Good day, and welcome to the W.R. Berkley Corporation’s First Quarter 2022 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, believe, 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, 2021, and our other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. W.R. Berkley Corporation is not under any obligation and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. I would now like to turn the call over to Mr. Rob Berkley. Please go ahead, sir.

Emma, thank you very much and good afternoon all, and thank you for finding time to join us for our Q1 call. On this end of the call, in addition to myself, you also have Bill Berkley, Executive Chair; as well as Rich Baio, our Group CFO. We are going to follow the usual agenda, where I am going to hand it over to Rich shortly. He’s going to walk through the highlights of the quarter. Once he’s completed his comments, I will tag along with a few of my own observations, and shortly thereafter we will open it up for Q&A and are happy to take the conversation in any direction participants would like to do so. That having been said, before I hand it over to Rich, I always like to steal at least a little bit of his thunder though I don’t think the comments will come as a surprise to anyone that has had an opportunity to review the release. It was a terrific quarter for the organization, really by any metric, to say the least. Quite frankly, we were able to achieve these results because of the efforts of the full team across the country and around the world, all working together to achieve these types of outcomes. What’s important to that point is to just remind ourselves that this effort, this is a team sport. As I have commented in the past, it’s not an individual sport. This isn’t rocket science what we are doing. Yes, we are fortunate to have a lot of intelligent people on the team working very hard, but a lot of our success comes about because of discipline; we focus on blocking and tackling in a thoughtful and consistent way every day. We are not only consumed by what’s in the rearview mirror, but we are paying close attention to what we see out the front windshield. It seems like common sense, but it requires great effort every day. We are achieving these types of results because of the efforts of the full team. So congratulations to all. I think beyond just the results, which again, speak for themselves, what’s as exciting is how the table has been set for what is likely going to be a very strong balance of 2022. Additionally, how things are being set up for what should be a very strong 2023. With every passing day, there are more pieces being put into place that suggest that it’s more likely than not that 2024 will also be very promising. We as an organization continue to be focused on building book value. We have an obsession around the concept of risk adjusted return. This came into focus not just in this quarter, but in our ability to generate good returns regardless of what may have happened on the cash front in any quarter. It’s the consistency of strong results that differentiate us in the marketplace. With that, let me hand it over to Rich to walk us through some of the highlights, and I will be back on the heels of his comments. Rich, if you would, please.

Thanks, Rob. Appreciate it. The company continues to operate extremely well, as Rob pointed out, reporting record quarterly underwriting income and net investment gains, both of which led to 157% growth to record quarterly net income of $591 million, or $2.12 per share on a common stock split affected basis. Operating earnings also improved 52% to $307 million, or $1.10 per share on a common stock split affected basis. The primary contributors were improvement in underwriting results by 2.3 points to a calendar year combined ratio of 87.8%, and growth in net investment income of almost 9.5%. Going more into the details with our top line first, gross premiums written grew 15.1% to a quarterly record of approximately $2.9 billion. Net premiums written also grew 17.7% to a record of more than $2.4 billion. The higher growth in net premiums written is driven by our decision to retain more business, evident by the lower session rate. In the Insurance segment, all lines of business grew, generating a combined 19.2% increase to total net premiums written of almost $2.1 billion. The Reinsurance & Monoline Excess segment also increased 9.6% to more than $300 million, driven by growth in casualty Reinsurance and Monoline Excess. This represents the fifth consecutive quarter of double-digit growth in premium, which will continue to earn through the income statement and can be seen by the higher growth rate in net premiums earned compared with net premiums written. Record pretax quarterly underwriting income of $274 million surpassed multiple quarterly records last year. The quarter improved $92 million, which is more than 50% over the prior year. Catastrophe losses were well within expectations at $29 million, or 1.3 loss ratio points. This compares with $36 million, or 1.9 loss ratio points in the first quarter of 2021. The current accident year loss ratio, excluding catastrophes, improved 0.6 loss ratio points to 58.3%, primarily driven by rate improvement. Prior year loss reserves developed favorably by almost $1 million in the current quarter, bringing our calendar year loss ratio to 59.5%. Expense ratio is in line with expectations at 28.3%, reflecting an improvement of 1.2 points over the prior year’s quarter. As previously mentioned, the growth in net premiums earned continues to benefit the expense ratio, even with higher fixed costs coming from compensation, new operating units, and increases in travel and entertainment. In summary, these components contributed to our current accident year combined ratio, excluding catastrophes, of 86.5% for the quarter, compared with 88.4% for the first quarter of 2021. Net investment income increased almost 9.5% to $174 million for the quarter. The growth is primarily related to an improvement in investment funds of 33.6% and the core portfolio of 11.7%. Investment funds outperformed in real estate, financial services, and transportation funds, and the core portfolio benefited from rising interest rates and dividends received on equity securities. The investment portfolio also maintained the same duration of 2.4 years and credit quality of AA-. In addition, our strong operating cash flow has enabled us to put more money to work, despite retaining a significant position in cash and cash equivalents of approximately $2.1 billion. Record pretax net investment gains in the quarter of $366 million is primarily made up of net realized gains on investments of $277 million and the change in unrealized gains on equity securities of $93 million. The key contributor to the realized gains was the sale of a real estate investment in London of $317 million gross or $251 million net of transaction expenses and the foreign currency impact, including the reversal of the currency translation adjustment. Corporate expenses increased primarily due to performance-based compensation arising from the record level of earnings. The effective tax rate was 19% in the quarter, reflecting a one-time benefit from the release of a valuation allowance arising from the utilization of tax attributes, as well as investments in tax-exempt securities and dividend-paying equity securities. Stockholders’ equity increased to almost $6.9 billion as of the end of the first quarter, representing an increase of 3.2% over the prior year end. Book value per share before dividends increased 3.5% in the quarter and would have marginally increased even without the gain from the sale of the real estate investment in London. The annualized return on beginning of year equity was 35.5% for the quarter and 18.5% on an operating earnings basis. Rob, I will turn it back to you for further comments.

Okay. Rich, thank you very much. That was great. So let me keep this somewhat brief, because I am sure people have their own topics and questions. Through my lens, a couple of sound bites, the topline, obviously, just shy of 18%, from my perspective, by any measure is very healthy. If we unpack that a little bit, a couple of other data points for folks, the rate increase component in their ex comp came in at 8.3%. Our new business relativity, which is a metric that we have shared with some in the past, measures our new business pricing relative to our renewal pricing. Based on our macro measurements, we are charging just shy of 2% more for new business relative to renewal business. Another relevant, at least in my opinion, data point is our renewal retention ratio came in at 82% and change. This is important because it tells you that to get the growth we are not churning the book. We are keeping the portfolio intact, and from our perspective, that is a very healthy number. Certainly, from our perspective, this also invites pursuing additional rate. When you look at the 8.3%, it’s important for people to understand that there are several dimensions that we can see that perhaps those from the outside can’t. We look at this business by operating unit, product line, and are constantly assessing the margin that we believe exists in the business. There is a constant balance or rebalancing that we are doing daily regarding the type of rate we need, the margin we think exists, and determining when we see available margin whether growth of exposure or rate is the priority. At this stage, we feel good about the available margin, and as a result, for many product lines, we are willing to allow exposure growth to be the priority over rate, but not across the board. I want to spend a couple of moments talking about staying on that topic of exposure because obviously for some years we have been addressing social inflation. We were on the earlier side compared to many of our peers. Some folks may have labeled us overly cautious, but nevertheless, I am grateful that our colleagues had the insight, and we took the actions that we did. That said, this concept of economic or financial inflation is getting all the headlines with good reason. It’s important for observers to consider that the majority of the policies we write are based or priced off of exposure. For instance, we price our policies based on payroll, revenue, or appraised value, which is done in a timely manner when we underwrite the policy. I mention this because while we are not insulated from economic inflation, most business activity pricing feeds off of exposure. If you own a deli and charge a dollar more a sandwich, if we are pricing your GL, we are pricing it based on your revenue and receipts. Consequently, as your revenue and receipts go up, so does the premium. This is separate and distinct from rate, which is a separate activity from exposure growth. Again, economic inflation impacts exposure growth. A couple of quick sound bites on the loss ratio, continued improvement from there. As Rich mentioned, we did have some catastrophe activity related to European storms and Australian floods during the quarter. The paid loss ratio for the quarter came in at 45.3%. Over the past couple of years for the first quarter, here’s what it looked like: 2017 came in at 55.5%; 2018 at 58.8%; 2019 at 54.2%; 2020 at 56.1%; 2021 at 48.2%. I mention this because it’s one of the first things my father taught me about the insurance business. The paid loss ratio is a real number, not much room for grey. It’s a helpful indicator or trend. Rich talked about expenses. We are experiencing a few things here. A, earned premium continues to grow, providing us benefit. As T&E is starting to pick up due to a decreasing COVID impact, we also have one new operation feeding into reported expense ratios which we are confident will be accretive over time. Let me offer a couple of quick sound bites on the investment portfolio. It’s a good example of the comments I offered about discipline and focus. We started to see benefits towards the end of last year, and that is crystallizing now. At the end of the quarter, duration was 2.4 years. Our new money rate in the quarter is approximately 100 basis points above that. Again, when we talk about the table being set for the future, I think that’s an important data point. Another point is about gains. We notice that people often back gains out of our results, but we think that’s inappropriate. We give up a fair amount of operating income to invest in alternatives, particularly some activities focused on gain. We are focused on total return, and I believe that’s what’s in the best interest of shareholders. The discipline we exercised over the past several years is reflecting benefits as rising rates. This was demonstrated as Rich referenced earlier. Our book value, despite what has happened in the bond market, still went up, which I think is pretty outstanding. Again, congratulations to my colleagues on the investment side. So, that’s probably a lot more than anyone was looking for; thank you for your patience. Emma, why don’t I pause here and let’s open it up for questions.

Thank you. Your first question today comes from Elyse Greenspan with Wells Fargo. Your line is now open.

Hi, Elyse. Good afternoon.

Hi. Thanks. Good evening. My first question, I was hoping to get just more color on what you guys are broadly seeing within the E&S market. It seems from the growth and the commentary right that you are not seeing competition pick up there, just any color there? And Rob, when you think out over the balance of this year, how do you expect the underlying dynamics between the standard and the E&S market to play out?

So, first, thanks for the question. Second, when we look at the submission flow that’s coming into our specialty businesses in general, particularly in E&S, it was very strong in the quarter. My observation is that the standard market has a very firm view of what’s in their appetite, and if it’s out of their appetite, they quickly move away from it. If it stays in their appetite, they seem to be very aggressive. The flow of submissions remains encouraging, especially in March. There’s nothing we are seeing that suggests that momentum is getting derailed in specialty, particularly in E&S.

Okay. Thanks. And then, you guys seem still pretty positive on pricing. So how should we think about the rate versus loss trend dynamic, as we think about that, what can be earned in over the balance of the year?

Okay. There’s a limit as to how far I can go without inciting legal responses. What I can say is that, based on our views of loss cost trend and the rate we are achieving, there’s compelling evidence that the rate we are achieving is in excess of loss cost trend, measured in hundreds of basis points. How quickly we recognize that is our consideration.

Okay. Great. Thanks for the color.

Thank you.

Your next question comes from Mark Hughes with Truist. Your line is now open.

Good evening, Mark.

Yeah. Thank you. Good evening. How much of the improvement in paid loss ratio do you think comes from claims dynamics, frequency or severity? How much are they bouncing back relative to kind of pre-COVID or is that all a rate dynamic?

Look, I think we will not have clarity around that other than through the passage of time. Clearly, there was a pinch point in claims due to COVID, but we think it’s gradually catching up. From my perspective, much of the improvement is a result of our colleagues’ efforts and performance. We will have greater clarity as time passes, and I would be reluctant to answer definitively, but there are encouraging signs. We carry the loss picks in a thoughtful and measured manner, not wanting to declare victory prematurely.

Understood. Thank you for that. And Rich, the reserve development in the quarter, what was that again overall and do you have it by segment?

In total, it was about $1 million of favorable development, and we don’t typically provide the split between segments. We disclose that information in the 10-Q.

Thank you.

Your next question comes from Michael Phillips with Morgan Stanley. Your line is now open.

Good evening, Michael.

Hey, thanks. Good evening. Rob, regarding the loss trend, you mentioned in previous quarters that the situation was unclear. I'm wondering if it is clearer or still unclear today compared to three quarters ago. Is it more challenging to quantify that now than it was four quarters ago?

I don’t think there has been much clarity. With every passing day, the underwriting years become more seasoned, and we have greater clarity on the ultimate outcome. During COVID, there was a bit of a pinch point in the legal system. But with each passing day, we have more clarity around 2020 and 2021, and we are refining our views. Again, we are carrying loss picks thoughtfully, comfortably clearing the hurdle measured in hundreds of basis points.

Okay. Thanks, Rob. That’s helpful. The second question is just kind of more general and higher level. But you clearly are a specialty player, one of the best out there, and that word specialty is getting more overused today than probably social inflation was. I ask if you feel the competitive nature in your business has changed over a longer-term horizon?

Well, everybody wants to be special. But putting that aside, we focus on our goals and execution. One key observation is that different product lines are marching through cycles on their own without perfect lockstep. Some product lines are seeing competition increase; others are seeing competition diminish. However, in the specialty space, competitors we respect today are largely the same as two years ago. We have been focusing on specialty since 1979. While the world changes, we have expertise, data, intellectual capital, relationships, which bode well for us.

Yeah. Okay, sir. Thank you for your time. I appreciate your comments.

Thank you for your question. I appreciate your engagement.

Your next question comes from the line of Yaron Kinar with Jefferies. Your line is now open.

Hi. Good afternoon.

I will continue beating this beat, I guess, on loss trends. You said that you have several 100 basis points in excess of trend here in rate. I think you made that comment in the prior year or two as well. So when do we start seeing that develop more fully and fix themselves?

Look, it takes time for this to come through. We will have to see how it develops. The assumption that I was suggesting around 2024 is based on the business we write on the reinsurance side and an understanding of new money rates and their implications for our economic model. With every passing day, as I suggested, the table is being set for tomorrow. Are we banking on positive reserve developments? No. We are not doing that. Do I think we are being measured in our picks and that there is a chance things could work out better than currently reserved? Yes, I do. Will that come into focus over time? Yes, but COVID has created delays in clarity.

Okay. And then my second question goes to premium growth. You had 19% net premiums written growth in insurance. I think at a conference a month or two ago, you talked about 15% to 25% growth for 2022. So seems like you are kind of in the middle of that range. Can you help us think through that 15% to 25% growth number?

Ultimately, there’s certainly evidence that suggests there continues to be great opportunity for specialty players. I can’t promise what tomorrow will bring, but the strength of submission flow, particularly in specialty and E&S, gives us confidence. May or June could change things, but that seems unlikely.

Your next question comes from the line of Ryan Tunis with Autonomous Research. Your line is now open.

Hi, Ryan.

Ryan, good afternoon.

Hey. Good afternoon. First question is on the expense ratio. I noticed over the past couple of years it’s a little bit elevated in the first quarter relative to the remainder of the year. Is there something seasonal to that, and should we expect it might be true this year as well?

Rich, I don’t know, is there anything around remuneration?

It might be attributed to incentive compensation. We accrue throughout the year based on our views of how it will play out, but ultimately, we wait for the year to end and make adjustments for bonus accruals and profit sharing.

Understood.

But just to be clear, that would not be an overwhelming sum.

Correct.

I mean, that would be, whatever, 10 basis points, 20 basis points, something like that, right, Rich?

Yeah, that’s right.

Understood. And then, Rob, in your prepared remarks, the comment about not feeling good about just 2023 but also some confidence in 2024. You said that you are not banking on unreserved releases. Can you elaborate on what’s giving that level of visibility?

Well, a couple of things, Ryan. First off, we need to consider what this interest rate environment means for our economic model. Additionally, every day we write business in 2022 that goes by and earn it over 12 months, achieving rates above trend bodes well for the outcome. It’s not an on-off switch; the market doesn’t shift just like that. I believe there’s a lot of momentum out there today with various pieces in place to bode well for tomorrow.

Thank you.

Thank you.

Your next question comes from Alex Scott with Goldman Sachs. Your line is now open.

Hey. Thanks for taking the question. I wanted to ask about this balance between growth and rate taking. It sounds like in many products you are leaning more into growth. Should we expect to see perhaps even more growth despite rate decelerating?

There are two components: rate and exposure growth. As we see economic inflation increase and rates still outpace loss cost trends, we should see further margin expansion on a policy basis. Our rate increases are outpacing our loss cost trends in most product lines. Did I answer your question?

Yeah. I think you did. Maybe just for a follow-up.

Yeah.

Separately on net investment income, do you mind giving an update on duration and at what point would you consider lengthening it out?

We are looking at that every day, starting to buy bonds out in five and ten-year ranges. We don’t think we are being compensated for it yet, so we are being cautious. We will exercise that option when it makes economic sense, again through a risk-adjusted return lens.

We think there is uncertainty around inflation and its timing, and issues about flow of funds make us hesitant. Shortening duration slightly could make sense, but we are not yet comfortable going that route.

Just as a reminder, we have a lot of runway ahead of us because the average duration of our liabilities is about four years.

Thank you.

Thanks for the question.

Your next question comes from the line of Meyer Shields with KBW. Your line is now open.

Hi, Meyer. Good afternoon.

Great. Hi, Rob. How are you?

Good. How are you?

Good. Thanks. First question, it looks like growth in the Reinsurance segment slowed more quickly than in the Insurance segment. Is there anything meaningful in that?

Not really. On the surface, we wrote less Reinsurance business than Insurance business, but I would suggest not to read too deeply into that. We are paying attention to it, but I would encourage you not to be bothered by it.

Okay. That’s helpful. You also mentioned on the Insurance segment lower session. What do you mean by that?

We look at everything we buy and think about how we assess risk and return. Regarding our reinsurers, we have a panel of partners. Some are our partners, and some trade with us. We are happy with how we are and what makes sense for the company.

Okay. Understood. And one last question, you mentioned that 1.018% premium on new businesses versus renewal. Historically, this has reflected competition in the industry where it’s below 1% that indicates more competitive underwriting. How well does that delta reflect the lack of knowledge in newer business?

Keep in mind that’s an aggregation of 57 different operating units. Regarding this metric, yes, my colleagues are selective on pricing risk and skilled at it. It’s not just random and is based on proper assessments of exposures and appropriate rates. Is that the right number? We’ll see with time, but I think it’s sensible.

Okay. Perfect. Thanks so much.

Thank you.

Your next question comes from the line of David Motemaden with Evercore. Your line is now open.

Good afternoon, David.

Hey. Good afternoon. Thanks. I have a question on the loss trend assumption. Have you made any changes to that during the quarter related to property side with CPI inflation or on the liability side? Are you seeing the system starting to thaw regarding legal activity this year?

We are constantly considering loss picks and economic inflation’s impact on them. I can’t go into too deep details about each product line, but we are doing timely reviews of what these components may mean for our costs. As to the legal environment, we are catching up gradually, but I wouldn’t say we’ve reached full clarity just yet.

Got it. That’s helpful. If I could just sneak one more in. With regards to the standard lines players, have you seen them go into higher excess layers and casualty lines?

Not really. The standard market is contracting its appetite but competitively leaning into what remains in their strike zone. I believe they may not fully comprehend the impacts of social and economic inflation. Regardless, we have enough to focus on concerning our business strategies.

Got it. Thank you.

Thank you.

Your next question comes from the line of Josh Shanker with Bank of America. Your line is now open.

Hi, Josh. Good afternoon.

Good afternoon to you, Rob. A lot of moving parts in the quarter, you guys sold a building in London and have a big profit. Can you talk about what the mark-to-market on the bond portfolio was?

Rich, do you have the number handy? If not, we can circle back to you.

From memory, the movement from year-end to the end of the first quarter was about $425 million after tax.

Okay. That’s great. And in terms of your alternative investment styles, is this a time to deploy into arbitrage or capital into partnerships?

We have capable people understanding the goal is good risk adjusted return with an eye towards total return. We will continue to seek out the right opportunities thoughtfully to separate the wheat from the chaff.

We reduced exposure in real estate meaningfully over the past year but continue being opportunistic about potential opportunities.

Josh, did you have another one?

Can you compare and contrast what's going on in the worker’s comp market versus excess worker’s comp?

In recent past, the primary comp market has been notably competitive, while excess comp is also competitive but slightly less so.

We’ve noticed in the comp market there are players seeking market share through increased commissions or miscategorizing exposures. This creates a complicated situation for the industry. Overall, comp will likely have a bumpy road over the next year or 36 months.

That’s a very reasonable view. Thank you very much for the answers.

Thanks for the questions.

Your next question comes from the line of Mark Hughes with Truist. Your line is now open.

Yeah. Thank you. Just a quick question. The investment funds, I think many of those are priced on a one-quarter lag. Any early read on what we might expect when you report Q2?

Nothing that’s particularly noteworthy at this stage. We don’t have enough information yet; it takes time to get the marks.

Thank you.

But just to mention, we are not heavily participating in the tech space, if that’s of interest.

Thank you.

Your next question comes from the line of Brian Meredith with UBS. Your line is now open.

Good afternoon, Brian.

Good afternoon and evening. A couple of questions here for you. First, Rob, I am just curious; I noticed a meaningful slowdown in growth in professional liability and commercial auto. Anything noteworthy there?

For commercial auto, we are seeing a shortage of drivers and that’s a bigger problem today. Training and experience levels are critical, and we are incorporating that into our underwriting. This situation is reflective across the broader tight labor market and the potential issues that could create. As for professional liability, I wouldn’t read too much into it; we still see opportunities in this space.

Great. My follow-up question is about your homeowners' insurance. How much is that growth contributing to your short-tail lines?

A meaningful percentage comes from the high net worth operation, but other property lines are contributing as well. We have the best team out there in this space, and their ability reflects how the distribution and customers are responding. We see a lot of good momentum.

Terrific. Thank you.

Thank you.

Your next question comes from the line of Alex Scott with Goldman Sachs. Your line is now open.

Hey. Thanks for taking the question. I wanted to ask about the Russia-Ukraine conflict and if you have any exposure we should think about and if there’s any claims associated with it?

We are closer to none than limited exposure; during the quarter, I think we had claims associated with that totaling about $2.5 million.

Thanks.

Thank you.

There are no further questions at this time. Mr. Rob Berkley, I turn the call back over to you.

Okay. Emma, thank you very much. We appreciate your assistance with the call, and thank you very much to all those who dialed in. We appreciate your engagement too. The quarter clearly speaks for itself. What’s exciting and hopefully appreciated by those observing the business is that we are not just performing well today; everything is aligning for a very attractive 2022, likely 2023, and is increasingly likely for 2024 as well. Thank you for dialing in, and we will talk to you in 90 days or so. Take care. Good night.

This concludes today’s conference call. Thank you for attending. You may now disconnect.