Good day, and welcome to W.R. Berkley Corporation's First Quarter 2021 Earnings Conference Call. Today's conference call is being recorded. The speakers' 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, believes, expects or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will in fact be achieved. Please refer to our annual report on form 10-K, for the year ended December 31, 2020, and our other filings made with the SEC for a description of the business environment in which we operate, and the important factors which 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 to Mr. Rob Berkley. Please go ahead, sir.

Mike, thank you very much, and good afternoon all. And welcome to our Q1 '21 call. On the call in addition to myself, you also have Bill Berkley, our Executive Chairman; and Rich Baio, Group Chief Financial Officer. We're going to follow a similar agenda to what we've done in the past. Richard is going to do the initial heavy lift and walk us through the quarter and some of the highlights. I will follow him with a few comments and then we'll open it up for Q&A and happy to take the conversation anywhere participants would like to take it. So with that Rich, if you want to get us going please.

Sure, Rob, thank you. And good afternoon everyone. The headline in this quarter is a record underwriting profit with premium growth of more than 11% and solid net investment income in gains, which resulted in a return on beginning of year equity of 14.5%. The company reported net income of $230 million or $1.23 per share. The breakdown is operating income of $202 million, or $1.08 per share, and after-tax net investment gains of $28 million or $0.15 per share. Beginning with underwriting income and the components thereof. Gross premiums written grew by more than $250 million, or 11.4% to almost $2.5 billion. Net premiums written grew 11.1% to more than $2 billion, reflecting an increase in both segments. The insurance segment grew approximately 10% on this $1.75 billion in the quarter. With an increase in all lines of business with the exception of workers compensation. Professional liability led this growth with 37.6% followed by commercial auto with 21%. Other liability of 13.1% in short tail lines of 5.6%. All lines of business grew in the reinsurance and monoline access segment, increasing net premiums written by 18.2% to more than $300 million. Casualty reinsurance led this growth with 21.9% followed by 13.8% in property reinsurance, and 13.6% in monoline access. The compounding rate improvement in excess of loss cost trends has partially contributed to the expansion of underwriting income. Other contributors have included lower claims frequency and non-cat property losses, along with growth in lines of business that are generating the best risk-adjusted returns. Underwriting income increased approximately 250% to $183 million. The industry continues to experience above-average catastrophe losses in the quarter, including the winter storms in Texas. And we have again been able to demonstrate our disciplined management of catastrophe exposure. Our current accident year catastrophe losses were approximately $36 million or 1.9 loss ratio points, including 0.8 loss ratio points for COVID-19 related losses. This compares with the prior year cat losses of $79 million or 4.7 loss ratio points, which included three loss ratio points for COVID-19 related losses. The reported loss ratio was 60.6% in the current quarter, compared with 65.5% in 2020. Prior year loss reserves developed favorably by $3 million or 0.2 loss ratio points in the current quarter. Accordingly, our current accident year loss ratio excluding catastrophes was 58.9% compared with 61% a year ago. The expense ratio was 29.5%, reflecting an improvement of 1.9 points over the prior year quarter. The growth in net premiums earned continues to outpace underwriting expenses by a margin of almost 7%, significantly benefiting the expense ratio. Although we continue to benefit from reduced costs associated with travel and entertainment due to the pandemic, we are implementing initiatives that will enable us to operate more efficiently in the future. Summing this up, our accident year combined ratio excluding catastrophes was 88.4%, representing an improvement of four points over the prior year quarter. Shifting gears to investments. Net investment income for the quarter was approximately $159 million. The alternative investment portfolio, including investment funds and an arbitrage trading account, provided strong results. The fixed maturity portfolio declined due to the lower interest rate environment and the higher cash and cash equivalent position we've maintained over the past few quarters. We did begin to reinvest cash as interest rates rose in the quarter, however, continue to maintain a defensive position with more than $2 billion in cash and cash equivalents. Our duration remains relatively short at 2.4 years, enabling us to further benefit from future increases in interest rates, and at the same time, our credit quality remains strong at AA minus. Pre-tax net investment gains in the quarter of $35 million is primarily made up of realized gains on investments of $76 million, partially offset by a reduction in unrealized gains on equity securities of $24 million, and an increase in the allowance for expected credit losses of $17 million. The realized gain was primarily attributable to the sale of a private equity investment in real estate assets. Corporate expense partially increased due to debt extinguishment costs of $3.6 million relating to the redemption of hybrid securities on March 1. In line with our plans to benefit from the low interest rate environment, we've pre-funded for a redemption and a couple of maturities in early 2022. To this end, you will have seen that we announced the redemption of our hybrid securities for June 1, which will result in debt extinguishment costs in the second quarter of approximately $8 million pre-tax. Stockholders’ equity increased more than $100 million to approximately $6.4 billion after share repurchases and dividends of $51 million in the quarter. The company repurchased approximately half a million shares for $30 million in 2021, at an average price per share of $63.82. Our net unrealized gain position in stockholders equity declined by $90 million due to the rise in interest rates in the quarter. However, this was partially mitigated by our decision to maintain a relatively short duration. Book value per share grew 2.4% before share repurchases and dividends. And finally, cash flow from operations more than doubled quarter-over-quarter to over $300 million. And with that, I'll turn it back to you, Rob. Thank you.

Yes, thank you very much. I noticed that there's a correlation here that, the better the quarter, the less you lead for me to comment on. So I guess I should be pleased and grateful that there's not much left for me. Having said that, let me offer a couple of comments that try not to be too repetitive on the heels of Rich’s comments. But I would like to flag a couple of things. First off, there is no doubt that there is a meaningful tailwind that exists in the commercial lines marketplace. And certainly this organization is benefiting from that. And to that end, our top line, I think this is the highest growth rate we have seen since which I think you have to go back to 2013. You had mentioned to me when you look back in the history books. And not only is the growth in market conditions attractive, I think what's even more encouraging is that there is a growing amount of evidence that the momentum is going to grow from here and that there is a fair amount of runway still before us. So again, I think that bodes well for not just how we see the coming quarters unfold, but quite frankly the next several years. To that end, clearly the domestic economy and certainly parts of the global economy are improving. And that without a doubt is going to benefit our top line. We are seeing the health and wellness of our insurance continuing to improve. In addition to that, perfect comment a moment ago, we continue to see the opportunity to push rate further. You may have noticed that we received just under 13 points of rate in the quarter, excluding workers compensation. I did have a little bit of a discussion internally and we dug into it as to how do you compare this approaching 13 points of rate with what we saw in the fourth quarter. And after digging into it, really what this is a reflection of is there are parts of the portfolio where rate adequacy has gotten to the point where we are so encouraged by the available margin, that we are more interested in pushing harder on the exposure growth, and not as preoccupied with pushing harder on the rate front. And again, we view that as a real plus. This is we are coming up for some of the major product lines on a third year in a row where we are getting meaningful rate increases. And at this stage, we are seeing as Rich suggested, rate on rate and in many product lines where we have been getting rate on rate in excess of loss cost trend. Again, we think that is very encouraging for what that means for margin. Before I offer a couple of thoughts on the loss ratio, couple other quick data points that I've referenced on occasion in the past, renewal retention ratio, in spite of what we're pushing on with rates. And all of the other underwriting actions that we are taking, is still hanging in there at approximately 80%. And our new business relativity metric, which is another data point we've shared with many of you in the past, came in at 1.024%, which effectively what that means is on as much of an apples to apples basis as we are able to create in comparing a new account versus a renewal account. We are effectively surcharging a new account by 2.4% more, why? Because a new piece of business is less about, than obviously, it's part of your portfolio that you've been on for some period of time. And I think it's important because people need to understand when you look at the growth, yes, it is rate, but it's also exposure growth. But we are not compromising in that growth in the quality of the portfolio. Rich gave us some detail which complemented the relief on the loss ratio. Clearly, as he suggested, we're benefiting from the higher rates, couple other data points I would suggest, we are not taking a lot of credit for shift in terms and conditions, when we come up with many of our loss picks. We will take some oftentimes, but certainly we are never taking full credit for it. We want to see how that comes into focus. So more to come on that front. The other piece, and I suspect there has been some other discussion around the impact on frequency due to COVID. Again, that is something that we have been reluctant to declare victory on. There is certainly are some lines of business where you have more immediate visibility as to what the impact of that reduction in frequency there are other product lines, where there is less visibility. On that topic, I did want to offer a couple of quick comments on workers compensation, which is the one outlier as we've discussed in the past couple of quarters as far as the marketplace and where things are going. Clearly workers compensation has been a product line where competition has been on the rise. We've seen the action of state rating bureaus. And ultimately, we'll have to see how that unfolds over time. Two comments there. One is, from our perspective, it is likely that the pendulum will swing too far in a certain direction. And as a result of that, as we have shared with people in the past, it continues to be our view that we expect the workers comp market to likely begin to bottom out more visibly, by the end of this year or perhaps the first half of next year. Could it be a quarter or two later? Yes, but generally speaking, that's how we see things coming into focus. The other comments on workers comp that I would like to flag because there's been an observation or two shared around the last picks that we are carrying for the 2020 year and given how benign the frequency has been in 2020. Why have we not done anything with that pick, and it's very simple. We do not want to declare victory prematurely. As we have in the past, start out with what we believe is a measured pick and as that seasons, we will adjust as we see fit and appropriate. So, the last comment on comp which I will offer, and I think I've made the comment in the past, is that, I think that the lack of frequency that has existed recently in the comp line due to COVID, has to a certain extent, perhaps subsidize a severity trend, which looks pretty ugly in the comp line. And certainly it is possible that the marketplace is setting itself up for a disappointment, if there is not an appropriate level of attention paid to loss cost trend, and really unpacking what is going on with severity, what is going on with frequency and what one should expect as frequency returns to a more traditional norm. I will leave it there as far as comp, that’s perhaps more than people were looking for. Expense ratio, again, Rich touched on. As we’ve mentioned in the past, COVID is offering effectively a benefit of about 50 basis points, the expense ratio. So when he and I sort of do the back of the envelope math, that's what we're factoring into the expense ratio. Having said that, it's also worth noting that we have some meaningful investments that are going on in the business, in particular on the technology as well as the data analytics front. And these are big lifts, which we think are clearly going to make us a better business, more efficient, and will allow us to be able to be making better, more insightful decisions. And let me just move on briefly to the investment portfolio, I'm not going to get into much detail here because Rich really covered it. I would just say that our approach to focus on total return, our emphasis on alternatives, continues to pay off. And quite frankly, it is helping to compensate and then some the discipline that we are exercising with how we're managing the fixed income portfolio. As Rich mentioned, we continue to maintain the duration on the shorter end at 2.4 years, and the quality is not something that we have or will be compromising on sitting there at AA minus. That being said, we are being rewarded for that discipline, as you can see where our book value ended up at the end of the quarter. And while we were not completely insulated, we were far less impacted than those that have decided to take duration out farther. I just want to offer a couple of quick comments on what I'll refer to as cycle management. From our perspective, cycle management is the name of the game. Knowing when to grow, knowing when to shrink. We as a team are very conscious of the fact that we cannot control the market; we are very conscious of the fact that this is a cyclical industry, and we are very aware of the fact that what we are able to control is what we do. Oftentimes people will ask the Chairman or Rich or myself, where are the best opportunities? And the answer we give because we do not want to get into the details is, look at our business, look at our public information, look at where we are growing. We grow where the margins are; we grow where the opportunity is. And we are not shy or scared or intimidated to let the business go, when we don't think it is a good use of capital. You can see that very clearly in our numbers. Right now you can see the discipline that our colleagues are exercising in the workers comp line. You can see in other parts of the business, whether it be the primary insurance, professional liability line, or what's happening in parts of our reinsurance portfolio. We are in the business of managing capital and we are going to deploy it where we think it makes sense. And again, we have our eyes wide open. Final comment for me before we open it up for questions. And that is a bit of recognition for where we are. This business, from my perspective, is particularly well positioned for the market conditions we are in, and likely what the market conditions will be tomorrow. We are here because we have a fabulous team. We have 6543 people that work together as a team in the interest of all stakeholders. And we were able to achieve this quarter because of their efforts in spite of the challenges that exist in the world, particularly over the past 12 years. And we thank them for what they have done. So, Mike, I will pause there and we'd be very pleased to open it up for questions.

Your first question comes from Elyse Greenspan from Wells Fargo. Please go ahead.

Hi.

Hi, good afternoon.

Hi, good evening. My first question, just want to start on the pricing conversation. So you guys said you got just under 13% at workers comp. And you guys sound pretty positive on the factors out there that to continue with the momentum in fact for this year, and perhaps for the next year. So is that 13% feels like a good number for the year? And the second question, I guess, you guys also mentioned that as you kind of looked at that 13% and beneath the hood, there was a portion of your business that's at rate adequacy, give a percentage of your book that would fall within that rate adequate bucket?

Well, thank you for the questions. As far as a specific percentage, we don't know but I would tell you it is a growing percentage. And maybe to the first question, we look at the business at a pretty granular level, we look at it by product line, we look at it by product line by operating unit. And then of course, we are looking at a more macro level. We have a view as to what is an appropriate risk adjusted return. And depending on where we are vis-à-vis, that return will guide us toward how much of a priority rate is versus once we get to a certain point while rate will remain our priority, to what extent are we focused on actually growing the portfolio from an exposure perspective. So as far as the 13% goes from, I don't know for sure what tomorrow will bring? We continue to dissect the book and trying to evaluate it. Could it go down a little bit? Could it go up a little bit? I would caution you not to read too much into one quarter one way or another. But we are very encouraged directionally with where things are going. And again, the margin that we're seeing come through in the book itself.

Okay, thanks. And then my second question on, you got around just over 200 basis points of underlying loss ratio improvement this quarter. That was down just a little bit relative to the Q4. And I know in past discussions, you guys have mentioned that the rate versus trend would become more evident in 2021. I'm assuming that comments still apply. And can you just kind of help us think through that and how we should think about earning in the book during the next two quarters of the year?

So rate earnings through in the next couple of quarters of the year, we can help you, maybe we'll take that offline and help you do the math on how that is coming through based on the public information that we made available. I would tell you that, part of it depends on the loss trend that you are using, and exquisitely loss trend what is left over and then using a rough number, obviously two-thirds of that and there's some benefit of the loss ratio approximately one-third of also is associated with the expense. So I would suggest if you'd like that, we’ll take it offline and we can sort of help you use the public information to do the math as to what an earning level would be. And what that would how one can extrapolate from there. But clearly, given the reality is on the radon rate that we are getting in excess of loss cost trend, just at a macro level that is going to occur to the benefit, obviously, of the loss ratio.

Okay, that's helpful. Thanks for the color.

Your next question comes from Mike Zaremski from Credit Suisse. Please go ahead.

Good afternoon, Mike.

Good afternoon, Rob. Maybe we can just stick with loss trend. In the earnings release, the term persistent social inflation was used. I think some of the data points we've seen on an industry basis in terms of like paid loss ratios and some executives, some of your peers kind of talking about coming near term low in terms of maybe social inflation, but specifically claims frequencies carriers, if you're still experiencing kind of a low, and is there a kind of a COVID benefit? That's kind of been helping the underlying loss ratio or just the overall loss ratio?

Okay, I think clearly, frequency has been impacted by COVID. I think as the economy is opening up, more and more every day, that benefit is eroding, and eroding quickly. I think, also, as you're going to see the legal system opening back up, particularly specifically, the court system opening back up, I think you're going to see that erode as well, which is one of the reasons why we have been reluctant to reach a conclusion as to what it's going to look like when the dust settles. That all being said, clearly, there is a benefit as a result of COVID on frequency trend. Having said that, the big driver, if you will, of social inflation has been more severity, or what I would define as frequency of severity.

That's helpful. Shifting gears a bit regarding the expense ratio, which has been a positive story for some time now. Considering your comments, it seems you are optimistic about growth continuing well above expense inflation. If you are anticipating a new lower normal for the expense ratio in the near term, is the target level around 30 still accurate?

I'm not in a position to give you a specific number, Mike. But I can assure you that we as an organization, all of us as a team collectively, are focused on making sure that we have a competitive platform to be operating from. And it is our goal to push through the 30 number.

Okay. And maybe lastly, maybe I missed in the prepared remarks, you talked about any specific COVID losses this quarter that were taken. And also, if you could update us on what percentage of your loss reserves are in the IBNR bucket? Thanks.

So we'll have enough information in the queue to make you go blind on COVID. But as I think we may have referenced in the release, in the current quarter, we had losses of approximately 15 million dollars. And again, we'll have all kinds of additional information in the queue. COVID is a tricky one, particularly given a lot of our exposure is associated with event cancellation. So A, trying to figure it out when the world is going to open up and B, trying to figure out what are the options in trying to triage the situation between a full cancellation versus just maybe a partial event. So we continue to try and make sure that we are putting our best foot forward. At the same time, we're conscious of the fact that we have imperfect information.

Okay, thank you very much.

Your next question comes from Yaron Kinar from Goldman Sachs. Please go ahead.

Hi, good afternoon, everybody. Good evening. My first question goes back to the rate commentary. I guess I'm just trying to understand the willingness to take maybe less rate increase in order to more aggressively go after a business that you view as more adequately priced. Is that a Berkeley specific phenomenon or is it something that you see for the industry as a whole? And the reason I ask this is, I think you mentioned that the retention rates remain pretty steady in the 80s. And I would have thought that if it were a Berkeley specific phenomenon, maybe we would have seen some increase in retention rate?

I can't comment on what others are doing or their thought processes. I can only share that we are quite confident in certain product lines and the available margin, and we are beginning to leverage that. At this point, I don't believe it will significantly impact the results. Regarding the retention ratio, I do expect that we will see an improvement in that area across the portfolio.

Okay, that's helpful. And then another question, with regards to the reinsurance business. I think in the past you’ve said that, you saw more opportunities, or better rate adequacy in insurance over reinsurance. And if that is indeed the case, can you maybe talk about why the rate of growth in reinsurance is actually exceeding the top line growth in insurance?

If I made that comment, which I'm not sure about, it was likely some time ago. There was a period when the insurance business was growing significantly faster than the reinsurance sector. Consequently, it made sense for us to allocate capital toward that growth. My colleagues were likely focused on expanding in those areas. However, I don't recall the specifics of the comment or when it was made. What I can assure you is that we are committed to growing our business in segments where we see potential for margin improvement. The reinsurance marketplace is currently undergoing a major shift, and our colleagues, who had previously reduced the portfolio significantly, are now discovering that the market is much more appealing, which explains the growth you are witnessing.

Okay, thank you.

Thank you.

Your next question comes from Ryan Tunis from Autonomous Research. Please go ahead.

Hey, thanks. Good evening. Good afternoon. I guess I wanted to do a little bit more down on the loss ratio, and just looking at the ex-cat loss ratio in insurance. It kind of been hovering in that, called 59 to 59.5 range for the past several quarters. Obviously, we've had, I can't really think of a lot of seasonality that would be weighing on that. It seems like the magnitude of earned rate versus trend, it should be widening. So maybe just a little bit of color on why we're not seeing more sequential improvement in the ex-cat loss ratio in insurance.

Rich, if you have any thoughts on that I have a comment or two. But does you have anything?

So if I look at the, for the insurance segment year-over-year, certainly we have improved by two points. And for the reasons that we've been discussing, I think if you look for the full year of 2020, we were just over 60%. So we did have some improvement coming through and I think as you probably discuss, Rob, I think part of it has been our conservative nature with regards to the design ratios that we have as well in terms of making sure that we don't get too far ahead of ourselves with regards to how we’re establishing our reserve position. But I'll defer that to you in terms of discussion.

I believe that's accurate and aligns with our previous statements that we'll start off with a cautious approach and gradually become stricter over time, with worker's compensation being an example we've mentioned earlier in the call.

Okay. And I guess I'm just kind of trying to explore this with the rate commentary you're feeling you clearly feel good that the book is more rate adequate. I guess, the one observation I would make is, if I go back to 1Q '19, your ex cat loss ratio is only two points lower than it was two years ago. And we were kind of getting into the hard market. If these loss things don't turn out to just be conservative, that actually turned out to be prudent incorrect? Then I guess the question is, why are you happy? Why are you satisfied with just two points of loss ratio improvement, at a point when you're willing to start to give up a little bit on the rate front?

Well, I think that ultimately, Ryan, you got to remember that we have a bit of a bouquet here. So we don't while we do look at the portfolio, and we do speak to you and others at a macro level, what we're trying to do is give you a little bit of insight that there are 53 different operating units, many of them with various product lines within each one of the operating units. And there are components of that, where we think that we are getting to a point that the rates are so attractive, that we're prepared to maybe not push as hard on the rate front. There are many components of it, as you can see, given the rate that we continue to achieve, where we think there's opportunity, and quite frankly, need to be getting more rate. So, what we're trying to do is give you a sense and help you sort of think about the rate of adequacy and how you compare what we got in the quarter with what we got in prior quarters. But again, at this stage, I think that it's very clear, at least in our opinion, that we continue to get something measured in the hundreds of basis points in excess of lost cost. And we are doing that in most cases for a second time. And the stage is being set for us to do that for a third time.

Thank you.

Your next question comes from Meyer Shields from KBW. Please go ahead.

Thanks. Rob, you talked about workers compensation severity getting worse, is that something you're seeing? Is that something you expect? Is that tied to an economic recovery?

It's something that we have been observing in the data for some period of time. And it's like many things, you see a couple of isolated data points, and then you start to pay more attention, and you start to find more and more of them. So I don't think that we could give you a precise answer, but directionally that's what we're seeing happening.

Okay. Is it fair to separate that from the decline in frequency, I know they are not comparable, but personal auto proven to fell off a cliff and sky severity skyrocket and I'm wondering if whether that same phenomenon, we're just getting?

Clearly, during COVID, there were a lot of people sheltering in place, there were a lot of factories that were closed, there were a lot of people not going into offices, and there are a lot of people sitting at their kitchen table. And as a result of that, you saw less frequency. Having said that, again, we have noticed that severity seems to becoming more and more of an issue.

Okay, that's helpful. If I can shift gears briefly, talk a little bit about the technological investment. Does that have any implications for the strategic decentralization of underwriting?

No, we view what we're doing on that front, which will, perhaps bring some efficiency but more often than just efficiency. It's also going to be empowering people with better tools and better information, so they can make better choices. But certainly, there's an efficiency component as well.

Okay, perfect. Thank you.

Your next question comes from Brian Meredith from UBS. Please go ahead.

Hey, thanks. Good evening. A couple quick questions. The first one this is just numbers question. The COVID losses, is that book in your cat loss, like you've typically done?

Yes, the 15 million that Rich referred to from the current quarter is in that, so the actual, if you will, traditional cat number, I think which was about 21 million. The balance income in the quarter.

That’s helpful. Thank you. Than the second question, Rob. I'm curious, are you seeing at all any appetite now by the standard market to kind of reach up into the E&S market? We'll call it to maybe take some business given where rate and stuff is going. Are we seeing any indication of that yet?

None whatsoever that we're seeing if anything, it continues to go in the other direction, Brian. Our submission flow is gaining momentum, partly because the economy, but partly because I think the standard market continues to revisit their appetite. I think you can see that in part how they're pushing more for rate. But simultaneously, they're weeding out the portfolio where I think they're revisiting what that appetite should be. And that is creating opportunity for the specialty market, in particular, the E&S carriers, and we're certainly in the middle of that.

Got you. And then, my last question, just curious, Rob. So given all of the uncertainty, with respect to what loss trend is going to be looking like for you going forward. I mean, you pointed out yourself, is the return on capital that you're looking at on business higher today than it would have been a couple of years ago? Do you have to factor that into when you're thinking your pricing? This is that uncertainty? I mean, I think back at prior cycle turns where you had you didn't know what loss trend really was running, it was so high, and there were massive price increases ended up resulting in some massive reserve releases going forward. But how do you think about that?

We have a view as to what trend is, we think that it's based on reasonable fact that is available and analysis. And quite frankly, I would expect that we will be overtime reaping the benefits from certainly the rate that we are getting in excess of that. Do I think that we are being overly conservative or overly optimistic with our pick on trend? No, but do I think we're being thoughtful and measured? Yes. Having said that, as suggested earlier, Brian, I think given regardless of the trend number that you realistically want to use, we are getting rate that is several hundred basis points in excess of any trend number I've heard people using.

Great, thank you.

Thank you.

Your next question comes from Phil Stefano from Deutsche Bank. Please go ahead.

Yes, thanks. Good afternoon. So, Rob, in your opening remarks, you had talked about there being a runway for growth and having a good bit of confidence in that. I would assume that when you talk about that it's the product of both rate and exposure. And it feels like we're focusing quite a bit on the rate side so far. So I guess the first question is my interpretation, right? And then maybe you can talk to us about the exposure and the extent to which that might be driving top line growth, as we see a potential slowdown in the rate that everyone has mentioned so far.

Okay, well, maybe a couple of things. So first off, I would encourage people not to get overly consumed on the fact that our rate increase was only 13%, which I think by most measures is reasonably robust. But maybe that view is not shared by all. That having been said, I also think that it's generally understood at this stage and hopefully it continues that we have an economy that is getting back on its feet and building momentum. As a result of that, we think that you're going to see payrolls going up, we think that you're going to see the amount of commerce, you're going to see receipts going up, and you’re going to see more economic activity. Much of what we do is priced off of payrolls, receipts or economic activity. And I think that that bodes well for the growth. In addition to that, you continue to see, as I referenced a moment ago, a standard market revisiting its appetite and pushing business into the specialty, in particular the E&S market, which is very much our strike zone, which is why historically we have done particularly well in these types of market conditions. And we think there's early evidence to support that that we’ll continue to be the case and we have no reason to believe that it won't. So, and I guess, lastly, I said, I have that, on the topic of specialty and E&S, there are a lot of small businesses that went out of business, you're going to see them coming, getting back on their feet, whether they're starting up again or starting something new, and new businesses tend to find their insurance coverage in the specialty in particular, the E&S market. And lastly, I think I should add that I think there's a reasonable chance that there is going to be later this year and next year, a meaningful catch up on the audit premium front. So, when you when you put all of those pieces together, in my opinion, while rate is and continues to be an important part of the story, and certainly for the past many quarters, it has been at a rate centric discussion, because of the need that the industry had for rate. At this stage with an economy that is opening back up and cooperating, I think that you're going to see great opportunity on the top line.

Okay, I think that makes sense. Focusing back on the investments in technology that you mentioned, could you provide a bit more detail? Was this something that was triggered by COVID, or was it already in progress and just not discussed? Also, can you share if there are any current expense pressures from the development that might ease in the near future? How should we approach that?

No, this is not something that was triggered by COVID. It's about how we continue to advance the business and leverage technology to improve it. We utilize data and analytics to help people make better decisions. Regarding the expense ratio, it’s not a major concern, but it’s something Rich and I monitor. While it’s not directly related to the expense ratio, I should mention that we've made significant improvements to our balance sheet in the current low interest rate environment. Rich, would you like to briefly explain what we’ve done regarding the capital fund?

Sure, Rob. So I guess over the last 18 months, we've done a number of refinancing’s and capital transactions, we've raised about $1.75 of senior debt and hybrid capital with the intended use of proceeds to basically take out certain hybrid securities that were at higher costs and fund maturities that we had up through March of 2022. And so with that, we would anticipate that some of the results coming out of that would be an extended average maturity of about 10 years that we would be reducing our cost of capital by nearly 100 basis points. And if you were to look at the interest expense, probably in 2021, we'd see a reduction of a few million dollars in interest expense, and then going into 2022, we'd see an additional 20 plus million dollars of interest expense reduction, building off of the 2021 number. So definitely some good opportunity to take advantage of the low interest rate environment that we're seeing.

Thanks, Rich. So Phil, I know that doesn't get right at your expense ratio question, but obviously, it's a meaningful impact on our economic model and just dawned on me we should have flagged that with everybody.

No, that's great. Thank you. Appreciate the color.

That was our last question at this time. I will turn the call over to Mr. Rob Berkley for closing comments.

Okay. Mike, thank you very much and thank you all for dialing in. We appreciate your questions and engagement. I think by virtually any measure, it was a very good quarter and we remain quite convinced that there are more good quarters to come. Talk to you in 90 days. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.