Berkley W R Corp Q3 FY2022 Earnings Call

Good day, and welcome to W. R. Berkley Corporation’s Third Quarter 2022 Earnings Conference Call. Today's 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, 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.

Beau, thank you very much and let me echo your welcome to all to our third quarter call. We appreciate you finding time to join us. Joining me on this call is also Bill Berkley, our Executive Chairman; as well as Rich Baio, Executive Vice President and Chief Financial Officer. We're going to follow our typical agenda where, in very short order, I'm going to be handing it over to Rich, who's going to run through some highlights of the quarter. I will follow with a couple of observations on my end, and then you will have the three of us at your disposal to take a Q&A session anywhere people would like to take it. Before I hand it over to Rich, I did want to flag or raise a thought for participants' consideration and it’s something that we spent a good deal of time thinking about on our end. And it particularly comes into focus during periods of time like what we saw in the third quarter when catastrophe activity spikes considerably. And great attention among many turns to trying to understand exposures, trying to understand claims activity and what does that mean from a dollars and cents perspective. And those questions are well-placed and are all important and appropriate. That having been said, in the flurry of activity around trying to understand what has transpired from a financial perspective, it is easy to lose sight of the more what I would call the human aspect and the loss that has occurred and how that impacts individuals, not just their homes being destroyed, but oftentimes something even more severe, such as the loss of life. So I did want to just comment on this; it is something that my colleagues and I pay great attention to, we are sensitive to, and all of those impacted by the events of the third quarter are certainly in our thoughts. Furthermore, we have many colleagues, particularly on the claims side of the business, that are working tirelessly to make sure that we as an organization are servicing customers, making sure we as an organization are living up to our commitments and our promises, which is something we take very seriously. And finally, from our perspective, to the extent there is any type of silver lining in these types of situations, clearly, it is an opportunity for the industry to demonstrate the value that it brings to society. We cannot undo what has been done, but we certainly are in a position to assist society in picking up the pieces and trying to put it back together. That is not just an obligation, but an opportunity that we as an organization take very seriously. So I will leave it there for the moment. And now, Rich, if you wouldn't mind taking us through the numbers having said all that. Rich, please.

Sure. Thank you, Rob. Appreciate that. Operating income increased 14.2% to $282 million or $1.01 per share, with an operating return on equity of 16.9%. Net income of $229 million or $0.82 per share resulted in a return on equity of 13.8%. The company reported strong underwriting income despite the industry-wide catastrophe events. In addition, the record quarterly net investment income and foreign currency gains, resulting from the strong U.S. dollar contributed to our excellent quarterly results. Pre-tax underwriting income of $192 million demonstrates the resiliency of our underwriting portfolio in an environment facing many challenges, including social and economic inflation, as well as the frequency and severity of natural catastrophes. We reported pre-tax catastrophe losses of $94 million in the quarter or 3.9 loss ratio points, compared with $74 million or 3.5 loss ratio points in the prior year. Probably of no surprise, the main driver in the quarter was Hurricane Ian. We developed our best estimate on a ground-up basis operating unit by operating unit, the predominance of which is IBNR due to the timing of the event. Focusing next on our top line, the company grew gross premiums written to a record of almost $3.1 billion. Net premiums written increased 10.8% to approximately $2.6 billion. Breaking this down further between segments, insurance grew 11.5% to $2.2 billion, while Reinsurance & Monoline excess increased 6.8% to $340 million. Exposure growth is a significant contributor to the increase in premium. The current accident year loss ratio, excluding catastrophes improved 30 basis points over the prior year to 58.6%. Prior year loss reserves developed unfavorably by 1.6 loss ratio points in the current quarter bringing our calendar year loss ratio to 64.1%. Record quarterly net premiums earned benefited the expense ratio of 28%. We continue to invest in the business and identify strategies to operate more efficiently and optimize our technological capabilities. Wrapping up underwriting performance, our current accident year combined ratio, excluding catastrophes was 86.6%, and our calendar year combined ratio was 92.1%. Record quarterly net investment income of $203 million was led by growth in the core portfolio of 51% and better-than-average investment funds results, despite the significant downturn in the equity markets. The increased invested asset base, along with higher interest rates, is contributing to much of the growth in the core portfolio. Book yields on the fixed maturity securities have sequentially improved each quarter this year with 2.2% in the first quarter, 2.6% in the second quarter, and 3% in the current quarter. The short duration of our investment portfolio of 2.4 years, combined with strong operating cash flows of almost $1.8 billion year-to-date, should contribute to further growth in net investment income and improving book yields. At the same time, the short duration in the portfolio and high credit quality of AA minus has tempered the market value impact on book value. As it relates to the investment funds, our diversification strategy has benefited our results to date despite certain funds correlation with the equity markets. Our investment funds reported on a one-quarter lag, and in light of the third quarter deterioration in the broader equity markets, we may see our fourth-quarter results impacted. Pre-tax net investment losses in the quarter of $67 million is primarily attributable to the net change in unrealized losses on equity securities of $50 million, which largely related to sector declines in technology and financial services. Stockholders’ equity was more than $6.3 billion as of September 30, 2022. Strong earnings of about $1 billion on a year-to-date basis have mostly offset the impact from rising interest rates on unrealized losses. At the same time, we proactively managed our capital position, as evidenced through regular and special dividends of approximately $209 million year-to-date, along with share repurchases in the third quarter of almost $7 million. Fitch validated this view of our financial strength, early last week, with an upgrade to AA- from A+. With that, I'll turn it back to you, Rob.

Thank you, Rich. I’ll keep my comments brief. The marketplace is quite interesting from our perspective, with some areas being very attractive while others are surprisingly competitive. The market continues to be cyclical, and different product lines are progressing at their own pace. The specialty space, especially E&S, is particularly appealing. It's surprising how competitive some players are in the standard market, particularly national and certain regional carriers. If you look at our release, page seven details where growth is occurring across various product lines. We believe that strong growth suggests there is margin available, and we're committed to pursuing those opportunities. Recently, short-tail lines, especially in property, are showing more potential, and we expect to delve further into the reinsurance area as well. Conversely, professional liability, especially public D&O, has become noticeably more competitive. We've also been surprised by the intense competition in workers' compensation. You might wonder how this competition aligns with the growth in that area during this period; the answer is simply exposure and growth in payroll. Our diverse product offerings mean some parts of our portfolio are declining while others are experiencing significant growth. We're actively working in the market, adjusting our approach as necessary. Rich noted a growth rate of about 11% this quarter, which we consider healthy. The rigor we've maintained in professional liability has presented some challenges, but we remain disciplined, with our renewal retention ratio around 80%. We're seeing slightly higher premiums for new business compared to our existing portfolio, which makes sense as we generally know more about our renewing clients than new ones. Our recent rate increase is 7.3%, excluding workers' comp, and we believe we're keeping pace with market trends. An important aspect in an inflationary environment is capturing audit premiums, ensuring we're collecting everything owed after policies start. We’re pleased to report a 42% growth in our audit premiums compared to the previous year. Regarding the loss ratio, Rich mentioned the 64.1%, or 58.6% on an ex-CAT basis. While the latter reflects an improvement, our focus remains on pushing rates in response to inflation in its various forms, which continues to affect our loss costs and operational expenses. Our expense ratio stands at 28%, which is healthy for a specialty writer, but we are starting to see expenses rise again as travel and entertainment resume. Rich discussed our investment strategy, and I want to emphasize that we are benefiting from our discipline. We've maintained short durations without compromising on quality, which has proven advantageous. Other organizations that compromised on quality may find themselves in a less favorable position now. Our careful strategy has resulted in improved book value and the ability to invest at higher rates. Our book yield increased significantly recently, and we have room to extend duration if beneficial. Ultimately, we remain focused on risk-adjusted return, considering volatility in our approach. We can shift our focus among different product lines based on market conditions and may see opportunities in the property cat space, but we will be selective and cautious in our participation. This commitment to risk-adjusted return applies to both underwriting and investment activities. Our goal is to enhance book value for our shareholders, and we believe we have achieved that through our strategy. I'll pause here and invite questions, Beau.

Thank you, Mr. Berkley. We'll go first this afternoon to Elyse Greenspan of Wells Fargo.

Hi, Elyse. Good afternoon.

Hi, thanks. Good evening as well. My first question, you guys saw a little bit. If we look at your pricing disclosure, a little bit of an uptick, you gave us the color ex-workers comp in the quarter. Can you just go into more details on what drove that? And then given right that Hurricane Ian is going to be a pretty large loss, would you expect that that number would continue to trend higher in the fourth quarter?

We won't break down the rate numbers by product line, but I can say we are highly focused on ensuring rate adequacy while being mindful of the current environment. Although growth is a priority for us, it will not take precedence over our commitment to maintaining rate adequacy. Be cautious not to interpret specific basis point movements too significantly; rate adequacy is a key focus. Regarding future market conditions, it is evident that property pricing is increasing, especially for catastrophe-exposed properties, and we anticipate this trend to be driven by the reinsurance market, with the insurance market likely following suit. We plan to engage in this wherever it aligns with our organizational strategy. As for potential impacts on other product lines, only time will tell, but if opportunities arise, we will actively pursue them. We are closely monitoring property and catastrophe-exposed property markets, particularly in reinsurance and specific types of retro, and we are considering our position not only as buyers but also as significant sellers when appropriate margins are available. Typically, we don't see those margins during most cycles, which is why we maintain strict control, but we are prepared to engage when it aligns with our risk-adjusted return criteria.

Is there a level like sticking with the property cat re-comment? Is there a level of rate that you guys are looking to January 1 when you think about incrementally adding to your property cat reinsurance exposure?

More.

Okay. In terms of the prior year development, I know you usually wait for the queue to provide details by segment, but there was a significant amount this quarter. For those trying to understand the underlying margin by segment, can you provide insight into that $39 million of adverse development?

Yes, I was referring to the isolated COVID situations. Specifically, what I consider to be unique and isolated circumstances, mainly the vast majority of our development team was focused on the insurance segment.

Thank you.

Yes. Thanks for the questions.

Thank you. We'll go next now to Mike Zaremski of BMO.

Hi, Mike, good evening.

Hey, good evening. First question, trying to get a little more color, if you're willing on unpacking the spread that you feel there is between loss cost inflation and pricing. Inflation came up a lot in your prepared remarks obviously and I think last time you gave us an update on this. I think you said something in the magnitude of rate was exceeding loss cost trend by hundreds of basis points? Just curious if that spread has narrowed a bit over the last couple of quarters? And any color you might want to offer?

Mike, I think that we're starting to try and get into the wheels and obviously it varies by product line, but in the aggregate at the 7.3% that we're talking about, I think that we are comfortably outpacing loss trend via a meaningful margin, and that would be in all likelihood more than 100 basis points. My crystal ball is really no better than anyone else's and we are trying to err on the side of being measured around loss picks in general. But again, at 7.3%, I think it's still very fair to say that we are outpacing it by more than 100 basis points. Maybe it's 200 basis points, but it's a pretty healthy margin. That having been said, as I have suggested, we are not going to declare victory prematurely. There is a huge amount of sensitivity around those assumptions. And if it proves that it's something more than we expected, we're going to make sure that we have the ability to try and absorb that. So it's going to take some time for that to season and ultimately we'll have some clarity.

Okay, that's helpful. Moving to the investment portfolio, it seems cash levels have decreased. For now, you're maintaining the duration, but there is room to extend it. I'm curious, since interest rates have risen significantly, is the reason you have an extended duration because you believe there's a greater chance for rates to increase further? Or is it just a consideration you're taking into account?

Maybe a couple of quick comments, Mike. First off, we believe that rates are likely to increase from here. While they may not rise at the same pace as they have recently, we still expect them to go higher. Additionally, to extend the duration meaningfully would require us to venture far out on the yield curve, and we don't think the compensation is sufficient to justify that. We're quite comfortable in what I would define as a three to five-year range, probably leaning more towards three at the moment but still in between. This may naturally increase the duration slightly, but not significantly. I expect the book yield to continue to rise at a healthy pace. As we consider that rates might be peaking or nearing their peak, we may rethink our approach to duration, but for now, we believe there's still some growth potential ahead of us.

Okay, and just to sneak one last one in, I'm just curious if reinsurance rate, so thinking about the primary side of your portfolio, not the Cognizant that you write a good amount of reinsurance. Just on the primary side, if reinsurance rates do move up meaningfully, especially on the property side, should we be thinking about any changes in kind of gross to net strategies or any lines of business you might have to change, kind of, your strategic view on? Thanks.

There's really nothing we do today that we would feel the need to limit. As Mike mentioned previously, about 90% of our policies have a limit of $2 million or less. We tend to purchase some corporate covers and have the flexibility to adjust those to optimize our net position and rethink our capital allocation. At the same time, if the reinsurance market becomes challenging, we will likely see growth in that sector of our business and allocate capital accordingly. While I think this may cause some concern for others, I believe it presents an opportunity for us.

Thank you.

Thank you.

And we'll go next now to Michael Phillips of Morgan Stanley.

Thank you, good evening, Rob. I appreciate your time. My first question is not so much about your numbers regarding Ian, but rather your insights on industry observations. There seem to be two differing opinions regarding whether industry numbers might increase based on modeling or potentially decrease given recent events in Florida. I'm interested in your perspective on this. Do you think the current industry numbers are more likely to rise or fall from what we see today?

I think it really depends on which estimates you're referring to. What I can say is that this is likely going to be a very significant flood issue, which will impact losses for many homeowners and properties. The situation with auto is different. I believe the auto losses are likely to be much more severe than what the models might have initially indicated. Overall, I don't think there is a lot of clarity right now. We don't have strong objections to the figures, and that range of $50 million to $70 million isn't unreasonable. However, I think the allocation among product lines might differ from what people expect. My best guess is that it's likely to be closer to the lower end of that range.

Thank you. The second question is a follow-up to Elyse's initial questions regarding receivables, returns, and volatility in the property category. I didn't quite grasp your meaning when you mentioned more in your second answer.

That must be a wise question regarding what the issue is.

I understand, but what you're asking is unclear to me.

But yours is correct. From our perspective, for an extended period of time, and we've offered this perspective in the past, the reinsurance marketplace has kind of gotten let around by the insurance marketplace. And there's enough pain out there that has been building for an extended period of time. It would appear as though that the reinsurance marketplace maybe has gotten the courage and the discipline that has been a long time coming. And we have our view on what is rate adequacy. And if we see, for example, in particular, property cat reinsurance pricing getting to a level that we think makes sense, we have been making plans and positioning ourselves as you would expect, or at least if you don't, you should be expecting to be able to participate in a meaningful way. But we are only going to do that if we think you are getting paid enough. We are not in that product line day in and day out riding the cycle up and down. We are going to participate, call it, on average, when we sync everything lines up, the planets and stars line up, for call it, two years out of every 15 years. And it is certainly very possible that 2023 could be one of those two years. But if we don't like it, if it doesn't get hard enough, we're not going to stick our toe in the water, let alone a foot.

Okay. So is it still too early to determine whether the rates are high enough for you to want to participate?

It is too early to determine the level of our participation or whether it will be significant. However, we have the team with the necessary expertise prepared. The distribution is aware of our presence and our interest in exploring opportunities. We will engage to the extent that it is sensible. If it doesn't make sense and the pricing doesn't reach our expectations, we are perfectly fine holding back and conserving our resources.

And we'll go next now to Yaron Kinar at Jefferies.

Thank you. Good afternoon.

Good afternoon.

I want to go back to the commentary around really being focused on clearing the return hurdles. Are those hurdles going up? I would assume that the cost of capital is going up, but at the same time and also getting probably better investment returns. So how are you thinking about those return hurdles from an underwriting perspective?

Yes, our benchmarks are clearly rising. However, we are also considering our overall economic model. As everyone knows, we generate returns in two ways: through underwriting and investment income. If I understand your question correctly, we have no intention of compromising our loss ratio targets due to a higher interest rate environment. We are not, and will never be, cash flow underwriters as long as the Chairman and I are here. While I'm not a fan of the situation, I believe that the loss ratios or combined ratios we've generated this quarter or over the calendar year are not what we aimed for, but they are certainly not catastrophic, and we have no desire to compromise our targets at this moment.

That's helpful. Thank you. And then my second question, just looking at the professional liability line within insurance down a little bit this quarter year-over-year. I'm assuming that's just a transactional business that slowing down a bit year-over-year and maybe slower rates as well. So maybe you can be using that notion?

The professional liability in our insurance segment increased by about 1%. The main contributors to this rise were particularly in Directors and Officers insurance. There are a couple of reasons for this: first, increased competition, and second, a slight slowdown in demand, especially around IPOs, and to a lesser extent, SPACs. These factors significantly impacted demand. Additionally, it’s important to note that this market is still cyclical, as I mentioned earlier, and companies are becoming more competitive, which we acknowledge. This has resulted in a slowdown in the growth rate of a product line that was previously expanding rapidly. If you compare this to a year or two ago, you'll notice a shift toward more disciplined underwriting, which is reflected in the reduced growth rate. I also anticipate that the current positive growth may eventually turn negative, and that’s perfectly acceptable. We just take it one day at a time.

And where does cyber fit into this? What kind of opportunities that maybe offsets on the slowdown in D&O?

We are player in the cyber space, though I would define in a very controlled and limited way. We have an outstanding group of people that have terrific expertise. And at this stage, that business remains one that we think there's still much opportunity ahead of us. Thank you for the questions.

And we'll go next now to Josh Shanker at Bank of America.

Hi, Josh. Good evening.

Hello, there. Hello, there. For the Berkeley analogist, I'm trying to remember ‘02 or ‘06, whether you ever engaged in either participation or rhetoric about meaningfully participating in the property cat market. I don't seem to recall it, but I might have not as good of a memory of some people on the call?

Josh. So in 2002, we did enter into what I would define as some short-term quota shares with a couple of facilities in London. And we wrote a fair amount of business for a very defined period of time. I don't remember if it was started in 2002, maybe 2003, and it proved to be very lucrative for the shareholders, and shortly thereafter, as it became a less attractive market, we faded into the background.

Okay. And then there's chatter about another hard market coming in. All lines move differently, and there's different things happening in different lines. But I think that you're still in the position that you're going to keep your focus on margins, but you're rate adequate in a lot of places and you're looking to grow, maybe during growth over trying to take rate at this point. For the companies that are shattering about another hard market, do you think that your competitors are underpricing and need to take price, and that's why we're hearing it? If your rate adequate, you obviously don't know where they are, but at the same time, your psychology of the market, are there a lot of competitors out there who need to take rate at this point, do you think?

Josh, you're using a pretty broad brush. And if you don't mind, I might try and narrow the brush for a moment. I think, generally speaking, the reinsurance market across the board will benefit from greater discipline, and that's in all products. In addition to that, I think the standard market needs to be paying more attention, in my opinion, to loss trend than it would appear as though from a distance that some of them are. As far as the specialty carriers go, I think it varies by product line and by carrier. I think there are some that are very responsible and very disciplined. It's not clear to me, it's reasonably clear, I should say, to me at this time that property pricing is going up. It may not happen as quickly as one might think it should happen. It's starting to happen today, and I expect you're going to see it become even more visible as we make our way through next year. What the spillover will be into some of the other product lines? I don't know. I think one of the pieces that we have talked about in passing is workers' compensation. And I would suggest to you, that's not one to lose sight of, given that I believe it still is the largest component of the commercial lines marketplace from a premium perspective. And we have got to be getting close to the bottom there. And that may mean it's going to take another year or two, and that's going to need to tick up. So I think there's meaningful pain to come in comp. I think property, people are recognizing they need to change I think on some of the liability lines, particularly in the standard market, I think they better be careful of loss trends.

Is there a gap year in 2023 for a lot of property writers where they need to take price, but over the near term, they're going to have to pay more for the reinsurance? And so margins are going to get squeezed for one year period. Does that happen? Or is there anything about this too simply?

I agree with your question and observation. There may be a lag, especially for those in the standard market who need to get their filings approved. It will depend on how quickly they can adjust and how much they can charge to cover the increased reinsurance costs. If we look back to the end of 2001 around 9/11, the market was beginning to strengthen, and that event acted as a significant catalyst. However, in 2002, many in the market did not have a great year, even though prices started to rise. The pricing didn't truly become sufficient until 2003, which was when it started to look more appealing. In summary, I believe there is a lag, and this could be an important factor that encourages people to push even harder. This is just my perspective as an observer.

Thank you for all the detail. I do appreciate it.

Thank you for the questions.

And we'll go next to Ryan Tunis at Autonomous Research.

Hey, very good evening, guys. First, I just wanted to clean up some numbers questions. So you guys disclosed an insurance, I'm trying to figure out how much a short tail line is cat exposed, like exposed to Florida or anything else, we'll see much of a rate. We just see the short-tail lines. I don't know how much of that's broader specialty. And I guess the same question for reinsurance, how much of property is property cat?

I don't have the percentages in front of me. I would tell you that on the property side, on the insurance front, it's not going to be a huge amount. And we have the ability to flex that up, which we will be looking at very closely. But by design, we have limited the amount of aggregate we were willing to put out in certain zones in certain ZIP codes. And it's a similar story on the reinsurance front, where, again, we have the ability to flex, but just demonstrating through action, if you will, we have not found the pricing to be particularly attractive until as of late, and it will likely become even more attractive, which is why if you look at sort of where our growth is and what's happened in the third quarter, it was really some recent opportunity for us to try and take advantage of a changing market, and you may see more of that. But again, we are not a big player in the space today, and I don't think it's ever going to be the lion's share of our business, but it could become a more significant part of our business temporarily over the next year or two.

Got it. Rob, you mentioned that standard lines are becoming more competitive. It's always challenging to define this, but roughly what percentage of your insurance portfolio do you consider to have the characteristics of standard?

Modest, and that's by design.

Got it, okay.

We like the stuff that falls off the table of the standard market. And we'll leave it to the 800-pound gorillas sitting up at the table to fight over what they keep up there. We're a very because the stuff that falls off the table, we can charge what we want.

Got it. I have one last question, a follow-up on the reserve charge. I understand it's a one-time event, but it's interesting that every quarter there are these small fluctuations. It seems like the adjustments are usually minimal at Berkley. I assume you noticed the same trend this quarter, as it's the first time I’ve observed a change of more than $10 million in either direction. Is there possibly less offset this time? Historically, the numbers have been minor, but this time it's a bit higher. How would you interpret that?

Let me try and share with you as much as I can. So we had two specific and unique situations where our – again, from our perspective and my understanding, which I did get into the weeds on these situations, they were very much one-offs. And as you referenced earlier, we usually don't have a lot of development one way or another. It's because we're constantly trying to get the ports just right in every nook and crane of the organization. And there's no sense in trying to put lipstick on the pig. Long story short, Ryan, these were two, again, isolated situations that we're not going to pretend it's something that it isn't and try and off state the picture. That's just not how we operate. But long story short, we do not think that this is something that we're going to see more of, and based on everything I can see at this time.

Thank you.

Thanks for the question.

And we'll go next now to Brian Meredith at UBS.

Hi, Brian. Good evening.

Hey, good evening, Rob. Hey, good. Listen, just quickly following up on mind, just a quick question on the reserve charge. Does it all kind of make you think about the conservatism of your other COVID-related reserves that are still up? Are you kind of going to rethink those a little bit given these two events?

Yes, Brian, that's a very reasonable question, and I admit it might have been a self-serving comment from me since we questioned ourselves about the same issue. I assure you that it prompted us to examine whether there's anything else significant of this nature that we should investigate. Based on what I know now, along with my colleagues, and the thorough analysis we conducted, we feel confident about our current standing. I want to avoid being on a call like this in three or six months discussing this matter again. While I can't make promises, we have made every effort to ensure there isn't anything else we can identify at this moment.

Great. Appreciate that. And then my second question, Rob, is coming into this year, you were pretty optimistic, bullish about growth prospects. I think you threw out the 15% to 25% top line growth. Clearly, this quarter wasn't there. It was good, but not there. And I guess my question is, one, what's changed since then? Is it because the professional lines maybe is a lot worse pricing-wise that you considered? Is there a change in the market that's kind of worse than you were thinking? And then as I look forward, are you maybe increasing a little bit more optimistic about that growth given what's transpired recently?

Yes, I agree with your point, Brian. The professional liability sector has experienced a significant slowdown, and while we commend our team's discipline, it is definitely impacting us. Additionally, we have been somewhat surprised by the increased competition in certain liability lines within the casualty reinsurance space lately. Regarding your second question, while it's still early to assess, the fourth quarter is looking promising so far. I anticipate that there will be attractive opportunities in much of the marketplace we operate in, particularly in early next year and beyond.

Great. Thank you.

Thanks for the questions.

And we'll take our next question now from Mark Dwelle at RBC Capital Markets.

Hi, Mark. Good evening.

Hi, good evening. Between Brian and Ryan, they covered the ground I wanted to cover. So I don't have any further questions.

Okay. Thanks for your time again.

We'll go next now to Mark Hughes at Truist Securities.

Hello, Mark. Good evening.

Yes, thank you. Good afternoon. Good evening. Rob, in the past, you've mentioned the paid loss ratio, and I'm not sure if you gave any specific numbers this quarter, but if there's any detail you could share on that front, I'd be interested.

Yes, we will need to follow up on that. I'm in a conference room and I left all my notes down the hall, which I apologize for. This is something we have tried to address in the past couple of quarters. If you don’t mind, please give Karen, Rich, or me a call, and we will have that information for you in the morning. I just happened to forget the one sheet that I needed, so I apologize for that.

Quite right. One sort of follow-up. When you think about the rate increase this quarter, obviously, a little bit more, was that reflective of the broader market that the pricing environment improved? Or was it that you pushed a little bit harder to get rate and you achieved it and perhaps that impacted the top line growth a little bit?

Our renewal retention ratio remains stable, fluctuating between 79% and 82% each quarter. Our team is closely analyzing each product line within their profit and loss statements. We are paying attention to the current environment, loss costs, and ensuring our rates are adequate. There is ongoing sensitivity to various types of inflation. Consequently, we are continuing to push for rate increases, and I believe we will maintain this approach into the fourth quarter and into next year.

Understood. Thank you.

Thanks for the question.

And we'll take our next question now from David Motemaden at Evercore.

Good evening, David.

Hey, good evening, Rob. I have a question, kind of, following up on Ryan's question on the property side. If I look at just short-tail and property, it's around 20% of your premium mix right now, or over the last 12 months. Is there a ceiling that you think about, like how big you would allow this to get, assuming pricing is where it needs to be to produce attractive returns? Is there a ceiling just a level where you just don't want to let it go above as you think about like maybe introducing a bit more cat volatility or just attritional volatility into results?

We do have internal numbers that we discuss among ourselves, and there are different viewpoints during our conversations. After we exhaust ourselves with debate, we sometimes switch sides in the argument. Ultimately, we see a significant opportunity to grow, and our willingness to engage more in this business increases with the attractiveness of the opportunity and the healthy return when adjusted for risk. I don't expect us to become a leading property catastrophe underwriter overnight, but I do believe it could play a more significant role in our operations in the near term. However, that doesn’t mean it will dominate our overall business; rather, it will have a more noticeable impact compared to its current size and contribution, provided the opportunities are present.

Yes. Got it. Understood. And then maybe just another question. I guess, were there any other changes or any changes in terms of how you're thinking about loss cost trends here in the last quarter or two, both on I'm particularly focused on long-tail lines, but also on the short-tail lines as well. Any sort of changes there in terms of how you're thinking about that would be helpful.

Yes. We do not see any indication that the challenges associated with social inflation are easing; it remains a significant issue. Economically, inflation levels are clear, with ongoing pressure from both the consumer price index and core inflation. While we do not expect this pace to continue indefinitely, we will adjust our pricing as necessary.

Got it, okay. Yes, that makes sense. Lastly, regarding the commentary on the rate being about 100 to 200 basis points above trend, I'm not sure of the exact figure. This seems to exclude workers' compensation. How should we view this overall? Are we still at a level that's above trend?

As far as comp goes or the whole thing, or what are we.

The whole book, if I sort of mixed in compensation.

Yes, you include comp, and that we're very comfortable that our comp book is priced at a very healthy level. So in the aggregate, yes, we're feeling very comfortable where we are.

Got it. Okay, thank you.

And gentlemen if there are no further questions this afternoon, Mr. Berkley, I'll hand things back to you for closing comments.

Okay. Well, thank you very much, and thank you to all that dialed in. Again, I think in spite of the challenges that came the industry's way in the quarter, we still performed quite well and generated a healthy return. We'll have to see where the property cat market goes. Again, I don't think we're going to become a property cat writer overnight, but we do have the ability to participate in a very select manner for a defined period of time when we think the opportunity is there. But we are going to remain core to being a specialty primarily liability underwriter and that remains the focus of the business. Though again, we are in a position to take advantage of market opportunities when they present themselves. We thank you all for your participation, and we look forward to catching up with you early next year. Thank you.

Thank you. And again, ladies and gentlemen, we'll conclude W.R. Berkley Corporation's third quarter 2022 earnings call. We'd like to, again, thank you all for joining us. I wish you all a great evening. Goodbye.