Q4 2022 W R Berkley Corp Earnings Call

Yes.

Speaker 1: Please stand by. We're about to begin.

Speaker 2: a few observations and thoughts of my own and then we will be looking forward to opening up for a Q&A and taking the discussion anywhere participants would would like it to go.

Speaker 3: One thing before I hand it over to Rich, and that is just maybe taking a moment to pause and reflect publicly on the year. And we'll be getting into the numbers and the results.

Speaker 4: but it does seem appropriate, at least from my perspective and our chairman's perspective, to extend some recognition. Thank you and congratulations to our colleagues.

Speaker 5: I have the good fortune of being the mouthpiece or the one that has the opportunity to talk about the results along with Rich and Bill Berkeley. But these results, these outcomes were achieved because we have thousands of people that are working diligently every day in a thoughtful and methodical manner.

Speaker 6: So to all my colleagues that happen to be tuning in, I hope you will accept the heartfelt thank you again, and congratulations on a job very well done.

Speaker 7: With that, Rich, if you would please.

Speaker 8: Of course, and thanks Rob, appreciate it.

Speaker 9: 2022 can be marked as a record year in many areas of the business. The company ended the year with a strong fourth quarter. Net income increased almost 30% to $382 million or $1.37 per share with an annualized return on beginning of year equity of 23%.

Speaker 10: Operating income increased approximately 14% to $323 million or $1.16 per share with an annualized return on beginning of year equity of 19.4%. Our results reflected record underwriting income as well as net investment income.

Speaker 11: Severe named CAD activity continued to challenge the industry as evidenced this quarter by winter storm Elliott and prior quarter events like Hurricane Ian amongst many others.

Speaker 12: Our disciplined underwriting approach and exposure management led to record pre-tax quarterly underwriting income of $292 million, representing an increase of approximately 12% over the prior year. On a full year basis, underwriting income eclipsed the prior year by 21.3%.

Speaker 13: reaching more than one billion dollars for the first time in the company's history.

Speaker 14: Pre-tax cap losses were $31 million or 1.2 loss ratio points in the quarter compared with $48 million or 2.2 loss ratio points a year ago.

Speaker 15: Net premiums written increased to more than $2.4 billion. The growth in the top line was adversely impacted by approximately 75 basis points due to the weakening US dollar relative to many foreign currencies.

Speaker 16: On a segment basis, insurance grew 7.2% in the quarter to more than $2.1 billion from rate improvement and exposure growth.

Speaker 17: All lines of business increased with the exception of professional liability.

Speaker 18: The reinsurance and monoline excess segment increased to $281 million in the quarter with growth in all lines of business.

Speaker 19: On a full year basis, gross and net premiums written grew to record levels of $11.9 billion respectively.

Speaker 20: The current accident year loss ratio excluding catastrophes was impacted in the quarter by non-weather related property losses which drove the increase of approximately 1 loss ratio point to 59.3%.

Speaker 21: prior year losses.

Speaker 22: developed favorably by approximately 0.3 million dollars resulting in a calendar year loss ratio of 60.6%.

Speaker 23: The expense ratio was flat at 27.8% quarter over quarter. Record quarterly net premiums earned grew more than 14% in the quarter, continuing to benefit the expense ratio. We do anticipate that our 2023 full year expense ratio should be comfortably below 30% and recover.

Speaker 24: and our calendar year combined ratio was 88.4%.

Speaker 25: Net investment income for the quarter increased more than 40% to a record of approximately $231 million led by income in the core portfolio which increased approximately 75%. The combination of our short duration, high quality fixed maturity portfolio.

Speaker 26: along with record-level operating cash flow of approximately 2.6 billion dollars in the full year, enabled us to invest at higher interest rates.

Speaker 27: Our book yield on the sixth maturity portfolio increased from 3% for the third quarter to 3.6% for the fourth quarter, which compares very favorably to 2.2% in the year ago quarter. Our new money rate exceeds the roll-off of our invested assets and we expect net investment income to continue to grow.

Speaker 28: The investment funds performed

Speaker 29: Well, with a book yield of 5.6% despite the deterioration in the broader equity markets in the third quarter. As you may remember, we report investment funds on a one quarter lag.

Speaker 30: The credit quality of the portfolio remains very strong at a double A minus with the duration on our fixed maturity portfolio including cash and cash equivalence of 2.4 years.

Speaker 31: Pre-tax net investment gains in the quarter of $75 million is primarily attributable to an improvement in unrealized gains on equity securities of $88 million relating to investments in the industrial, energy, and financial services sectors.

Speaker 32: The company actively manages its foreign currency exposure. The US dollar weakened in the quarter relative to many foreign currencies which resulted in a pre-tax foreign currency loss of $34 million.

For the most part, this loss was offset by an increase in our currency translation adjustment, a component of stockholders' equity. And accordingly, the result was an immaterial net impact on book value.

Stockholders' equity increased more than $400 million in the quarter or 6.3% to $6.7 billion. The unrealized loss position on fixed maturity securities improved in the quarter. Stock value per share increased 8.1% and 6.1% in the quarter and full year.

before dividends and share repurchases. In addition, book value per share increased 1.7% on a full year basis after returning capital to shareholders of $329 million and our full year return on beginning of your equity was 20.8%.

With that, I'll turn it back to Rob.

Richie, thank you very much. That was great. So I have a little bit of a list here of topics that I made notes to myself on because I think there's a lot going on in the marketplace, a lot of moving pieces, and obviously we as a market participant are navigating through that.

So maybe a place to start would be a macro observation.

And I know we've touched on this in the past, but I think it's very important to keep top of mind. It's certainly something that we as an organization are focused on. And that is the reality that, yes, this is still a cyclical industry, and the cyclical nature is driven, as we've discussed in the past, by two human emotions.

fear and greed and for those that want to drill down into that more we can we can do that offline.

But...

The simple reality is that this is an industry that has splintered.

And what I mean by that is once upon a time, most P&C product lines marched throughout the cycle somewhat in lockstep.

And what we are seeing more and more is major product lines, yes, still operating and behaving in a cyclical manner, but they are very different points in the cycle.

And we are just seeing that in a more and more pronounced way. And when people talk about where is the marketplace, I don't think that there is one answer anymore. It needs to be more granular. It needs to be where is the property market, where is the comp market, where is GL, etc. And one can even get more granular than that.

So I wanted to spend a couple of minutes talking about, through our lens, how we're thinking about major product lines and where those product lines stand in the cycle and what are some of the realities stemming from that.

So perhaps a place to start would be property. Clearly has gotten a lot of headlines over the past couple of years. I think many have been waiting for discipline to finally turn up. And it seems like it is arriving.

We have seen it in a much more pronounced manner in the reinsurance marketplace, and we've seen it begin to sprout some green shoots of discipline in the insurance marketplace with undoubtedly more to come.

You know, as far as the property insurance marketplace, we were a little bit disappointed by the lack of discipline that appeared in the fourth quarter. We are convinced we're going to see it more and more as we make our way through 23.

But the simple fact is it wasn't there. And we've been scratching our head trying to figure out why. When everybody knows, reinsurance costs are going up, both CAT and RIF. And you would think that as soon as that becomes apparent, one needs to start to factor that into how you price your product.

the cost of that capacity is going up. And one also needs to remember that these reinsurance covers are not risk-attaching, they are losses occurring. So as you're writing business in the fourth quarter, to the extent you're able to, you really need to be not just contemplating, but incorporating into your pricing.

what that new reinsurance capacity is going to cost, even if it doesn't take effect till 1-1, because that capacity is going to be supporting the risks for part of a year that you wrote in the fourth quarter or even the third quarter and earlier.

The property market from our perspective is poised for material hardening.

We, I think, are thought of by some as not a property market.

And quite frankly, while we have been and are...

having more of a liability bent, it would be a mistake to think that we do not have the skills and the appetite for property when we think it makes sense, when we believe it is a good risk-adjusted return. And there is a better than average chance from our perspective the marketplace is moving in that direction.

Clearly, it's getting there on the reinsurance front, and more to come again in our opinion on the insurance front. Maybe pivoting over to workers' compensation, I think there was either a poem or a song or something that went something along the lines of waiting for the world to change. So, this is one that...

I clearly have missed the timing on. I had thought that the world would have figured it out by now as far as where things are going and what people need to be doing from a loss cost perspective. Clearly I was mistaken.

From my perspective, based on what I see and I believe my colleagues' perspective, is that comp is likely going to continue to bump along the bottom throughout 23 and we can look forward to 24 and beyond, hopefully for some considerable firming.

which, again, is something to look forward to, but in the meantime, clearly requires thought and discipline. And quite frankly, from our perspective, it's a little bit unnerving that some rating bureaus seem to not be appropriately taking into account or adjusting.

for the frequency benefit that occurred during COVID. Additionally, we think one needs to be very thoughtful about severity trends as well, and what that could mean in the future, especially on the medical front.

Auto is another product line that we think requires thought and judgment.

From my perspective, I don't think that there's a product line today that is more susceptible than auto to social inflation, if you like.

And the good news is there is rate to be had if you go after it. The challenging news is you better make sure you're getting it, otherwise it's very easy these days to fall behind lost costs.

I'm going to lump GLXS and umbrella into one pot, which is kind of inappropriate, but in the interest of time, I'm going to do it. I think those are amongst the brighter opportunities at this stage. Clearly again, one needs to be mindful of social inflation, but the rate is there to be had.

I would tell you of that universe that I'm referring to, the only one area that is, I wouldn't say concerning, but is on the watch list is the large account excess business, the large sort of Fortune 5000 towers.

There's been a huge amount of rate that's been achieved in that marketplace, but one needs to be very mindful as to how quickly that could potentially erode. Other than that, there's been a huge amount of rate that's been achieved in that marketplace,

I think there's a lot of opportunity there.

Pivoting over to professional liability, I would suggest that it's very much two stories there. I would say on one hand you have DNO and then on the other hand you have, by and large, everything else. The DNO market a few years ago took off like a rocket ship with massive rate increases to say the least.

So professional liability we think offers a great deal of opportunity and we view that as a place for us to continue to lean into. I would suggest smaller part of the marketplace, hospital professional liability is also an area that requires thought and caution.

Finally, reinsurance, with all due respect to my friends and colleagues in the reinsurance space, I think perhaps the expression that even a broken clock is right twice a day, well, this is one of those moments when the clock is right. And we will see with time. I have got eyes

how much discipline really is in the market and how long it remains or what the staying power is. I know that there was a lot of attention put towards PropertyCat and what 1-1 was going to hold. Clearly, it was a firming marketplace. We did participate in that.

I would tell you that the US market was at least at 1-1 considerably more attractive than what I would define as the international market or ex-US. So what does this all mean for us as we sort of pivot to the mirror and talk about our quarter before we get into the quarter?

a few follow-up on Rich's comments. I think what it means for us is there's still great opportunity.

I think what it does also mean is that we need to continue to be focused, disciplined, and prepared to pivot as opportunities present themselves and as they diminish and other opportunities present themselves. It's one of the great things about our organization.

and the breadth of our offering and our structure.

We are a collection of specialty companies where we have teams of people with great expertise focused on their niche.

These teams of people understand cycle management and they understand their loss costs and how to deploy and manage capital.

So, long story short, we think we're in a pretty good place. As always, you're going to see parts of the business growing, other parts of the business perhaps shrinking as we capitalize on opportunities.

Pivoting to the quarter, again, I'm not going to belabor this because I think Rich, as always, did a great job. But a couple observations on the top line. He talked about the FX impact. I would also suggest rate and rate adequacy continue to be and will always be our priority.

36 months, depending on chat activity, quite frankly.

But again, we will see with time.

As far as rate goes, as you would have seen from the release, we got just shy of seven points of rate. And we think that that comfortably helps us keep up with trend, and more likely than not, perhaps we're exceeding trend.

One of the things just on the topic of rate, and I apologize if you find this repetitive, but it's something that does come up from time to time is confusion that exists between renewal premium versus renewal rate increase.

Our definition and our true north in our effort to make sure we understand loss, cost, and margin

is the number of dollars that we are collecting per unit of exposure.

It's not about the amount of premium that we happen to collect.

If I'm running a trucking company.

and I have five trucks.

And at the renewal it turns out that my number of trucks has gone from five to ten and I end up collecting twice as much premium.

That's not a rate increase. That means I got twice as much premium, but I got twice as much exposure. And in theory, I need to get more than that to keep up with trend.

So when we talk about rate increase, let there be no misunderstanding. We're not talking about increase in premium, even though ultimately it may adhere to that. Our focus is on the amount of money we collect.

for units of exposure. And we work very hard to make sure that when we are comparing unit of exposure to unit of exposure over corresponding periods, that we have unpacked that so it is as close to apples to apples as one can.

Establish.

Another comment that I did want to make is on renewal retention ratio.

Obviously, different product lines, different parts of the business, we target different levels of renewal retention. When we look at our portfolio overall, we look for the renewal retention to sort of float somewhere between 77 and 80, maybe 81 depending on the mix.

When we see that renewal retention ratio kicking up above that.

From our perspective, it is an invitation.

to be pushing rate harder.

We want to be in the market at a granular level, testing it every day to be getting as much rate as we can to ensure that we are at a minimum at rate at a proceed.

That's a very important thing that is a priority for us as an organization.

One last quick comment on the top line that we've talked about in the past, which again, I think speaks to quality and integrity. Our new business relativity for the year was above 100 or above 1, if you will, which means we are charging a bit more for new business than renewal again for the year.

not realize and I'm about to share with you is that we had some fire losses in the corridor and it wasn't in any particular operating unit. It was pretty widespread and that added somewhere between a point, maybe a point and a quarter to the loss ratio.

We saw it both in the insurance business amongst various operating units, and we saw it in the reinsurance business too. So we are focused on that, trying to make sure that there's not something that we're missing here, and to the extent there is, we want to be tending to it quickly. One last data point, which again, I've qualified in the past and I'm going to qualify now, is not the whole story, but we believe it is a relevant data point.

20, 52, 21, 45, 22, 45. You can interpret that and extrapolate any way you want. I view it as a data point that doesn't tell the whole story, nevertheless a valuable data point.

Rich talked about the expense ratio, 27.8. Certainly the whole team on this end, we continue to try and make sure that we are getting good value for the money that is spent.

Obviously, as it relates to compensation, we are trying to make sure that we have done a reasonable job on behalf of our colleagues keeping up with cost of living, and I think we've done a good job staying on top of that. And as Rich also mentioned, we are trying to make sure that we are keeping up with cost

We have invest ongoing investments on the technology front, which we think are very important for the future Could it take up a little bit from here? Yes, do I think that we are focused as Rich said and keeping it below 30 and remaining competitive? Absolutely, and we are constantly making sure that our acquisition cost is thoughtful

Maybe just spending a couple of moments following on Rich's comments on the investment front as he flagged duration sitting at 2.4, the book yield 3.6% and I think as Rich flagged, I will flag again, the new money rate these days is Your

North of four and a half we're flirting with 5%. So, you know, I will leave it to others to fill in the blanks as to what this means for our economic model. But obviously when you think about the spread between the book yield and the new money rate and what we're able to achieve and you extrapolate that for what it means for our economic model, I think it is.

more towards 2.8 over time. But again, we are not in a rush. We're gonna do that in an opportunistic way as windows open and close. So since I'm onto most of you folks that as soon as the Q&A is over, everyone starts hanging up, I'm gonna just offer a couple of.

quick summary comments, and then we will move on to the Q&A. I think we had by any measure a very strong year.

And I think that when you look at how the business is positioned, while nobody knows exactly with certainty what tomorrow will bring,

We have a lot of pieces laid out in good position for the coming years to be very attractive for the business.

I think that is both the case on the investment side.

as well as on the underwriting side.

As I suggested a few moments ago, you can see where the book yield is and where the new money rate is and what that means.

In addition to that, you can see the rate increases that are earnings through and what that is going to mean for the business.

I know that there are some that are wondering why is it that we have not dropped our lost picks more quickly. And it is certainly something that we look at and we visit and we revisit.

But you need to please understand that we are acutely aware of some of the unknowns and how leveraged the model is, and we want to make sure that we do not take the cake out of the oven prematurely.

So with that, I think people have probably had more than enough of me. Beau, why don't we please open it up for questions, please. Thank you. Okay.

Certainly, Mr. Berkeley. Ladies and gentlemen, at this time, any questions, please press star one. And if you do find that your question has already been addressed, you can remove yourself from the queue by pressing star one again. We'll take our first question this afternoon from Elise Greenspan of Wells Fargo.

Hi, thanks. Good evening. My first question is on the CAT re-insurance side. So it sounds like you guys did see some good opportunities at January 1. Can you just give us a sense of the

how much growth and how big of an opportunity that presented for Berkeley.

Yeah, I think that...

We saw it as an opportunity, but I don't think you should assume that it's reshaping our book of business as an organization.

So I think that we are opportunistic. We put more than a toe in the water, but not more than a foot And that's just because of our view of volatility in addition to that We're going to see what type of opportunities there are in the first quarter in the balance of the year particularly with some shortfalls and certain market participants covers

Did you guys also change your own outbound reinsurance? Do you have a higher retention this year? Were there any changes on your own program? Yes. And you'll get more detail than you're probably looking for in the K. What I would tell you is that our retention did go up.

But relative to the scale of the organization and the earnings power in the corridor, it's not particularly material.

And then you gave a lot of good market commentary on different business lines. You know, in the past spoken about, right, 15 plus premium growth, that's obviously come down reflective, right, of some of the trends in comp and in liability lines. How do you think when you when you put everything together and I know that's hard.

Where do you think the top-line growth could trend over the coming year? Yeah, so clearly comp has its challenges. As far as the comment you made about liability, if you don't mind, Elise, I'd like to get a little bit more nuanced. I think it was really just predominantly a piece of the D&L market, a piece of the professional market.

severe social inflation, we think that it makes sense to us. As far as your question about growth, you know, we'll have to see how it unfolds. I would tell you that based on the limited data I have on January so far, you know, early returns are encouraging.

But, you know, my ability to speak at a detailed level beyond that, you know, I just wouldn't want to mislead you. But we see a lot of opportunity and we're watching the opportunity shift from, you know, over time from one product line to another. So I think we have good balance to the shift, but we also are very nimble.

amongst the different parts of the business. Okay, thank you for the color.

We go next now to David Montmaiden at Evercore ISI.

Hi David, good evening

Hey Rob, good evening. My first question is

I'm just wondering if there were any changes at all to how you're thinking about loss trend here in the quarter, both on short tail and long tail lines. I know last quarter you said at around a similar rate excluding comp that

You're meaningfully above loss trend or I think it was 100 base points above loss trend. And I thought the commentary this quarter was, I think you said it comfortably help you keep up with loss trend and perhaps exceeding trend. I guess I'm wondering was there a change?

No, I think that I probably need to choose my words more carefully. I think from our perspective,

by and large in the aggregate, we are exceeding loss trend at this stage. So if I left you with a different impression, that would have been my mistake.

Got it. So no change to some of your view of Shorthail or Long Island? No, nothing material has occurred over the past 90 days that has changed our view.

Got it. Thanks. Then maybe a quick follow-up for Rich. I know for the total company it was immaterial, but on the prior year reserve development, could you provide that by segment?

We typically provide that information in the 10K as opposed to on the call.

Okay, great. And then maybe if I just follow one more on, add one more on, if I think about, you know, your commentary, Rob, was pretty interesting on the property side.

And I guess I'm wondering, did your view of your own, you know, reinsurance costs and retention change your view of, you know, the level of primary pricing on the property side during the quarter? Did that, I guess, maybe talk about how that evolved over the course of the quarter? Honestly, I think if anyone was...

paying attention, you didn't need to be brilliant to figure out that your property rates were going to be going up for reinsurance and going up considerably.

So I don't think anyone knew exactly down to the dollar or the percent what it was going to be but you knew it was heading north.

And it was just surprising to me that we didn't see more firming during the fourth quarter and given everybody knew where the cost of capacity was.

And

I guess I could have followed that if these covers worked in a risk-attaching manner. But since they operate in a loss-occurring manner, you know that the capacity that you're borrowing from reinsurers, that cost is going up and it's going to be covering the business that you're writing in the fourth quarter.

No, that makes sense. So to me, the reason, honestly, we thought there was going to be more firming in the fourth quarter. I think it's coming, and certainly in the first half of this year, but it's almost like people need to wait for them to be hit over the head with the reinsurance costs really hitting their kinky.

And next we'll go to Mark Hughes at Truist.

Hughes at Truist. Hi, Mark. Good evening.

Hey Bill, how are you? I mean Rob and Bill, I hope you're doing well also.

On medical inflation, you had mentioned workers comp, you need to keep an eye on it. I think you said there was potential for susceptible to inflation. Are you seeing anything yet on the medical front?

You know, I think that

We are paying attention to

Medical care providers.

and the challenges that they are facing.

By and large, most hospitals and health systems find themselves in a very difficult place if you look at, quite frankly, their financials, their economic models.

It's not sustainable.

So ultimately, they're going to have to figure out a way.

to improve their position.

And they're certainly not going to get

a better result or a better outcome from the public sector or the government. So that leaves the private sector that they're going to be looking to get their pound of flesh from to improve their position.

In addition to that, while there's been a lot of discussion and a lot of noise...

I don't see anything in the immediate term that is going, again for the private sector, going to change the realities of pharma inflation. So when we look at where things are going, we think that there is a challenge ahead.

and that is going to play a meaningful role in driving workers' comp claim costs.

In addition to that, we think, as I suggested, rating bureaus, they seem to not be backing out the COVID frequency effect.

Do you think that same thing is happening in the in commercial auto that the there's too much reliance on the last couple of years and that's why it's gotten more competitive that's why you've tapered your business there?

I think there are a lot of challenges with commercial auto. I think certainly one of them is people paying attention to frequency trends, but I think severity trend is, you know, for the society, for the industry is really the bigger issue. And when you look at how emboldened the market is, you know, the market is going to be.

the plaintiff bar is at this stage. I think the commercial transportation industry has a bit of a bullseye on its chest, and we, who insure them, need to take that into account. And when you drive up and down I-95 at this stage, you see more billboards for a plaintiff attorney than you do for fast food. So that's probably not a great sign.

Finally, anything on audit premiums that you notice that might be some signal on the economy? Yeah, you know, obviously it's a lagging indicator, but we continue to see audit premiums coming in at quite a healthy level, and we remain encouraged by that and what that means for our business.

Appreciate it. Thank you.

Thank you.

We'll take our next question now from Alex Scott with Golden Jacks.

I'll try leaving.

Hey good afternoon

First, what I have is just follow up on workers comp. I guess we've seen some reasonably large numbers in terms of potential decreases in NCCI. I'm just trying to understand how much pressure we should be thinking about there. I know your book is a little more nuanced than that and there's a lot of excess and so forth. I want you to understand.

from you all because it sounds like you still have a view of loss trend that certainly sounds like maybe from your comments is at least positive let alone maybe materially positive versus just

big price downs that we're seeing kind of coming out of NCCI. So can you help me think through that and what kind of impact they may have on the business going into 2023?

Sure, I mean, from our perspective, we...

We think we're using a very broad brush here and I think we need to be mindful of that. And we operate the business with a very, very fine brush so that there's a bit of a difference. I think at a macro level we need to be conscious of the fact that we're using a very fine brush here and I think we need to be mindful of that.

that there have been rate decrease after rate decrease after rate decrease. And a lot of that decision making is based on information that people collect.

have been rate decrease after rate decrease after rate decrease. And a lot of that decision making is based on information that people collect through the rearview mirror. Just those things have been the greatest Canadians ever to get there.

And to make a long story short, we just think that

You can't wait to see the problems.

in the results. You need to anticipate that. And I think we're very focused on that. So I think a lot of state rating bureaus, NCCI,

I think that they just need to be, we need to be as an industry careful that we are conscious of what is going on out the front windshield, not solely consumed by what's in the rearview mirror.

Got it. And then the second one was sort of a follow-up on some of the growth questions that you guys have received. I mean is there anything to read into the buyback you did this quarter? And you know it seems like E&S property, maybe some of the property kind of coming out of standard lines and you know the foot in the water on reinsurance or

you know, real tangible ways that you can deploy capital, but, you know, is this an indication that maybe you're not seeing as much capital deployment opportunity as you would have liked? And we might actually get a little bit more back and buy back over the next year.

I think the answer is that we do see a lot of opportunity before us.

and we are conscious of the capital needs in order to support that. I would suggest to you I would not read too deeply, based on what I can see so far. Granted, it's just very early in Q1, and I don't have a lot of data, but I would encourage you not to read too deeply into the fourth quarter as far as it being an indicator for the capital needs.

And we put that all together and we try and make decisions from there.

put that all together and we try and make decisions from there. Got it. Thank you.

Thank you. We go next now to Ryan Tunis at Autonomous Research.

Hi Ryan, good evening. Good evening. A couple from me.

First one just

I'm just trying to parse out what's happened with the loss ratio this year. At least in my model, because I'm confused, because in my model with this quarter baked in it, the underlying loss ratio looks kind of flattish, 21 to 22.

I mean, I was hoping, Rob, maybe you could unpack, like, there's obviously noise, but how much did you, did loss picks go down or whether it was just, you know, what did you kind of, what was your view of what the core margin expansion would have been this year if not for noise? Well, I don't know actually how I am as practical of a question, but I would say it was a record of what was possible. Pretty impressive that.

I would have hoped that we could have done a little bit better, but as I alluded to earlier, the fires created some non-cat noise, which we are trying to make sure that we understand that that is not a...

permanent part of our loft activity.

So as I suggested earlier, that was probably worth.

More than a point, not more than a point and a half.

Got it. I didn't, uh, yeah, so my follow up on the fires.

We've never really seen that type of non-cat volatility here. I guess my interpretation of that was your per risk reinsurance program that

attaches pretty low, but a little more than a point, is close to like 30 million bucks.

It was a lot of...

So it was a frequency of severity on a gross basis and honestly it wasn't concentrated in any one of our operations and I'm not a big believer in good luck and bad luck which is why.

tonight. Absolutely. Good evening Josh.

So, I mean, look, my preference is what you guys do is hard. It's a very competitive process with a lot of transparency and it's quite attractive. You're not the only ones who want to write that business.

I think about four quarters ago or maybe five you said that you felt that that broadly speaking your book got to the rate accuracy you wanted and you're now pivoting to the growth phase and exposures.

four quarters ago or maybe five you said that that you felt that that broadly speaking your book got to the rate accuracy you wanted and you're now pivoting to the growth phase and exposures on a backward-looking basis.

Did you grow as much as you wanted to? Was the opportunity set as you thought it was? I look at the premium growth this quarter, and it's not the lowest quarter of the year. It's been better throughout the year, but it seems like it's kind of pacing with your pricing trends on renewals, and there is new business baked into there as well.

Have you been able to grow with the tenacity that you hoped a year or 15 months ago when you sort of announced that pivot?

Well, Josh, to be perfectly frank, you remember what I say better than I remember what I say. Nevertheless, I'm sure you're correct. Obviously, we all look out and we try and anticipate and we try and figure out what does that mean.

I think in hindsight you always say to yourself, well, I could have done this, we could have done that, maybe we want to squeeze a little bit more juice out of the orange. And, you know, hopefully that's a learning opportunity to find new mistakes to make in the future as opposed to repeating old ones in one's effort to optimize.

To make a long story short, I think in many pockets of the organization, we did really well in trying to make the most of it. I think there are some pockets of the organization where we did really well, quite frankly being disciplined and letting business go.

as I suggested earlier in the call, we have different cycles going on, or same cycles, but different products at different points in the cycle. I think one of the pieces that we anticipated, but not fully, you know, call it whatever, 15, 18 months ago, is I think that we did not fully appreciate

what was going to be happening with loss trend particularly inflation.

We were talking about social inflation and I think we had our finger on that pulse. I think economic inflation, we saw it coming but it proved to be even more than we had expected.

So, I think those would be two things that when I made that prediction, those were realities we had to factor in even more along the way than I had when I had suggested.

But I think there are parts of our business, particularly our E&S businesses and others, and many of our specialty businesses, that I think have done a great job getting a lot of traction. On the other hand, I strongly applaud, for example, our colleagues that are focused on workers' compensation and the discipline that they've exercised.

Yes, when you look at one of the pages in our release, you see the comp line growing, but that's really driven by payroll. If you look at the number of counts, that product line has really shrunk for us because of my colleagues discipline.

That's when you look at one of the pages in our release, you see the comp line growing. But that's really driven by payroll. If you look at the number of counts, that product line has really shrunk for us because of my colleagues discipline.

directionally it played out the way for a lot of product lines I would have anticipated degree wise there are places where I thought the porridge was going to be hotter and there

It's okay, the prediction game is hard to do.

You made the point earlier that you run with a lot of leverage.

And I just want to dovetail into what you were saying before. And you've got to be careful. Wha...

Geometry, you know, there's some people who if your loss was just deteriorated by 200 basis points, I imagine there would be a lot of unhappy people on this call. But if in doing that you were able to grow your portfolio 15, 20% more than you otherwise would have done so, that seems to be a pretty good trade in the long run.

Am I right about that or is gross just transient?

I think that the point that I was trying to make is when we think about our loss picks, we need to be very thoughtful and measured. Because when you make a loss pick.

the assumption there's a lot of sensitivity.

So, if you are overly optimistic, even if you're modestly optimistic, that is very leveraged and that could be a problem.

And that's why we, again, do not want to declare victory prematurely as we think.

See if things season out we will start to recognize, you know, our accuracy or potentially some caution.

And given – That's the last loop. Yep.

And given the good ROEs, is there any reason to relax a little bit on the discipline? I know that's gonna sound bad, but to let in a little bit more business, even if it makes the loss ratio deteriorate a bit, because it will make sense for the long-term growth to the company? You know, Josh, what you're pointing to, I think, is one of the...

granular level and optimizing that.

So, I'm sure in hindsight there will be parts of the business that we will look back on and say I wish we had leaned into it a little bit more.

But in the meantime, I think we're just trying to make the best judgment we can every day.

Well, thank you for indulging me. I appreciate it. Thank you for the questions, Josh. Have a good evening. Thank you.

We go next now to Yeren Tenar at JEPRIES.

Good evening. Hi, good evening to you as well. I don't want to put words in your mouth, Rob, but I think what I heard you say was, you know, in the right market, you may look to lean more into property, both in insurance and reinsurance if the rates are adequate.

If that is the case, can you maybe help us?

Or indulges with with your thinking about this, because on the 1 hand, I would think it should certainly improve the loss ratios and returns on the other hand. You know, 1 of the things I think differentiates Berkeley is a very, very stable. Loss ratio and underwriting margin, and I would think that underwriting margin probably would incur greater volatility and that.

thinking about risk.

Do I think that we are going to dramatically shift the risk profile of the organization to become a heavy cat exposed writer?

No, but do I think that there is opportunities within the property market where rates are going to get to a point that they haven't been in some number of years and the risk return balance makes more sense than it has? Yes, I do. And to that end, are we going to be prepared to participate?

in a more meaningful way than we would if it was a less attractive market? Yes, sir, we will. But do I think you should think about, we're going to dramatically shift our risk profile and how we think about volatility? No, sir, I don't think you should.

Okay. And then I think in response to the previous question you talked about increasing your –

premium retention just given the dynamics in the reinsurance market. Can you also maybe talk a little bit about any structural changes that you may have had in your reinsurance program, whether it's lower seating commissions or higher retention rates or a move to XOL. What other changes can you call out here?

Yeah, you know I think ultimately on a net basis It's going to prove to be something very similar for the business and by extension for our shareholders as I said the retention moved up incrementally Relative to the scale of the business and the earnings power of the business on a on a core

That's by design.

And maybe a follow up to that. Are there lines of business where your appetite is somewhat curtailed by the fact that re insurance appetite or structures have changed?

No. No. Okay. Thank you. Fortunately for us, we have a lot of long-term relationships amongst reinsurance partners. And I think that they're conscious of the fact that we are an organization that is a collection of people of expertise and discipline. And I think people understand that we are growth line underwriters.

Thank you very much. Thanks for the question. Have a good evening. Thank you.

Next we go to Brian Meredith at UDS.

Thanks. Just a couple. Hey, Rob, how you doing? A couple quick ones here for you. Excellent. Good. A couple of the brokers have been citing the lack of M&A and kind of transactional stuff going on this quarter versus the fourth quarter last year as a reason for slowing organic growth. Are you all involved in that business?

Part of kind of a difficult comp headwind for for some of your like professional liability in other areas Yeah, so to the point that you're raising we kind of we do play in the transactional space. I Perhaps mistakenly lump that in there with DNO. They oftentimes go hand in hand and Yes, I think that

Part of what we're seeing in the D&L market is a competitive environment, but even more so, it's just a reduction in demand.

You know, during the heyday of DNO, you know, a couple of years ago, or over the past couple of years, that was really in part not just driven by losses and discipline on the underwriting side, it was the IPOs and the SPACs.

were enormous, that level of activity. And on the transactional side, I think as we all have an appreciation, the level of M&A activity has slowed dramatically as well. So yeah, there is a bit more competition there, but even more so it's the reduction in demand than the addition of supply.

Gotcha. And then I guess my second question is, are you seeing any

call it increase and kind of competitive for from the standard markets, vis-a-vis the E&S markets or as they continue to flow that way towards the E&S and away out of the standard markets? You know we still see a pretty healthy flow of business coming into the E&S market and both on the live, the casualty side on parts of the professional market.

how aggressive they are. If it's outside of their appetite, then it's a great opportunity for the rest of us that are happy to run around to pick up the crumbs that fall off their table and price them as we see fit.

But the standard market...

Their appetite ebbs and flows and moves in different directions. We continue to see a reasonable flow of business, but if it's still within their strike zone, look out, step out of the way. I would tell you one area that we have seen...

perhaps moving back towards the standard market, which isn't a huge deal for us, but it's worth noting, is large account product liability.

Why, I have no idea, but the standard market, particularly national carriers, seems to have a...

I thirst for it, and I think we all know how that's going to end.

And I think we all know how that's going to end.

Thanks Rob, appreciate it.

Thanks, Rob. Appreciate it. Have a good evening. Good evening.

We'll go next now to mireshield.kdw.

Good evening. Hi, how are you? Good, how are you? Good, how are you? Good, how are you?

Good, thanks. A couple of brief questions, because I know it's late. One, am I reading too much to be worried by the fact that the expense ratio bogey is 30%? You've been well below that for a while. I don't think it was 30%. I think what Rich and I perhaps failed to articulate was it's going to be comfortably below 30%. I don't know if we're going to be able to keep it below 28%.

We'll have to see what happens with our earned premium. We'll have to see a variety of things and we're making investments. But I think that our expense ratio will remain competitive and remains a focus and will be comfortably under the 30 as risk set.

Okay, that's helpful. Second question, I guess broadly, like I know on the insurance side we've been talking about social implications for a while, and I'm wondering with regard to the actual insurers, is there any push for them or by them to get higher limits to contend with social implications? cats

Yeah, you know, I think the short answer is

Yes, but. So if you're an insured, you're sitting there saying, well, I'm concerned and my agent or broker is perhaps advising me to buy more capacity because of the environment, but at the same time, the cost of capacity may be going up. So it's a matter of what can I afford. One of the things sometimes we're seeing people do is.

think about an SIR or a large deductible as a way to try and figure out a way to move dollars around as to what they're buying. But I think that there is a broad awareness in society. I think distribution is advising, but I think ultimately it's really a matter of what people can afford.

And I think it's an important point because what you're touching on is something that society doesn't always really appreciate. And that is social inflation.

And what that means for claims activity?

It's not paid by the, necessarily the insurance company long term. The insurance company just turns around and raises the rates. Ultimately the bill is paid by society.

Okay, no, I completely agree with that, just with the observation and the perception of it. And final question, if I can, if we pinky-square to read the 10-Q s and 10-K s anyway, can we start getting reserved development by seconds on the call?

Yeah, I'll talk to somebody who makes these decisions. We probably have like a dozen lawyers that are deciding what we can and can't say. So the answer is, well, I appreciate the gesture of the pinky swear and it will be in the queue and to the extent that anyone's dying to know what it is.

Assuming that there's no lawyer that pulls their hair out, Rich will have it available. All right. Fantastic. Thank you so much.

You bet. Have a good evening. Thank you. And we'll take our last question from Mike Zyrimski at BMO.

Hi Mike, good evening.

Thanks for fitting me in. I think this was touched on in.

maybe Brian Meredith's question, but I guess you know in terms of the lack of discipline you know that's your I think term you used regarding the rate environment recently I mean could some of that be due to just competitors simply feeling that you know investment income is

It's a much bigger plus than it was before so it just simply makes sense and maybe I'm wrong but even on the work comp side that you know there's an element of you know carriers being able to dictate rate a bit you know around the state bureau suggested rate so just curious if you think that's a theme.

that we should be thinking about as we're thinking about pricing into 2023. You know Mike, I don't see us getting back anytime soon to, if I'm understanding it correctly, call it cash flow underwriting or something that's a stepping stone to that. I think the reality is that

not everyone's investment income is taking off exactly the way ours is because a lot of people, quite frankly, had a much longer duration.

So, from my perspective, do I think over time if rates stay up at the levels they are or higher, do I think that could eventually have an impact? Yeah, I guess it could, but I don't think that's what we're seeing today if you want to talk about, for example, workers' compensation.

I mean, if you really want to get granular about workers' compensation, the fact of the matter is the people that are doing the irresponsible things are the same people that did the irresponsible things the last time we were in a trough. Sometimes they're in the same place, sometimes they're in a new place.

But it's the same people that I don't know if they don't understand or they don't care, but they're creating mayhem in the market. We've kind of seen some version of the movie before and we'll just wait it out.

Understood. As a follow-up also to a previous question on the impact from higher reinsurance rates, I heard you say probably not too material given the overall size of the organization. Just want to…

to make sure, you know, are there any nuances we should be thinking about? Like are our casualty seating rates changing and we should be thinking about that? Or is there still kind of more of the book in terms of your reinsurance purchasing that could come later in the year that you know we're still kind of TBD?

We buy many contracts and they renew throughout the year, I think is how you should look at that. I think for our reinsurance and retros, did we pay a bit more? Yes, we did. Do we have every intention of passing that increased cost along? Yes, we absolutely do.

And as far as our insurance and our cat costs, it's the same story. There are some cases, clearly, where we're paying a bit more, and we have a choice whether the company allows that to erode our margins or whether we pass that on. And it is our intention to pass that along.

in the cost of our product that we sell. Okay, and lastly, thank you for the paid loss ratio comments and just curious if

you've been surprised at where the paid loss ratios have been settling out lately or are you you know or as Berkeley since you guys have been sounding the alarm on social inflation for a while you know maybe there's kind of a mix or just you know re-shifting you guys have been doing to help keep those

paid loss ratios from getting back to, I guess, pre-pandemic or longer term levels. Look, Mike, we don't have it down to a granular level or basis points, but...

directionally it is unfolded as we had anticipated. And we'll have to see what that means over time.

But, again, directionally it is unfolding as we had anticipated.

Thank you.

Thank you. Thanks for the question. Have a good evening.

And Mr. Berkeley, we have no further questions. So back to you for any closing comments.

Okay, Bo, thank you very much. We appreciate everyone's participation this evening and we will look forward to catching up with people in give or take 90 days.

Have a good evening all. Thank you. Thank you, Mr. Berkeley. Again, ladies and gentlemen, thank you for joining WR Berkeley's fourth quarter and full year earnings conference call. I would like to thank you all so much for joining us. I wish you all a great evening. Goodbye.