Q3 2024 W R Berkley Corp Earnings Call
Good day and welcome to WR Berkley Corporation's third quarter, 2020-04 earnings conference call. Today's conference call is being recorded. Dispeakers remarks may contain forward-looking statements.
Some of the forward-looking statements can be identified by the use of forward-looking words, including without limitation, beliefs, expects, or estimates.
We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans estimate for expectation and contemplated by us will in fact be achieved.
Please refer to our annual report.
on Form 10K for the year ended December 31, 2023, 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.
W.R. Berkley Corporation is not under any obligation and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.
Speaker Change: I would now like to turn the call over to Mr. Rob Berkley. Please go ahead, sir.
Rob Berkley: Chris, thank you very much, and echoing Chris this comment a welcome to our 2-3 Q3 call. In addition to me, on the phone you also have Executive Chairman Bill Berkley and Chief Financial Officer Rich Baio.
Rob Berkley: We're going to follow a typical pattern and that is, Richard's shortly going to walk you through the highlights. I will then follow up with a few comments and then of course we're very happy to open it up to Q&A and address any questions participants would have.
Rob Berkley: before I handed over to Rich, two points that I'd like to make. One, obviously the third quarter and then more recently, even in the fourth quarter, there's been a significant amount of Nat Chat activity.
Rob Berkley: and oftentimes on these calls or any industry discussions as we flag in the past, people start talking about estimates and models and numbers.
Rob Berkley: and those are all important and real to consider that having been said from our perspective.
Rob Berkley: This has impacted countless people's lives, and that is not lost on us, so we are certainly focused on...
Rob Berkley: The numbers in the economics, my colleagues and I are also acutely aware of the challenges that many people in this country are facing.
Rob Berkley: as a result of this cat activity. Further, in addition to extending our concern to all those impacted, I'd like to thank our claims colleagues that are going above and beyond to ensure that
Rob Berkley: We deliver on our promise to all of our policy holders that have been impacted by these events. So again, thinking of those impacted and sending thanks to those that are doing their job and making sure that we deliver on our promise.
Rob Berkley: The second topic I did want to flag and it really stems from a subject matter that has been getting greater attention more recently. And that is the growth in the specialty space that in particular the E&S market.
Rob Berkley: I don't think it's lost on any of us, the pace of change in the world, how it seems to be accelerating the level of complexity and risk continues to be on the rise. And certainly there are many contributing factors, but amongst those contributing factors without a doubt be climate change.
Rob Berkley: as well as social inflation.
Rob Berkley: Both of these items are playing an important role in having a meaningful impact on the insurance industry.
Rob Berkley: and quite frankly, as these two items are impacting lost-cost trends, I think much of the standard market or specifically the admitted market is having a difficult time pivoting.
Rob Berkley: That is creating opportunity for in particular the non-admitted market.
Rob Berkley: One of the pinch points that is not discussed as actively in the commercialized market space as it is in the personalized market space is the challenges on the regulatory front.
Rob Berkley: There are many insurance departments that are struggling from a staffing perspective and also we in addition to that we see the impact of politics creeping in as well.
Rob Berkley: So as we look at the circumstance and we see this pinch point on the regulatory front, we think that that is likely to continue.
Rob Berkley: That is likely to continue to drive more business into the specialty and in particular the E&S market.
Rob Berkley: and by extension if we think that that is going to vote well for an organization such as ours with a particularly large footprint in the specialty space overall and in particular the ENS marketplace.
Speaker Change: So with that as a bit of a backdrop I'm going to pause there and Richard I'll hand it over to you, please.
Richard: Great, thanks Rob. Good evening, everyone. Our record third quarter net income resulted in increase of almost 10% over the prior year to $366 million, also contributing to a nine month record net income of approximately $1.2 billion.
Richard: We continue to generate outstanding returns on equity of 20% in the quarter and more than 21% year-to-day. Both strong underwriting and investment income contributed to our operating earnings of $374 million or 93 cents per share.
Richard: Despite the above average catastrophic activity experienced by the industry, we've once again been able to demonstrate our careful and prudent underwriting discipline and in particular stability and earnings.
Richard: Our calendar year combined ratio with 90.9% inclusive of 3.3 loss ratio points from several cap events.
Richard: and 87.6% on an accident year X-Cath basis.
Richard: During the quarter, there were four hurricanes that made landfall with Elaine, being the most destructive across several states, and continuing SES activity that contributed modestly to the total amount of cat losses.
Richard: Our net premiums written grew above $3 billion for the second consecutive quarter and continues to benefit our record net premiums earned, which increased 10.8% over the prior year.
Richard: current taxidine you're underwriting income, excluding cats increased 13.4% to $362 million per tax.
Richard: adjusted for cat losses of $98 million and prior your favorable development of $1 million. Our current accident year-long ratio X-CAT improved quarter over quarter by 1.5 point to 59.1% driven by business mix.
Richard: We continue to invest in the business to drive efficiencies and better experience for our customers, combined with new startup operating units that we've announced before.
Richard: The combination of these items along with the changes in business mix and re-insurance structures have contributed to the increase in our expense ratio by 20 basis points to 28.5%.
Richard: As previously communicated, we continue to believe that our expense ratio should remain comfortably below 30%.
Richard: Turning to investments, pre-tax net investment income increased 20% to 324 million dollars.
Richard: Fixed maturity securities grew by more than $50 million with the Argentine inflation-linked securities, normalizing to an amount commensurate with the prior year quarter. We do not anticipate much change on a prospective basis regarding these securities.
Richard: However, do remind you that when modeling out 2025, you should factor in the elevated non-recurring income in the first and second quarters of 2024.
Richard: Record operating cash flow in the quarter of one and a quarter billion dollars contributes to the record year to date cash flow of almost $2.9 billion.
Richard: Combining the increase in investable assets with the new money rate that's higher than the roll-off book yield on our fixed maturity securities. We remain well positioned for further investment income growth.
Richard: the credit quality of the investment portfolio remains at a double-a-minus and the duration is 2.4 years for the co-etter.
Richard: Farm currency losses in the quarter of $25 million related to the U.S. dollar weakening relative to most other currencies.
Richard: As mentioned in the past, we actively manage our foreign currency exposure and you'll note an improvement in our currency translation adjustment and stockholders equity which offset the amount in the income statement.
Richard: The effective tax rate remains elevated relative to the prior year and has been the case in the first half of the year due to the contribution of foreign earnings tax that rates greater than the US statutory rate of 21%.
Richard: This quarter was 23% and we expect the fourth quarter will likely revert to the high 23-24% day area that we saw earlier in the year. Stockholders equity increased above $8 billion for the first time to more than $8.4 billion.
Richard: Strong earnings of $366 million coupled with an improvement in after tax on real-life investment losses of $381 million and currency translation gains of $49 million fuel the increase.
Richard: is a company also returned total capital of $138 million. Consisting of $95 million of special dividends, $31 million of regular dividends, and $12.5 million of share repurchases at an average price per share of $52.30.
Richard: Our total capitalization remains strong, and our financial leverage ratio of 25.2 percent is at its lowest level on almost two decades.
Richard: Both the value per share before she repurchases and dividends grew 10% in the quarter and 20.1% year to date.
Speaker Change: and with that, I'll turn it back to you, Ralph.
Ralph: Rich, thank you, I was great.
Ralph: Let me just ask for a couple of quick soundbites, I think Richard did a really thorough job in covering that, but a couple of thoughts for me.
Speaker Change: 1 on the rate, the rate x-com for the quarter team in at 8.4
Speaker Change: a little additional context auto liability is leading the way and closely followed by excess and umbrella as we've been talking about for some number of quarters perhaps at this stage it can even be measured in years. The lost trend on the auto line is something that we have been focused on. We feel good about where we are but assuming this trend continues we're going to need these additional dollars to make sure that we're well positioned for claims getting settled to tomorrow.
Speaker Change: Rich, obviously, covered the loss ratio. I think 62-4 was 3.3-ish points of cats, not a bad outcome, given the frequency of severity for those that are part of the But 4 Club. That's the 59-1. That having been said, you know, we've talked about this and talked about it, and I suspect we'll continue to talk about it. In our opinion, it's all about building book value with an eye towards risk-adjusted return.
Speaker Change: and the concept of backing out cats as if they don't exist, you would have thought that would have run its course by now given every year we seem to have cats as an industry.
Speaker Change: So, again, from our perspective, when we measure the business, it is a 62-4.
Speaker Change: which also covered the expense ratio just a couple of quick comments for me. One at this stage, we have a couple of businesses that are not at scale, but are in the process to scaling over time. I expect it as a grow, you're going to see the benefit of that increased earn premium, and that will emerge to the overall benefit of the group's expense ratio. That having been said, we are actively making investments as you would expect on the technology and data front.
Speaker Change: in particular, and that's not cheap, but we believe we will get a good return on the investment as well.
Speaker Change: I mean, Richard talks about mix of business that can have an impact I think the other or the last piece that I would flag is the topic of reinsurance.
Speaker Change: large. We are a low-limits player, so our needs to buy reinsurance is not the same as many of our peers that are far more dependent on reinsurance.
Speaker Change: We have absolutely no problem with our reinsurance partners, making a profit and in fact we expect and respect their need to make a reasonable risk adjusted return.
Speaker Change: but every now and then, if you find oneself in market conditions where people are looking to take a more aggressive position or even gouge, we have the optionality to change our approach to re-insurance by and that can impact the expense ratio as well.
Speaker Change: was a lot on the FX piece in the various ways that it's impacting our P&L, but the punch line for me as far as FX goes Richard correct me if I'm wrong, but it was about five cents to us on the per share.
Speaker Change: Let me turn to investments for a moment and I'm going to take a brief trip down memory lane so I apologize in advance for that and thank all for indulging me.
Speaker Change: I think everyone recalls what was going on during the financial crisis. There was, excuse me, the financial crisis, and then again during COVID, there was massive amounts of economic stimulation ramped into the system.
Speaker Change: When we saw that occurring, we had a view that there was no way that you were not going to see some level of inflation following that activity. It took a while to come through, but it did come through.
Speaker Change: and it came through in space.
Speaker Change: Ultimately, the government took the action one would expect and interest rates moved up, particularly on the short end. We found ourselves with an infertile deal curve, and we as an organization were rewarded for the decision to keep our duration short.
Speaker Change: Our investment income increased dramatically over a relatively short period of time.
Speaker Change: from our perspective, looking forward, it is likely, in our opinion, more likely than not, that yes, while inflation may be coming down, we don't think it is going to fall off a cliff.
Speaker Change: and our expectation is that short-term rates will come down, but they are perhaps not going to come down as quickly or as aggressively as some have suggested.
Speaker Change: In addition to that, regardless of who you expect will be in the White House, there is no doubt if you take them at their word, which is a hard thing to do, but for purposes of conversation, if you take each candidate at their word, they are looking to grow the deficit by what would be measured by the trillions of dollars.
Speaker Change: So, with that as a reality from our perspective, it is inevitable that the federal government in this country, not just similar to other parts of the world, but certainly in this country, will be growing its deficit and there is a real question about supply and demand for government that going forward.
Speaker Change: So, what does this all mean? It means from our perspective, we think you're going to see the yield curve take more and more of a traditional shape.
Speaker Change: We think that that is going to create as we've discussed in the past and opportunity for us to be nudging out our duration and simultaneously our book yield picking up.
Speaker Change: So speaking more specifically to our numbers today, as Richard mentioned earlier, the duration is sitting at 2.4 years. Our domestic book yield is 4.5%. Our new money rate today on that is something north of 5.
Speaker Change: We do not believe that we are going to have to give up much on that new money rate. Rather what you will see is we will be taking that 2.4 duration and nudging it out.
Speaker Change: As a reminder for us, if you look at the average life of our lost reserves, it is just inside of four years.
Speaker Change: So given that reality we have a lot of room to take that duration out and that again will allow us to maintain or actually improve the book yield from where it is today and quite frankly maintain that new money rate at levels that I was referring to earlier.
Speaker Change: So...
Speaker Change: Let's get to the punchline if we will and then we'll turn the conversation to anywhere participants would like to take it.
Speaker Change: So, what is the story? What is the, I guess the punchline? The punchline is this. The business continues to grow. The rate increases that we're getting. We believe is keeping up with trend actually, probably exceeding trend. So, all things being equal are underwriting margin is likely to continue to improve.
Speaker Change: In addition to that, when you look at the contribution of the other part of our economic model, that being the investment portfolio, the fact of the matter is...
Speaker Change: Our new money rate is and will likely remain above our current bookfield. Our task flow remains exceptionally strong hence the portfolio is growing. And so what does that mean? That means investment income is going to continue to increase from here.
Speaker Change: So, more underwriting income, more investment income is ultimately going to mean more earnings for the foreseeable future and quite frankly we think the business is as well positioned today as it has ever been.
Speaker Change: So let me pause there, Krista, when you will ask you to please open it up for questions.
Krista: Thank you. If you would like to ask a question, please press star 1 on your telephone keep ahead to raise your hand and join the queue. And if you'd like to withdraw that question, again press star 1.
Speaker Change: Your first question comes from the line of Elise Greenspend with Wells Fargo. Please go ahead. Hi, Elise. Good afternoon.
Elise Greenspend: Hi, thanks. Good afternoon. My first question, you know, just on the reserves, I think the movement was negligible in the quarter. Was there any movement within insurance versus re-insurance in terms of prior year reserve development?
Speaker Change: to play on the truth or least, it was reasonably uneventful between the segments.
Speaker Change: I think Richard was a couple million ago. He was a very favorable and the insurance in 2 million adverse on the range.
Speaker Change: Johnson Model.
Speaker Change: LINE. So, not overly, not worthy.
Speaker Change: Okay, thanks. And then, you know, the premium growth, you know, did slow, you know, within, you know, insurance, in the quarter, I believe it went from, you know, at X workers' comp from around 13 to 14 to 9%.
Speaker Change: So it looks like the implied impact from exposure went from something in the range of 5 to 6% to flat, given that you gave us right that 8.4 x comp pricing.
Speaker Change: Just looking to just get some color on the exposure piece or you know, just went on with what went on within the premiums with an insurance ex-com in the quarter.
Speaker Change: Yeah, I mean, as you can, I know appreciate at least there's a lot of moving pieces, maybe just to call out the big ones. It would really be just referencing my comment earlier around the auto lines.
Speaker Change: in particular, and to a meaningful extent the excess and the umbrella line, but those product lines are really no pun intended being driven by our view on auto.
Speaker Change: So, we have a view as to what Radacucy is, to my colleagues credit, they have drawn lines in the sand and they've been waiting for the marketplace to catch up to them and to share the view.
Speaker Change: So that had a meaningful impact on the quarter for what it's worth and this is like way under the safe harbor.
Speaker Change: Comed
Speaker Change: When we look at October, there is evidence that would suggest that the world is...
Speaker Change: in increasing leach coming to the conclusion that we had already come to and is in the process of catching up.
Speaker Change: So when I look at the gross in the corner, I would caution you not to assume that that's a new normal given the evidence we're seeing in October. I think it's likely that, again, the world is quickly catching up to us.
Speaker Change: So given that comment, Rob, would you expect, I guess, you know, you kind of seared us in the direction of expecting, you know, 10 to 15 percent top line girls based on, you know, how you see up October, you know, as well as your view for next year, would you expect to be back within the queue, within the queue for and then in 2025?
Rob Berkley: You know, I don't have a perfect crystal ball, but I continue to believe given the breath of our offering and the
Rob Berkley: I believe that we as an organization on an annual basis should be able to grow between that 10 and 15 percent as I think I've suggested to you and others.
Rob Berkley: there could be a quarter where we exceed that, there could be a quarter where we come in below that, but yes, on an annual basis, I continue to believe that we as an organization should be running at that level.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Here next question comes from the line of Rob Cox with Goldman Sachs, please go ahead.
Speaker Change: Hey Rob, good afternoon.
Rob Cox: Hey, good afternoon. So I was hoping to dive into lost trend a little bit. I think, you know, looking back a few years ago, you guys might have noted that are implied that it was in sort of the five to six percent range. So I was just curious if any thoughts or any color you could provide on the lost trend and insurance today. And it's financial inflation coming down a reason to maybe loosen the lost trend assumptions in some places at this point.
Rob Berkley: Well, Rob, I don't remember exactly what we may have said some number of years ago. I don't even remember what I had for lunch today at this stage. But let me give you a little color as to how we think about it. As I said earlier, ex-computer got 8.4. I believe that we are comfortably in excess of trend at that level. Obviously, it varies greatly by product line.
Rob Berkley: But we're very focused on making sure that rate accuracy continues to be the priority for us.
Rob Berkley: So, we're not in a position to be able to start giving you what are we used for trend by product line?
Rob Berkley: or even give you a blended number at this stage, but I think you hopefully can take comfort as I do, that at 8.4 we are clearing the hurdle by a margin.
Rob Berkley: That having been said, as we've also said in the past, and this I have a pretty clear recollection of is that
Rob Berkley: We understand and have a respect for the unknown.
Rob Berkley: and while I think there are others perhaps in the marketplace that have a firm view on what lost trend is and to the extent that they are coming in in excess of that they will be dropping their pick.
Rob Berkley: and obviously it's for them to decide how they operate their business, but from our perspective given the uncertainties of the insurance industry, we are not going to get ahead of ourselves.
Rob Berkley: and one would have thought even what has transpired and how the industry has been impacted by social inflation people would have learned from that and elected to err on the side of caution.
Rob Berkley: As far as shorter tail lines in your question, clearly financial inflation was one of the big drivers for short tail lines.
Rob Berkley: We saw it and obviously property and there was a meaningful impact on the auto physical damage line as well without a doubt a lot of the pressure that was
Rob Berkley: stemming from a more inflationary environment has subsided and that is giving a bit of release. That having been said, I would suggest to you on the social inflation front, particularly impacting many of the liability lines.
Rob Berkley: I think that that is becoming, that is as challenging as ever, it's probably the right way to characterize it.
Speaker Change: Very helpful and very comprehensive. Thank you, Rob.
Speaker Change: Maybe just as a follow-up on Hurricane on the Hurricanes this quarter and into 4Q, clearly some really unfortunate losses there on a number of levels from the recent storms. Do you have a sense of how the market might react from a pricing perspective? Kind of a cross-admitted E&S and re-insurance?
Speaker Change: and Ian Pax outside of the Southeast.
Speaker Change: I think it's a little bit early to reach a conclusion on that, I think we're going to move it.
Speaker Change: at this stage, the outcome of both storms you referenced, in particular Milton, I don't think that has really come into very sharp focus, and we're going to have to see where things settle out.
Speaker Change: I think the reinsurance marketplace is doing what it can to position itself as I understand it for flat and my expectation is that unless Milton proves to be ugly or it is going to be a challenge for them to actually achieve flat.
Speaker Change: as far as the insurance market place goes.
Speaker Change: We'll see how it unfolds and we're going to see what the losses are. I think with Halena, the real challenge there was much of the loss.
Speaker Change: A curd in zip codes, where this type of natural catastrophe isn't supposed to happen. So you have a lot of people just taking a very big step backwards and trying to grapple with, what does this mean for exposure? What does this mean for adequate pricing?
Speaker Change: So that was a long-winded answer. The short answer is I think it's still the process of coming into focus.
Speaker Change: Thanks Robb.
Rob Cox: Thank you.
Speaker Change: Here next question comes from the line of Andrew Kligerman with TD Cowan. Please go ahead.
Speaker Change: Good afternoon.
Speaker Change: Hey, Richard. Talk to you.
Speaker Change: Back on the network and premium element. So overall, you came in, I think, close to 8% in insurance, a little shy of the 10 to 15, but as you mentioned earlier, it could bump around Q to Q. What I'd like to get a sense of is is kind of the outlook. Am I understanding it right? So short term premium was up low double digit. [inaudible]
Speaker Change: It seems to me when you say, it's short term premium, are you wrote a short tail on it? I just said, I meant short tail, I'm sorry. Short tail means up low double digit.
Speaker Change: and my sense there is you're seeing a fair amount of piss growth wherein contrast, other liability, auto, professional liability with those lines being up in the low single digits.
Speaker Change: Training wise, never hit me.
Speaker Change: Premium. It would strike me that piss is going backwards. Am I reading that properly? You are correct on the auto line. Our exposure is shrinking at a pretty healthy pace during the quarter for the reasons that I suggested. And our hope is between now and the end of the year, maybe spilling over into early next year, you're going to continue to see more discipline coming in. And we were in our early signs were somewhat encouraging. And we're going to continue to see more discipline coming in next year.
Speaker Change: during the month of October. In addition to that, the workers' compline, which was pretty much flat, please understand part of the exposure is not necessary.
Speaker Change: being payrolls and wage inflation is playing a role in that as well, so in many cases our exposure is coming down there as well. So as always, we are looking for where we believe the margin is and we are leaning into that and places where we have a view that
Speaker Change: A more defensive posture is appropriate, we are not going to compromise on our underwriting. And sometimes there's a lag for the world to catch up to you, and I think that's what we're seeing in the auto line. But again, we're encouraged.
Speaker Change: and this month at least the world seems to be waking up to that reality.
Speaker Change: as far as the re-insurance front.
Speaker Change: Pivoting over to that segment. The growth that you're seeing, particularly on the property, is just a reflection of market conditions and we still like the trade there. The flatness that you're seeing on the casualty lines, is really just a reflection of our, and we commented for some number of quarters on this. Our dissatisfaction with the economics and quite frankly, the seeding commissions, they need to come down.
Speaker Change: and that's what's led to our position there.
Speaker Change: and just grounding that out, Rob, it sounds like you like the short tail lines, that's a pissed grower, and then the other liability and professional are kind of gifting a little bit in line with auto, with the discipline you're showing, exactly that's there.
Rob Cox: I think that I would characterize the rich of the other liability was I don't have it in front of me. I have it in much of a 19%
Rob Cox: Yeah, I think that there's just a lot of pieces that are moving around the E&S in particular is growing quite a bit on the other hand, you know, some of the things that we talked about as it relates to the admitted casualty, you know, that is more challenging.
Speaker Change: Got it? We ended just lastly on prior year development, anything of mode in the 2020 to 23 accident years.
Speaker Change: which anything that there's not where they're during those years that you want to deflect. I would say it's consistent with what we've been communicating previously and what you've said in terms of commercial a lot of liability being an area that exists.
Speaker Change: and Keith O'Kitbrass.
Speaker Change: Keep focused, meaning that you had a maybe a bump or an unfavorable or just pretty steady.
Speaker Change: I don't have the numbers exactly in front of me but we had a little bit of noise coming out of the commercial auto liability, nothing particularly overwhelming but certainly evidence of that product line is a position for a need of change.
Speaker Change: Awesome, thanks so much.
Speaker Change: Your next question comes from the line of Mike Zermski with BML capital markets. Please go ahead.
Speaker Change: Hey, good evening. Thanks. My first question, you know, Rob, when you talk about the non-admitted market, you know, E.N.S. Are you, you know, speaking specifically to the kind of the statutory U.S. definition, you know, we can kind of track on a yearly basis what you're, how much, you know, U.S. stamped, I guess, you have or [inaudible]
Speaker Change: Do you also kind of include the way you guys think about it kind of non-US, the way I might not be able to date around or see it on paper. So certainly a meaningful percentage of what we write non-admitted is through Lloyd's. So Mike, I get to your question. You're seeing the US carriers, but I don't think you're picking up the Lloyd's piece.
Speaker Change: Would you like a...
Speaker Change: Okay, guys, that's right, I thought it's, and just, you know, I don't know if we don't have to have to be a that educational, but is the Lloyd's business? Is it very different than kind of the US, ENS, business that makes up the majority of what you do? Is it, you know, in the larger conversation, small account or anything notable there?
Speaker Change: The vast majority of what we do in Lloyd's is U.S. centric and while there is some, if you will.
Speaker Change: Sheridan Laird, a huge percentage of it, is smaller accounts as well. So it's generally speaking a reflection of our overall philosophy, but they do participate in some Sheridan Laird.
Speaker Change: and I think, you know, it's clear, you know, your answers to the kind of...
Speaker Change: and your view of revenue growth going forward. But just curious, Mark McClunn for example, a liver leases an index of pricing by line of business and access, cash will be, slash, umbrella.
Speaker Change: has exorited meaningfully quarter of a quarter to maybe plus 20% levels. Maybe that's more of a larger count, phenomenon, which you don't play in as much, but I just kind of get to try to understand whether you feel like there's more potential to play offense.
Speaker Change: The Civilian Social and Facedary Law, to the extent you continue to see pricing, move Norse foot.
Speaker Change: I guess the way I would answer that mic is we pay attention to different parts of the market we have a view as to what the margin is and where we think the opportunities are we're going to lean into it.
Speaker Change: and where we think again a more defensive posture is appropriate. We will do so.
Speaker Change: So do I think that there is meaningful opportunity in the exercise and umbrella space to capture the additional rate? Yeah, I do. Do I believe my colleagues are executing on that? Yes, I do.
Speaker Change: but please keep in mind while we participate with some of the larger accounts. Again, the vast majority of what we do is on the smaller end of town.
Speaker Change: and there is plenty of opportunity there to get more rain.
Speaker Change: and we're doing it.
Speaker Change: Thank you for coming up.
Speaker Change: Thank you.
Speaker Change: Here next question comes in the line of Mark Hughes with truest securities. Please go ahead.
Mark Hughes: Yeah, thank you, good afternoon. I'm Mark of afternoon.
Mark Hughes: Thank you, Adventure, that the improvement in the current accident year was business mix. I wanted to make sure that I heard that properly, and then Rob, I thought you might have said that with the rate exceeding the loss trend, the underwriting margin should continue to improve.
Mark Hughes: How should I think about those two statements?
Speaker Change: I think, well, two things. First off, as far as the business mix of we were pleased with the progress that has been made on the property X cap front or the nutritional loss ratio. I think that's something we talked about. I don't know, I lose track of time, a year, 18 months, two years ago, and my colleagues have...
Speaker Change: Donna, a great job in getting us to a better place and that has coming to be in the last ratio.
Speaker Change: I think the, as far as the rate increase and how that's going to come through, but we have a view on trend and we have an understanding of how much rate we're getting and the delta between the two and theory should ultimately emerge to the benefit of the margin, but we are not in a rush to declare victory prematurely.
Speaker Change: and then the tax rate for next year, which do we think about that?
Speaker Change: If you think about it being too much
Speaker Change: Rich, you want to come and talk?
Speaker Change: I would say that based on where our foreign earnings are today, if we continued down that path, I would think you'd expect we would expect a race that's the commensurate with what we're showing this year, which I would say would be somewhere in that 23 and a half to 24 percent area, but does Rob.
Speaker Change: alluded to, we're certainly looking at ways to try and not keep that rate down as much as we can.
Speaker Change: Thank you.
Speaker Change: Here next question comes from the line of Josh Shaker with Bank of America. Please go ahead. I just could afternoon. Yeah, you could afternoon. How y'all doing?
Speaker Change: doing fine. Thank you. I'll play your well. Wonderful. Thank you very much. Rich Mames said, where's the new money yield on purposes going on right now for the portfolio?
Speaker Change: I think it was me and get slightly over five per hour.
Speaker Change: I'd use more than five less than five in a quarter. Those are the bookends for you.
Speaker Change: and is that being purchased at a different duration than that you might be interested to be clear that's on the domestic. So you compare that to the four and a half that we flagged earlier.
Speaker Change: and I want to give the information, are you choosing to, is there a link in going on, given the changes in the video per behavior?
Speaker Change: in Cremento.
Speaker Change: Yes, environmental.
Speaker Change: F. So far.
Speaker Change: Well, what would we need to see for you to say that longer is better?
Speaker Change: I think Josh, we probably don't have a specific answer, but what I can tell you is we're playing close attention to it, watching it every day.
Speaker Change: We'll see how the story unfolds but I don't have a specific roadmap that I'm going to position to share with you at this time.
Speaker Change: and is credit at all a concern. It's always a concern, but given outlook for things, are you incrementally more concerned or less concerned about credit compared to where you were a year ago?
Speaker Change: I think we are always concerned about credit and that's why as rich flags, we're maintaining a very strong AA-minus on the credit quality of the fixed-in-comport folio and you will not see us compromising on quality just to try in.
Speaker Change: Fluff up the book yield if you will. We saw colleagues doing that quite frankly during the financial crisis where they as well as in during COVID, where they...
Speaker Change: Compromise on duration and compromise on quality and that's just not something we're going to do.
Speaker Change: Grant, well, thank you for all the answers.
Speaker Change: Thanks for a question, Josh.
Speaker Change: Here next question comes from the line of a David Motumatum with Evercore ISI, please go ahead.
Speaker Change: David Grapplin.
Speaker Change: Hey, good afternoon.
David Grapplin: Rob, I'd add a question just in the insurance business, so the 60.2% accident ear loss ratio XCAD improved 50 base point year over year. It sounds like all that was mixed and some of the progress you guys have been making on some of those spiral losses.
David Grapplin: from a bit ago. I guess I just wanted to see if there's anything unsustainable in the result as well. That might be flattering things from maybe like a light non cap property perspective or anything else that you'd highlight. So, so look, I obviously will will know through the passage of time, but the biggest contributor to the improvement that you're referencing. Thank you very much.
David Grapplin: was the Attritional Law Strasio Associated with the Property.
Speaker Change: So, do I think we just got lucky? My sense is when I look at it, I don't think that's necessarily the case. I think we have many colleagues that are working really hard and have improved the situation and you're seeing it come through. But again, that's my sense based on what I've seen. We'll see more over time.
Speaker Change: Got it, okay, that's helpful. And I guess that's something that, I mean, is that like fully in the numbers now or is that something like we should continue to see that improvement going forward?
Speaker Change: specifically on that, a traditional property book. You know, David, not trying to be difficult, but you know, they are what they are as we shared them with you and that us being completely transparent couldn't get better from here. Yeah, it could. But it somehow took a step back. Yeah, I mean, I can't guarantee you promise exactly what tomorrow will bring, but based on my luck at it, I'm encouraged by the progress that has been made and I think it's a reflection of the efforts of many of our colleagues.
David Grapplin: got it great, that's helpful. And then maybe...
Speaker Change: I saw this in the 10-2 in the first quarter and second quarter. It looked like there was some adverse that you guys adverse PYD that you guys had taken on the other liability line of business for accident year 21. And I guess I'm just wondering if that continued here in the third quarter and also just how accident year 23 and 23 are holding up.
Speaker Change: You know, I think it's as opposed to getting into that detail, we'll have a lot of it in the queue and ask that once you have a chance to flip through the queue, if you have any questions, please reach out to us.
Speaker Change: Okay, sounds good, but thank you for what it's worth. There's nothing as rich to get it earlier. There's nothing concerning or alarming from our perspective.
Speaker Change: Next question comes from the line of Ryan Tunis with Autonomous Research. Please go ahead.
Speaker Change: Rine, good afternoon. They were all good afternoon. I guess it's the first question. Thinking about the 10 to 15 percent growth in...
Speaker Change: I'm trying to figure out if I'm thinking about this right.
Speaker Change: is it what you're really saying is you think that Berkley is a 10 to 15 percent grower, but
Speaker Change: You know, he flags in the, I don't know.
Speaker Change: Risk Reduction or remediation, or what have you come across a lot of over the next few quarters.
Speaker Change: perhaps while you're doing that it might be more of a challenge to do 10 to 15. I'm just trying to understand the way I think about that right to the 10 to 15 is sort of a...
Speaker Change: I'm longer than you I will let me at least try to answer your question I think what we have suggested are trying to suggest today on an annual basis we believe the business can grow at 10 to 15 percent.
Speaker Change: In addition, as we suggested in the past, there could be a quarter where we grow more, there could be a quarter that we grow less. Ultimately, for us, while we certainly would like to grow, underwriting margin is king, queen, whatever label you'd like to use.
Speaker Change: When we look at it, the market placed during the quarter, we took some action as it relates to auto.
Speaker Change: the Martin particular and quite frankly, if you other lines related to auto.
Speaker Change: As a result of that, you know, that slowed the growth.
Speaker Change: One of the things that at least I was trying to suggest earlier is it would seem as though the issues that we have identified parts of the market are starting to more actively grapple with those.
Speaker Change: in October, and that would provide some encouragement that you will see what I would view as a one-off quarter headwind.
Speaker Change: and maybe subsiding somewhat.
Speaker Change: So as suggested earlier, long story short, Ryan, I am not of the view that we are changing the position that the position should be on an annual basis, able to grow 10 to 15 percent. I was merely trying to unpack the quarter a little bit and help you understand what that speed bump is, which I believe is becoming less and less of an issue based on what we saw in October.
Speaker Change: i
Speaker Change: Got it.
Speaker Change: I'm just a follow up just a couple of quick ones on cats and I first of all I'd be curious what your boss was from Helena and I'm second of all I know you don't want to give a number for Milton but if I look back to the Ian quarter a couple of years ago about a hundred million dollars a cat
Speaker Change: is probably from a girl's standpoint, but it's just very familiar.
Speaker Change: So for Helena, I think you should assume about half of it, give or take was Helena related. Then there were some other connectivity as Richard reference, though Helena obviously got all the attention. There was some other losses going on.
Speaker Change: Switting over to Milton. I think it is premature for us or for them to really give you a specific number.
Speaker Change: but um
Speaker Change: As I think whatever the outcome would be, it will be sitting within what you would expect from this organization as far as the size of the loss. And as you've heard from Rich, you've heard from my boss, you've heard from me, we pay very close attention to the topic of volatility.
Speaker Change: whether it be on the underwriting side or the investment side. So that's probably about as much color as I can give you on Milton. But I don't think that there's something that's going to come out of that that's going to make anyone pause severely.
Speaker Change: Aguette.
Speaker Change: Your next question comes from the line of Alex Scott with Barclays. Please go ahead.
Speaker Change: Thank you for having me.
Alex Scott: and I wanted to ask you a question about capital.
Alex Scott: You know, you guys have been growing a little bit less as you're doing some work on some different lines and you know externally it's always hard to sort of judge how much drive powder a company may have and capacity to like, you know, sort of lean in opportunities to their eyes, you know, you have and so I would just be interested to try how do you think about that and the maybe you could just refresh us on sort of pecking order at this point with pricing getting better and some good signs, but but not, you know, putting it in growth as much right now. How do you approach which share buybacks and special dividends and so forth.
Speaker Change: So, from our perspective, the company has a...
Speaker Change: Comfortable Surplus of Capital Plus.
Speaker Change: And again, anyone who has a real curiosity can go through the painstaking experience of perhaps taking the S&P model and taking our data and running it through and you will get a a large surplus or excess of capital, which is there to allow us to be opportunistic arguably we have more capital than even one would need to maintain that position. And as we see opportunities, we will be returning that to those that belong to specifically our shareholders.
Speaker Change: So long story short, we have an excess of capital in the company at this stage is generating capital more quickly than we can utilize it. So it's a reasonable assumption that we will continue to opportunistically look for ways to return the capital to shareholders while still maintaining a comfortable balance plus.
Speaker Change: got it in a helpful. Is a follow-up, but I wanted to ask about reserves. I mean, you know, it's in the secret that, you know, some external folks struggle with, you know, looking at the disclosures on more recent acts in a year and, you know, myself included in that.
Speaker Change: It's hard from the outside. I wanted to ask you, what are the summits that the new one wants to do? What are some of the things?
Speaker Change: when you all look at the more recent acts in a year or maybe it's, you know, an update on the paid loss ratios you're seeing. I don't know. But what are some of the things that give you, you know, more confidence than, you know, I've had?
Speaker Change: Well, again, I'm not sure I fully understand all the reservations you or others have, but I would suggest that it's a really a couple of things.
Speaker Change: You know, we've talked about the paid law ratio in the past and we're happy to pick up that conversation anytime anyone wishes to in addition to that we've talked about the strength of our IBNR compared to total reserves as well as the strength of our IBNR relative to case and you can see that trend.
Speaker Change: and then in addition to that, I think on the last call or two we talked about our initial IBM R relative choice at our own premium rich.
Speaker Change: which we brought back to people's attention because I think there was some question with the other metrics we were putting forth while how is that impacted by the fact that the business is growing. So that's why we tried to draw people's attention to the initial IBM R relative to earned which should take into account growth.
Speaker Change: In addition to that, I think there are a lot of folks that...
Speaker Change: before they reach conclusions they need to unpack.
Speaker Change: our mix of business with greater granularity.
Speaker Change: and there are some people that have offered a view on the more recent years and how we've thought about those reserves without having a full appreciation for in some cases where we're using a claims made form as opposed to an occurrence form or amongst other mixes of business.
Speaker Change: So, you know, we look at our losses, ours.
Speaker Change: um
Speaker Change: Every very regularly every quarter we look at it at a very granular level by operating business by a product line and we look at it the aggregate and we look at it in between the two and from our perspective, you know, ultimately we respect the fact that everyone's entitled to their opinion at the same time while we're doing the best we can to try and help people understand but there's also a reality and we're going to be hard for us to to prove it other than through the passage of time.
Speaker Change: I think the last point that I would raise as it relates to the topic of reserves. I think that moral oftentimes paints for the very broad brush.
Speaker Change: and when they see other market participants.
Speaker Change: having to grapple with some challenging circumstances. They look at the product line, particularly when it's casualty or liability exposure. And then they look strappling and they'll say, well, this company over here had problems with this product line. So let's go out and look at who else would potentially have that exposure. And then they'll make this leap that that is going to be an issue for everyone. And I think that that it can be a very slippery slope and would encourage people to invest the additional time and perhaps use a finer brush and recognizing that there is a greater distinction than perhaps they appreciate at.
Speaker Change: face value.
Speaker Change: Got it, very helpful.
Speaker Change: respect to thank you.
Speaker Change: Your next question comes from the line of Brian Meredith with UBS Financial. Please go ahead. Yeah, thanks, thanks for hitting me in. Two questions here for you. First one, you know, Richard Robby talked about some of these businesses that are going to do and incubating right now, but should help the expense ratio, you know, as they kind of come online and you put them into your results. Is there any way you can kind of give us some quantification about how much premium is sitting in these businesses and, and you know, what benefit they could potentially have from a premium perspective looking over the next 12 months?
Speaker Change: I, Richie, I don't know if you want to speak to that. I mean, there'll be back of the envelope. Brian , we can't do that. If you want something more specific, you're welcome to give us a call. Richie, what was your comment? Go on. There's four operating units that we've moved over from. I'll say our corporate expense category into our underwriting expense category in the first quarter. And, you know, round numbers, 25 plus million in that written premium in the quarter.
Speaker Change: So that was the benefit quarter, Gasha. That's the premium that they contributed to the quarter, but I think they'd be picking up on the point and taking it at slightly further. Those businesses buy in large are very much in the early stages of scaling grind. So as they scale, you will see them become less dilutive to the expense ratio, and hopefully sooner rather than later neutral.
Speaker Change: Perhaps at some point it will become a critter.
Speaker Change: Great. And then my second question I think you may have talked about this in previous calls, but your investment funds, you know, they've been, you know, for the last, I would say at least 18 months building in a kind of below which your historical kind of returns on that those funds have been over time, is it, is that something we should expect going forward kind of lower return there or there's something unusual going on right now should that kind of snap back here at some point?
Speaker Change: I think that we're going to, you know, these we, we book on a quarterly lag and it's actually at times surprising to me how long it takes us to get the visibility, but I, I think the, the number and the short run that.
Speaker Change: I would encourage you to consider as probably $10 million a quarter and hopefully over time we're going to see that make its way back towards $20 million a quarter. But in the short run, I would encourage you to pencil in $10 million but again, Brian, we have in my arms trying to offer all the qualifications. You know, we believe in the returns over time but in the short run, it can be lumpy.
Speaker Change: as you know.
Speaker Change #100: understood. Thank you.
Speaker Change #101: Thanks for the question.
Speaker Change #102: We have no further questions in our queue at this time. I will now turn the conference back over to Rob Berkley for closing comments.
Rob Berkley: So before we think about, actually I don't have anything to add at the time, but I think our chairman may have a few thoughts. I would just like to add one comment that went along with the investment in the question. That is...
Speaker Change #103: are going to take advantage of the changing shape of the yoga and move the duration of our portfolio out. At the other hand, if you look at the level of leverage in the world.
Speaker Change #103: is not rushed to do that.
Speaker Change #103: At the same time, we have no interest at all, as Rob said, of lowering the quality of anything with kinds of things we bought in the past quarter have been.
Speaker Change #103: Probably the average of double A, not double A, minus.
Speaker Change #103: is an opportunist strategy that's geared to the view that we don't think Rachel are going to go down a lot, especially on the longer side, and therefore.
Speaker Change #103: We continue to invest
Speaker Change #103: and it's not only reinvesting the money, but...
Speaker Change #103: We're going to probably have $4 billion cash for that's a lot of money to invest so we're quite optimistic about our investment income.
Speaker Change #104: Little Lone on our operating, Prof. Margin's Monday, right?
Speaker Change #104: So we can take you to see.
Speaker Change #104: Quality and duration improvement.
Speaker Change #104: and League of...
Speaker Change #104: and currently going on.