Q4 2024 W R Berkley Corp Earnings Call
William Berkley William Berkley William Berkley William Berkley William Berkley
[inaudible]
Speaker Change: In which we operate and the important factors that made material 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 I would now like to turn the call over.
Rob Berkley: To Mr. Rob Berkley. Please go ahead Sir.
Lisa: Lisa Thank you very much and good afternoon, all and let me Echo leases are welcome to our fourth quarter call.
Lisa: As in the past, we have bill Berkley executive Chairman joining on this end along with rich Baio Chief Financial Officer.
Lisa: We're going to follow our typical agenda, where shortly I'm going to hand, it over to rich who is going to walk us through some highlights I'm going to then follow up with a few quick comments on my end and then we'll be very happy to take the conversation in any direction that participants wish to take it.
Speaker Change: Before I do I'll hand, it over to rich just a very quick comment really not just on behalf of myself on behalf of all of my colleagues expressing our concern for all who have been impacted not just by the recent events in California, and these horrific fires, but also we shouldn't forget about.
Speaker Change: There are many people that were terribly impacted during the 2024 year as a result of hurricanes and other events.
Speaker Change: From our perspective, it is certainly a moment for the industry to demonstrate its value to society.
Speaker Change: I know that my colleagues and I are very focused on ensuring that we as an organization do what we're supposed to do to live up to our responsibilities and it's certainly our hope that our peers at other organizations will be doing the same.
Speaker Change: So with that I will hand, it over to rich rich if you want to run us through the highlights and then we'll take it from there.
Rich: Thanks, Rob appreciate it.
Rich: Good evening, everyone. The 'twenty 'twenty four full year closed out with record topline and Bottomline results, yielding return on equity of 23, 6% and operating return on equity of 22, 4% the fourth quarter record operating earnings increased 15, 5% to 453 million.
Rich: There's your $1 13 per share with an operating return on equity of 24, 3% net income represented our second best quarter, increasing 45% to $576 million or $1 44 per share with return on equity of 39%.
Rich: The key drivers behind the quarter with strong underwriting results combined with the continuation of growth in our core investment portfolio, starting with underwriting performance. Our current accident year combined ratio before cat losses of $2 six loss ratio points was 87, 7%.
Rich: And with the full year 2020 for the calendar year combined ratio was 92%, resulting in $294 million of underwriting income, bringing the full year of 2024 to <unk>, 93% and a record underwriting income of more than $1 $1 billion.
Our year development was favorable by $1.6 million in the quarter.
Rich: Filling down further into the component parts. The current accident year loss ratio ex cats is 59, 2%, which ticked up slightly from the prior year due to business mix and remains flat to the full year of 2024 and 2023.
Rich: That loss has increased over the prior year, primarily due to hurricane Milton.
Rich: Driving the increase quarter over quarter of $1 four loss ratio points.
Rich: <unk> ratio was 28, 4% was flat to the prior year quarter continuing to benefit from record net premiums earned more than $3 billion and initiatives driving technological and operational efficiencies throughout the business.
Rich: We believe 2025 will reflect an expense ratio comfortably below 30%.
Rich: Full year 2024 marked another record year on top line.
Rich: Gross and net premiums written grew nine 6% to nine 3% respectively.
Rich: Fourth quarter reinsurance segment's net premiums written increased nine 9% to more than $2 $6 billion with growth in all lines of business.
Rich: Reinsurance <unk> Monoline excess segment grew in property and mono line access with a decrease in casualty due to the competitive pricing environment.
Rich: Moving on to investments the core portfolio increased nine 4% to $313 million we.
Rich: We do expect the core portfolio to continue to grow over the fourth quarter 2024 in the foreseeable future due to higher new money rates compared with the roll off book yield and growth in the size of the investment portfolio.
Rich: Record operating cash flow from 'twenty to 'twenty four of almost $3 $7 billion.
Rich: So the year before as operating cash flow of $2 $9 billion, which was also a record.
Rich: And has enabled us to invest more while maintaining the high credit quality of doubling minus in addition, we've increased our investment duration from two four years to two six years in the quarter.
Rich: And at the end of 2024, we had cash and cash equivalents of almost $2 billion.
Rich: Net investment gains were primarily driven by favorable market value movements in common and preferred equity securities investments in the energy and certain financial services sectors led to the $163 million unrealized gain.
Rich: The effective tax rate of 21% in the quarter benefited from the utilization of some foreign valuation allowances established against operating loss carryforwards and true up adjustments for prior periods. This brings our full year effective tax rate to 22, 5% and we.
Rich: We expect 2025 will be 23% plus or minus.
Rich: As it relates to capital the stockholders' equity increased 12, and 12, 6% to $8 $4 billion, primarily due to record net income of $1 $8 billion, partially offset by the return of capital to shareholders of $836 million through dividends and share repurchases.
Rich: In the fourth quarter, we paid regular and special dividends of $220 million and repurchased $67 million in shares.
Rich: Our after tax unrealized investment loss is $517 million as of year end 2024, an improvement of $69 million from the prior year.
Rich: And finally book value per share before repurchases and dividends grew 23, 5% for the full year.
Rich: I will turn it back to you okay. That's thank.
Rich: Thank you very much very clear I'm sure appreciate it bye bye all.
Speaker Change: Before I offer a few thoughts on the marketplace and then on our quarter just highlighting the obvious at this stage as you likely had an opportunity to slip through the release and would've heard Richard's comments.
Speaker Change: 2024 was truly another exceptional year for the organization and I did before we get into the nooks and crannies that we typically do on these calls I did want to take a moment just to pause and both thank and congratulate our roughly 7300 colleagues for yet again, a job very well done.
Speaker Change: The three of US have the privilege of speaking on behalf of the full team, but as a reminder to all this is a team sport and the outcome is a reflection of the team not just the folks that happened to be speaking to you on this call today, so again to the team.
Speaker Change: Thank you and they truly are congratulations on yet another great performance.
Speaker Change: Maybe pivoting over to a couple of thoughts on the marketplace.
Speaker Change: As far as much of the liability market. It continues to be plagued by social inflation the combination.
Speaker Change: And emboldened plaintiffs bar, along with quite frankly, the jet fuel that they have in their back pocket otherwise known as litigation funding.
Speaker Change: When used just two to up the game that having been said social inflation does not apply to all product lines equally so maybe to give an example or to be more specific while it is certainly prevalent in most places within the liability space. If you look at certain lines of business where claims are more.
Speaker Change: Expose ore is more common place, where there is actually physical injury to someone you will see a reaction coming out of a jury that tends to be far more inflated. By example, the type of awards that are coming out related to auto liability.
Speaker Change: <unk> or med Mal and the inflation that we're seeing in those types of claims is far more than what we would be seeing in the D&O space or what we would be seeing in the accountants liability space just to pick a few to try and articulate the 0.1 of the things that's been.
Speaker Change: Both surprising quite frankly, a bit disappointing to me, it's been how slow or sluggish the reinsurance market has been to respond to social inflation and some of the challenges. It is our suspicion that you are seeing a gradual groundswell that is building and we will see this.
Speaker Change: Coming to the casualty reinsurance market hopefully over the coming months and years and that will create an opportunity for our colleagues in the reinsurance space, but in the meantime, when there is that lack of discipline, we very much applaud our colleagues.
Speaker Change: For the discipline that they are exercising.
Speaker Change: Pivoting over to the short tail lines, specifically property.
Speaker Change: Certainly for the moment and we'll have to see what the impact of the California fires is but for the moment.
Speaker Change: Property insurance, there is still a tailwind, but it is slowing and if you pivot over to the property reinsurance market.
Speaker Change: And even more so the retro market. It is clear that at one one there was no tailwind to be found in fact, it was quite to the contrary there was a growing headwind by example, our property cat renewal risk adjusted.
Speaker Change: Was down 15% ish and a similar percentage for our retro.
Speaker Change: Yeah.
Speaker Change: Moving on to our quarter I don't have a lot to add in I guess at the risk of being a little bit repetitive following rich.
Speaker Change: Written premium was.
Speaker Change: 8%, but going back to a comment earlier and what Richard unpack for us a little bit I think you need to look at that a little more carefully.
Speaker Change: The fact of the matter is if you back out the casualty reinsurance, where we find market conditions to be concerning and we believe that more of a defensive posture is appropriate if you back that out we're at 10%.
Right ex workers' comp came in at seven seven renewal retention ratio a little bit above 80, which continues to be very consistent with what it's been for at this stage I don't know, how many quarters or for that matter how many years on.
Speaker Change: On the expense front, but 28, four rich talked about us continuing to be sub 30 for the foreseeable Richie. This is a little bit of a heads up I'm going to ask you to talk about expenses for a moment, but if you go back and you look at the journey we've been on.
Speaker Change: We've been able to hold the line on expenses through investments in technology, along with the utilization of <unk> and if you think about where our expense ratio was pre COVID-19 and where we are today, even with the COVID-19 benefit unexpected haven't gone away.
Speaker Change: We continue to be in a very good place so I'm going to keep going in a minute, but I wanted to take a pause catch my breath and Richard if you want to speak to expenses for a moment. Please sure. So as Rob alluded to certainly post Covid, we've benefited our where our expense ratio has been in the low twenties to mid.
Speaker Change: 20, low 28% to 28, 5% area, but proceeding that going back to 2020 and prior certainly began with a three handle and if we go back to the decade adult basically at a 33 and change so certainly have seen close to a five point improvement in.
Speaker Change: The expense ratio over that period of time, and I would just add to that one needs to keep in mind our mix of business.
Speaker Change: A meaningful amount of the business we write.
Speaker Change: As an acquisition cost that is greater due to the fact that we do a fair amount of business.
Speaker Change: In the wholesale market.
Speaker Change: So rich covered.
Speaker Change: Combined ratio again 92, given the cat activity in the quarter not a bad place to come out.
Speaking of that on the topic of cats, obviously, it's very early to be speculating around California, and what it will mean, but I would just remind folks that we are California life when it comes to property.
Speaker Change: Obviously, one of the areas that has gotten a lot of attention is the personal lines space.
Speaker Change: Our efforts are known as Berkley, one within the private client personal line space, we do not participate in the California market. So hopefully that is helpful and I think the punch line is while I'm sure. We will have some loss activity associated with the fires I expect that it will.
Speaker Change: Not keep us from still delivering a respectable return to our shareholders in Q1 based on everything that I can see today.
Speaker Change: Switching over to the investments again rich covered this.
The double a minus continues to get stronger with every passing day and were feeling very good about that simultaneously.
Speaker Change: You would note as flagged the duration we've talked about this.
Speaker Change: Some number of quarters, when we see the opportunity we're going to nudge that duration out we saw an opportunity. So it popped up from $2 four and change out to six and change and again, we feel no pressure, but when we see the window of opportunity. Our colleagues are not going to let that pass by without taking advantage of it I think another.
Speaker Change: Data point that really plays into the whole economic model and I think as we've talked about over the past couple of quarters. When we were going through an extended period of time in interest rates or a <unk>.
Speaker Change: Reduced or depressed if you will.
Speaker Change: I think a lot of folks forgot about the component of our economic model that being the investment portfolio and investment income obviously that has been real welcome everyone can see that but that story has not fully told at this stage. So a couple of data points for you our domestic book yield for.
Speaker Change: For the quarter was approximately four 6% our new money rate today is five and a quarter plus so as you can see that increase along with the cash flow that rich talked about for the year $3 7 billion or $810 million in the quarter, we have a growing portfolio of where new money rate is.
Considerably above the book yield and I think we all know what that means so long story short what is the punch line is the following.
Speaker Change: 2025 is a.
Year that we think the table is already set and it's set in a very attractive way and with every passing day, we are setting the table more and more for 2026.
Speaker Change: <unk> is that our underwriting margin is likely to improve from here over time and certainly at a minimum will not be deteriorating. In addition to that as far as the investment portfolio. The other key component of our economic model as I mentioned, just a moment ago. The investable assets continue to grow at a healthy pace.
Speaker Change: And that new money rate, given our view on where quite frankly government borrowing is going to need to be where inflation is going to be there will continue to be an opportunity for us to put money to work at a healthy spread above the current book yield as it is today, we do not see that disappearing overnight.
Speaker Change: So obviously people are digesting process the data any way they like but the numbers and the information that we shared with you. All today. Those are statements of fact and quite frankly, you don't need to be particularly insightful to see how the story is likely to unfold not just over the 'twenty.
Speaker Change: Five year, but more and more likely with every passing day 26 and perhaps beyond.
Speaker Change: Okay.
Speaker Change: As usual probably more than I promised why don't.
Speaker Change: We pause there and Lisa if we could go ahead and open it up for Q&A.
Lisa: Absolutely and everyone. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: I'll take the first question today from Alex Scott Barclay.
Lisa: Okay.
Speaker Change: Hi al.
Good afternoon.
Lisa: Good afternoon.
Lisa: First one I have for you all is just.
Lisa: How we should think through balance sheet growth.
Lisa: It sounded like you're not willing to by John.
Lisa: The margins here.
Lisa: <unk>.
Lisa: Potential improvement.
Lisa: Just given the landscape, particularly for reinsurance and insurance with what's going on with property.
Lisa: Yes.
Lisa: We're going to go through a period, where we have to potentially be lower than where you all would like to be on growth.
Lisa: Given the long term.
Lisa: And how does that get balanced out with potential capital return and just how we should think about where you are correct in your leverage to a period like that so well.
Lisa: Well. Thank you for the question and be my thoughts on it are as follows we as an organization.
Lisa: Im apologetic and the fact that we're in business to make good risk adjusted returns.
Lisa: We will write the business and lean into it when we think the margin is there and we will have no qualms, taking a more defensive posture. When we don't think the margin is there I think we have demonstrated that time and time again and you can see that actually we lay the numbers out for you on slide seven our page seven.
Lisa: If you will of our press release and you can see our casualty reinsurance in the quarter was down more than 15% that's because of the comments not only that I shared earlier today, but we have talked about in past quarters and earlier, where we just don't think that the market is exercising the discipline.
Lisa: Frankly is expecting an appropriate risk adjusted return, but we will participate where we think it makes sense and not so when you put that altogether, Alex we can only control what we can control we can't control the market. We can control our behavior, we are seeing opportunities and much of the market today, we think.
Lisa: We have great colleagues with great expertise they understand how to separate the wheat from the chaff and I think we're in a pretty good place again.
Lisa: If you look at some of the growth in the insurance fronts and you can see the opportunity that while slowing still exists.
Lisa: Even on the property reinsurance front, we're going to try and take advantage of that but when the day is all done we think that there is still a lot of opportunity out there and we're looking to capitalize on it and our comment around opportunity to grow nobody knows for sure until Youre there, but at this.
Lisa: Stage. The fact is we.
Lisa: Have a lot of we have businesses that when you put it altogether.
Lisa: Our growing at high single digit or more and there are parts of our business quite frankly that are growing at a much higher rate. So again hopefully.
Lisa: Have a lot of Babylon my part, but if you look at slide seven I think the page seven of the release it demonstrates we grow where the margin is and so what does that mean, we think the business should be able to continue to grow at a healthy rate in excess of trend.
Lisa: Got it that's all very helpful.
Lisa: Maybe focusing a little more on the primary side.
Speaker Change: We heard from one of the other smaller specialty companies that.
Lisa: Property they were seeing a lot of competition I think flagged mga's.
Lisa: I think others have flagged the Lloyd's market.
Lisa: How is price adequacy.
Lisa: Property with the insurance within the insurance business is that.
Lisa: Is that still a place that you can.
Lisa: <unk>.
Lisa: Your targeted profitability.
Lisa: I think that there is still an opportunity generally speaking and property that having been said, it's reasonably evident that there is a bit more competition.
Lisa: Today than there was yesterday in certain pockets, we will have to see what the impact is of the California fires whether that changes the appetite of some.
Lisa: But yes as I tried to articulate earlier I think for property insurance there is still a tailwind, but it is clearly diminished from what it was yesterday.
Lisa: But it has not become a headwind.
Lisa: Or eroding to the extent that the reinsurance market has on the property front.
Lisa: Got it thank you.
Lisa: Thank you.
Lisa: Our next question from Elyse Greenspan from Wells Fargo.
Elyse Greenspan: Good afternoon.
Elyse Greenspan: Hi, Thanks, Good evening My first question on you.
Elyse Greenspan: You guys in the last couple of calls right have been willing to kind of provide.
Elyse Greenspan: Is there a breakdown right.
Elyse Greenspan: Matt I was hoping you could give that to US Tonight and then just provide any color you might have seen within insurance or reinsurance that stands out with short or long tail reserves in the quarter.
Speaker Change: At least I don't have it in front of me I think of what if you wouldn't mind rich can probably give that to our churn Karen if you wouldn't mind just circling up after the call because we wouldn't want to give you anything but the accurate information.
Speaker Change: Far as where the challenges I think as we've talked about in past calls, we're paying close attention to auto liability and we're paying close attention to access petite and umbrella and particularly how auto liability feeds into that going the other way work.
Speaker Change: <unk> compensation continues to be a good guy and we have some other lines, where it continues to be very encouraging as well I think the actions that we have taken regarding auto both in the primary and applies to the excess.
Speaker Change: Well entrenched at this stage so I would never go so far as to declare a victory prematurely, but I think we're on the right path.
Speaker Change: Okay.
Speaker Change: And it sounds like from your comments like you guys are.
Speaker Change: Pretty cautious on.
Speaker Change: The casualty reinsurance market.
Speaker Change: So.
Speaker Change: As you think about how that market I guess could you lay out in 'twenty five as well as.
Speaker Change: Other markets.
Speaker Change: Be that other long our short tail lines do you think you get back Rob.
Speaker Change: 10% to 15, I know right, it's less top line to grow you don't want to go and areas like that are offering good opportunities that you see growth from a top line perspective.
Speaker Change: Playing out in 2025.
Speaker Change: So.
Speaker Change: So this is the part where I guess you see if I'd take the bait or not and I guess the answer is this.
Speaker Change: I don't know with any greater certainty than anyone else, what 2025 is going to hold.
Speaker Change: <unk> for us.
Speaker Change: I believe that there should be an opportunity for this organization for the 2025 year to grow in double digits is it possible that that could prove to be 9%. Yes. It is is it possible that that could prove to be 16%, yes. It is.
Speaker Change: Do I think that we should be able to grow our exposure in something in excess of the rate that we're achieving yes, I do and given that we are getting more than seven points of rate I think that that should help us get to what I'm pointing you in the direction of.
Speaker Change: Okay.
Speaker Change: And then one last one was there anything it looks like the insurance underlying loss ratio, maybe picked up a little bit in the quarter from where it had been running was there anything.
Speaker Change: It was about a half a point or half a point or so and I would.
Speaker Change: Caution you not to read too deeply into it because rich and I did spend some time on this and it really just boils down to mix of business.
Speaker Change: Okay. Thank you.
Speaker Change: Your next question is Andrew quicker Man TD Securities.
Andrew: Thanks, a lot.
Speaker Change: Good evening.
Rob Berkley: Looking at the other liability net written premium was up a solid nine 5% and if I remember correctly, Rob you had expressed a.
Speaker Change: A fair amount of optimism around pricing in the <unk>.
Rob Berkley: Insurance casualty line in October and you felt.
Rob Berkley: Pretty good it might see some pickup could you kind of elaborate on where that is now in January.
Rob Berkley: Okay.
Rob Berkley: So I have not seen our January price monitor so I'm a little bit on my heels that having been said based on the anecdotal information that I had heard from colleagues I think that the momentum continues to be very strong around rate achieved on.
Rob Berkley: Much of our liability and other liability included in that.
Speaker Change: Okay. So strong so what.
Elyse Greenspan: Rob what's the disconnect between your concerns about the reinsurance casualty pricing.
How do you reconcile the reinsurance pricing coming off.
Speaker Change: I think you said down 15% our premium.
To be clear sorry, our premium was down about just shy of 15, 5% for our casualty reinsurance in the quarter.
Speaker Change: For casualty and yet you seem to like it on the.
Speaker Change: Primary mobile could you maybe reconcile the two and why you are.
Speaker Change: Yes.
Speaker Change: Far less favorably disposed on reinsurance casualty.
Speaker Change: Because I think the.
Speaker Change: Casualty reinsurance market needs more discipline and they need to charge more whether that be through adjusting ceding commissions or an <unk> basis getting at it a different way.
Speaker Change: Interesting.
Speaker Change: I think theres a disconnect no different than if you go back a few years ago before the reinsurance market woke up there was a disconnect between property primary property reinsurance.
Speaker Change: Interesting.
Speaker Change: Maybe one last quick one.
Speaker Change: National not a lot of color on that but kind of curious because your insurance ops or in Asia, Latin America UK Europe.
Speaker Change: Any color that you could share with us on.
Speaker Change: Whats going on abroad.
Speaker Change: How youre seeing those markets for your business.
Speaker Change: Obviously.
Speaker Change: We participated in a lot of different markets and no. One has a mirror image of another including the market conditions, but what I would tell you is this that we have some really exceptional people running those businesses and they are amongst some of our highest margin businesses.
Speaker Change: And going back in time that Hasnt always been the case across the board, but some of our best risk adjusted returns are coming from or are being generated by our colleagues outside of the United States. I think there are certainly parts of the international effort, where the market is particularly.
Speaker Change: <unk> and the opportunity to grow has become more challenging.
Speaker Change: Nevertheless, our colleagues and their ability to navigate through those.
Speaker Change: Competitive environment, I think we have a great deal of confidence in.
Speaker Change: Thanks, a lot.
Speaker Change: Well take the next question from Mark Hughes Charlie Securities.
Speaker Change: Yes, Thank you and good afternoon, Hi, Mark good afternoon.
Mark Hughes: Rob any comments on the mix between E&S and admitted Theres still strong movement into E&S, how do you see that now.
Speaker Change: Yeah.
Speaker Change: Thanks for the question Mark and maybe if you don't mind, taking half a step back.
Speaker Change: The submission flow coming into the E&S marketplace continues to be robust, we'll have to see again, what the impact of the California fires is but we're probably seeing.
Speaker Change: A little less momentum on the property side and more momentum on the casualty side as far as the <unk>.
Speaker Change: Submission flow regarding E&S I would tell you there are pockets of professional that have become a little bit more competitive on the E&S fronts, but that having been said overall, our E&S business is growing considerably faster than our admitted business today.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: You expressed a lot of confidence that the.
Speaker Change: Underwriting profitability wouldn't be deteriorating or would be likely improving and definitely not deteriorating.
Speaker Change: Pricing is still up nicely.
Speaker Change: What should we think about the inflation in loss costs are you seeing.
Speaker Change: Step down.
Speaker Change: <unk> loss inflation, I know you've talked about the social inflation in those drivers, but it seems like you have a little more optimism about the spread on a go forward basis I think we've been getting a lot of rate for a long time at this stage. In addition to that I think we have.
Speaker Change: Growing visibility and confidence in the underwriting actions that have already been taken and continue to be applied.
And when you put all of that together I think.
Speaker Change: We are cautiously optimistic as to what that likely.
Speaker Change: Bodes for the results overtime.
Speaker Change: I think the reality is when we looked at our mix of business and we look at the rate that we have achieved and that we continue to achieve and if you look at the aggregate seven 7% or so and we looked at how we think about trend.
Speaker Change: At a pretty granular level, we think we're in a good place.
Speaker Change: So again.
Speaker Change: None of us know for sure, particularly with some of the longer tail lines other than through the passage of time.
Speaker Change: There is some encouraging data that we're seeing.
Speaker Change: Thank you.
Speaker Change: Thanks for the question.
From BMO capital markets next step is Mike Ramsey.
Speaker Change: Hi, Mike Good evening.
Speaker Change: Hey, good evening.
Speaker Change: First question.
Speaker Change: Coming back to.
Speaker Change: I'm going to assume we.
We didn't know that you don't have the answer to the reserve changes this quarter, but based on kind of the year to date nine months. It looks like workers comp was definitely a big good guy.
Speaker Change: In terms of reserve releases, so I'm, just trying to kind of curious one of the tough question tougher questions. We get is why.
Rob Berkley: <unk> Rob.
Speaker Change: Paresh.
Speaker Change: Workers comp.
Speaker Change: Profits are so good it still continues to to release a lot of reserves. So just kind of curious if you are.
Speaker Change: Your views on on copper.
Speaker Change: Our improving potentially or just kind of talking through the dynamics there.
Speaker Change: I think that when it comes to workers compensation.
Speaker Change: I missed the SaaS.
Speaker Change: Frequency trend.
Speaker Change: Remarkably negative it has remained for an extended period of time.
Speaker Change: In addition to that.
Speaker Change: <unk> did not give enough credit to wage inflation and what that.
Speaker Change: Has meant for pricing and by extension margin.
Speaker Change: On the other hand, I continue to be concerned.
Speaker Change: About.
Speaker Change: Medical cost and medical trend.
Speaker Change: It is hard for me to imagine that the workers comp market will be insulated.
Speaker Change: From that reality indefinitely.
Speaker Change: So.
Speaker Change: At this stage as you would have noticed in the quarter, where it grew a little bit and comp even though our rate was ever so modestly negative.
Speaker Change: But we are finding opportunities to grow in comp, but it tends to be very specialized.
Speaker Change: We are not growing.
Speaker Change: I would describe as.
Speaker Change: Main street comp we are growing in specialized comp as far as the exposure goes.
Speaker Change: Got it okay.
Speaker Change: Got it.
Speaker Change: [noise] accounted nest there switching gears.
Speaker Change: If we reflect on the past year or whatever amount of time, you would like to reflect on.
Speaker Change: Is it fair to assume that given your growing faster than.
Speaker Change: In E&S than standard commercial.
Speaker Change: Okay.
Speaker Change: <unk> been kind of a positive impact on the overall companies.
Speaker Change: Combined ratio or is that is that not a fair assessment.
Speaker Change: Well I hope every place we're growing is going to have a positive impact on the combined ratio I understand your point is E&S.
Speaker Change: Higher margin.
Speaker Change: And in some cases that that is the case, but that's not always.
Speaker Change: The case.
Speaker Change: But maybe specifically to your point I think.
Speaker Change: Inc.
Speaker Change: Our.
Speaker Change: Okay.
Speaker Change: Our loss ratios are in a very good place do I think it's possible through the passage of time that they will improve yes, I do believe that that is a possibility.
Speaker Change: Going to sort.
Speaker Change: In order to get ahead of ourselves no we're not.
Speaker Change: Mike I don't know if we have the conversation, but certainly rich and I have chatted with others about it.
Speaker Change: That 16 through 19 year.
Speaker Change: And that Stark reminder of the mismatch between when you write your business and when you would really know your cost of goods sold that was a very sobering experience for us and as a result of that.
Speaker Change: It's not going to get ahead of ourselves quite frankly at this stage the business is generating without any strain 20 plus percent returns. So there is there's really no incentive in my opinion to do anything other than make sure we're thoughtful and measured and continued to.
Speaker Change: Have a healthy respect.
Speaker Change: For that reality of not knowing your cost of goods sold until some number of years. After we made the sale. So when I when we look back on it in the future I think.
Speaker Change: Things are going to look possibly better than they do today, but we're not going to get ahead of ourselves.
Speaker Change: Got it.
Speaker Change: Let me just lastly, sticking on the.
E&S marketplace loud and clear about.
Speaker Change: Growth.
Speaker Change: Your growth outlook.
Speaker Change: Russia remains the same as last quarter, but specifically on the E&S marketplace given how.
Speaker Change: I guess, a good returns off for most companies.
Speaker Change: As for we're hearing some companies talk about some pricing.
Speaker Change: Elevation in the year.
Speaker Change: <unk> casualty marketplace.
Speaker Change: Are you seeing that at all I don't see that in the E&S casualty space I can imagine that potentially happening in the property space, let's put it up putting aside whatever the California impact is.
Speaker Change: But I don't see that happening in the casualty space and quite frankly.
Speaker Change: I think if anything that pricing environment is more likely than not to remain quite resilient when it comes to.
Speaker Change: Casualty, we'll have to see professional perhaps is a different animal, but if we're talking about E&S casualty.
Speaker Change: I think that that is.
Speaker Change: Quite strong and there is nothing that leads me to believe that youre going to see that momentum erode again property, a little bit different and if you unpack a lot of the growth of the E&S market has seen over the past several years.
Speaker Change: It is weighted towards property.
Speaker Change: So as I think we've all talked about property tends to respond quickly and very severely but it tends to be shorter lived as opposed to casualty tends to be slower, but oftentimes has more staying power as far as market conditions.
Rob Berkley: Thank you Rob.
Rob Berkley: Thanks for the question.
Rob Berkley: We'll go next to Katie <unk> Autonomous research.
Speaker Change: Yes. Thank you good evening.
Speaker Change: My first question is on the reinsurance and mono line of SaaS loss ratio.
Speaker Change: An exceptional result.
Speaker Change: On an underlying basis I know for the reinsurance segment, you guys caution not to read too much into the uptick in the underwriting ratio.
Speaker Change: Perhaps you can offer us some color on the results in the reinsurance segment and really what youre thinking on the margins there as you look into 2025.
Speaker Change: So maybe going back to a couple of the comments earlier, obviously, we have reservations around some of the casualty.
Speaker Change: All lines and for that matter some of the professional.
Speaker Change: Within the <unk>.
Speaker Change: Reinsurance market.
Speaker Change: Excuse me in addition to that on the other hand, we have.
Speaker Change:
Speaker Change: The property market. We believe is clearly under pressure you could see that clear as day at one one but we think that there continues to be margin in the business and for the moment, it's adequately priced.
Speaker Change: So we are going to continue to ride that property horse as long as we can until we reach a conclusion that it no longer makes sense and then you'll see US go from an offensive posture to a defensive posture as far as the casualty goes I think we already covered that in that action on the reinsurance front was.
Speaker Change: Again demonstrated by us.
Speaker Change: Shrinking the book by more than 15% in the quarter.
Speaker Change: Again.
Speaker Change: I think that it's just a reflection of our view that we are and where capital managers were in business to make money. If we don't think it's a good risk adjusted return we're happy to let it go.
Speaker Change: Got it Okay, and then and then circling back to your commentary Rob.
Rob Berkley: The workers comp credit this quarter, you've been changing are there particular niches.
Rob Berkley: Workers' comp, where you guys were seeing some opportunities for growth.
Are those pockets of growth sustainable.
Rob Berkley: And can we expect to.
Rob Berkley: Continuing to see some modest growth out of that line over the next couple of quarters or so is that kind of pop up and come and go.
Rob Berkley: So obviously again nobody knows for sure what tomorrow will bring but the couple of mono line businesses that participate in the specialty comp space the momentum that they're enjoying today, we do not see that going away tomorrow. So certainly we think that will likely continue to be.
Rob Berkley: Some opportunity throughout 'twenty five.
Speaker Change: Okay, and then if I may sneak in one more you guys have any.
Speaker Change: Updates on your 2025 reinsurance program and how your catastrophe loss budget for this year compared to 2024.
Speaker Change: Would suggest I don't have that at my fingertips, I don't think rich does but certainly if you're chairing a call.
Speaker Change: She can get into it.
Speaker Change: And some detail or at least as much detail as we're we're allowed to but I would remind you of the comment that we shared earlier around our property cat reinsurance risk adjusted was down 15% ish or so and a similar reduction in risk adjusted rate on the retro.
Speaker Change: Got it thank you.
Speaker Change: For the question so we're going to.
Bob Wang: Next step is Bob Wang Morgan Stanley.
Bob: Hi, Bob Good evening.
Bob Wang: Good evening.
Bob: Quick question on <unk>.
Speaker Change: I'm curious your view on social inflation. It really so it does feel like plaintiffs' bar is more active in the northeast and West Coast in fact, something that California Commissioner also touched on when it comes to a L. L. A wildfire.
Speaker Change: Are there any particular geography in the us where you feel.
It could be represented a higher risk area for social inflation like is there a way to think about the northeast West Coast Midwest curious your way to think about it is they're shifting away from Florida and Georgia.
Speaker Change: So I would tell you that.
Speaker Change: There are certain territories or or states really counties, that's part of the country, where that are obviously more challenging than others.
Speaker Change: I think the difficulty.
Speaker Change: <unk> is not the states.
Speaker Change: Have historically been very challenging, but it's the ones that are changing very quickly.
Speaker Change: And from a legal environment perspective.
Speaker Change: There are some states that were.
Speaker Change: That are very rare to have always been read we have some states that are perhaps are more blue and they've always been blue.
Speaker Change: Now, what's becoming more challenging as some states that were one color changing to a different color or some states. For example that were perhaps once read another more purple.
Speaker Change: I would tell you. An example of a state that has shifted dramatically.
Speaker Change: Would be one that you just mentioned the state of Georgia.
Speaker Change: Where once upon a time.
Speaker Change: That was it.
Speaker Change: Easier place to do business.
Speaker Change: But it has become ever more aggressive.
Speaker Change: As far as the plaintiff bar goes.
Speaker Change: Another state that once upon a time was defendant friendly or more defendant friendly would be Texas and there are counties in Texas.
That I'm not quite sure they become Cook county, but they are definitely trending in that direction.
Speaker Change: I think you raised a really important point, it's one that we internally we spend a lot of time thinking about.
Speaker Change: Because just rate alone is a very blunt instrument.
Speaker Change: And so our terms and conditions.
Speaker Change: <unk> to their credit are obviously, using the right tool and the term and condition tool, but they're also at a very granular level.
Speaker Change: Round, two county thinking about exposure.
Speaker Change: Based on the legal environment, and I think that that is going to happen.
Speaker Change: <unk> has become and will become increasingly more and more something that this industry is going to have to grapple with.
Speaker Change: Got it Okay. I guess my follow up just so that I'm clear then in that case is it fair to say that.
Speaker Change: Some of the <unk>.
Speaker Change: Commercial casualty lines.
Speaker Change: Potentially behave more similar to personal lines in the sense of where geography in region is more important than the business mix is that a fair statement down the road or just curious as to if that is the directional.
Speaker Change: Youre leaning in the direction of Nat Cat, if you will and what that means for exposure and youre extrapolating from that as far as legal environment by territory and what that means for exposure.
Speaker Change: Yeah, Yeah, just to see if that makes sense.
Speaker Change: So the answer is to us well, it's a bit of a generalization directionally not only do we share. Your view, we are applying that to how the business operates.
Speaker Change: Okay got it really appreciate it thank you. Thanks.
Speaker Change: Thanks for the questions.
Speaker Change: And we will go next to David Miller to Madden Evercore ISI.
Speaker Change: Okay.
David Miller: Hey, good evening.
Speaker Change: So Rob you spoke of.
Speaker Change: You spoke a little bit about.
Speaker Change: <unk>.
Speaker Change: Yes, some of the competitiveness in the casualty reinsurance market.
Speaker Change: And.
Speaker Change: Commend you guys for stepping back a little bit from that market. I guess has that made you reevaluate at all Youre outward program one of your peers.
Speaker Change: Just a little bit more coverage has that entered your thought process at all here as we are did that answer your thought process at all at the one one renewal.
Speaker Change: So we are.
Speaker Change: We're conscious of cost of capital.
Speaker Change: Both the capital that we effectively own and the capital that we effectively rent reinsurance.
Speaker Change: We also are conscious of the fact that there are some reinsurance relationships that are true partnerships and there are other reinsurance relationships that are truly transactional those that are partnerships.
Speaker Change: Yeah.
Speaker Change: Our ones that tend to endure time.
Speaker Change: From our perspective.
Speaker Change: Our colleagues are very skilled and understanding where the marketplaces.
Speaker Change: And I think our attentive to making sure that we are doing what is in the best interest of our shareholders and simultaneously treating those that are truly our partners with the care and respect that they deserve.
Speaker Change: So when the days all done we're conscious of where the market is and we're going to do what we think makes sense for this organization its shareholders and our long term partners.
Speaker Change: Got it.
Speaker Change: That's helpful.
Speaker Change: And then it was good to see.
Speaker Change: The commercial auto growth tick up a little bit as well as the other liability growth in the quarter.
Speaker Change: I guess.
Speaker Change: Our rates and those lines are they at levels that are I guess good enough for you guys to continue to lean in.
Speaker Change: As we head into 2025.
Speaker Change: Obviously, we were satisfied with the available rate otherwise we wouldn't have written the business I as you saw what we did in the reinsurance space.
Speaker Change: Today, given the rates that we were able to achieve we're happy with it.
Speaker Change: Don't know what the rating environment will be for the balance of the year, but from my perspective, the loss activity that the marketplace is facing and some of our competitors have finally coming to grips with the reality is creating an opportunity for those of us that have been already grappling with that reality to move.
Speaker Change: Forward more quickly.
Speaker Change: Got it that's helpful.
Speaker Change: And then I know you guys Didnt get the reserve development.
Speaker Change: By segment, so I'll falloff, Okay, I guess Im just wondering.
Speaker Change: The one piece of paper and I left in my My office, and it's a long haul and I got short legs, So give Karen a call.
Speaker Change: Yes, we'll do I guess, there's obviously a lot more focus on the more recent accident years.
Yes, I'm sure you guys are also laser focused on that as well and we can see it in the past any any sort of incremental color that you can provide on that would be helpful.
Speaker Change: Really beyond what we've talked about I think.
Speaker Change: We continue to be very as we've mentioned or even earlier in this call.
Speaker Change: <unk> focused on auto liability, we're very focused on other product lines, where there is the potential for injury.
Speaker Change: Injury to individual that seems to turbocharge social inflation.
Speaker Change: I think one is soc.
Speaker Change: So inflation impacting most liability lines or yes, the answer is.
Speaker Change: But it does not apply equally to all product lines. We are concerned about med Mal we are concerned about auto liability. We're even concerned about other types of coverage, where you can have an individual or group of people physically hurt that seems to be where a jury will take.
Speaker Change: Someone to the woodshed.
Speaker Change: And we are doing what we need to do on that front as covered earlier from a rate perspective from a selection perspective from a terms and conditions perspective, and part of selection as discussed with our colleague a few moments ago is territory jurisdiction.
Speaker Change: <unk> County.
Speaker Change: Yes.
Speaker Change: Yes understood. Thanks for that color I appreciate it. Thank you have a good night.
Speaker Change: Okay.
Speaker Change: Our next question is from Meyer Shields <unk>.
Rob Berkley: Good afternoon or evening, Robert Hi, Hi, Rob how are you.
Speaker Change: Good afternoon I guess.
Speaker Change: Okay. Thanks.
Speaker Change: And some time talking about like these are examples where bodily injury to individuals is.
Speaker Change: Debating social inflation.
Speaker Change: How is the loss trend in those situations is that getting worse or is it just something that you're talking about now that you've been seeing internally Colombia.
I think that is.
Is just very apparent that that trend is a bit steeper.
Speaker Change: And that's not something new.
Speaker Change: This has been.
Speaker Change: I couldn't figure out what the heck to talk about today, so I figured I should mention that.
Speaker Change: Fair enough okay.
Speaker Change: When you talk about I guess the barrier.
Speaker Change: Jurisdictions.
Speaker Change: So the one that stands out as a concern as older one getting better one historically getting worse.
Speaker Change: How should we think about that in the context of.
Speaker Change: Longer tail medium tailed lines reserves.
Speaker Change: I think for people, who haven't been paying attention that's likely for them to have some catch up to do I think for people who have been paying I mean, what I was describing as far as Georgia, Texas, whatever as placeholders. This isn't like something that just happened last quarter. This has been a groundswell that has been percolate.
Speaker Change: <unk>.
Speaker Change: And we just happened to be talking about it tonight, but we've been talking about this internally for not what would be measured in quarters, what would be measured in years. So the response to those realities those are already well in place.
Speaker Change: Okay understood and then final quick question, you talked about a mix change impacting the ex cat accident year loss ratio in the insurance segment, how is it impacting the expense ratio that.
Speaker Change: That makes sense.
Speaker Change: Okay.
Speaker Change: I don't think its having much of an impact on the expense ratio whats really driving the movement and as you saw I think period over period. It only moved a 10th of a percent. So it was fairly small.
Speaker Change: So I would say as it relates to the acquisition costs, we're not seeing huge changes other than perhaps where there might be a change in the reinsurance structure that we have from.
Speaker Change: One year to another year, where we might have gone from a quota share to an excess of loss or vice versa. So that would obviously be something.
Speaker Change: Differences in terms of where that runs through the income statement.
Speaker Change: Okay fantastic. Thanks, so much.
Brian Meredith: Next up is Brian Meredith UBS.
Brian Meredith: Brian Thanks.
Brian Meredith: Hey, How're you doing a.
Speaker Change: Couple of questions here for you Rob the first one look big picture. So a number of the standard commercial carriers have talked about in great. It's still small.
Speaker Change: Growing in the E&S market rate have E&S operations and a growing there I'm just curious kind of whats. Your thoughts are there is that at all.
Speaker Change: <unk> got some of maybe your opportunities in the marketplace are you seeing that.
Speaker Change:
Speaker Change: In the interest of time, I'm going to be direct but I don't mean to be disrespectful.
Speaker Change: We don't see them.
Speaker Change: Okay. That's helpful.
Speaker Change: And then I guess the other one I'm curious about is.
Speaker Change: Maybe you can kind of flush out a little bit what's going on with the Berkley, one I know thats been a.
Speaker Change: Hi, good operation growing.
Speaker Change: Expectations here for 2025 homeowners insurance still pretty hard market.
Speaker Change: Hey, maybe give us just give us some view of kind of opportunity there.
Speaker Change: So I think that the opportunity that existed yesterday that exists today.
Speaker Change: Will be just as strong tomorrow I think we are.
Speaker Change: Truly an exceptional team of people that are various skills. When it comes to managing the shareholders' capital I think they have done truly a fantastic job in building a franchise that is not accretive to their operation, but it is truly accretive economically and brand wise.
Speaker Change: To the group overall.
Speaker Change: And I think that their contribution to the profitability of the group in the 2025 year will be considerable.
Speaker Change: Great. Thank you.
Speaker Change: Thanks, Brian I have a good evening.
Josh Shanker: And the next question is Josh Shanker Bank of America.
Speaker Change: Hi, Josh good evening.
Speaker Change: Yes. Thank you very much hi, there everybody I just wanted to maybe ask a little more specific question on Brian's will hopefully one obviously you don't write homeowners in California.
Speaker Change: There are certain things about that market that are unattractive to you I'm wondering what kind of reforms you could see in the states.
Speaker Change: Insurance regime.
Speaker Change: That would make that market more attractive for Berkley one are there other states.
Speaker Change: That you have a prohibition against writing until Something's changed about those states.
Speaker Change: Yes.
Speaker Change: Josh.
Rob Berkley: Thanks for the question and B I think the the Berkley one team.
Rob Berkley: This stage when it comes to homeowners that they're very focused on the opportunities in the markets that theyre in well they add other markets over time.
Rob Berkley: Yes, as California in the on deck Circle, I think that there is a healthy recognition.
Rob Berkley: Appreciation and respect for the challenges that exist in that market on multiple levels.
Rob Berkley: And consequently, I think the team has appropriately made the decision.
Rob Berkley: This is not.
Rob Berkley: A distraction or a.
Rob Berkley: We would like to have today not an area of focus.
Rob Berkley: For the foreseeable.
Rob Berkley: And certainly for the people of California in that insurance market and those that participate there and other stakeholders, we wish them nothing but the best but at this moment in time.
Rob Berkley: We are very focused on other opportunities that are before us.
Rob Berkley: And I want to switch to an investment question over the long term berkley shareholders rewarded very well through some of the alternative investments that the brokers you've made over many years, it's not been really the case in 2024 in a year, which is enjoying various market appreciation for public equities.
Rob Berkley: Can you talk a little bit about what.
Rob Berkley: What you see for 'twenty five is is the positioning of the portfolio.
Rob Berkley: Potentially improve obviously that can make foolish investments overall, but what's been preventing berkley from realizing the potential of that.
Rob Berkley: Part of its strategy and what can we see in the future.
Josh Shanker: Josh maybe a couple of quick comments first off as far as.
Josh Shanker: Alternatives and risks had flagged what we saw coming through.
Josh Shanker: A couple of our investments, particularly in the unrealized associated with public securities. So I think it was about 150 $160 million unrealized which was.
Josh Shanker: I think pretty healthy for a 90 day period, putting that aside as far as other areas of the alternative.
Josh Shanker: <unk> portfolio I would suggest.
Josh Shanker: That one not lead to a conclusion, obviously often times there is value that exists that may not necessarily be as visible. So I understand your point about the 24 year again, no different than the underwriting or the investing on.
Josh Shanker: Public Securities. Our focus is long term risk adjusted return and sometimes in the alternative portfolio that can be a little bit lumpy, but the focus on total return.
Josh Shanker: Not something that is there any is lost on us today, just like it wasn't lost on US tomorrow, but before we go any further on to any other questions or discussion you'd like to have Josh maybe I can turn it over to my boss here, who takes a particular interest in the.
Speaker Change: Alternative investment portfolio.
Josh Shanker: Good evening Josh.
Speaker Change: Oh I think that.
Speaker Change: Our portfolio as a whole, especially our public company portfolio.
Speaker Change: A very good year.
Speaker Change: I think that.
Speaker Change: The performance for the year.
Speaker Change: Was adversely impacted primarily by.
Speaker Change: One private equity funds did not do well.
Speaker Change: Was it surprised us on a couple of things.
Speaker Change: It had a consequential adverse impact.
Speaker Change: We think that's behind us.
Speaker Change: Uh huh.
Speaker Change: But I think honestly.
Speaker Change: Some of that private equity investing.
Speaker Change: Will be reduced.
Speaker Change: Available returns in more liquid markets are such that the advantage of it.
Speaker Change: Private equity is somewhat diminished that doesn't mean, we will take advantage of things as they come up but.
Speaker Change: Although he is little higher little lessors.
Speaker Change: So.
Speaker Change: It was no doubt a bump in the road.
Speaker Change: That can always happen.
Speaker Change: I wouldn't expect it to be profitable going forward.
Speaker Change: Okay.
Speaker Change: So another day.
Speaker Change: I will see.
Speaker Change: Evening to you gentlemen, thank you very much thanks, Josh I'm going to.
Speaker Change: Lisa.
Speaker Change: We do have one further question of Huron Qunar from Jefferies.
Speaker Change: Okay.
Good evening Hey.
Speaker Change: Hey, Good afternoon. This is Andrew on for you Ron I was just hoping within insurance and short tail lines. Some pretty good growth this year and particularly in the quarter can you help us just think about the drivers there was it property and inland marine.
Speaker Change: Hey, good afternoon.
Speaker Change: Yes, yes, yes, and yes.
Speaker Change: Okay, So kind of all three and ladies and gentlemen, thank property and inland marine.
Speaker Change: Though it's not as big a play for US is property, but yes, mainly property.
Speaker Change: Thank you and then just on the 50 basis points impact to current year picks I know you mentioned it was business mix, but I would think with the growth in property that would be beneficial to the underlying so it was perhaps at offset a bit by auto related exposures or defer.
Speaker Change: A different factor going on there.
Speaker Change: This is rich I think that's certainly part of the equation, but you also have to look at the contribution that the short tail lines makes relative to the other casualty lines as well, which have higher loss ratios. So if you look for instance at other liability in auto as an example that represents.
Speaker Change: 50% of the total book of business, which does have typically higher loss ratios than property or short tail lines.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: At this time there are no further questions I'll hand things back to Mr. Rob Berkley for any additional or closing remarks.
Speaker Change: Okay. Lisa Thank you very much for hosting US this evening and thank you to all our participants for dialing in.
Speaker Change: Ill just flag again, clearly an outstanding year, but thats a reflection of what we did yesterday.
Speaker Change: But perhaps equally if not more important is how we have set the table for 2025 and that is very well positioned in addition to that with every passing day. We are setting the table for 2006. So the business is firing on all cylinders and we do not see that changing for the foreseeable.
Speaker Change: Thank you again for dialing in and we look forward to speaking with you in about 90 days have a good evening.
Speaker Change: And once again, everyone that does conclude today's conference we would like to thank you all for your participation you may now disconnect.