Berkley W R Corp Q2 FY2024 Earnings Call

Good day, and welcome to W. R. Berkley Corporation's Second Quarter 2024 Earnings Conference Call. Today's conference call is being recorded. The speakers' remarks may contain forward-looking statements, some of which 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 ending December 31, 2023, 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.

Krista, thank you very much. We appreciate you getting us through that marathon of a safe harbor statement. And good afternoon to all, and welcome to our Q2 call. Thank you for finding the time, and thank you for the interest in the company. Along with me on the call, you have Bill Berkley, Executive Chair, as well as Rich Baio, Executive Vice President and Chief Financial Officer of the group. We're going to follow our typical agenda where momentarily I'll be handing it over to Rich; he'll run through some highlights for you all; he'll then flip it back to me; I'll offer a few of my own observations on both the industry as well as our quarter; and then we'll be pleased to open it up for Q&A. Before I hand it to Rich, I guess perhaps stating the obvious, clearly an active quarter of frequency of what I would define as severity, but perhaps relatively modest severity on the property front. From our perspective, it was an opportunity for this organization to differentiate itself as it does when there is severity on the property market front. And in spite of all the challenges, we were still able to deliver a 91% combined ratio. I guess for those that subscribe to the 'but for' club, it would be an 88%. But when we look at the goal of the exercise being to generate good risk-adjusted returns to build the book value, we are of the view that cats do count and so does net development. In our opinion, it's not just about the steps forward that you take, it's also about the steps backwards that you will avoid. And that is very much woven into how we approach the business on all fronts. So with that, I will hand it to Rich, and I will follow him in a couple of minutes. Rich, if you would, please.

Of course. Thanks, Rob, and good evening, everyone. The company continues to perform well with a second quarter annualized return on beginning of year equity of 20% on a net income basis and 22.4% on an operating earnings basis. References to per share information in my comments and the earnings release have been adjusted for the 3-for-2 common stock split effected on July 10. Operating income increased approximately 35% to $418 million or $1.04 per share, driven by strong underwriting and investment income. Growth of 11.2% in net premiums written to a record $3.1 billion represents the first time above $3 billion for a quarter and provides the opportunity for continued record-setting net premiums earned beyond this quarter. The U.S. dollar strengthened against many foreign currencies in the quarter, adversely impacting the growth rate by approximately 90 basis points, and accordingly would have been 12.1% excluding the foreign currency impact. We grew in both segments of our business, led by the Insurance segment with 12.2% growth unadjusted for foreign currency, and the Reinsurance & Monoline Excess segment increased 3.5% led by property. Pre-tax underwriting income was $254 million, which included $90 million of catastrophe losses or 3.2 loss ratio points. Heightened catastrophe events during the quarter led to the increase in catastrophe losses of 1.1 loss ratio points over the prior-year quarter, well below what we would expect will impact the industry. Our careful and prudent management of catastrophe risks has continued to result in stability in earnings. Our accident year loss ratio, excluding catastrophes, is at 59.4%, slightly below the prior year's 59.5%. The prior-year accident development was favorable by $1 million, combined with the previously mentioned catastrophe losses brings our calendar year loss ratio to 62.6%. The expense ratio increased 40 basis points to 28.5%, primarily due to higher commissions from business mix and is relatively flat to the sequential quarter. We remain confident in our guidance that the expense ratio should be comfortably below 30%. Record pre-tax net investment income increased almost 52% to $372 million. The fixed maturity securities continue to drive results quarter-over-quarter with an increase of more than $100 million. In addition, net investment income from investment funds improved to $25 million in the quarter. The record operating cash flow through the first six months of $1.6 billion, combined with the ability to reinvest the roll-off of existing securities at higher yields, should continue to drive growth in net investment income quarter-over-quarter for the foreseeable future. The credit quality of the investment portfolio and duration remains at AA- and 2.5 years for the quarter. The effective tax rate was 23.7% and will likely remain at this level throughout the remainder of the year due to the contribution of foreign earnings taxed at rates greater than the U.S. statutory rate of 21%. Turning to capital management, the company returned total capital of $381 million, consisting of $224 million of share repurchases, $127 million of special dividends, and $30 million of regular dividends. Stockholders' equity increased 4.3% from the beginning of the year to $7.8 billion, while book value per share of $20.42 grew 5.4% over the same period. Book value per share before share repurchases and dividends grew 4.7% in the quarter and 9.7% on a year-to-date basis. With that, Rob, I'll turn it back to you.

Thank you, Rich. That was insightful. I have a few comments, starting with the broader industry context and then moving to our quarterly results as promised. From my viewpoint, the industry is largely reactive to pain, which drives discipline and change. We observe this across various products. Perhaps it can be likened to changing the cast while the script remains the same; it's unfortunately quite predictable. Regarding change, we are noticing a slight easing in financial and economic inflation. However, social inflation appears unrelenting. We've been actively discussing social inflation since 2018 when we began highlighting the loss trends we were seeing. A current challenge, especially across much of the country, is the resistance from many insurance departments in approving necessary rate filings, which hampers carriers' ability to keep pace with loss costs. This situation has created opportunities in specialty lines, particularly excess and surplus lines, as the standard market struggles to adjust rates in line with trends driven by social inflation. While I won't delve into every major commercial line, I will mention that auto liability remains a significant concern, and this can impact the umbrella line as well. Currently, among various product lines, auto liability is the most exposed to social inflation. Turning to our quarter, as Rich noted, gross revenue increased by 11.4%, while net revenue went up by 11.2%. The notable difference can be attributed partly to our captive business performing exceptionally well. Additionally, some new operations we have initiated are still in their early stages, making them somewhat reliant on reinsurance at this point. There's also been a brief period after January 1st, prior to the anticipated active wind season, where we benefited from a slight softening in the ILW market. Rich highlighted that the 11.2% growth in our top-line is quite healthy, and the rate increase of 8.3% excluding comp should reassure stakeholders that we're keeping pace with trends. Importantly, while rates matter, they are not the entire picture; we also need to pay attention to terms and conditions, which can significantly influence underwriting outcomes. We have been increasingly aware of how certain legal environments are rapidly changing. Some regions that were once politically conservative are now evolving, not quite turning blue but drifting toward a more purple hue in terms of legal climate. Rich spoke about the relatively stable expense ratio, but as he mentioned, the startup businesses we have brought on board are currently weighing on expenses. We are also making significant investments in technology and data analytics. The loss ratio stands at 62.6%, acceptable considering the time of year and the related factors. Nonetheless, we are always seeking to improve it. There is much discussion in the market about losses and reserves. A persistent challenge in our industry is that we sell our products before knowing the final costs. None of us can predict what tomorrow holds or how a jury might rule. Over the years, particularly amid inquiries and critiques about our losses despite rate increases, we have consistently acknowledged the uncertainty we face and the influences of social inflation. Hence, we prefer to retain our reserves at a higher level early on, allowing them to adjust as more data becomes available. The paid loss ratio remains in the mid-40s. Since 2019, we've secured cumulative rate increases of approximately 68% across insurance lines, excluding comp. Additionally, while some suggest that paid loss ratios may not fully reflect growth due to our expanding business, I encourage looking at initial IBNR relative to net earned premium. Historical data from 2016 to 2019 shows this ratio fluctuated between 31% and 34%. In contrast, the 2020 to 2023 data shows it ranging from 37.5% to 39%. This may provide insight into the strength of our loss reserves. Regarding our investment portfolio, Richie provided earlier details: we have a duration of 2.5 and a strong AA- rating. The domestic book yield is 4.5%, and despite discussions around interest rates, the new money rate starts at 5%, likely reaching around 5.25% recently. Our cash flow was strong this quarter at $880 million, totaling $1.6 billion for the first half of the year. Looking more broadly, it's apparent that we've effectively navigated the rising interest rate environment, and this raises questions about our strategy for the future. Looking ahead, we foresee that, regardless of who holds power in Washington D.C., the country faces significant deficit and spending issues, which appear unlikely to change soon. Compounding the challenge is the apparent waning appetite from major foreign buyers of U.S. treasuries, particularly China and Japan. Therefore, even if short-term rates decrease, we anticipate the yield curve will un-invert, creating opportunities for us to extend our duration. With the upcoming election, there’s much speculation about policy changes that could further impact inflation, particularly if immigration policies affect labor market dynamics. Moreover, tariffs tend to raise product costs, contributing to inflation as well. Shifting to capital, Rich mentioned our capital returns. We believe the company will grow between 10% and 15% for the foreseeable future. While we may see some fluctuations in growth rate from quarter to quarter, that's the general expected range. At the same time, we consistently generate returns in the high teens to low 20s, maintaining strong visibility. Coupled with the analysis from rating agencies, we find ourselves in a robust position. While the future remains uncertain, the organization is in a flexible and advantageous state. I’ll stop there and invite any questions. Thank you.

Thank you. Operator Instructions: Your first question comes from Elyse Greenspan with Wells Fargo. Please go ahead.

Hi, Elyse. Good afternoon.

Hi. Thanks. Good afternoon as well. My first question, you hit on in your comments, right, a lot of interest in reserves these days across the industry. I know you guys said you released $1 million in the quarter. Could you just provide some more color, be it the breakdown between insurance and reinsurance or anything by accident year, just to give us a sense of what's going on within that?

Rich has the insurance compared to reinsurance. If you're looking for more details, I suggest you follow up with Rich and Karen, and they'll provide you with as much information as they're legally allowed to.

So, on the Insurance segment, we developed favorably by $2.5 million. And on the Reinsurance & Monoline Excess segment, we developed unfavorably by $1.5 million. So that's headed down to the $1 million.

I would just add there's a lot of gives and takes on each one of those, depending on the product line. And for our purposes, we're looking at it by operating unit, by product line.

Okay. And then maybe another one for Rich. You guys had given some guidance on the Argentinian inflation-linked securities. Where did that come in in the quarter? And do you have a sense of what that could provide in the third quarter?

So, in the second quarter, we wound up reporting $63 million on inflation linkers. So, it was within the high end of the range. And then, if you were to look at a normalized level with regards to the linkers on a go-forward basis looking out over the next few quarters, we would anticipate, depending on inflation, where it goes, it could be somewhere between $20 million and $30 million.

And just to add to that, Rich, maybe what you were just sharing is sort of contribution and what it means on operating. If you could circle back and give Elyse a sense what it means on the net as well because of the FX fees and so on? Because I think it's important that people have the full picture on this.

Absolutely. So, in the quarter, one of the things that you'll have noticed is that we had about $58 million of losses on I'll say a realized/unrealized capital gain perspective. There's a number of moving pieces in there. But to Rob's point, there's about $50 million of foreign currency losses that are reflected in that number. So that would offset the $63 million that we reflected in net investment income. So, on a net income basis pre-tax, you have about $13 million of impact, if you will, impacting the net income. And if we were to look out into the foreseeable quarters, you'll likely see a similar situation arise where FX will largely offset the impact that's coming through on the net investment income side.

Thanks. And one last question. Rob, you mentioned an 8.3% rate excluding workers' compensation for the quarter. I believe that increased by 50 basis points sequentially. What caused that increase?

We charged more.

Well, which lines contributed?

I have the aggregate in front of me. Elyse, if you want to follow up with us, we'd be happy to share it with you. What I can tell you is that auto is probably the leading candidate. When you examine the growth that we outlined in the release, the auto line is growing at nearly 16%. The primary factor driving this is the rate. So, auto is currently the leading candidate.

Okay. Thank you.

Yeah.

Your next question comes from the line of Rob Cox with Goldman Sachs. Please go ahead.

Hi, Rob. Good afternoon.

Hey, good afternoon. I appreciate you taking the question. Yeah, I just wanted to go back to reserves. Rob, you mentioned some bigger movements. I don't know if that's bigger than usual this quarter between product lines, but any further color on the reserve movements by product line?

Sorry. I don't recall commenting on reserves by product line. Rich, did you hear something by product line?

No.

Yeah. So, there was no commentary on that, Rob. I'm not quite sure what you're referring to, excuse me.

I was just commenting on how you said there were like puts and takes, I think by product...

Yeah. I mean ultimately, the point that I was trying to articulate was that we got 60 different businesses that make up the group, and we're looking at both in the aggregate as well as at a very granular level. So, when you hear about the development that Rich looked at, I think that the reality is that there are a lot of pluses and minuses, and that's just where it came out to, but as far as specifics as it relates to what's happening, that'll probably be more detail in the Q.

Okay. Got it. Thanks. And then, just as a follow up, I wanted to just go back to some of the comments from last quarter on raising some IBNR in the insurance picks, and if there was any movement in sort of how you guys looked at loss trend across product lines within the Insurance segment this quarter?

Well, honestly, Rob, I don't have a clear recollection of what you're referring to. I think, generally speaking, we feel pretty good about our picks, but as mentioned earlier, alluded to earlier, we're paying close attention to the auto liability line.

Your next question comes from the line of Josh Shanker with Bank of America. Please go ahead.

Hi, Josh. Good afternoon.

Hi. I'm going to get my chances on reserves.

Okay.

We'll see what I can find. One of your competitors, or perhaps one of your peers, mentioned that there has been a delay in the timing of claims being paid, with these claims being paid at a higher severity. This doesn't mean you couldn't have reserved and anticipated for it, but is there another issue affecting the industry in 2022 and 2023 that is causing claims to come in differently than what we would expect based on prior trends?

Nothing that's noteworthy from our perspective. Josh, we're not the biggest property shop that you cover, but we certainly do play in the space. And at this stage, we're not noticing any meaningful pattern of an elongation of the property claims tail.

And you cited, of course, the difficulties persistently with a line like commercial auto liability when you talk about how much IBNR you're putting up, are there certain lines that are getting that special IBNR focus that are driving that in particular?

I think really what we're focused on, Josh, is the claims environment and making sure that we are acutely aware of where that is going. We have taken a tremendous amount of rate and a variety of other actions, and we continue to pay close attention to that. And when I was making the comment earlier about being sensitive to different legal venues, that would certainly apply to commercial auto or auto liability, if you like. So, when we look at that product line, are we trying to make sure that we are approaching it with the appropriate level of caution? Absolutely.

And if I can sneak one more in for Rich. And I guess in past quarters, we're talking about the high interest yield opportunity in fixed income markets. And I think it was said that the appetite for the proportion of income going into alternative strategies will be lower given how much money you can make in bonds, but I notice the proportion of alts has been creeping up over time. Is that just an unusual quirk? Are you seeing different opportunities in the alternative markets that you couldn't see six and twelve months ago?

Josh, I think it's really more around commitments that we make, so as you can imagine, these are private equity-like investments, and so when you make an investment in a particular fund, you're committing to a certain amount of capital over time. So that's what's giving rise to the increase in the dollars that are showing up there, if that's what your question is.

I want to add to Rich's comments, Josh, that given the current interest rates, alternatives are not very appealing to us moving forward. There may be a few exceptions, but we are quite satisfied with the opportunities in the fixed income market, and we will continue to focus on that for now.

Thank you for all the answers.

Your next question comes from the line of Michael Zaremski with BMO Capital markets. Please go ahead.

Hi, Mike. Good afternoon.

Hey, Rob. Just curious, most of the attention on reserves has been coming from non-commercial auto actually, more recently. You've been showing and talking about kind of commercial auto continue to get increasing rate. Not that commercial auto has been a good guy for the industry in any way, but is there anything we should be reading through that you think the industry still has plenty of kind of issues to deal with, grapple with on commercial auto more so than the other non-auto?

What I'm trying to message, Mike, and probably not doing a great job, is that I think social inflation doesn't necessarily discriminate between lines. I think it is alive and well, and basically every liability line is exposed to it. That having been said, I think there are some liability lines that seem to be getting more attention from the plaintiff bar than others. From my perspective, auto liability has got the biggest bullseye on its chest. Does that mean GL gets off scot free? Absolutely not. But that's sort of how we think about it, and that's what the data that we see would suggest.

Got it. Switching gears a bit to the dynamics within the workers comp market. You all have been kind of clear that your view is that the profitability is likely to be impacted by the soft market. And most of the commentary historically has been more on the severity side of the equation and negative pricing, but I wanted your peers recently brought up that frequency was becoming a little less negative. I don't know if you also share that view or have data that we should be thinking about the frequency component of workers' comp?

I think it's reasonable to ask how long the negative trends can persist. The primary concern for us has been the medical aspect. From our viewpoint, the comp benefit schedules in many states have been somewhat suppressed, while others might argue they have benefited from being tied to Medicare pricing. We all recognize that the federal government's approach to Medicare is essentially a way to transfer public costs to the private sector, and comp has gained from this. However, we believe this won't continue indefinitely. If you examine other areas, such as private passenger auto, you can see a shift in trends regarding medical costs for claims, which is another important data point. As we've discussed previously, looking at a state like Florida and their actions regarding benefits is insightful. While we don’t expect negative trends to continue at the same frequency forever, we believe that one of the major uncertainties out there is the medical trend, and we anticipate that this will become evident soon.

Got it. And lastly, in your prepared remarks, Rob, you talked about some resistance allowing carriers to kind of get the rate they need to keep up with loss cost trend. I had thought that's more of a personal lines phenomenon, and you're not really much of a personal lines...

My comments were not focused on personal lines, though clearly to your point that it's a real issue for personal lines. We've seen it in certain states where it's proven to be really problematic and leads to a dislocation in capacity in the marketplace or availability of capacity in the marketplace. That having been said, there are many insurance departments in this country that are resistant, that are not operating in a very timely manner and are, in some cases, quite resistant to allow carriers on the commercial line side to get the rate increases they need. So, when you look at the very healthy flow of business into the specialty market and the E&S market, in particular, which we have been a great beneficiary of and continue to be. Part of the catalyst for that is standard markets are not able to get the rates that they need and consequently that is impacting their writings. And that creates opportunity for organizations like the one that I work for.

Okay. Interesting. Thank you.

Your next question comes from the line of Mark Hughes with Truist Securities. Please go ahead.

Hi, Mark, good afternoon.

Good afternoon. Hello. Rich, you had suggested, I think, in your commentary that the investment income should continue to step up quarter-over-quarter for the foreseeable future. Is that also taking into account the drop-in contribution from the inflation linkers?

Yeah. So, if you look at it on a prior year basis to the 2024 year, we would expect for the foreseeable future an increase in our net investment income.

When you say quarter-over-quarter...

Corresponding period. So, Q2 '24 versus Q2 '23, Q3 '24 versus Q3 '23, yes.

Okay. Got that. And then, the expense ratio in the reinsurance segment, Rob, I think you talked about some chunky investments and technology, that sort of thing. Would one expect the expense ratio in reinsurance to kind of stay at this level of 29% or so?

Yes. But, obviously, a lot of that has to do with scale. So, as we've touched on, I think, in the past, much of the opportunity has been in the short-tail lines. We'll have to see how those opportunities persist. Further, our colleagues, to their credit and their underwriting discipline, have not found as much opportunity on the liability lines. So, is the 29% sustainable? Yeah, but a lot of that will be in part driven by whether the business is able to grow or remain the size it is, or if market conditions were to deteriorate dramatically, then it's possible that could tick up incrementally.

And when you think about growth, you pointed out that E&S has become more prominent perhaps. How much of the growth is coming from that mix shift in the E&S when we think about your top-line?

So, the E&S business is probably growing at, give or take, 50% more than the standard market rate. That's a bit of a generalization.

And is that 50% a little better than what it was this time last year, or does that help remain steady?

Maybe incrementally better.

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

Good afternoon, Ryan.

Good afternoon. How are you? First question, just what are the cat losses within Insurance, almost $90 million, can you give us a feel of the driver of that? Was it the convective stuff in the U.S., or international stuff?

That was primarily SCS in the U.S., right up the middle of the country.

Got it. Regarding capital return, I wanted to ask how you balance dividends and share buybacks. I also noticed that these special dividends have become quite predictable throughout the year, similar to regular dividends. Can you explain why you don't just increase the common dividend instead and potentially receive more recognition for that, rather than issuing these special dividends as if they were standard?

I think it just boils down to flexibility. We're pleased to share the capital with the shareholders, return it to them with consistency. At the same time, we don't know what the opportunity will be tomorrow. We don't know how the stock will trade tomorrow. So, we want to have flexibility as far as growing the business. We want to have flexibility around what we believe is the most sensible way to return capital to shareholders, whether it be repurchase, special dividend, so on and so forth.

Thank you.

Thank you.

Your next question comes from the line of Andrew Kligerman with TD Cowen. Please go ahead.

Hi, Andrew. Good afternoon.

Hey, good evening. Friday was a pretty surreal day with that whole CrowdStrike cyber issue.

Yeah.

So, I'm kind of curious, could you frame W. R. Berkley's cyber exposure? And then, with that, what do you make of that for the industry and how it's going to affect the industry, whether it's pricing, loss costs, etc.?

I appreciate the question, and it's certainly a topic that many of us have been contemplating, wondering what the market conditions will lead to. At this point, we don’t anticipate any significant loss for our organization. While it’s possible we may experience some level of loss activity, we believe it won’t be material based on what we know now. If there is a business interruption, there is usually an hours clause associated with it, and considering how quickly institutions can get back on their feet after a disruption, we think it will be manageable. I would be surprised if we don’t see some loss activity, but at this stage, we don’t expect it to be of great significance. As for the broader implications for the industry and society, we will need to see how things develop over time. This situation may serve as a reminder of the systemic exposure associated with much of the technology we rely on.

I see. That's helpful, Rob. And just quickly, I mean, as a percent of net written premium, like what proportion of your overall book might that size to?

Less than a couple of percent.

Got it. Okay. And then maybe just shifting back to the commercial auto, 16%, you said maybe all of that growth might have been rate. How comfortable are you with the 2024 book of commercial auto that you're writing? And what does that speak to your reserve adequacy from '21 to '23 on that same line?

Yeah. Look, it's something that we are looking at very carefully. I think that we've, in our picks, we thought that we are building in appropriately a bit of a risk margin with that period that you just referenced. We'll have to see how much risk margin there still is there, but at this time, we feel reasonably comfortable. That having been said, are we looking at it actively? And are we trying to grapple with how much do we need to charge today with the assumption that trend will continue on from here and when we settle the claims? Yeah, we are focused on it. So, at this stage, are we uncomfortable? No. Are we paying attention to it? Absolutely.

Awesome. Thanks a lot.

Your next question comes from the line of David Motemaden with Evercore ISI. Please go ahead.

Hi, David. Good afternoon.

Hi, thanks. Good afternoon. Thanks for taking my question. Just had a question on the Insurance segment. So, the accident year loss ratio ex cat was flat year-over-year, increased a little bit versus the first quarter. I was wondering if you could just talk about some of the puts and takes within that? What was driving it to be up versus the first quarter? And just how we should think about that going forward?

I'm just trying to think for a moment, David. The only significant changes we made, which were actually quite incremental, came from the auto segment, and they can confirm that we're managing that effectively. Overall, the changes are mostly minor. Additionally, we may have examined the umbrella coverage in a few areas because we want to ensure that the auto segment supports the umbrella effectively, so we don't fall behind.

Got it. That makes sense. And then, I think the previous question kind of touched on this too, but I noticed in the 10-Q from last quarter, it looks like you guys had started to make additional reserve increases to just the other liability line for, I think it was accident year 2020 and '21. It sounded like those were primarily auto related. I guess, I was just hoping to get a little bit more color on exactly what was going on? If you're seeing that happen again here in the second quarter? And then maybe just how you're thinking about that and maybe spreading to general liability and umbrella just non-auto related?

There's no evidence that we see at this time of the issues that we're seeing in umbrella, if you will, spilling over to the other product lines or the issues that we're seeing specifically in auto, I should say, spreading to the other product lines. So that differently, we feel quite comfortable at the moment with the GL. As far as the auto goes, it's a challenging movement. I mean, you drive down I-95 or whatever highway you go down and every other billboard is a plaintiff's attorney with their phone number in case a truck cuts you off. And from our perspective, the trend is meaningful, and we need to make sure that we keep up with it. And we want to make sure that the old years are in a reasonable place. And that obviously, as mentioned a few moments ago, has implications, still relatively modest implications for umbrella. But to your specific question, do we see that sort of some type of viral effect, if you like, spilling over into GL, for example? No, we are not seeing that.

Got it. Okay. That's helpful. And then maybe just a quick one. You had said earlier you guys have gotten 68% cumulative rate since 2019, excluding workers' comp. I'm just wondering, how does the loss trend look versus 2019 if we were just to compare versus that 68% rate increase?

The numbers that we have, it's less than that.

Okay. Thank you.

Your next question comes from the line of Brian Meredith with UBS. Please go ahead.

Hi, Brian. Good afternoon. Good evening.

Hey, two questions for you. The first one, I just noticed professional liability grew this quarter for the first time in over a year. Anything kind of interesting going on there? Or is it getting better? Or just anomaly?

It tends to be what it is. It's what I would define as professional liability ex D&O is having a reasonably good moment and that's both admitted and non-admitted. The challenge, as we've discussed in the past and of course you're acutely aware of this, Brian, is on the professional front is D&O. So that continues to be a challenged marketplace. A submarket under D&O that I would flag as very, very concerning is transactional liability. And that is a book of business that we have that is shrinking at a very rapid pace just because we don't like market conditions, but as far as the opportunity, it's much of the professional market ex D&O.

Great. And then...

Both admitted and non-admitted.

Thanks for answering. And then second question, you talked a little bit about terms and conditions and how that's been a big benefit to profitability going forward on a bunch of this business. Maybe you can give us some examples of kind of what's happened over the last several years in terms of conditions, limits, profiles and that stuff that's going to contribute to the profitability? And I'm assuming that's not factored into that 68% number that you gave us. And maybe how that mitigates any type of development potentially on some of the GL and commercial auto?

Yeah. On the GL side, an example would be that you see a contractor move out of the admitted market where they are buying whatever, $1 million limit or a $1 million to $1 million and they are paying basically, whatever, $50,000 for the $1 million limit. And all of a sudden, the standard market because of loss activity or a variety of other reasons, including they can't get the rate that they need, kicks it out. And then as opposed to being $50,000, it's $150,000, but you get $650,000 of cover and maybe you're doing something with defense and you start sub-limiting all kinds of other things. So, it really is very much apples and oranges or maybe even apples and bananas because of what you can do with the terms and the conditions. And that's why if you look at our history as an organization, some of our most profitable business has been what we've been able to write on an E&S basis.

And actually a quick follow-up then. Do you know approximately how much of your business today is E&S versus, call it, 2019 prior to the cycle hardening up?

I don't have the number in front of me, but as I mentioned to your colleague earlier, pretty consistently our E&S business, even putting aside specialty, but just E&S has been growing at a rate for some number of years, it's 50% more than what our standard market business has been growing at. And just to define standard market, a lot of that is admitted specialty. So, I mean the E&S has really been growing quite quickly and provides good opportunity.

Excellent. Thank you.

Thank you.

Your next question comes from the line of Meyer Shields with KBW. Please go ahead.

Hi, Meyer. Good afternoon.

Thanks. So, some of the questions of technical difficulty, it looks like at least compared to the first quarter, the growth in Insurance short-tail line...

Sorry, Meyer, I beg your pardon, but your line is breaking up a bit.

I'm sorry, is this any better?

A little bit.

Let me try that. I was hoping you could comment on the apparent slowdown in the growth rate of short-tail lines in Insurance?

Sure. It's just a long story short, that's really property and property market. And I think as we talked about some number of quarters ago, the property reinsurance market was what drove the property market. The property reinsurance market has peaked, and no surprise to any of us, the waterfall effect of that is that the property market continues to be good, but the level of opportunity there is perhaps not quite as robust as it was six, 12 months ago.

Okay. That makes sense. Second question I guess in investment portfolio we saw at least on a percentage basis a decent decline in equities, in common equity. Can you comment on that at all?

I'm sorry. Could you repeat that once more?

Yeah. Just the sequential decline in the carry to the value of the common stock equity portfolio compared to March 31?

Yeah. Did you want to go? We sold a bunch of...

Well, Meyer, we sold a bunch of common stock.

Common stock, yeah.

We have determined that besides our specialty positions, the stock market is not where we should be right now.

Okay. Yeah, I just wanted to know if there's any sort of macro view embedded in that.

No, sir.

Great. Thanks so much.

That concludes our question-and-answer session. I will now turn the conference back over to Mr. Rob Berkley for closing comments.

Krista, thank you very much. We appreciate your assistance today and thank you to all for finding time to join us for this discussion. Hopefully, you take away from the dialogue that not only was the company in spite of some of the challenges in the environment to deliver a great outcome, we are also very well positioned. And it's not that there aren't challenges out there, but the business has, is and will continue to do a very effective job in managing the shareholders' capital and making sure that we are achieving those risk-adjusted returns that the capital is entitled to. We will look forward to speaking with you in about 90 days. Thank you very much.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.