less consequential when you're operating through an extended period of time where things are quite stable.
Speaker 1: But when you're in a period of time where change is abound, volatility is material.
Speaker 1: it becomes much more consequential.
Speaker 1: Most businesses in other industries, I would suggest the way they operate is akin to how you steer a car.
Speaker 1: You turn the wheel of a car, the wheels in the front of the car turn, and the car will turn quickly.
Speaker 1: Because of what we're discussing now, this reality of the timing of costs of goods sold relative to when the transaction occurs, in this industry is different from driving a car, in some ways is more like steering a boat, where the rudder is in the back of the boat as opposed to the wheels in the front of the vehicle.
Speaker 1: The difference in this industry, like a boat or a ship being speared from the back, is one needs to anticipate.
Speaker 1: One needs to not just be consumed by what has occurred yesterday, not just be preoccupied with what is immediately in front of them, but one needs to anticipate what is coming their way because of the delay and response. And because of the delay and response.
Speaker 1: to steering the ship. One needs to be trying to figure out what is around the next corner or over the hill. What is around the next corner or over the hill?
Speaker 1: This is something that we spend a huge amount of time working at, grappling with as a team.
Speaker 1: It is one of the reasons why we have been focused on certain things.
Speaker 1: for a long period of time.
Speaker 1: Whether it's social inflation or economic or financial inflation, these are two macro topics that we have been talking about and acting upon for several years at this stage. You can see it in our underwriting and how we have selected loss picks and how we have priced our book of business.
Speaker 1: You can see it in our investment portfolio and how we have managed our duration.
Speaker 1: So while these types of topics have become very topical today, and we hear people chatting about it, these are things that we anticipated and have been preparing for, as I suggested earlier, years.
Speaker 1: It's one of the reasons why we are so well positioned.
Speaker 3: It's not easy.
Speaker 1: It requires expertise.
Speaker 1: It requires experience, it requires discipline, it requires foresight, and it requires courage.
Speaker 1: Fortunately, my colleagues throughout this organization have those characteristics and traits.
Speaker 1: And that in my opinion is the leading reason why this organization is so well positioned today and by extension is enjoying the results that we are talking about today and anticipate we will be talking about for many, many quarters and years to come.
Speaker 1: So with that, so much for me just keeping it short at the beginning and handing it over to Rich. Let me hand it over to Rich now, and I promise I'll be somewhat brief after he provides his thoughts and comments. Rich, if you would please.
Speaker 4: Of course, thank you Rob, I appreciate it.
Speaker 4: The company reported us another strong quarter, as you saw with operating income, increasing 43% to $313 million or $1.12 per share. The company reported us another strong quarter,
Speaker 4: The key contributors include strong underwriting income driven by continued growth and premium volume, which I'll discuss in just a moment, along with improving that investment income and foreign currency gains.
Speaker 4: We also reported net income of $179 million or 65 cents per share.
Speaker 4: Pre-tax underwriting income of $268 million in large part kept pace with the record first quarter representing an increase of 32.6% over the prior year's second quarter. The record represents an increase of 32.6% over the prior year's second quarter.
Speaker 4: Our year-to-date quarterly results of $543 million increased 41% over the prior year and surpassed all prior full-year results.
Speaker 4: with the exception of 2021, which was a record year. Despite the heightened frequency of natural catastrophes we reported, pre-tax cat losses of $58 million in the quarter, or two and a half loss ratio points, compared with $44 million or 2.2 loss ratio points last year.
Speaker 4: Drilling down further into our underwriting results, gross premiums written grew to a record level of almost $3.1 billion. Net premiums written grew 16.9% to a record of nearly $2.6 billion. $2.6 billion.
Speaker 4: Our decision to retain more business on a net basis can be seen by the lower session rate in the quarter and on a year-to-date basis.
Speaker 4: Net premiums written increased in all lines of business as we disclosed in the earnings release. The insurance segment grew 16.6% to more than $2.3 billion, while the reinsurance and monoline excess segment increased 19.1% to almost $260 million.
Speaker 4: The overall growth is significantly coming from increased exposure.
Speaker 4: The current accident your loss ratio, excluding catastrophes, improves 0.3 loss ratio points to 58.5%. The current accident your loss ratio, ??,
Speaker 4: Part of your loss reserves developed favorably by $2 million in the current year, bringing our calendar year loss ratio to 60.9%.
Speaker 4: The expense ratio continues to benefit from scaling the business as evident by the outpaced growth in that premiums earned relative to underwriting expenses.
Speaker 4: In addition, we continue to make investments in strategic initiatives to optimize efficiency. And as such, the expense ratio improved 1.27.7% over the prior year's quarter.
Speaker 4: In summary, the current accident year combined ratio, excluding catastrophes, improved 1.3 loss points to 86.2% compared with the second quarter of 2021 of 87.5%.
Speaker 4: The reported calendar year combined ratio was 88.6% for the current quarter compared with 89.7% for the prior year.
Speaker 4: Net investment income for the quarter was approximately $172 million.
Speaker 4: The rising interest rate environments a key contributor growth in income from the core portfolio of almost 30 percent. The rising interest rate environments a key contributor growth in income from the core portfolio of almost 30 percent. The rising interest rate environments a key contributor growth in income
Speaker 4: On investment funds, you may recall we report on a one-quarter lag.
Speaker 4: Despite the decline in the equity markets in the first quarter, the investment funds performed well with a book yield of 8.3%. The investment funds performed well with a book yield of 8.3%.
Speaker 4: The transportation, real estate, and energy funds led the way.
Speaker 4: The overall investment portfolio also maintained the same duration of 2.4 years and a credit quality of a double A minus.
Speaker 4: Pre-tax net investment losses in the quarter of $172 million is primarily attributable to the net change in unrealized losses on equity securities of $132 million, which related to sector declines in financial services, energy, and metal mining and manufacturing.
Speaker 4: Stockholders' equity was $6.5 billion as of June 30.
Speaker 4: 2022, year-to-date earnings have more than offset the change in unrealized losses on investments and currency translation adjustments, both items being components of stockholders' equity. We returned capital to shareholders in the first six months of the year through regular and special dividends, amounting to $182 million, of which $159 million was in the second quarter.
Speaker 4: The annualized operating return on beginning of year equity was 18.8% for the quarter and 10.8% on a net income basis.
Speaker 4: Rob, I'll turn it back to you.
Speaker 1: Okay, great. Rich, thanks very much. That was great as always. Okay, so a couple of quick sound bites for me and again, as promised, then we'll open it up for the Q&A. The top line continues to be very healthy. I would tell you that in the specialty space, in particular E&S, but specialty in general, we are seeing continued strength and submissions.
Speaker 1: and we're feeling particularly good about that. We're also seeing finally some resilience in the reinsurance market, consequently you saw the growth in that segment as well. On the insurance front, jumping around here, other liability was particularly strong, shorter tail was strong as well, and commercial auto was reasonably robust.
Speaker 1: As far as what the contribution to the discharge 17 points of growth, rate was a meaningful contributor. Ex-comp we were at 6.8% or so. I think it's important that people keep in mind and not confuse or decouple rate versus exposure growth. And one of the things that we've been very focused on, and I worry that some industry participants may not be as focused.
Speaker 1: And approximately two-thirds of our policies are adjustable based on exposure. So that's a really important piece to make sure that we can keep up with inflation.
Speaker 1: As far as, you know, strengths of economy, certainly there's a lot of sensitivity and concern but I would tell you as far as audit premiums at this stage, we are seeing considerable momentum on that front. Our audit premiums during the quarter were up 45% relative to the same period last year.
Speaker 1: Just on the retention front, something that I know we have discussed in the past and we are very sensitive to not turning the book and making sure that the quality and the integrity of the book is intact as we continue to push for rate and make sure that we are getting the appropriate exposure. Long story short, renewal retention remained just north of 80%. False ratio obviously, rich covered, bit of noise coming out of the cats.
Speaker 1: I would characterize it as a frequency of modest severity, and that was probably the big story behind the two and a half points.
Speaker 1: from my perspective, and you know, we've heard this, and I think we've talked about it in past calls, we've heard it from some people when they look at all the rate that we've gotten.
Speaker 1: Why is it that we're not seeing the loss ratio drop even more on the current accident year? And the simple answer is there's a lot of unknowns and there's a lot of volatility and there are a lot of varied leveraged assumptions that we want to make sure we are appropriately thoughtful and measured and we don't respond too quickly. Some people would say cautious. We would say that we're just being thoughtful and measured given the inflationary environment both social as well as economic.
Speaker 1: In addition to that, and we may have touched on this last quarter, you know, we're sensitive to the backlog in the legal system. And our best estimate, which is nothing more than an estimate, is that due to COVID, there's still probably an 18-month backlog in the court system.
Speaker 1: One other piece on the loss ratio, and I think I shared this with all last quarter, and for us it's just one of many data points that we pay attention to and perhaps it's of interest to you all, and that's the paid loss ratio. From our perspective, it is an important data point. It's not the whole story, but an important data point.
Speaker 1: So here's a little bit of historical perspective for you again on Q2. And I'm gonna give you what the paid loss ratio was going back to 2017 for Q2. That creates as much of an apples-to-apples basis as we can, at least using shorthand. So the paid loss ratio of Q2 in 2017 was a 559. In 18, it was a 583.
Speaker 1: In 19, it was a 53-8. In 2020, it was a 52-9. In 21, it was a 44-3. And in 22, it was a 41.9. So obviously an attractive trend doesn't necessarily tell the whole story, but again, from our perspective, a meaningful data point and an encouraging indicator. Expense ratio, again, rich touch on this. We continue to see improvement for a whole host of reasons and a few things. In 2021, it was a very, very important and significant thing to do. In 2021, it was a very, very important thing to do. In 2021, it was a very, very important thing to do.
Speaker 1: Certainly, lots of folks are focused on it and trying to be more efficient, but the big needle mover is just the growth and the earned premium. And as you can see how it lags our written, there's likely more opportunity there over time. That, having been said, we do have a few new operations. We'll have to see how they scale again over time. So 88.6 reported. If you have back out the cats and you do the butt forts and 86.2.
Speaker 1: On an operating basis, obviously a pretty attractive return by virtually any measure.
Speaker 1: A couple of quick comments on the investment portfolio, and again I think Rich summarized it well, so I'm not gonna belabor the point too much here, but obviously the duration remains notably short of where our liabilities are at 2.4 years compared to the liabilities that give or take four years. I think it's also worth noting, how you're just in the early stages of seeing the opportunity.
Speaker 1: for this company and its earnings power when you saw the book yield climb from in the last quarter last quarter being Q1 to 2 up to 2.6 and just a period of 90 days and a new money rate for us these days is certainly north of four probably four and a quarter give or take.
Speaker 1: We talked at the beginning of a call about foresight and discipline and a variety of other behaviors or traits and the importance of it. We talked about foresight and discipline and a variety of other behaviors and the importance of it.
Speaker 1: I think it has certainly been exercised on the underwriting side, but it is important to recognize how it has been also exercised on the investment side.
Speaker 1: The earnings power of this economic model going forward in a raising or increasing rate environment should not be underestimated.
Speaker 1: It's something we've discussed in the past. I think it's something that people have an understanding for when we have the discussion, but I'm not sure if it's fully appreciated what this means for our economic model and again the earnings power of the business as you see interest rates continue to move up. So again, when we look forward, given the opportunities that we have before us.
Speaker 1: the flow of business coming our way continues to have significant momentum, the opportunity to make sure that we are getting the rate that we want and need continues to be there as well. And of course, the leverage that we have that is very much coming our way on the investment income side. I think all these things position us well for not just the coming quarters, but the coming years and all likelihood.
Speaker 1: So let me pause there, Josh, if we could please open it up for questions.
Speaker 5: Certainly, if you would like to ask a question at this time, please press star, follow by the number one on your telephone keypad.
Speaker 5: Your first question comes from Elise Green's fan with Wells Fargo. Your line is open. Your line is open.
Speaker 1: Hi, Elise. Good afternoon.
Speaker 6: Hi, thanks. My first question, you guys just spoke pretty positively about just submissions within. I think you said the specialty in the ENS market. You guys have kind of flagged this 15 to 25% growth target. You obviously were there through the first half of the year. Is this something that you think is sustainable? I mean, for the rest of this year and kind of, you know, if you have any thoughts on, you know, 2023 as well.
Speaker 1: So, you know, we don't have a perfect crystal ball. All I can share with you is that there is nothing that leads us to believe that the opportunity to continue to grow the business both based on policy count, growth and exposure in our insurers, along with additional rates.
Speaker 1: we don't see that being derailed in the immediate term.
Speaker 1: So how long will it go on for? I don't know for sure. I think one of the things, Elise, I know we've talked about in the past and I think it is worth noting, is that we're all very sort of conditioned to think about the cycle as one across product lines.
Speaker 1: And while the realities of a cycle...
Speaker 1: Certainly apply to all product lines. We need to remember that product lines are not marching in locks that these days. So for example, it is our view that over the next 12 to 24 months, you are going to see the workers comp market likely bottoming out and beginning to firm.
Speaker 1: And obviously that's one of the largest components of the commercial lines marketplace. So undoubtedly there will be a moment where some commercial lines don't have the same buoyancy or resilience, but I would expect that you'll see other product lines firming as they are perhaps peaking or softening. So long story short, as far as specialty and E&S, there's nothing that we see in the short term derailing it. And I think that there are gonna be other things such as comp that are in.
Speaker 6: somewhat of an on deck circle. And then just one on the capital side, you guys are trading above two and a half times book. You just mentioned again, right, that you're focusing on exposure growth. I know in the past, Berkeley has shied away from acquisitions. Can you just give us an update, a thought there, and would you guys consider a scalable acquisition to drive further top line growth?
Speaker 1: So I think as you've heard my father comment in the past and I'll echo his words that we are open to anything.
Speaker 7: But we are...
Speaker 1: Some people would say cautious and cheap. Others might call it disciplined.
Speaker 1: And from our perspective,
Speaker 1: One of the cornerstones of operating in the insurance industry is controlling the business.
Speaker 1: And when you buy someone else's business, you are buying somebody else's headaches.
Speaker 1: and the seller typically knows more than the buyer. We have done the occasional acquisition, but we are very careful about that. So most deals that occur, we hear about them before they are announced because we are shown the opportunity. But again, ultimately, we have a long term view. We are focused on risk adjusted return and controlling the business is an important part of that. And...
Speaker 1: You know, most insurance deals, quite frankly, when people look back on them, by and large, you know, they probably wouldn't do them all over again if they could, and we're not looking for that experience.
Speaker 6: Great. Thanks for the color.
Speaker 1: Thank you for the questions.
Speaker 5: Your next question comes from the line of Michael Phillips with Morgan Stanley . Your line is open.
Speaker 8: Michael, good afternoon.
Speaker 9: Hey, good afternoon. Thanks. First question is on the expense ratio. You talked about, obviously, the lag between written and earned. So that's going to help in the near term. But it feels like we're at that part of the cycle for everybody. So I guess I'm just kind of wondering.
Speaker 9: Especially with your talk on after this one exposure growth. It's kind of where we are today with that 27-7. It's about the peak of improvement, longer term, near term maybe a little bit more given the premium growth, but just kind of comments on that. Let's go.
Speaker 1: When we think about spending every dollar, every penny, we're looking at what kind of value we get for it. Can it improve from here? I guess it's possible, but for a specialty business, I think an expense ratio of a 27.7 is pretty attractive. And you got to remember a significant percentage of that is going for acquisition costs along with boards, bureaus, taxes, et cetera, et cetera. So a limited amount of that is in our, if you will, direct internal controls.
Speaker 1: So do I think we can do better? We'll have to see how it unfolds, but I think we're very pleased with the progress that we've made and ultimately we'll see where underwriting conditions go. Is it possible someday down the road if we get into a very soft market, that number could tick up? Yes, that having been said to your point earlier, we have a lot of growth still like that it will be coming through in the earned premium and that will in part benefit the expense ratio. So.
Speaker 1: I don't have a number of basis points that we're going to be able to improve from here, but I can assure you, we're very focused on it, just like we're focused on every nothing cranny of what we all do as a team every day.
Speaker 9: Okay, perfect. Thank you. Second question, you touched on this a little bit a second ago with comp kind of bottom out at some point and firming. I guess thinking about the venture you launched pretty recently in California, is that a sign of just optimism in that specific market or is that just more in general? I don't know if you plan, you know, maybe you can speak to that enterprise. Is that just a comp, a California business or is that going to be maybe expanded out beyond that eventually?
Speaker 1: Initially, the focus will be California within a particular part of the market and certainly over time we are open to considering broader opportunities. For us, long term we like comp. For us, we like this part of the market and we think the team of people that have joined us are exceptionally capable.
Speaker 9: Perfect, well, thanks for that, I can recommend. Thank you.
Speaker 10: Thank you for the questions.
Speaker 5: Your next question comes from the line of Yaren Kinar with Jefferies. Your line is open.
Speaker 11: Thank you. Good afternoon. Good afternoon. Good afternoon.
Speaker 11: I want to start with going to a comment in the press release, the earnings release, where you say that most of our businesses are achieving or exceeding our target return on equity and we're placing greater emphasis on exposure growth. So should we take that to mean that with growth shifting to exposure, there's maybe less room for improving the underlying loss ratio going forward? Or are you gonna have to know? I don't think that's how I, at least that's not how we intended it to be interpretive.
Speaker 1: I think what we were suggesting is that if you look at our portfolio, a growing percentage of it,
Speaker 1: Has reached or is exceeding our targeted returns?
Speaker 1: and how we think about the balance between exposure growth and rate may be refined. That having been said, parts of the business that are below our targeted returns, we are still again very focused on making sure that the rate is adequate.
Speaker 1: So I think it would be a mistake in my opinion to assume that the underwriting margin is not going to, does not have the opportunity to improve from here.
Speaker 1: I think it's just what we're trying to message is the balance between rate and growth in many product lines. Rate is not the primary target for us. In addition to that, when you think about our economic model, going back to the comments earlier, I think that you're going to find that, again, there's tremendous upside leverage for us with the investment portfolio.
Speaker 12: Okay.
Speaker 11: And then in your opening comments, Rob, you talked about your interest in being thoughtful as you look at the loss-spix and the loss ratios, and I recognize you're also playing a long game here and not necessarily playing for the quarter. I think what has created some confusion for at least some of us on the outside is we also at the same time hear you and others talk about hundreds of basis points of potential margin that has not yet shown up in results.
Speaker 11: So I guess my from my seat my question would be why can't we find more of a middle ground where if there are if there's a confidence.
Speaker 11: around hundreds of basis points of margin. And when it wants to be prudent and thoughtful at the same time, why can't there be a hundred basis point of margin improvement or 150 basis point of law trace improvement in kind of achieve both ends of this?
Speaker 1: Well, I think at least from our perspective, and obviously everyone's entitled to their own view, but from our perspective, but from our perspective,
Speaker 1: Laws cost trend, and if you choose to unpack that, particularly economic inflation as well as social inflation, are exceptionally leveraged.
Speaker 1: And if you get those wrong by not a lot.
Speaker 10: It can be a real problem.
Speaker 1: We are not interested in trying to push the business. We are not interested in trying to take any unnecessary risks.
Speaker 1: On an operating basis, we're generating a high teens return
Speaker 7: without, at least as we think about it.
Speaker 1: being aggressive or optimistic. We're able to do that by being measures.
Speaker 1: And given that we think about the business through a risk-adjusted returned lens, we think we are generating how-for-a-returns.
Speaker 1: for shareholders without increasing the risk by declaring victory prematurely. So we're quite comfortable with where we stand. We have a healthy respect for the unknown.
Speaker 1: And it's certainly something that we pay attention to. Obviously, as the reserve sees and out, we will be in a position to tighten up those picks. As we have historically, we will continue to do that. But in the early years, we are just not going to... But, in the early years, we are just not going to...
Speaker 1: want to run the risk of moving prematurely.
Speaker 1: But in spite of that caution, we are still very proud of the results.
Speaker 12: Thank you.
Speaker 5: Your next question comes from the line of David Mote-Madden with Evercore. Your line is open.
Speaker 13: Good afternoon, David.
Speaker 1: of development coming out of prior years. In addition to that, my understanding is that the WCIRB out on the West Coast had a view that rates should be moving up, give or take, call it, I think it was 7% or so, and that got shot down by the Insurance Department out there so there's growing tension there as well. So Ryan, I can't call it to the day, the week, the month, or even the quarter, but there's a growing level of evidence that the music is slowing, that party is gonna come to an end. It was likely prolonged by COVID because of the holiday around frequency, and that has sort of allowed it to continue on for some time but I think 24 months or so, maybe less, people are gonna have to start to wake up and address it. I think the industry is probably running well over 100 at this stage as far as competition. Thank you. Thanks. Thanks for the question. Your next question comes from the line of Brian Meredith with UDS. Your line is open. Hey Brian , good afternoon. Hey afternoon. A couple ones here and I think some for Bill here. First, I'm just curious on the investment fund, obviously terrific result. This quarter, you seem pretty optimistic about some good performance here through the remainder of 2022, despite what many would consider a very challenging investment environment. Just curious if you can kind of give us a little.
Speaker 1: breakdown as to why that is, why you're pretty optimistic about it for the remainder of the year. Are you talking about specifically the funds or are you... Investment funds, exactly, the funds. The funds. So from our perspective we think they've been reasonably resilient as you can see. Please keep in mind that we booked it on a quarterly lag so we don't have perfect visibility as to what Q3 will look like at this stage.
Speaker 1: Will it be as healthy and robust as it's been in the first half of the year? We'll have to see with time. We don't have that visibility yet, but we do not anticipate it being a big problem for us, either based on our casual conversations with those that are managing the money.
Gotcha, thanks. And then I get another question. I'm just curious from a macro perspective. It's been since the 70s since we've been in this dagflationary environment, and it looks like we may be going into one. Just curious, Bill might know that how did the industry perform in a dagflationary environment? What are the consequences in the playbook? And does it really that matter that much for commercial insurers?
Well, I think it's the advantages that...
Stagflation is really an issue of how you reserve your plan.
and how you price your product and the mix of business you're in. So some companies did really well and some did really badly. And so a number of companies effectively go out of business and others prospered and were the acquirers.
So I think that it's a mixed bag of companies who pay attention to the numbers did quite well.
and the hospital and the companies chose not to. A fault is a great example of the job that hospitals and AIG made some bad decisions and they faulted. I think there's a whole mix of companies that did well and did not do so well. But going forward, I think that it's going to be much greater differentiation based on both the lines of business here.
and the particular opportunities that are out there. And from the by-point of view, I generally see greater opportunities. and I generally see greater opportunities.
but also substantial punishment for the companies that don't pay attention to the changing environment. My big environment is gonna continue to save at a more rapid pace.
Thanks.
Yes, please.
Your next question comes from the line of Josh Shanker with Bank of America. Your line is open.
Good afternoon. Good afternoon. Good afternoon. I appreciate that you want to keep the secret sauce in the company. It totally makes sense. People always ask you what your loss cost trend is or what your inflation assumption is. You'll be qualitative about it, not so quantitative.
But can you talk about when you're out there searching for business, how big is the gap do you think between what your inflationary assumptions are and what your competitors are? Now some people are obviously very disciplined like yourself, but how wide is that variance do you think when you're out there working for pricing I guess?
Yeah, what would smart people and less smart people are doing?
So, um...
Josh, I think it's a hard one to answer because it varies by product line and level of competition. And in addition to that, not to be a wise ask, but competitors aren't really inviting us to their rate making meeting. So knowing how they make their rates and come up with it, we're not really privy to. I would tell you that.
You know, it's a surprising to me quite frankly, and I think we may have touched on this last time, but I apologize if it's repetitive, but... I apologize if it's repetitive, but...
There's a real divide these days between what I would define as standard market, that being national carriers and super regionals have an appetite for.
versus what they don't have an appetite for.
If they don't have an appetite for it, there seems to be more meaningful discipline in the specialty and the E&S market, and that's really attractive. I have been surprised that many national carriers and large regional carriers have been willing to be exceptionally competitive on what remains within their strike zone or their appetite. So again, I can't speak specifically.
to how they're thinking about lost friends and what their view is on this or that. But I can tell you that it is a very bifurcated world as far as level of competition between what is still within the appetite of the standard market and what falls outside. The standard market and what falls outside.
Okay, I'll unpack that and work with it as I can. And then I got the question for the chairman.
i know i look i have a model going pre far back but not as far back yours what we talk about lengthening what what what what is a what is the longest duration uh... or gets relatively to ration to liabilities that birthday has ever been going to run
I'll wear it.
I think that the answer is...
is an unlimited exposure and found one we would ever
I don't want me to ever consider it.
Taking where I shorter durations.
Let you reset your mistakes.
Ah, excuse me.
Like we said your mistakes
more quickly and with me.
more specific challenges. So if you're a cadmium brachium, inappropriately you wouldn't you
shorter than
Shen?
portfolio duration you know what your exposure is whereas your duration is three years longer
minutes then you were closing
That gives you a different kind of risk. So I would guess the answer is we have never been consequentially longer.
a year or two, maybe three.
on the long side. And when we have been such, we've been such because we think the world is paying way too much.
in interest rates for the current interest rate.
picture so today would be a different story we all we think that
pricing for interest rates.
is such that it's unlikely.
that you get a lot of exposure to people paying you a lot too much.
as far as rates and I think that that's.
Maybe, maybe, maybe even worse because at the moment
because at the moment...
It's really an issue where you're confronting.
an environment where carnage threats are significantly...
in excess of the current market.
We have never, as far as I can remember,
really gambled on.
It illustrates substantially in excess of our forecasted duration.
And, uh...
The answer is we've never been better.
On the long side, it doesn't suit our general conservative nature.
So yes, you have that kind of caught one of the views that we have primarily.
And that is, you don't get rewarded.
We're taking a long term back.
and just return and speak in excess of the return of your duration.
Thank you for the clarification, appreciate it.
Yes sir.
By the way, I would be happy if somebody has the idea.
have when it come up without the design would be a hell of a bet.
Do you have another question for us?
That's okay, not a problem. Your next question comes from the line of Michael Phillips with Morgan Stanley . Your line is open.
All right. Okay, Michael, just had one follow up. Yeah, thanks. Thanks for the follow up. You mentioned earlier a question about your...
Small mistakes and lost picks could result in big ramifications. And I guess I'm curious, were you specifically referring to you or the industry? And if you, is that just because of your exposure to excess layers and your... No, I think that's just a reality of this industry.
If you look at anyone when you think of their economic model in this industry and you unpack what are the drivers in a loss ratio.
and the leverage in certain assumptions that go into coming up with a loss ratio, some of them.
Can be very leveraged such as how do you think about Economic inflation. What do you think social inflation means and those numbers don't need to be adjusted very much for there to be a heck of a ripple effect.
No, okay, no sense. I just want to make sure I didn't, you know, if you're specifically thinking of your own. No, it wasn't pointed at us. I think it's just a reality for the industry, but, you know, obviously the longer the detail, the more potential there is for leverage.
Sure, okay, thank you, thank you. And then if I could, your high net worth book, haven't heard much about that yet. We've heard a lot of severity issues on traditional homeowners companies and any thoughts you could share there on what you're seeing.
Business continues to do exceptionally well and it's clearly considered a very attractive alternative to some of the more traditional or long-standing names in the market plays some of which perhaps have lost sight of their value proposition and fortunately for us we have colleagues that are doing a great job building that business and have a laser focus on what the value proposition is that
that us audience or customer base is looking for and that's being recognized.
customer base is looking for and that's being recognized.
OK, perfect. Thanks for your time, Matt. Appreciate it. Thank you.
Yes, there are no further questions at this time. I'll turn the call back to Mr. Rob Berkeley for any closing remarks.
Okay, Josh, thank you very much. And we appreciate all that participated you finding time to visit with us today. Clearly a strong quarter, which is obviously very encouraging, but perhaps even more encouraging is, there's clear evidence that the momentum continues to be there in a meaningful way on the underwriting side, and a particularly noteworthy way as it's building on the investment.
So we will look forward to connecting with you all in 90 days. Thank you again for your participation and have a good evening.
This concludes today's conference call. You may now disconnect.