Q2 2023 W R Berkley Corporation Earnings Call
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Speaker 2: Good day and welcome to W.R. Berkeley Corporation's second quarter 2023 earnings conference call. Today's conference call is being recorded.
Speaker 2: The speaker's remarks may contain forward-looking statements.
Speaker 2: Some of the forward-looking statements can be identified by the use of forward-looking words including without limitation, believes, expects, or estimates.
Speaker 2: We caution you that such forward-looking statements should not be regarded as representation by us, that the future plans, estimates, or expectations contemplated by us will, in fact, be achieved.
Speaker 2: Please refer to our annual report on Form 10-K for the year ended December 31, 2022, and our other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results.
Speaker 2: WR Berkeley 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 the new information, future events, or otherwise.
Speaker 2: I would now like to turn the call over to Mr. Rob Berkeley. Please go ahead, sir.
Speaker 3: Brianna, thank you very much and good afternoon. Again, welcome to our second quarter call.
Speaker 3: Along with me on this end of the phone, we also have our Executive Chairman Bill Berkeley, as well as Chief Financial Officer Rich Baio.
Speaker 3: We're going to follow our typical agenda where momentarily I'm going to hand it over to Rich, who will walk us through some highlights from the quarter. I will follow up with a few observations after Rich makes his comments, and then we will be opening it up for Q&A. Good night.
Speaker 3: Before I hand it over to Rich, a few comments from me. Based on everything I can see, it would look as though the stage is being set for what one might call yet another but-for quarter for the industry. It would seem as though-
Speaker 3: Cat losses don't make a difference and bizarrely from our perspective, people seem very quick to back out cat losses as though it's not real money. But ironically, they don't seem to back out the premium associated with the exposure that just had the losses. Thanks for watching.
Speaker 3: So, again, from our perspective, it is no wonder why the industry struggles oftentimes to make good risk-adjusted returns. In order to do that, one needs to recognize the exposure you are taking on and not pretend that it does not exist, particularly when it occurs. So, again, from our perspective, it is no wonder why the industry struggles oftentimes to make good risk-adjusted returns. In order to make good risk-sensitive returns, one needs to recognize the exposure you are taking on and not pretend that it does not exist, particularly when it occurs.
Speaker 3: Through our lens, we are in the capital management business.
Speaker 3: We are focused on risk-adjusted returns.
Speaker 3: And around here, cat losses count.
Speaker 3: In our opinion, it is not monopoly money. It is real money. And when we measure how we are doing, we do not back out cat losses.
Speaker 3: Perhaps we are a bit of an exception to the industry, but ultimately we think it is an economic reality, and that is not something we shy away from.
Speaker 3: So with that, Rich, if you would, please.
Speaker 4: Of course. Thanks, Rob.
Speaker 4: Net income doubled from the prior year quarter, resulting in $356 million or $1.30 per share. Annualized return on beginning of year equity was 21.1%, driven by strong underwriting and record investment income results.
Speaker 4: Operating return on equity was excellent at 18.4% and the heightened industry-wide catastrophe activity in the quarter enabled us to once again demonstrate our underwriting discipline in challenging environments.
Speaker 4: Simultaneously, our decision to maintain a short-duration, high-credit quality investment portfolio has enabled us to benefit from higher interest rates. Net investment income increased almost 43% to a record $245 million. The core investment portfolio grew 71.6%.
Speaker 4: and strengthens our ability to grow investable assets at higher interest rates.
Speaker 4: A duration of 2.3 years also positions us well to reinvest assets at a higher new money rate on fixed maturity securities compared to the roll-off of existing investments while maintaining our high credit quality of a double A-.
Speaker 4: The investment funds reflected a loss of 1 million dollars driven by a decline in market values in certain funds in the consumer goods, real estate, and financial services sectors.
Speaker 4: Please keep in mind that we report our investment funds on a one quarter lag.
Speaker 4: Pre-tax net investment gains in the quarter of $59 million is comprised of net realized gains on investments of $47 million and an improvement in unrealized gains on equity securities of $21 million, partially offset by an increase in current expected credit losses of $10 million.
Speaker 4: Turning to underwriting results, underwriting income was $265 million, representing a calendar year combined ratio of 89.6%. Current accident year catastrophe losses were $54 million, a 2.1 loss ratio point.
Speaker 4: compared with the prior year of $58 million or 2.5 loss ratio points. Prior year development was favorable by $3 million or 0.1 loss ratio points, bringing our current accident year combined ratio, X cats to 87.6%.
Speaker 4: Current accident year loss ratio, X-CATS, was 59.5%.
Speaker 4: The expense ratio ticked up 0.4 points to 28.1% in the quarter, consistent with the expectations we previously communicated. The two main contributors include the change in reinsurance structures as well as increased compensation costs and start-up operating unit expenses.
Speaker 4: We're working hard to identify and implement innovative strategies to drive operating efficiencies and leverage technology in order to reduce operating expenses across the entire organization.
Speaker 4: Closing out the underwriting discussion with premium production. We increased gross premiums written by 9.3% to a record $3.3 billion. And net premiums written increased 8.7% to a record $2.8 billion.
Speaker 4: All lines of business grew in the insurance segment with the exception of professional liability and workers compensation while property reinsurance grew in the reinsurance and mono line excess segment.
Speaker 4: Stockholders' equity remained strong at almost $6.9 billion after returning more than $320 million of capital to shareholders in the quarter. We repurchased almost 5.1 million shares for $292.5 million at an average price per share in the quarter of $57.79.
Speaker 4: In addition, we paid regular dividends of $28.3 million.
Speaker 4: The combination of these capital related actions for the first quarter, including the special dividend, translates to $614.5 million return to investors on a year-to-date basis, or 9.1 percent of the beginning of year stockholders equity.
Speaker 4: Rob, I'll turn it back to you. Thanks. Okay.
Speaker 3: Rich, thank you very much, very helpful. So I think the market continues to not operate in any type of lockstep where major lines, as we've discussed in the past, continue to somewhat march to the beat of their own drum.
Speaker 3: In addition to that, we continue to see the marketplace struggling with trying to strike the balance between rate need and keeping up with lost cost trend. On the other hand, a desire to grow.
Speaker 3: This is an industry where you can, practically speaking, grow as quickly as you want to.
Speaker 3: It really becomes a much more challenging exercise, though, when you are looking to achieve a certain loss ratio, which will deliver a return that is acceptable in the end.
Speaker 3: For us, rate adequacy to support a reasonable loss ratio and deliver an acceptable return has, is, and will remain a priority for us.
I believe that this has been demonstrated over time through our results and obviously our continued focus on making sure that we are keeping up with trend comfortably.
A couple of sound bites on the marketplace and major product lines, and I would hope it will dovetail in with some of Rich's comments and where we have been growing and parts of the marketplace that we find less attractive and we're playing a bit more defense. For starters, speaking of defense, I think public DNO.
Within the professional line space is clearly a place that one needs to pause and tread carefully We are seeing the pricing erode at a very rapid pace Clearly there has been good margin in the business, but that seems to be E-Whittling away quite quickly
As far as liability lines and maybe under the umbrella of social inflation, we continue particularly in the auto space, especially commercial auto, to see great challenge. That's also spilling over into GL and ultimately umbrella.
And what I mean by that is the plaintiff bar is very aggressive and they are taking a variety of new tactics. We think that we are able to keep up with it appropriately through terms, conditions, attachment points, and of course pricing. But it is not lost on us that it is a challenging moment and requires one pay.
aspects of the planes made front.
Property, I think it has finally come into focus what needed to happen as it relates to cat-exposed property, and that seems to be spilling over into the non-cat or risk property account where additional rate is required. The other piece that's worth mentioning at least through, in my opinion, is that the
is Tier 2 CAT, which I would define as severe convective storm, wildfire, winter storm, etc. These are things that were a bit of an afterthought, and I think after the past several years, they are becoming much more front of mind. Last comment as it relates to market conditions would be workers' compensation.
Certainly a topic we have discussed in these calls in the past.
There was a period of time during COVID where clearly there was a break that was caught on the frequency front for the industry.
Frequency has returned to a more traditional norm. But one of the things that we've been waiting for and we're starting to finally see rear its head is medical inflation.
It is our expectation that you are going to see more medical inflation coming through to all payers, including the workers comp space. And as a reminder, slightly over 50% of every claims dollar associated with workers compensation stems from medical.
Again, we can get into more details on that to the extent people are interested later on. Last comment on the marketplace. There continues to be this bifurcation between where the standard market tasty 98. Get in here.
in particular the E&S phase.
The submission flow that we continue to see remains robust and we are very encouraged with what the balance of the year likely holds and beyond and certainly the early returns on July are positive. Rich talked about the top line. Obviously, we benefited from the rate increases that we continue to get.
The ex-comp rate increase during the quarter was 8.2%, which was reasonably consistent with what we saw earlier this year. I think the loss ratio demonstrates yet again, our strategy around how we manage exposure, how we have balance in the portfolio.
and how we think about risk and return and certainly volatility is folded into that. And in our opinion is a key component in building book value.
As far as the expenses go, Rich touched on that as well. We remain very focused on making sure we're thoughtful about the dollars that we spend and there's nothing that leads us to believe that that number won't remain comfortably below 30. And pivoting over to the investment portfolio.
We remain, or we continue, I should say, excuse me, to be rewarded for the position that we took as it relates to duration. Obviously, as we've discussed in the past, we benefited in having less of an adverse impact on our book value as rates moved up. And in addition to that, we were able to put money to work at higher rates more quickly than many of our peers.
And that will come into focus over some period of time. Rich mentioned the duration at 2.3. I think it was at 2.4 last quarter. Just to clarify that that was really as much as anything just rounding that having been said, we are paying close attention as you would expect for the window of opportunity and when it presents itself.
likely you'll see that duration start to push out again.
So all things being equal, I think a very solid quarter for us on virtually every front. I think when you take into account the CAD activity that the industry faced, we fared particularly well. And in spite of that, our ability to generate a...
21% return I think is really a great positive and a tribute to our colleagues and to our strategy and how effectively they are executing.
When the day is all done, the goal of the exercise is to build book value. There is no question that is the goal.
Ultimately, when building book value, it is not just about the steps you take forward. It is also about the steps that you avoid taking backwards.
So with that, Brianna, we'd be very pleased to open it up for questions. Thank you. Okay.
At this time, I would like to remind everyone, in order to ask a question, you must press star followed by the number 1 on your telephone keypad.
Your first question comes from Elise Greenspan with Wells Fargo. Your line is open. Hi Elise. Good afternoon. My name is Elise Greenspan.
Hi, thanks. Good afternoon as well. My first question, Rob, is on the underlying combined ratio of the 87.6 in the quarter. I was just curious if there was anything one off in that number. I know the last couple quarters we've seen some elevated non-cat fire losses that you guys have called out.
Was there any similar losses in the quarter or anything within that 87.6s we think about, you know, the level of margin we could see in the balance of the year? That pig is still making its way through the Python. I don't have a specific number for how much it contributed, but it is reducing, if you will.
but it did play a role. I think the other piece is just general mix as well in the portfolio. As you can see, it shifts a little bit every day as far as, excuse me, the underwriting portfolio. But yes, there was a little bit of non-cap property in there but it is diminishing. And then in terms of the mix, right, so you can see
is a function of mix and certainly we are benefiting as much as anyone on the property front. At the same time, there are clearly challenges for workers' compensation and you can see that and quite frankly how much we are growing or not there and on the professional liability side is rich flagged as well.
significant.
And then one last one the PYD you guys said was favorable 3 million I know you guys typically wait for the queue to give insurance versus reinsurance but could you give us a sense of the magnitude in one segment versus the other? Honestly relative to the reserve position in both it was
I don't have the number exactly in front of me, but one was a little bit positive and one was a little, I think, modestly negative, if that.
Okay, thank you. Your next question comes from Alex Scott with Goldman Sachs. Your line is open. Your line is open.
Hi, first one I had is on the reserve sort of a follow-up on the PYD question. In your commentary you mentioned currents and the tail potentially get extended. You mentioned plaintiff's bar and medical inflation and so forth.
I would think all of these things would potentially put pressure on some of those reserves. Can you talk about, you know, why you didn't feel like you needed to make adjustments, sort of confidence in those reserves, despite some of those headwinds that you see?
The answer is because a lot of what I was referencing and you just referenced are things that we have been anticipating. And when people have been asking us, why aren't you dropping your current accident year? Why aren't you dropping your loss ratios?
because there's a lot of uncertainty out there. So we feel very comfortable about where we sit at this stage. You know, we revisit and look at our loss ratios, byproduct line at a very granular level with some regularity, that being every 90 days. And we think that we are in a good place to be able to absorb what we are seeing.
Got it. Thank you. And then follow up to maybe just a high level question on access and surplus versus standard lines. I know in the past you've talked about standard lines and a lot of things going over. I mean, we're certainly hearing about it in personal lines. Can you help us think through that and then just, you know, how that...
and large on the lines that I talked about is softening in any capacity. There's a lot of momentum out there, not just in the property, but in the liability, including pockets of professional. That's why I called out DNO in particular, because, you know, that is a particularly challenged line. And that's why I called out workers comp.
Your next question comes from Mike Zaremski with BMO Capital Markets. Your line is open.
Good afternoon. Follow up on the... Okay. Great. Good afternoon. A follow up on the... Okay. Okay. Good afternoon.
The question from Elise in your comments about maybe about some non-cat property losses and you, Rob, used to comment on the
metaphor about the YIPPIG through the Python. So are you saying that some of the current year property losses bled into the underlying this from last quarter to this quarter? All right because I thought that we usually use that you use that
term when we're talking about kind of so what our tail know what I'm talking about is that during the quarter there was some non-cap property losses that contributed to the loss ratio that is what I'm referring to that is less elevated than what we've seen over the past couple of quarters
but more elevated than what we've seen historically, and the actions that we are taking, we believe, are taking hold, but it takes a little bit of time for that to work through the book in its entirety.
Okay, okay, good. So that makes sense. Just curious, lots of your competitors call out and it helps us tell us non-cap property was two points higher, two points less than expected. But Berkeley has a smaller property book than some of those competitors. Just curious, are non-cap property losses, is that a that many?
Is that 10 points of your loss ratio or are we talking kind of normal as it would be a low? Property is not a huge part of our book and no would not be anything approaching with you the number that you were referring to.
Okay and a follow-up on you know you made some interesting comments on some growing evidence that the tail is elongating on occurrence but maybe also a claims made. Just curious if you can elaborate because when we look at I thought last time we looked at your statutory
pay to incur loss ratios.
We couldn't see that and I also know you didn't give us an update. I don't know if you want to on just how pay to incurred loss ratios are trending for you all. So as far as what we're seeing coming through, it was really more of a comment as far as the tail.
based on discussions that we're having with our colleagues on the claims front and what they are seeing. So, are we going to start to see it in the data? Yeah, but, you know, one of the things that we try and do is not just wait to see it in the traditional actuarial data. For months, I didn't get anything very understanding of the comparisons, except that the date of shutdown, when it pasted was November 24th.
but we're visiting with colleagues trying to understand what are they seeing very much on the front lines because that's the leading indicator as to what to expect. I think the plaintiff bar is as aggressive as ever, and oftentimes what they are trying to do is wait till the 11th hour and then put forth a demand. Have a great week.
try and create a situation that is optimal for them.
that we are able to continue to grow the business at a pretty healthy pace? Yes, I do. Do I believe that we're going to be able to continue to generate very healthy returns? Yes, I do. Do I think we'll be able to do that with an eye towards risk-adjusted return and do it in a consistent way? That is certainly the expectation.
able to continue to grow the business at a pretty healthy pace? Yes, I do. Do I believe that we're going to be able to continue to generate very healthy returns? Yes, I do. Do I think we'll be able to do that with an eye towards risk-adjusted return and do it in a consistent way? That is certainly the expectation. So,
You know, if you want to get a bit more into the details, we can try and do that offline. But, you know, we are not going to just try and hold on to capital that we don't need. In addition to that, you know, we're conscious of what the capital needs will be in the future. And we're aware of the fact that certain rating agencies are reexamining –
potentially what their view is going to be, and we have a view as to what that may mean for us. Well, thank you for the full answer. I might try and get back in line, but I'll let somebody else on the phone. Thanks, Josh. Your next question comes from Mark Hughes with Truist.
Your line is open. Hi Mark, good afternoon. Yeah. Good morning, Rob. I appreciate the call. On the reinsurance segment, your loss ratio was pretty low. It hasn't been that low in a while.
Is that just good experience in the quarter or is this maybe the impact of cumulative rate increases over the last few years? I think it is a combination of both good underwriting and a job well done by many of our colleagues and again we also had a bit of positive development coming through there.
And then in the GL line you had a nice acceleration sequentially back up into double digit growth.
You mentioned the challenges around the plaintiff's bar and the inflation, but you seem to be enthusiastic. Any additional commentary about what you are seeing in GL? Look, with places that we are growing, it is because we like the opportunity. I would tell you a meaningful amount of the growth in that product line.
the poor see it's not so much the the plaintiffs bar though obviously that's a contributor to how we think about loss costs and trend and rate adequacy but you know that we would seem as though the reinsurance marketplace struggles to have discipline across the board so just as they're getting more discipline in the property space
It would seem as though the professional and liability space may not have the same discipline it had yesterday. Pat O' javascript
I appreciate it. Thank you. Your next question comes from Ryan Tunis with Autonomous Research. Your line is open.
Good evening, Rob. First question, just in reinsurance.
The tracial loss ratio improved quite a bit there. Maybe you could just talk a little bit about either the sustainability of that or the drivers this quarter.
Look, we were pleased with how the businesses perform and Ryan, we're not going to get into a whole lot of minutia around that, but we think that the various businesses that make up that segment have positioned themselves well and they're reaping the benefits from it. I think that's an incredible ability to actually think about, who are the businesses that are
We think that it's likely that for the foreseeable future that we'll continue to see good performance. That having been said, as I mentioned a few moments ago, there was some positive development that came out of one of the operations in that segment which was helpful.
And then I guess in the insurance segment, just thinking about growth, it seems like some of the primary carriers are growing quite a bit more than they are growing.
what the level of rate increases are. And some like you, your top line growth looks more similar to the type of rate that you're reporting. So I was wondering if maybe you could talk a little bit about, um,
I guess why we're not seeing something a little bit from a growth standpoint on top of the rate. Is retention lower than it was a year ago? Are you writing less new business? Just give us a look into that.
When you look at the group, we're a bit of a bouquet. And there are certain parts of this group that are growing very rapidly. So for example, many of our E&S businesses are growing at a very healthy pace.
to say the least, and there are other parts of the organization that are growing as well. But we're believers in underwriting discipline and as you can see in the release, there are parts of the business that are growing quite quickly, perhaps in keeping with your comment relative to some others. There is a line that shows a Memory CTRL but not a
And there are parts where we're just going to be more disciplined. So you would have taken note that workers' compensation, we are concerned about how competitive that marketplace is. And even with the growth and payrolls that we've seen, we are, I would suggest, in somewhat of a defensive mode.
a similar story when it comes to professional liability, and we're kind of scratching our head around public D&O.
If you want to talk about the reinsurance, obviously the casualty reinsurance is down a little bit and the monoline access is up incrementally. So I think that, and I can appreciate why people might look for a broader brush.
But we're looking at our business and we're looking at each part of the market that we participate in with a very fine brush.
and we are trying to make sure we make good decisions in every pocket. And when you add up all the pieces, this is where it came out. Do I think that there is opportunity for there to be pockets of further momentum? Yeah, absolutely. But I think that when push comes to shove, that's just the reality of when you put all the pieces together, this is where it came out.
Got it. Then just following up, we've heard, I guess partially in response to the softer professionalized pricing market, there's been a more diverse set of players that find the cyber line attractive. Would you count yourself among that or, yeah, cyber been a big growth area at Berkeley.
It's not a big growth area for us these days. There were moments in time where we found it to be very attractive and then to your point we saw a lot of people coming into the space and you know again we have the underwriting discipline that we're not going to do foolish things. So have we ever been a giant player in the space? No, we're careful and selective and we're conscious of the...
How many more quarters would you expect this to really have an impact on results?
I think you're going to see it having a diminishing impact on results between now and the end of the year.
And it will be diminishing gradually. Got it. And then I guess I'm assuming that the shift in mix
will be diminishing gradually. Got it. And then I guess I'm assuming that the the shift in mix you know just sort of
excluding the fire losses, the shift in mix would mean that something in the neighborhood of the loss ratio, X-Cat, X-Reserve development is somewhat of a sustainable level just given the mix shift is obviously enduring. Is that the right way to think about it?
I apologize, but I'm not sure I fully understand the question. Could we do that once more, please? Yeah, so looking at the 59.5, accident-year loss ratio, X-Cat, you cited mix as a sign as to why, you know, one of the reasons why that was at that level and it deteriorated a bit.
year over year, obviously in addition to the fire losses, you know, is that something, just given the mix, is obviously a more sustainable change, is that something we should expect around that level for the remainder of the year? I can't answer the question with certainty, but we think that ultimately the
The way the portfolio is running and our ability to deliver a 90 combined or better and an 18 or 21% return depending on how you look at it feels like we're in a pretty comfortable spot. Do I think that there's the opportunity for the 59 to potentially improve a little bit? Yeah, I do, but we're not going to...
for stakeholders while still ensuring that we're not putting undue pressure on the situation. And that's a good place to be in our opinion. Got it. Thanks. And then, you know, maybe just to follow up.
Obviously, not a big impact on the entire book with the $3 million of favorable reserve development, but you guys have been on top of the 2019 and prior casualty lines. Can you just talk about any changes you may have made to those lines for those years in the second quarter and how you feel about your preserving position there going forward?
Yeah, I mean you'll see more detail when the queue comes out and to the extent you know It leaves you scratching your head. We're happy to catch up offline But I would tell you we we feel very good about where our reserves are and we think they're well positioned to Endure some of the things that we think are either are ahead of the the industry and again, I think there's been a
a lot of chatter amongst some observers as to, given all the rate we've gotten, why haven't we dropped our loss ratios more? And it's because of all the uncertainty. So, when the day is all done, do I think that we're in a good place? Yes.
When push comes to shove, if you look at the average duration of our loss reserves, they give or take three and a half years. So if you think about that and you think about what that probably means as far as how far along that 16 through 19 year is.
those years are as far as development, I think that things are, that would suggest things are quieting down. And of course as far as the more recent years, we are feeling as though that they're in an exceptional place. Got it. And then maybe if I could just sneak one more in just on that last point, the more recent years, I know you had mentioned
on the last call that you guys have been measured in terms of how quickly you recognize the progress from 2020 onwards. And that could have implications for how you think about loss picks as you make your way through 2023 and into next year. Have you updated this view at all this most recent quarter?
you know, just thinking about some of the comments you made about lengthening tails on occurrence and claims made by people. Well, you know, obviously, the tail comment has applicability in different ways to different product lines.
I think some of the comments, if I recall correctly, and maybe I'm mistaken, that you may be referring to, would stem from policies that are written on a claims-made form. And when you write on a claims-made form and there is no notice, then that chapter is closed.
So putting that aside to the extent that you do have a notice or you have an occurrence form, then you need to spend some time thinking about how do I think about that tail extending or not? So we, as you would expect, bifurcate the book as we examine it in a variety of different ways and look at it at a very granular level.
Your line is open.
Good afternoon. Thanks for taking my questions. If we could look at the insurance underlying loss ratio, I think you'd said that the impact of the non-CAT fire losses has diminished a bit year over year or quarter over quarter. Sorry. And yet I think that's
the overall year-over-year result was greater deterioration than what we had seen the prior two quarters.
So I guess what else is driving that today? Is it that you have fewer favorable offsets relative to previous quarters? Is it mix? Why are we seeing this? For putting aside the property piece to your point, I would say the leading contributor to the question you're raising is mix of business. Different product lines, Jerry.
or am I not thinking about that correctly?
Some of them do and some of them are – hold on, I'm just pulling out a couple of papers. Why don't we, as opposed to me fumbling through our papers, why don't we catch up offline?
Okay, fair enough. And then I'll admit I'm intrigued by your comment and I think it's not the first time that you've made it about the kind of the but for approach that the industry has with regards to cat losses. I am curious if we look at the the underlying combined ratio that the company reported the 87.6.
What would that be without the gap exposed net pre-concerns? If we backed out, I'm not sure I understand the question. Sorry. What would the 87 be without what? So I think in your opening comments, he said, you know, the industry uses this but for approach and.
removes catastrophes but doesn't take out the catastrophe related premiums. Right. So what would that be, what would the 87.6 be for Berkeley this quarter if we made that adjustment?
Well, we don't really spend a lot of time doing that because we don't fool ourselves like cat losses don't count.
OK. Thank you.
Okay. Thank you. Thanks for the question.
Your next question comes from Brian Meredith with UBS. Your line is open. Hi Brian , good afternoon. Hey, you and Tia. So Rob, I'm just curious, property reinsurance, huge growth in the quarter, is that gel leaning into the CAT reinsurance market or is there something else going on there? That is us seeing opportunity in the property reinsurance market.
So the short answer is yes.
Good. That's helpful. Second question, I'm just curious, you talked a little bit pricing, you talked about DNO being challenging and.
and some pressures you're seeing in commercial auto. I wonder if you can kind of bifurcate a little bit in what you're seeing kind of large commercial and as you work your way down middle and small, is it more competitive kind of in the excess liability for larger companies and as you get down less, any differentiation?
As far as the liability lines, the larger the account, by and large, the more competitive it is at this stage. And that adheres to our benefit because by and large, we are a small and middle market player compared to many of our peers. But yes, clearly there is growing competition.
more visible with larger accounts. Gotcha. And if I just throw one more in here, I'm wondering if maybe you can characterize your primary commercial property book. When you write commercial properties, that cat expose stuff, is that, you know, regular homeowners, what exactly are we looking at when you're seeing that growth in your commercial property book?
So in the commercial property book, it's a combination of a variety of different things. Certainly there's a piece of that in there that's associated with Berkeley One because probably we'll be splitting that out as it grows. In addition to that, we certainly write a bit of property that is cat exposed on the commercial line side.
But much of it is not tier one, if you will, cat-exposed property. Gotcha, makes sense. Thank you. Thank you. Your next question comes from Meyer Shields with KBW. Your line is open. Hi Meyer, good afternoon. Hi, how are you?
but much of it is not a tier one, if you will, cat exposed property. Gotcha, makes sense. Thank you. Thank you. Your next question comes from Meyer Shields with KBW. Your line is open. Hi Meyer, good afternoon. Hi, how are you? Good, how are you?
Good, thanks. Sorry. A couple of really quick questions, I think. You talked about medical inflation, but if I understood your comments correctly, that seemed to be mostly emerging in workers' compensation. And I was wondering whether you're seeing the same sort of pickup in medical costs in, I don't know, commercial auto or medical malpractice.
So, as far as medical malpractice, I would separate that as to that's a different issue. But as far as the medical costs go, as far as what does a Band-Aid cost today versus what does it cost yesterday for an injured worker, our expectation is that that is clearly on the rise.
Are you going to see it in other product lines? Yes, but to a much lesser extent, because when you think about a claims dollar, medical plays a far more significant role with workers comp than any other product line that we're in. Okay, perfect. That's helpful. And then early on, I guess, in Rich's comments, he talked about, well, I guess,
I don't know if it's his or your commentary actually, but the expense ratio is staying comfortably below 30. I'm just getting old. Was anything in the quarters expense ratio that benefited it? Basically the premise of the question is that comfortably below 30 doesn't even seem to be that high of a hurdle to achieve.
I think we're just trying to give people guidance for the long run.
And ultimately our expense ratio can at any moment in time be adversely impacted by investments that we are making, whether that be in technology or whether that be in a new business that we are starting that's early on or in its infancy. So I think we are just trying to give people guidance as to what they should be looking for.
expecting going forward longer term. Okay, fair enough. And then one final question, if I can, I know it's really early in the third quarter, but there's been a school of thought out there that maybe once we went through a full year of professional liability rate decreases, that they would calm down. Based on your comments, it doesn't seem like you're seeing.
Are we talking specifically about, are you referring to public D&L? Absolutely, yes. Yeah. So there's no There's nothing that we're seeing as of now that would suggest that it's bottoming out or let alone pivoting.
Okay, I'm sorry to hear that, but thank you very much. Thank you.
Your next question comes from Scott Helania with RBC Capital Markets. Your line is open. Yes, good evening. The first question I had was just on the investment funds. You had a loss there in the quarter and I'm just curious if you have changed any allocations there or just any kind of update on the investment funds.
What's going on in the strategy for that for the second half of the year in 2024 if there's any change in that thinking? Yeah, look, just to qualify that a little bit, certainly we weren't happy with the performance but the loss was about a million bucks or so. And what is driving that? It was primarily...
a participation in some alternative investments or private equity specifically, where there were some marks that they took down on some investments and then that trickled through to us. How do we see that unfolding from here? You know, we'll let you know. But at this stage, I think that we're comfortable that...
People are taking the action that they need to take to make sure that those funds are appropriately marked. But we're dependent on getting that information from the managers. Okay. Were those marks significant then for the quarter, for the ALTS? Is there a number that you had on there? You can follow up with Richard Cairns for the specifics, but it was enough to...
And I'm just wondering if we might be getting close to that window of opportunity and how you see that playing out as well. It's certainly our hope and we're waiting for that to occur. And yes, we think it's coming, but it may take some time. And ultimately, as in everything we do, we're focused not just on risk adjusted return, but we're not gonna in an effort to, we're not gonna compromise.
in a foolish way. And again, we are eagerly looking for the opportunity to allow us to extend that duration out a little bit, but right now we are getting reasonably well rewarded for the position that we've taken. That's helpful. Thanks.
Your next question comes from Josh Sankert with Bank of America. Your line is open. Thank you for letting me on again. I'll give one more question, but I don't know if you get a great answer. Can we talk about share repurchases versus special dividends and how you think about the value of doing both those things?
You know, Josh, I think that was a pretty good prediction on your part as to the quality of the answer, at least that you get from me. Why don't I hand it over to...
our chairman who also moonlight as our head of repurchase. Hi Josh.
who are also moonlight as our head of repurchase. Hi Josh. Hi Bill.
So I think that it's a constantly changing thing. It's based on the opportunity at any point in time. We will never do either.
if it precludes us from investing the money in the business opportunistically.
So we will never do any of those things if they constrain our management of the business. At the moment in time where we think we're generating extra capital when we look ahead...
and see that we're going to have extra capital, we'll then make the judgment as to the share values sort of looking out ahead versus...
the kinds of returns we think we should get to give our shareholders money. There's not an absolute rule I think that when the stock gets down to what we would say is an attractive price.
We sort of, we pay that and it just got to a relatively speaking more attractive price until you go back probably certainly more than 15 years.
So we were more inclined to do it. And it's a judgment we make each time we decide that we think we're going to have excess capital for a period of time as far ahead as we can see. And we try and make the judgment at that point in time, the stock price.
versus what we view as the intrinsic value of the enterprise. And we look ahead, so it's not that there's an absolute rule, the rule changes as we look at where we are, where our leverage is a lot more stable now, we have a longer term debt, we don't have...
any of those kinds of uncertainties that we had before. So there's not really a single rule that we go by. It's really looking ahead and saying, how do we think we best treat the shareholders by using the money effectively? And that obviously has to do with the price of the stock relative to the insurance.
Brianna, thank you. And thank you all very much for joining the call. Again, I think this was a moment where the company once again demonstrated its ability to manage risk and to focus on return and recognize that volatility is an important piece of that.
We will look forward to speaking with you all in about 90 days. Thank you. This concludes today's conference call. You may now disconnect. Retreat.
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