Berkley W R Corp Q4 FY2022 Earnings Call

Good day, and welcome to the W. R. Berkley Corporation's Fourth Quarter and Full Year 2022 Earnings Conference Call. Just a reminder, today’s call is being recorded. The speakers' remarks may contain forward-looking statements. Some of these 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. And now, I'll turn the call over to Mr. Rob Berkley. Mr. Berkley, please go ahead.

Thank you very much, and good afternoon all, and a warm welcome to our fourth quarter call. On this end of the phone co-hosting with me is Bill Berkley, our Executive Chairman, as well as Rich Baio, our Executive Vice President and Chief Financial Officer. We're going to follow the typical agenda as we have done in the past, and I'm going to hand it over to Rich momentarily. He's going to walk us all through some highlights of both the quarter and the year. Once he is through with his comments, I'll pick it up from there, offer a few observations and thoughts of my own, and then we will be looking forward to opening up for Q&A and taking the discussion anywhere participants would like it to go. One thing before I hand it over to Rich, and that is just maybe taking a moment to pause and reflect publicly on the year. We'll be getting into the numbers and the results, but it does seem appropriate, at least from my perspective and our Chairman's perspective, to extend some recognition. Thank you and congratulations to our colleagues. I have the good fortune of being the mouthpiece or the one that has the opportunity to talk about the results, along with Rich and Bill Berkley. But these results, these outcomes were achieved because we have thousands of people that are working diligently every day in a thoughtful and methodical manner. So to all my colleagues that happen to be tuning in, I hope you will accept the heartfelt thank you again and congratulations on a job very well done. With that, Rich, if you would please.

Of course, and thanks, Rob. Appreciate it. 2022 can be marked as a record year in many areas of the business. The company ended the year with a strong fourth quarter. Net income increased almost 30% to $382 million, or $1.37 per share, with an annualized return on beginning of year equity of 23%. Operating income increased approximately 14% to $323 million, or $1.16 per share, with an annualized return on beginning of year equity of 19.4%. Our results reflected record underwriting income as well as net investment income. Severe named cat activity continued to challenge the industry, as evidenced this quarter by winter storm Elliott and prior quarter events like Hurricane Ian, amongst many others. Our disciplined underwriting approach and exposure management led to record pretax quarterly underwriting income of $292 million, representing an increase of approximately 12% over the prior year. On a full year basis, underwriting income eclipsed the prior year by 21.3%, reaching more than $1 billion for the first time in the company's history. Pretax cat losses were $31 million or 1.2 loss ratio points in the quarter compared with $48 million of 2.2 loss ratio points a year ago. Net premiums written increased to more than $2.4 billion. The growth in the top line was adversely impacted by approximately 75 basis points due to the weakening U.S. dollar relative to many foreign currencies. On a segment basis, insurance grew 7.2% in the quarter to more than $2.1 billion from rate improvement and exposure growth. All lines of business increased with the exception of professional liability. The Reinsurance and Monoline Excess segment increased to $281 million in the quarter, with growth in all lines of business. On a full year basis, gross and net premiums written grew to record levels of $11.9 billion and $10 billion respectively. The current accident year loss ratio, excluding catastrophes, was impacted in the quarter by non-weather related property losses, which drove the increase of approximately 1 loss ratio point to 59.3%. Prior year losses developed favorably by approximately $0.3 million, resulting in a calendar year loss ratio of 60.6%. The expense ratio was flat at 27.8% quarter-over-quarter. Record quarterly net premiums earned grew more than 14% in the quarter, continuing to benefit the expense ratio. We do anticipate that our 2023 full year expense ratio should be comfortably below 30%, taking into consideration investments in technology, rising compensation costs, and new startup operating unit expenses. In summary, our current accident year combined ratio, excluding catastrophes for the quarter was 87.2%, and our calendar year combined ratio was 88.4%. Net investment income for the quarter increased more than 40% to a record of approximately $231 million, led by income in the core portfolio, which increased approximately 75%. The combination of our short duration, high-quality fixed maturity portfolio, along with record level operating cash flow of approximately $2.6 billion in the full year enabled us to invest at higher interest rates. Our book yield on the fixed maturity portfolio increased from 3% for the third quarter to 3.6% for the fourth quarter, which compares very favorably to 2.2% in the year-ago quarter. Our new money rate exceeds the roll-off of our invested assets, and we expect net investment income to continue to grow. The investment funds performed well, with a book yield of 5.6%, despite the deterioration in the broader equity markets in the third quarter. And as you may remember, we report investment funds on a one-quarter lag. The credit quality of the portfolio remains very strong at double A minus, with the duration on our fixed maturity portfolio, including cash and cash equivalents, of 2.4 years. Pretax net investment gains in the quarter of $75 million is primarily attributable to an improvement in unrealized gains on equity securities of $88 million relating to investments in the industrial, energy and financial services sectors. The company actively manages its foreign currency exposure. The U.S. dollar weakened in the quarter relative to many foreign currencies, which resulted in a pretax foreign currency loss of $34 million. For the most part, this loss was offset by an increase in our currency translation adjustment, a component of stockholders' equity. And accordingly, the result was an immaterial net impact on book value. Stockholders' equity increased more than $400 million in the quarter or 6.3% to $6.7 billion. The unrealized loss position on fixed maturity securities improved in the quarter. Book value per share increased 8.1% and 6.1% in the quarter and full year before dividends and share repurchases. In addition, book value per share increased 1.7% on a full year basis after returning capital to shareholders of $329 million, and our full year return on beginning of the year equity was 20.8%. With that, I will turn it back to Rob.

Thank you, Richard. That was excellent. I have compiled a list of topics, as there is much activity in the marketplace and various moving parts to consider. It’s important to start with a macro observation, which we’ve discussed before. This industry is cyclical, influenced primarily by two human emotions: fear and greed. For those interested in a deeper discussion, I'm open to that offline. The industry is fragmented. Historically, most property and casualty product lines moved together in the cycle, but now they are at different stages, which is becoming increasingly evident. When people inquire about the state of the market, the response is no longer straightforward; it requires a more detailed analysis based on specific segments such as property, commercial, and general liability. To begin our analysis, let's discuss property insurance, which has garnered significant attention recently. Many have anticipated a return to discipline in the market, and it appears to be on the horizon. We’ve seen signs of this in the reinsurance market and glimpses in the insurance market as well. However, we were somewhat disappointed with the lack of discipline in the fourth quarter. We expect this to improve throughout 2023, but it wasn’t present as we had hoped. It is perplexing given the rising reinsurance costs that should necessitate adjustments in product pricing. Even though the new rates take effect on January 1, the increasing costs of reinsurance should be reflected in pricing immediately, given they influence risks throughout the year. From our viewpoint, the property market is preparing for substantial hardening. While some perceive us as more inclined toward liability, we do possess the skills and appetite for property insurance when it aligns with good risk-adjusted returns. We believe the market is shifting in that direction, particularly in reinsurance, with more developments expected in insurance. Moving to workers’ compensation, I mistakenly expected clearer direction by now regarding loss costs. It seems we are likely to remain stagnant throughout 2023, but we hope for improvement in 2024 and beyond. This sector requires careful consideration, especially since some rating bureaus may not be adequately adjusting for the benefits seen during COVID-19. Severity trends, particularly in medical costs, also need careful attention. Auto insurance is another area needing careful thought. Currently, it is highly vulnerable to social inflation. However, there are opportunities to secure competitive rates, although it is essential to ensure these are adequately captured to avoid lagging behind loss costs. I’ll briefly address general liability, excess, and umbrella coverage together for the sake of time. These areas appear promising, but one must remain cautious of social inflation. A specific concern worth monitoring is the large account excess business, particularly in the Fortune 5000 space, where significant rates have been achieved. In professional liability, there are two narratives at play: the D&O market has seen massive increases and is now stabilizing, while other areas of professional liability present opportunities for growth, which we intend to pursue. Hospital professional liability, however, requires additional caution. Lastly, regarding reinsurance, it’s important to note that we anticipate seeing how much discipline truly exists in the market and how long it will last. The consensus is that property catastrophe markets firmed up, and we found the U.S. market significantly more favorable than the international markets at January 1. Reflecting on our quarter, there remain considerable opportunities, requiring us to remain focused and disciplined. Our organization, comprising specialty companies, has experienced teams that understand cycle management, loss costs, and capital deployment, thus putting us in a solid position. As for our quarter's performance, I won’t go in-depth here because Rich covered it well. However, I would highlight the impact of foreign exchange and reaffirm our priority on rate and rate adequacy. With emerging opportunities, especially in property and E&S, we see meaningful potential over the next year to three years, depending on catastrophe activity. Regarding rates, we achieved nearly 7 points of increase, which we believe surpasses trends. It’s crucial to clarify a common point of confusion between renewal premium and renewal rate increase. Our focus is on the revenue collected per unit of exposure rather than just the premium amount. Regardless of premium fluctuations due to exposure changes, we center our discussions around aligning revenue with loss costs. Our renewal retention ratios vary across product lines, aiming for a range between 77 and 81. If retention exceeds these levels, we see it as a signal to push for higher rates, which is a critical aspect of our market strategy. On the claims front, we experienced fire losses this quarter across various operating units, contributing about 1 to 1.25 points to our loss ratio. It is a widespread issue we are closely monitoring. Another relevant metric is the paid loss ratio over the years, indicating a consistent downward trend, but it’s important to interpret this carefully. Rich addressed the expense ratio, and I concur that we are always striving for value in our expenditures while being mindful of employee compensation and ongoing technology investments. In terms of our investments, with a duration of 2.4 and book yield at 3.6%, the new money rate is now exceeding 4.5%. This spread presents a positive outlook for our economic model. We are considering extending our duration when opportunities arise but will do so cautiously. To wrap up, it has been a strong year, and despite uncertainties, we have established a foundation for attractive future growth in both underwriting and investments. We continue to monitor loss picks carefully, being mindful of potential risks, and we want to avoid premature decisions. With that, I will turn it over for questions.

We'll take our first question this afternoon from Elyse Greenspan of Wells Fargo.

Hi. Thanks. Good morning. My first question is on the cat reinsurance side. So it sounds like you guys did see some good opportunities at January 1. Can you just give us a sense of how much growth and how big of an opportunity that presented for Berkley?

Yeah. I think that we saw it as an opportunity, but I don't think you should assume that it's reshaping our book of business as an organization. So I think that we are opportunistic. We put more than a toe in the water, but not more than a foot. That's just because of our view of volatility. In addition to that, we're going to see what type of opportunities there are in the first quarter and the balance of the year, particularly with some shortfalls in certain market participants' covers.

Did you guys also change your own outbound reinsurance? Do you have a higher retention this year? Were there any changes in your own program?

Yes, and you'll get more detail than you're probably looking for in the K. What I would tell you is that our retention did go up. But relative to the scale of the organization and the earnings power in the quarter, it's not particularly material.

You provided valuable insights on various business segments. In the past, you mentioned generating over 15% premium growth; however, that has decreased, reflecting some trends in the compensation and liability sectors. Considering everything, what do you anticipate for top-line growth in the upcoming year?

Yes, there are certainly challenges with compensation. Regarding your comment about liability, I'd like to provide a bit more detail. The situation mainly relates to the Directors and Officers insurance market, particularly concerning professional liability, which is becoming increasingly competitive. We're also noticing more competition in the large account excess insurance area. However, we find the rest of the general liability and umbrella market to be quite appealing, even with the current environment of social inflation. As for your question about growth, it remains to be seen how things will develop. Based on the limited data I have for January so far, the early indicators are promising. However, I don’t want to overstate my insights on this matter. We see considerable opportunities and are observing the shifts in opportunities across different product lines. We believe we maintain a good balance in this transition, while also staying agile within various segments of the business.

Okay. Thank you for the color.

Thank you. We go next now to David Motemaden at Evercore ISI.

Hi, Rob. Good evening. My first question is whether there were any changes in your outlook on loss trends for the quarter, both for short tail and long tail lines. Last quarter, you mentioned that you were significantly above the loss trend, around 100 basis points. This quarter, it seems like you indicated that you are comfortably keeping up with and possibly exceeding the loss trend. I'm curious if there has been a shift in your trend.

I think that I probably need to choose my words more carefully. I think from our perspective, by and large, in the aggregate, we are exceeding loss trend at this stage. So if I left you with a different impression, that would have been my mistake.

Got it. So no change to some of your view of short tail or long tail.

Nothing material has occurred over the past 90 days that has changed our view.

Thanks. I have a quick follow-up for Rich. Could you provide the prior year reserve development by segment, even though it was immaterial for the total company?

We typically provide that information in the 10-K as opposed to on the call.

Okay, great. I have one more question. Based on your comments, Rob, I found your insights about the property sector quite interesting. I'm curious if your perception of your reinsurance costs and retention has influenced your perspective on primary pricing within the property sector during the quarter. Could you elaborate on how that perspective evolved throughout the quarter?

I believe that anyone who was observant could have predicted that property rates for reinsurance were set to increase significantly. While no one could have pinpointed the exact figures, it was clear that prices were on the rise. It was surprising that we didn't see more adjustments in the market during the fourth quarter, considering that everyone was aware of the rising costs of capacity. I would have understood this better if the covers functioned on a risks attaching basis. However, as they operate on a losses occurring basis, it is evident that the cost of capacity from reinsurers is increasing and will affect the business being written in the fourth quarter.

No, that makes sense.

To me, the reason is that we expected more firming in the fourth quarter. I believe it's on the way, especially in the first half of this year. However, it seems like people need a more substantial realization of the reinsurance costs impacting their profit and loss before they truly assess how to align their exposure with their expenses.

Got it. Okay. That’s helpful. Thank you.

Thanks for the question.

And next, we'll go to Mark Hughes at Truist.

Hi, Mark. Good evening.

Hey, Rob and Bill, I hope you're doing well also.

Great, thank you.

On medical inflation, you had mentioned workers' comp. You need to keep an eye on it. I think you said that there was potential for being susceptible to inflation. Are you seeing anything yet on the medical front?

I think that we are paying attention to medical care providers and the challenges that they are facing. By and large, most hospitals and health systems find themselves in a very difficult place if you look at their financials and economic models. It's not sustainable. Ultimately, they're going to have to figure out a way to improve their position. They’re certainly not going to get a better result or a better outcome from the public sector or the government. That leaves the private sector that they’re going to be looking to get their pound of flesh from to improve their position. In addition to that, while there's been a lot of discussion and a lot of noise, I don't see anything in the immediate term that is, again for the private sector, going to change the realities of pharma inflation. So when we look out at where things are going, we think that there is a challenge ahead, and that is going to play a meaningful role in driving workers' comp claim costs. Additionally, we think, as I suggested, rating bureaus seem to not be backing out the COVID frequency effect.

Do you think the same thing is happening in commercial auto? There's too much reliance on the last couple of years, and that's why it's gotten more competitive. That's why you tapered your business there?

I think there are a lot of challenges with commercial auto. I think certainly one of them is people paying attention to frequency trend. But I think severity trend is, for society and for the industry, really the bigger issue. When you look at how emboldened the plaintiff bar is at this stage, I think the commercial transportation industry has a bit of a bull's eye on its chest, and we — who ensure them need to take that into account. When you drive up and down I-95 at this stage, you see more billboards for plaintiff attorneys than you do for fast food. So that's probably not a great sign.

And finally, anything on the audit premium that you noticed that might be some signal in the economy?

Yeah. Obviously, it's a lagging indicator, but we continue to see auto premiums coming in at quite a healthy level, and we remain encouraged by that and what that means for our business and what that means at a more macro level to your point, for the health and well-being of the country. That having been said, we, I'm sure, just like you are paying attention to what type of Ts (ph) the interest rate hikes have for the economy and by extension, our clients.

Appreciate it. Thank you.

Thank you.

We'll take our next question now from Alex Scott with Goldman Sachs.

Hi, Alex. Good evening.

Hey. Good afternoon. First one I have is just a follow-up on workers' comp. I guess we've seen some reasonably large numbers in terms of potential decreases in NCCI. I'm just trying to understand how much pressure we should be thinking about there? I know your book is a little more nuanced than that, and there's a lot of excess and so forth. I just wanted to understand from you all because it sounds like you still have a view of loss trend that certainly sounds like maybe from your comments is at least positive, let alone maybe materially positive, versus just big price downs that we're seeing kind of coming out of NCCI. So can you help me think through that? And what kind of impact that may have on the business going into 2023?

Sure. From our perspective, we are taking a broad view, but we need to be aware that we operate with a finer focus. There is a significant difference between the two. At a macro level, we must recognize that there have been multiple rate decreases, and much of the decision-making is influenced by historical data. In essence, it's important not to wait until problems are evident in the results; rather, we need to anticipate them. We're very focused on this aspect. Therefore, we believe that state rating bureaus and organizations like NCCI should be careful to pay attention to current trends rather than solely relying on past information.

Got it. And then the second one was sort of a follow-up on some of the growth questions that you guys have received. I mean, is there anything to read into the buyback you did this quarter? It seems like E&S property, maybe some of the property coming out of standard lines and the foot in the water on reinsurance in real tangible ways that you can deploy capital. But is this an indication that that maybe you're not seeing as much capital deployment opportunity as you would have liked, and we might actually get a little bit more back in buyback over the next year.

I think the answer is that we do see a lot of opportunity before us. We are conscious of the capital needs in order to support that. I would suggest to you, I would not read too deeply in based on what I can see so far, granted it's just very early in Q1, and I don't have a lot of data. But I would encourage you not to read too deeply into the fourth quarter as far as being an indicator for opportunity going forward. And again, we have a view as to a variety of things, both how we see opportunity going forward. We also have a view as to what the capital that's required to support that. Finally, we have a view as to what we think the value of the business is. We put that all together and we try and make decisions from there.

Thank you. We'll next now to Ryan Tunis at Autonomous Research.

Hi, Ryan. Good evening.

Good evening. I have a couple of questions. The first one is about the loss ratio this year. In my analysis, it seems like the underlying loss ratio is relatively flat from 2021 to 2022, especially with this quarter included. Rob, could you clarify how the loss picks changed? Was there a decrease, or was it just noise? Also, what is your perspective on the core margin expansion for this year, excluding any noise?

I would have hoped that we could have done a little bit better. But as I alluded to earlier, the fires created some non-cat noise, which we are trying to make sure that we understand and that this is not a permanent part of our loss activity. So as I said just earlier, that was probably worth more than 1 point, not more than 1.5 points.

Got it. And then yes, so a follow-up on the fires. We've never really seen that type of non-cat volatility here. I guess my interpretation of that was your per risk reinsurance program that attaches pretty low, but a little more than a point is close to like $30 million. So it was a lot of...

Fires?

Yes.

It was a frequency of severity on a gross basis. Honestly, it wasn't concentrated in any one of our operations. I'm not a big believer in luck, which is why we are digging deeper.

Got it. Thank you.

Thanks for the question.

We'll go now to Josh Shanker of Bank of America.

How are you all doing? Thanks for taking questions.

Actually, good evening, Josh.

Earning references, what you do is challenging. It's a highly competitive process with significant transparency, which makes it quite appealing. You're not the only players aiming for that business. About four or five quarters ago, you mentioned that you felt your book had achieved the desired rate accuracy and that you were transitioning into a growth phase focused on historical exposures. Did you achieve the growth you expected given the opportunities as you perceived them? Looking at the premium growth this quarter, the lowest of the year, it has been stronger earlier in the year. It seems to align with your pricing trends on renewals, and there's also new business included in that. Were you able to grow as much as you anticipated a year or 15 months ago when you first announced it?

Well, Josh, to be honest, you remember what I say better than I do. Still, I'm sure you're correct. We all look ahead and try to anticipate what that means. In hindsight, we often think we could have done things differently. Hopefully, this is a learning opportunity to avoid repeating past mistakes and to optimize our efforts. Overall, I believe that many areas of the organization did quite well in making the most of the situation. There are also areas where we were disciplined enough to let some business go. As I mentioned earlier, we have different cycles going on with various products at different stages. I think one thing we didn't fully anticipate about 15 to 18 months ago was the loss trend, particularly regarding inflation. We discussed social inflation and were aware of economic inflation, but it turned out to be more significant than we expected. Those aspects should have been factored in more than I initially realized. Certain parts of our business, especially our E&S and many specialty areas, have gained a lot of traction. Conversely, I commend our colleagues focused on workers' compensation for their discipline. While one section of our report shows growth in that area, it's mainly due to payroll. The number of accounts in that product line has actually decreased due to that discipline. So overall, things played out as I expected for several product lines, but there were some areas where I thought demand would be stronger or weaker than it turned out to be.

Predicting future outcomes is challenging. You mentioned earlier that you operate with significant leverage. I want to connect that to your previous observations. It's important to exercise caution, but if your loss ratio worsens by 200 basis points, I can imagine many on this call would be dissatisfied. However, if that allowed you to expand your portfolio by 15% or 20% more than you would have otherwise, it seems like a worthwhile trade-off in the long term. Is that a fair assessment, or is growth only temporary?

I think that the point that I was trying to make is, when we think about our loss picks, we need to be very thoughtful and measured because when you make a loss pick, the assumption, there's a lot of sensitivity. So if you are overly optimistic, even if you're modestly optimistic, that is very leveraged, and that could be a problem. That’s why we, again, do not want to declare victory prematurely as we see things season out. We will start to recognize our accuracy or potentially some caution.

Given the strong return on equity, is there any reason to ease up on our discipline? I know that might sound negative, but perhaps taking on a bit more business could be justified even if it slightly worsens the loss ratio, as it would benefit the company's long-term growth.

Josh, what you're pointing to, I think, is one of the hardest things to do in this business, and it's striking the balance, if you will, between optimization of rate versus exposure growth. It's something that we look to do, not just at a macro level but at a very granular level in optimizing that. I'm sure in hindsight, there will be parts of the business that we will look back on and say, I wish we had leaned into it a little bit more. In the meantime, I think we're just trying to make the best judgment we can every day.

Thank you for indulging me. I appreciate it.

Thank you for the questions, Josh. Have a good evening.

Thank you. We'll go next now to Yaron Kinar at Jefferies.

Good evening.

Hi. Good evening to you as well. I don't want to put words in your mouth, Rob, but I think what I heard you say was in the right market, you may look to lean more into property, both in insurance and reinsurance, if the rates are adequate. If that is the case, can you maybe help us or indulge us with your thinking about this? Because on the one hand, I would think it should certainly improve the loss ratios and returns. On the other hand, one of the things I think differentiates Berkley is a very, very stable loss ratio and underwriting margin. I would think that underwriting margin probably would incur greater volatility in that scenario. How do you think about that trade-off and the opportunity set?

Yeah. So we're very focused on risk-adjusted return, and we think volatility, as you point out, is an important part of thinking about risk. Do I think that we are going to dramatically shift the risk profile of the organization to become a heavy cat exposed writer? No. But do I think that there are opportunities within the property market where rates are going to get to a point that they haven't been in some number of years and the risk return balance makes more sense than it has? Yes, I do. And to that end, are we going to be prepared to participate in a more meaningful way than we would if it was a less attractive market? Yes, sir, we will. But do I think you should think about we're going to dramatically shift our risk profile and how we think about volatility? No, sir. I don't think you should.

Okay. In response to a previous question, you mentioned increasing your premium retention due to the dynamics in the reinsurance market. Could you discuss any structural changes in your reinsurance program, such as lower ceding commissions, higher retention rates, or any other adjustments? What other changes can you highlight?

Yeah. I think ultimately, on a net basis, it's going to prove to be something very similar for the business and by extension for our shareholders. As I said, the retention moved up incrementally relative to the scale of the business and the earnings power of the business on a quarterly basis, forget about on an annual basis. Again, I think that you should not expect that in the event of a cat, we have a dramatically different risk profile, and that is by design.

And maybe a follow-up to that. Are there lines of business where your appetite is somewhat curtailed by the fact that reinsurance appetite or structures have changed?

No.

No. Okay. Thank you.

Fortunately for us, we have a lot of long-term relationships among reinsurance partners. I think that they are conscious of the fact that we are an organization that is a collection of people of expertise and discipline. I think people understand that we are gross line underwriters.

Thank you very much.

Thanks for the question. Have a good evening.

We'll go next to Brian Meredith at UBS.

Hey, Brian.

Hey, Rob. How are you doing? Just a couple of ones here for you. Excellent. God Couple of brokers you've been citing the lack of M&A and kind of transactional stuff going on this quarter versus the fourth quarter last year as a reason for strong organic growth. Are you all involved in that business? Could that perhaps have been part of a difficult comp headwind for someone like professional liability in other areas?

Yes. To the point that you're raising, we kind of we do plan the transactional space. I perhaps mistakenly lump that in there with D&O. They oftentimes go hand-in-hand. Yes, I think part of what we're seeing in the D&O market is a competitive environment, but even more so, it's just a reduction in demand. During the heyday of D&O a couple of years ago or over the past couple of years, that was driven by losses and discipline on the underwriting side. It was the IPOs and the specs were enormous. That level of activity and on the transactional side, I think, as we all have an appreciation, the level of M&A activity has slowed dramatically as well. So yes, there's a bit more competition there, but even more so, it's the reduction in demand than the addition of supply.

Got you. And then I guess my second question is, are you seeing any call it increase and kind of competitive from the standard markets vis-a-vis the E&S markets? Or does it continue to flow that way towards the E&S and out of the standard markets.

We still see a pretty healthy flow of business coming into the E&S market, both on the casualty side on parts of the professional market, and it's building momentum on the property side as well. I think I may have made the comment in the past, and it's still very accurate today. The standard markets, particularly the national carriers, if it is in their appetite, it is jaw-dropping how aggressive they are. If it's outside of their appetite, then it's a great opportunity for the rest of us that are happy to run around to pick up the crumbs that fall off their table and price them as we see fit. The standard market, their appetite ebbs and flows and moves in different directions. We continue to see a reasonable flow of business, but if it's still within their strike zone, look out to step out of the way. I would tell you one area that we have seen, perhaps, moving back towards the standard market, which isn't a huge deal for us, but it's worth noting, is large account products liability. Why? I have no idea, but the standard market, particularly national carriers, seems to have a thirst for it. I think we all know how that's going to end.

Yeah. Thanks, Rob. Appreciate it.

Good evening. Thanks, Brian.

We'll go next now to Meyer Shields at KBW.

Good evening. Hi. How are you?

A couple of brief questions because I know it's late. One, am I reading too much to be worried by the fact that the expense ratio is flirting with 30%? You've been well below that for a while.

I don't think it was 30%. I think what Rich and I perhaps failed to articulate was it's going to be comfortably below 30%. I don't know if we're going to be able to keep it below 28%, we'll have to see what happens with our earned premium, we'll have to see a variety of things, and we're making investments. But I think that our expense ratio will remain competitive and remains a focus, and we'll be comfortably under the 30% as Rich said.

Okay. That's helpful. Second question, I guess, broadly, like I know on the insurance side, we’ve been talking about social inflation for a while. I'm wondering with regard to the actual insurers, is there any push for them or by them to get higher limits to contend with social inflation?

Yes, the short answer is yes. However, if you are an insurer, you might be concerned and your agent or broker may be advising you to purchase more capacity due to the current environment. At the same time, the cost of that capacity might be increasing, making you consider what you can afford. Sometimes, people are thinking about using a self-insured retention or a large deductible as a way to manage their finances concerning what they are purchasing. There is widespread awareness in society, and distribution is providing advice. Ultimately, it comes down to affordability. It's an important point because what you're highlighting is something that society often overlooks, which is social inflation and its implications for claims activity. This cost isn't absorbed by the insurance company long-term; instead, the insurance company raises rates, and ultimately, society ends up footing the bill.

Okay. No, I completely agree with that just both with the observation and the perception of it. Final question, if I can. If we pick you squared to read the 10-Qs and 10-Ks anyway, can we start getting reserve development by segments on the call?

Yes. I will address this as if I'm speaking with someone who has decision-making authority. We likely have about a dozen lawyers reviewing what we can share and what we can't. So, to answer your question, I appreciate the request, and it will be considered. If anyone is eager to find out what it is, assuming the lawyers don't object, Rich will be able to provide that information.

All right. Fantastic. Thanks so much.

You bet. Have a good evening. Thank you.

And we'll take our last question from Mike Zaremski at BMO.

Hi, Mike. Good evening.

Good evening. Thank you for having me. I wanted to follow up on a point that I think was raised in Brian Meredith's question. Regarding the recent lack of discipline in the rate environment, could that be attributed to competitors realizing that investment income is a much bigger advantage than before, making it a logical decision? I could be mistaken, but even in workers' compensation, it seems like carriers have some ability to set rates above the state bureau's suggested rates. I'm interested to know if you see this as a theme we should consider when thinking about pricing for 2023.

Mike, I don't see us returning anytime soon to cash flow underwriting or anything that serves as a precursor to that. The truth is that not everyone’s investment income is performing as well as ours because many have a longer duration. From my perspective, I do believe that if interest rates remain high or even increase, it could have an impact over time, but that’s not what we’re observing right now. For instance, in workers' compensation, those who take irresponsible actions are the same ones who behaved recklessly during the last downturn. Sometimes they're in familiar places, other times they may be in new situations, but it’s the same group who either don't understand or don't care, and they are causing chaos in the market. We've experienced a similar situation before, and we will just ride it out.

Understood. As a follow-up, also to a previous question on the impact from higher reinsurance rates. I heard you say probably not too material, given the overall size of the organization. Just want to make sure are there any nuances we should be thinking about? Like are casualty seeding rates changing, and we should be thinking about that? Or is there still kind of more of the book in terms of your reinsurance purchasing that could come later in the year that we're still kind of TBD?

We buy many contracts, and they renew throughout the year. I think that's how you should look at that. I think for our reinsurance and retros, did we pay a bit more? Yes, we did. Do we have every intention of passing that increased cost along? Yes, we absolutely do. As far as our insurance and our cat costs, it's the same story. There are some cases where we're paying a bit more, and we have a choice, whether the company allows that to erode our margins or whether we pass that on. It is our intention to pass that along in the cost of our product that we sell.

Thank you for the comments on the paid loss ratio. I'm curious if you've been surprised by the recent trends in paid loss ratios. Given Berkley's focus on social inflation, is there a combination of factors or actions you've taken to prevent those paid loss ratios from returning to pre-pandemic or historical levels?

We don't have the details at a granular level, but overall, it is progressing as we expected. We'll need to see how that develops over time. However, once again, it is moving in the direction we anticipated.

Thank you.

Thanks for the question. Have a good evening.

And Mr. Berkley, we have no further questions. So back to you for any closing comments.

Okay, Bo. Thank you very much. We appreciate everyone's participation this evening, and we will look forward to catching up with people in give or take, 90 days. Have a good evening all. Thank you.

Thank you, Mr. Berkley. Again, ladies and gentlemen, thank you for joining W.R. Berkley's fourth quarter and full year earnings conference call. We'd like to thank you all so much for joining us. We wish you all a great evening. Goodbye.