Berkley W R Corp Q4 FY2024 Earnings Call

Good day, and welcome to W. R. Berkley Corporation's Fourth Quarter and Full Year 2024 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, 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.

Lisa, thank you very much, and good afternoon everyone. Let me echo Lisa's welcome to our fourth quarter call. So, as in the past, we have Bill Berkley, Executive Chairman, joining on this end along with Rich Baio, Chief Financial Officer. And we're going to follow our typical agenda where shortly I'm going to hand it over to Rich. He's going to walk us through some highlights. I'm going to then follow up with a few quick comments on my end. And then we'll be very happy to take the conversation in any direction that participants wish to take it in. Before I do hand it over to Rich, just a very quick comment really not just on behalf of myself but on behalf of all of my colleagues expressing our concern for all who have been impacted not just by the recent events in California and these horrific fires, but also we shouldn't forget about the many people that were terribly impacted during the 2024 year as a result of hurricanes and other events. From our perspective, it is certainly a moment for the industry to demonstrate its value to society. I know that my colleagues and I are very focused on ensuring that we, as an organization, do what we are supposed to do to live up to our responsibilities and certainly our hope that our peers at other organizations will be doing the same. So with that, I will hand it over to Rich. Rich, if you want to run us through the highlights and then we'll take it from there.

Great. Thanks, Rob. Appreciate it. Good evening, everyone. The 2024 full year closed out with record top-line and bottom-line results, yielding return on equity of 23.6% and operating return on equity of 22.4%. The fourth quarter record operating earnings increased 15.5% to $453 million or $1.13 per share, with an operating return on equity of 24.3%. Net income represented our second best quarter, increasing 45% to $576 million or $1.44 per share, with return on equity of 30.9%. The key drivers behind the quarter were strong underwriting results, combined with the continuation of growth in our core investment portfolio. Starting with underwriting performance, our current accident year combined ratio before cat losses of 2.6 loss ratio points was 87.7%, consistent with the full year 2024. The calendar year combined ratio was 90.2%, resulting in $294 million of underwriting income, bringing the full year 2024 to 90.3% and a record underwriting income of more than $1.1 billion. The prior year development was favorable by $1.6 million in the quarter. Drilling down further into the component parts, the current accident year loss ratio ex cats was 59.2%, which ticked up slightly from the prior year due to business mix and remains flat to the full years 2024 and 2023. Cat losses increased over the prior year, primarily due to Hurricane Milton, driving the increase quarter-over-quarter of 1.4 loss ratio points. The expense ratio of 28.4% was flat to the prior-year quarter, continuing to benefit from record net premiums earned of more than $3 billion and initiatives driving technological and operational efficiencies throughout the business. We believe 2025 will reflect an expense ratio comfortably below 30%. The full year 2024 marked another record year on top-line. The gross and net premiums written grew 9.6% and 9.3%, respectively. In the fourth quarter, the Insurance segment's net premiums written increased 9.9% to more than $2.6 billion, with growth in all lines of business. The Reinsurance & Monoline Excess segment grew in property and monoline excess with a decrease in casualty due to the competitive pricing environment. Moving on to investments, the core portfolio increased 9.4% to $313 million. We do expect the core portfolio to continue to grow over the fourth quarter 2024 in the foreseeable future due to higher new money rates compared with the roll-off book yield and growth in the size of the investment portfolio. Our record operating cash flow from 2024 of almost $3.7 billion followed the year before's operating cash flow of $2.9 billion, which was also a record, and has enabled us to invest more while maintaining the high credit quality of AA minus. In addition, we've increased our investment duration from 2.4 years to 2.6 years in the quarter. And at the end of 2024, we had cash and cash equivalents of almost $2 billion. Net investment gains were primarily driven by favorable market value movements in common and preferred equity securities. Investments in the energy and certain financial services sectors led to the $163 million unrealized gain. Effective tax rate of 21% in the quarter benefited from the utilization of some foreign valuation allowances established against operating loss carry-forwards and true-up adjustments for prior periods. This brings our full year effective tax rate to 22.5% and we expect 2025 will be 23%, plus or minus. As it relates to capital, the stockholders' equity increased 12.6% to $8.4 billion, primarily due to record net income of $1.8 billion, partially offset by the return of capital to shareholders of $836 million through dividends and share repurchases. In the fourth quarter, we paid regular and special dividends of $220 million and repurchased $67 million in shares. Our after-tax unrealized investment loss is $517 million as of year-end 2024, an improvement of $69 million from the prior year. And finally, book value per share before repurchases and dividends grew 23.5% for the full year. Rob, I'll turn it back to you.

Thank you, Rich, for your clarity, which is appreciated by everyone. Before I share my insights on the marketplace and our quarter, I want to acknowledge that 2024 has been another outstanding year for our organization. I want to take a moment to thank and congratulate our approximately 7,300 colleagues for their excellent work. We represent the entire team, but it's important to remember that this is a collective effort, and the results reflect the contributions of everyone, not just those speaking on this call. So, thank you and congratulations to the whole team for another strong performance. Turning to the marketplace, the liability market continues to face challenges due to social inflation, driven by an empowered plaintiff bar and the influence of litigation funding. It's important to note that social inflation affects different product lines in varying degrees. For instance, while it is noticeable across most of the liability sector, claims that involve physical injury tend to elicit higher jury awards, especially in areas like auto liability and medical malpractice, compared to fields like directors and officers or accountants' liability. What has surprised me is the slow response of the reinsurance market to the impact of social inflation. It seems we are beginning to see a gradual shift, and hopefully, greater discipline will emerge in the casualty reinsurance market in the coming months and years. We commend our colleagues for maintaining discipline during this period of uncertainty. Regarding short-tail lines like property, there is still some positive momentum, although it's slowing, and we need to monitor the effects of the California fires. In the property reinsurance market, particularly retro, we noted a lack of positive momentum at January 1, with growing challenges instead. For instance, our property catastrophe renewal risk-adjusted pricing fell by about 15%, with a similar trend in our retro pricing. As for our recent quarter, while the net written premium increased by 8%, it’s important to examine this figure more closely. Excluding the casualty reinsurance segment, where we perceive market conditions to be troubling and a more cautious approach necessary, our growth would be around 10%. Rates excluding workers' compensation experienced a rise of 7.7%, and our renewal retention ratio remains slightly above 80%, consistent over many quarters and years. On the expense front, we maintained a ratio of 28.4%. Rich mentioned expectations of staying below 30% moving forward. I want to give Richie a heads-up that I'll ask him to discuss expenses shortly. Looking back, we've successfully managed expenses through technology investments and the use of BPO. Comparing our expense ratio pre-COVID to today, we remain in a solid position even after the benefits from the pandemic have dissipated. I'll pause for a moment now, and Richie, if you'd like to address expenses, please go ahead.

Sure. As Rob mentioned, since post-COVID, our expense ratio has improved, currently ranging from the low 20% to mid-20% area, compared to the 28% to 28.5% range we are seeing now. In 2020 and before, our ratio was higher, starting with a three-handle, and a decade ago, it was above 33%. Overall, we've achieved nearly a 5-point improvement in our expense ratio over that time.

And I would just add to that, one needs to keep in mind our mix of business and a meaningful amount of the business we write has an acquisition cost that is greater due to the fact that we do a fair amount of business in the wholesale market. So, Rich covered the combined ratio. Again, a 90.2%, given the cat activity in the quarter, not a bad place to come out. Speaking of that, on the topic of cats, obviously, it's very early to be speculating around California and what it will mean, but I would just remind folks that we are California light when it comes to property. Obviously, one of the areas that has gotten a lot of attention is the personal line space and our efforts, known as Berkley One within the private client personal line space, we do not participate in the California market. So hopefully that is helpful. And I think the punch line is, while I'm sure we will have some loss activity associated with the fires, I expect that it will not keep us from still delivering a respectable return to our shareholders in Q1 based on everything I can see today. Switching over to the investments, again, Rich covered this. The AA minus continues to get stronger with every passing day and we're feeling very good about that. Simultaneously, you would note as Rich flagged the duration. We've talked about this for some number of quarters. When we see the opportunity, we're going to nudge that duration out. We saw an opportunity, so it popped out from 2.4-and-change out to 2.6-and-change. And again, we feel no pressure, but when we see the window of opportunity, our colleagues are not going to let that pass by without taking advantage of it. I think another data point that really plays into the whole economic model and I think as we've talked about over the past couple of quarters, when we were going through an extended period of time, and interest rates were reduced or depressed, if you will, I think a lot of folks forgot about the component of our economic model that being the investment portfolio and investment income. Obviously, that has been reawoken. Everyone can see that, but that story is not fully told at this stage. So, a couple of data points for you. Our domestic book yield for the quarter was approximately 4.6%. Our new money rate today is 5.25%-plus. So, as you can see, that increase along with the cash flow that Rich talked about for the year of $3.7 billion or $810 million in the quarter, we have a growing portfolio where new money rate is considerably above the book yield, and I think we all know what that means. So, long story short, what's the punch line? It's the following: 2025 is a year that we think the table is already set and it's set in a very attractive way. And with every passing day, we're setting the table more and more for 2026. The reality is that our underwriting margin is likely to improve from here over time and certainly at a minimum will not be deteriorating. In addition to that, as far as the investment portfolio, the other key component of our economic model, as I mentioned just a moment ago, the investable assets continue to grow at a healthy pace, and that new money rate given our view on where quite frankly government borrowing is going to need to be, where inflation is going to be, there will continue to be an opportunity for us to put money to work at a healthy spread above the current book yield. As it is today, we do not see that disappearing overnight. So, obviously, people will digest and process the data any way they like, but the numbers and the information that we shared with you all today, those are statements of fact and, quite frankly, you don't need to be particularly insightful to see how the story is likely to unfold, not just over the '25 year, but more and more likely with every passing day '26 and perhaps beyond. Okay. That was as usual probably more than I promised. Why don't we pause there, and Lisa, if we could go ahead and open it up for Q&A?

We'll take the first question today from Alex Scott at Barclays.

Hi, Alex. Good afternoon.

Good afternoon. First one I have for you all is just, how we should think through balancing growth? It sounded like you're not willing to budge on the margins you're seeing and potential improvement even. Just given the landscape, particularly for reinsurance, but even in insurance with what's going on with property, do you think we're going to go through a period where we have to potentially be lower than where you all would like to be on growth over the medium to long term? And how does that get balanced out with potential capital return and just how we should think about where you'd run your leverage through a period like that?

Thank you for the question. Our organization is committed to achieving good risk-adjusted returns. We will pursue business opportunities when we believe the margins are favorable and adopt a more cautious approach when they are not. This has been a consistent approach for us, as illustrated by the numbers presented on Slide 7 of our press release. Our casualty reinsurance for the quarter declined over 15%, reflecting our concerns about market discipline and risk-adjusted returns. We will engage where it makes sense and refrain when it doesn’t. Ultimately, we can only manage our actions, not the market. We see opportunities in the current environment, thanks to our skilled team that can discern valuable prospects. Although growth in insurance may be slowing, we believe there are still opportunities to exploit. We have various segments growing at high-single-digit rates, with some even exceeding that. Overall, we expect the business to continue growing at a healthy pace, above the trend.

Got it. That's all very helpful. Maybe focusing a little more on the primary side, I guess, we heard from one of the other smaller specialty companies that property, they were seeing a lot of competition. I think they flagged MGAs. I think others have flagged the Lloyd's market. How is price adequacy in property within the insurance business? And is that still a place that you can grow your targeted profitability?

We think that there is still an opportunity, generally speaking, in property. That having been said, it's reasonably evident that there is a bit more competition today than there was yesterday in certain pockets. We'll have to see what the impact is of the California fires, whether that changes the appetite of some. But yes, as I tried to articulate earlier, I think for property insurance, there is still a tailwind, but it is clearly diminished from what it was yesterday. But it has not become a headwind or eroding to the extent that the reinsurance market has on the property front. Thank you.

The next question is from Elyse Greenspan from Wells Fargo.

Elyse, good afternoon.

Hi, thanks. Good evening. My first question is regarding the reserve breakdown by segment that you've provided in the last couple of calls. I was hoping you could share that information with us tonight and offer any insights you may have regarding notable trends in insurance or reinsurance, specifically related to short or long tail reserves for the quarter.

Elyse, I don't have that information right now. Rich or Karen can probably provide that to you. Karen, please follow up after the call so we can ensure you receive accurate information. Regarding the challenges, as we've mentioned in previous calls, we're closely monitoring auto liability and access, particularly how auto liability affects that. On a positive note, workers' compensation remains strong, and there are other lines that are also encouraging. The actions we've taken concerning auto, both in the primary and excess areas, are well established at this point. While I wouldn't declare victory too soon, I believe we're heading in the right direction.

Thanks. And it sounds like from your comments, right, you guys are pretty cautious, right, on the casualty reinsurance market. So, as you think about how that market, I guess, could play out in '25 as well as, right, other markets, be that other long or short tail lines, do you think you'd get back Rob to 10% to 15%? I know, right, it's less top-line to grow. You don't want to grow in areas, right, that aren't offering good opportunities. How do you see growth from a top-line perspective playing out in 2025?

So, this is the part where I guess you see if I take the bait or not. And I guess the answer is this. I don't know with any greater certainty than anyone else what 2025 is going to hold for us. I believe that there should be an opportunity for this organization for the 2025 year to grow in double digits. Is it possible that that could prove to be 9%? Yes, it is. Is it possible that that could prove to be 16%? Yes, it is. But do I think that we should be able to grow our exposure in something in excess of the rate that we are achieving? Yes, I do. And given that we are getting more than 7 points of rate, I think that that should help us get to what I'm pointing you in the direction of.

And then, one last question. It seems that the insurance underlying loss ratio might have increased slightly this quarter compared to previous periods. Was there anything one-off?

Yeah, maybe about 0.5 point or so. And I would caution you not to read too deeply into it because Rich and I did spend some time on this and it really just boiled down to mix of business.

The next question is Andrew Kligerman, TD Securities.

Hi, Andrew. Good evening.

Hey, thanks a lot. Good evening. Looking at the other liability net written premium, it was up at a solid 9.5%. And if I remember correctly, Rob, you had expressed a fair amount of optimism around pricing in the insurance casualty line in October, and you felt pretty good that it might see some pickup. Could you kind of elaborate on where that is now in January?

So, I've not seen our January price monitor, so I'm a little bit on my heels. That having been said, based on the anecdotal information that I have heard from colleagues, I think that the momentum continues to be very strong around rate achieved on much of the liability and other liability included in that.

Okay. So, it's strong. So, Rob, what's the disconnect between your concerns about the reinsurance casualty pricing? How do you reconcile the reinsurance pricing coming off? And I think you said down 15%...

Because I think the casualty reinsurance market needs more discipline and they need to charge more, whether that be through adjusting ceding commissions or in an XOL basis getting at it a different way.

Interesting.

And I think there's a disconnect. No different than if you go back a few years ago before the reinsurance market woke up, there was a disconnect between property primary and property reinsurance.

Interesting. And then maybe one last quick one. International, not a lot of color on that, but kind of curious because your insurance ops are in Asia, Latin America, UK, Europe. Any color that you could share with us on what's going on abroad and how you're seeing those markets for your business?

Well, obviously, we participate in a lot of different markets and no one is a mere image of another including the market conditions. But what I would tell you is this, that we have some really exceptional people running those businesses and they are amongst some of our highest margin businesses. And going back in time, that hasn't always been the case across the board, but some of our best risk-adjusted returns are being generated by our colleagues outside of the United States. I think there are certainly parts of the international effort where the market is particularly competitive and the opportunity to grow has become more challenging. Nevertheless, our colleagues and their ability to navigate through those competitive environments, I think we have a great deal of confidence in.

Thanks a lot.

Thank you.

We'll take the next question from Mark Hughes, Truist Securities.

Yeah, thank you. Good afternoon.

Hi, Mark. Good afternoon.

Rob, any comments on the mix between E&S and admitted? There's still strong movement into E&S. How do you see that now?

Yeah. Thanks for the question, Mark. And maybe if you don't mind taking half a step back. The submission flow coming into the E&S marketplace continues to be robust. We'll have to see again what the impact of the California fires is, but we're probably seeing a little less momentum on the property side and more momentum on the casualty side as far as the submission flow regarding E&S. I would tell you there are pockets of professional that have become a little bit more competitive on the E&S front. But that having been said, overall our E&S business is growing considerably faster than our admitted business today.

And then, you expressed a lot of confidence that the underwriting profitability wouldn't be deteriorating or would be likely improving and definitely not a deteriorating. Pricing is still up nicely. What should we think about the inflation and loss costs? Are you seeing a step down in loss inflation? I know you've talked about the social inflation in those drivers, but seems like you have a little more optimism about the spread on a go-forward basis.

I think we've been getting a lot of rate for a long time at this stage. In addition to that, I think we have grown visibility and confidence in the underwriting actions that have already been taken and continue to be applied. And when you put all of that together, I think we are cautiously optimistic as to what that likely bodes for the results over time. I think the reality is when we look at our mix of business and we look at the rate that we have achieved and that we continue to achieve and if you look at the aggregate, 7.7% or so, and we look at how we think about trend at a pretty granular level, we think we're in a good place. So, again, none of us know for sure, particularly with some of the longer tail lines other than through the passage of time, but there's some encouraging data that we're seeing.

Thank you.

Thanks for the question. Have a good night.

From BMO Capital Markets, next up is Mike Zaremski.

Hi, Mike. Good evening.

Good evening. For my first question, I'm assuming we don't have answers regarding the reserve changes this quarter. However, looking at the year-to-date figures for the past nine months, it seems that workers' compensation has contributed positively to reserve releases. I'm curious about one of the tougher questions we face: why is Rob pessimistic about workers' comp if profits are strong and reserves are still being released? Could you share whether your views on workers' compensation are improving or discuss the dynamics at play?

I think that when it comes to workers' compensation, I miss-assessed frequency trend and how remarkably negative it has remained for an extended period of time. In addition to that, I probably did not give enough credit to wage inflation and what that has meant for pricing and, by extension, margin. On the other hand, I continue to be concerned about medical cost and medical trend, and it is hard for me to imagine that the workers' comp market will be insulated from that reality indefinitely. So, at this stage, as you would have noticed in the quarter, we grew a little bit in comp even though our rate was ever so modestly negative, but we are finding opportunities to grow in comp, but it tends to be very specialized. We are not growing what I would describe as a main street comp. We are growing in specialized comp as far as the exposure goes.

Got it. Okay. I appreciate the candidness there. Switching gears, if we reflect on the past year or whatever amount of time you would like to reflect on, is it fair to assume that given you're growing faster in E&S than in commercial that that's having kind of a positive impact on the overall company's combined ratio, or is that not a fair assessment?

I hope that every area where we're expanding will positively influence the combined ratio. I understand your point about E&S having a higher margin, and while that can be true in some cases, it isn't always the case. Specifically addressing your point, I believe our loss ratios are currently in a good position. Do I think it's possible for them to improve over time? Yes, I do see that as a possibility. Are we going to get ahead of ourselves? No, we will not. Mike, I'm not sure if we've discussed this, but Rich and I have certainly talked with others about it. The years 2016 to 2019 were a stark reminder of the gap between when you write business and when you really understand your costs, and it was a sobering experience for us. Because of that, we won't rush ahead. At this point, the business is generating returns over 20% without strain. So, I believe there’s no reason for us to do anything other than to remain thoughtful and cautious while respecting the reality of not fully knowing costs for years after the sale. Looking back in the future, I think things might appear better than they do now, but we are not going to rush ahead.

Got it. And just lastly, regarding the E&S marketplace, it's clear that your growth outlook remains consistent with last quarter. However, in the E&S marketplace, considering the good returns for most companies, we are hearing some companies mention pricing deceleration in the E&S casualty marketplace. Are you observing that at all? Thanks.

I don't see that happening in the E&S casualty space. I can imagine it could happen in the property sector, setting aside whatever the impact from California is, but I don’t expect it in casualty. In fact, I believe the pricing environment in casualty is likely to stay quite strong. We’ll need to consider the professional sector as it might be different, but when discussing E&S casualty, I think it remains robust, and I see no indicators that suggest a loss of momentum. Property is a bit of a different situation. If you analyze the growth within the E&S market over recent years, it's largely been driven by property. As we have discussed, property tends to react quickly and severely, but these changes are often short-lived, whereas casualty shows slower changes but typically has more durability in market conditions.

Thank you, Rob.

Thanks for the question.

We'll go next to Katie Sakys, Autonomous Research.

Yeah, thank you. Good evening. My first question is on the Reinsurance & Monoline Excess loss ratio. I mean, it was an exceptional result this quarter on an underlying basis. I know for the Insurance segment, you guys caution not to read too much into the uptick in the underwriting ratio there. Perhaps you can offer us some color on the result in the reinsurance segment and really what you're thinking on the margins there as you look into 2025?

So, maybe going back to a couple of the comments earlier, obviously, we have reservations around some of the casualty lines and for that matter some of the professional within the reinsurance market, excuse me. In addition to that, on the other hand, we have the property market, we believe, is clearly under pressure. You could see that clear as day at 1/1, but we think that there continues to be margin in the business and for the moment, it's adequately priced. So, we are going to continue to ride that property horse as long as we can until we reach a conclusion that it no longer makes sense, and then you will see us go from an offensive posture to a defensive posture. As far as the casualty goes, I think we already covered that. That action on the reinsurance front was, again, demonstrated by us shrinking the book by more than 15% in the quarter. And again, I think that it's just a reflection of our view that we're capital managers. We're in business to make money. If we don't think it's a good risk-adjusted return, we're happy to let it go.

Got it. Okay. And then, circling back to your commentary, Rob, on the workers' comp growth this quarter, you've mentioned there were particular niches of workers' comp where you guys were seeing some opportunities for growth. Are those pockets of growth sustainable? And can we expect to continue to see some modest growth out of that line over the next couple of quarters, or are these niches that kind of pop up and come and go?

So obviously, again, nobody knows for sure what tomorrow will bring, but the couple of monoline businesses that participate in the specialty comp space, the momentum that they're enjoying today, we do not see that going away tomorrow. So, certainly, we think there will likely continue to be some opportunity throughout '25.

Okay. And then, if I may sneak in one more? Do you guys have any updates on your 2025 reinsurance program and how your catastrophe loss budget for this year might compare to 2024?

I don't have the information readily available, and I don't think Rich does either. However, if you contact Karen, she can provide more detailed information, subject to any restrictions. I want to remind you that we previously mentioned our property cat reinsurance risk-adjusted was down about 15%, and we saw a similar decrease in risk-adjusted rates for the retro.

Got it. Thank you.

Thanks for the questions. Have a good night.

Next up is Bob Huang, Morgan Stanley.

Hi, Bob. Good evening.

Good evening. I have a quick question about social inflation. It seems like the plaintiff bar is becoming more active in the Northeast and West Coast, particularly with the recent comments from California's Commissioner regarding the L.A. Wildfire. Are there specific areas in the U.S. that you believe might represent a higher risk for social inflation? Can you provide insights on the Northeast, West Coast, and Midwest, and whether it appears to be shifting away from Florida and Georgia?

There are certain territories or states, or even counties, that are clearly more challenging than others. The difficulties aren't necessarily in the states that have always been tough, but in those that are rapidly changing. From a legal standpoint, we have states that have consistently been very Republican and those that have always been Democratic. What's increasingly challenging are the states that have shifted from one party to another, or those that have transitioned from being strongly Republican to more competitive. For instance, Georgia, which used to be an easier place to do business, has now become more aggressive with the plaintiff bar. Texas was once seen as fairly friendly to defendants, but some counties there are trending in a more challenging direction. This is an important point that we consider carefully, as the current rate and the terms and conditions are quite blunt tools. My colleagues are effectively using these resources, but they are also examining factors at a detailed level, focusing on exposure based on the legal environment at the county level. This will increasingly be a significant issue for the industry to address.

Got it. Okay. I guess my follow-up is just so that like I'm clear, then in that case, is it fair to say that some of the commercial casualty lines could potentially behave more similar to personal line in the sense where geography and region is more important than the business mix? Like, is that a fair statement down the road? Just curious as to if that is the direction of...

So, I assume that you're leaning in the direction of nat cat, if you will, and what that means for exposure. You're extrapolating from that as far as legal environment by territory and what that means for exposure?

Yeah. Just to see if that makes sense on your side.

So, the answer is to us, while it's a bit of a generalization directionally, not only do we share your view, we are applying that to how the business operates. Okay. Got it. Really appreciate it. Thank you.

And we'll go next to David Motemaden, Evercore ISI.

David, good evening.

Hey, good evening.

So, Rob, you mentioned some of the competitiveness in the casualty reinsurance market, and I commend your team for taking a step back from that market. Has that caused you to reassess your outward program at all? One of your competitors has purchased a bit more coverage. Has that influenced your thinking at all, especially regarding the January 1 renewal? So, we're conscious of cost of capital, both the capital that we effectively own and the capital that we effectively rent, i.e., reinsurance. We also are conscious of the fact that there are some reinsurance relationships that are true partnerships, and there are other reinsurance relationships that are truly transactional. Those that are partnerships are ones that tend to endure time. From our perspective, our colleagues are very skilled in understanding where the marketplace is, and I think are attentive to making sure that we are doing what is in the best interest of our shareholders and simultaneously treating those that are truly our partners with the care and respect that they deserve. So, when the day is all done, we're conscious of where the market is and we're going to do what we think makes sense for this organization, its shareholders, and our long-term partners.

Got it. That's helpful. And then, it was good to see the commercial auto growth tick up a little bit as well as the other liability growth in the quarter. I guess, are rates in those lines, are they at levels that are, I guess, good enough for you guys to continue to lean in as we head into 2025?

Obviously, we were satisfied with the available rate. Otherwise, we wouldn't have written the business, i.e., as you saw what we did in the reinsurance space. Today, given the rates that we were able to achieve, we're happy with it. I don't know what the rating environment will be for the balance of the year, but from my perspective, the loss activity that the marketplace is facing and some of our competitors have finally come into grips with reality is creating an opportunity for those of us that have been already grappling with that reality to move forward more quickly.

Got it. That's helpful. And then, I know you guys didn't give the reserve development by segment. So, I'll follow-up with Karen. I guess, I'm just wondering...

It's like the one piece of paper I left in my office and it's a long haul and I got short legs. So, give Karen a call.

Yeah, we'll do. I guess, there's obviously a lot more focus on the more recent accident years. I'm sure you guys are also laser-focused on that as well and we can see it in the pics. Any sort of incremental color that you can provide on that would be helpful.

I think we are still very focused on auto liability and other product lines where there is a risk of injury that seems to drive social inflation. Social inflation is affecting most liability lines and cash, but not equally across all product lines. We are particularly concerned about medical malpractice and auto liability, as well as other coverage types where individuals or groups might be harmed. This is where juries tend to be more punitive. We are taking necessary actions on that front regarding rates, selection, and terms and conditions. Part of our selection process involves considering factors like territory and jurisdiction.

Yeah, understood. Thanks for that color. I appreciate it.

Thank you. Have a good night.

Our next question is from Meyer Shields, KBW.

Hi, Meyer. Good afternoon or evening rather.

Hi, Rob. How are you?

Good. How are you?

I guess I'm doing okay. Thanks. So, we spent some time discussing examples where bodily injury to individuals is worsening social inflation. Is the loss trend in those situations getting worse, or is this just something you’re now discussing that you’ve been observing internally for a longer time?

I think it's clear that the trend is becoming steeper, and this isn't something new. It's been ongoing, and I wasn't sure what to discuss today, so I decided to bring it up.

Fair enough. When discussing various court jurisdictions, a particular concern is that historically better ones are getting worse. How should we consider that in terms of longer tail or medium tail lines reserves?

I think for those who haven't been following closely, there’s likely some catching up to do. For those who have been engaged, what I mentioned regarding Georgia, Texas, and others are just examples; this isn't something that emerged last quarter. This has been a growing trend that we've been discussing internally for years, not just in terms of quarters. The responses to these realities are already well established.

Okay, understood. Then, final quick question. You talked about a mix change impacting the ex-cat accident year loss ratio in the Insurance segment. How is it impacting the expense ratio, that mix change?

I don't think it's having much of an impact on the expense ratio. What's really driving the movement, and as you saw, I think period-over-period, it only moved 0.10%. So, it's fairly small. So, I would say as it relates to the acquisition costs, we're not seeing huge changes, other than perhaps where there might be a change in the reinsurance structure that we have from one year to another year where we might have gone from a quota share to an excess of loss or vice versa. So, there would obviously be some differences in terms of where that runs through in the income statement.

Okay. Fantastic. Thanks so much.

Next up is Brian Meredith, UBS.

Hi, Brian. Good evening.

Yeah, thanks. Hey, how are you doing? A couple of questions here for you, Rob. The first one, little big picture. So, a number of the standard commercial carriers have talked about and granted still small, growing in the E&S market, right, having E&S operations and they're growing there, I'm just curious kind of what your thoughts are there? Is that at all impeding on some of maybe your opportunities in the marketplace? Are you seeing that?

In the interest of time, I'm going to be direct, but I don't mean to be a bit disrespectful. We don't see them.

Good. That's helpful. And then, I guess the other one I'm curious about is maybe you can kind of flush out a little bit what's going on with Berkley One. I know that's been a good operation, growing kind of expectations here for 2025, homeowners insurance still a pretty hard market. Maybe give us some view on opportunity there?

So, look, I think the opportunity that existed yesterday, that exists today will be just as strong tomorrow. I think we have truly an exceptional team of people that are very skilled when it comes to managing the shareholders' capital. I think they have done truly a fantastic job in building a franchise that is not just accretive to their operation, but is truly accretive economically and brand-wise to the group overall. And I think that their contribution to the profitability of the group in the 2025 year will be considerable.

Great. Thank you.

Thanks, Brian. Have a good evening.

And the next question is Josh Shanker, Bank of America.

Hi, Josh. Good evening.

Yeah, thank you very much. Hi there, everybody. I just want to maybe ask a little more specific question on Brian's Berkley One. Obviously, you don't write homeowners in California. There's certain things about that market that are unattractive.

Josh, a, thanks for the question. And b, I think the Berkley One team, at this stage when it comes to homeowners, they're very focused on the opportunities in the markets that they're in. Will they add other markets over time? Yes. Is California in the on-deck circle? I think that there is a healthy recognition and appreciation and respect for the challenges that exist in that market on multiple levels. And consequently, I think the team has appropriately made the decision that this is not a distraction or that we would like to have today, not an area of focus for the foreseeable. And so, certainly for the people of California and that insurance market and those that participate there and other stakeholders, we wish them nothing but the best. But at this moment in time, we are very focused on other opportunities that are before us.

And I want to switch to an investment question. Over the long term, Berkley shareholders have been rewarded very well through some of the alternative investments that Berkley has made over many years. It's not been really the case in 2024 in a year which has enjoyed very significant market appreciation for public equities. Can you talk a little bit about what you see for '25? Is the positioning of the portfolio potentially improved? Obviously, not going to make foolish investments overall, but what's been preventing Berkley from realizing the potential of that part of its strategy and what can we see in the future?

So, Josh, maybe a couple of quick comments. First off, as far as alternatives, Rich had flagged what we saw coming through in a couple of our investments, particularly in the unrealized associated with public securities. So, I think it was about $150 million, $160 million unrealized, which was I think pretty healthy for a 90-day period. Putting that aside as far as other areas of the alternative investment portfolio, I would suggest that one not leap to a conclusion. Obviously, oftentimes there is value that exists that may not necessarily be as visible. So, I understand your point about the '24 year. Again, no different than the underwriting or the investing on the public securities. Our focus is long-term risk-adjusted return. And sometimes in the alternative portfolio, that could be a little bit lumpy, but the focus on total return is not something that is lost on us today just like it wasn't lost on us tomorrow. But before we go any further on to any other questions or discussion you'd like to have, Josh, maybe I can turn it over to my boss here who takes a particular interest in the alternative investment portfolio.

Good evening, Josh. I think that our portfolio as a whole, especially our public company portfolio, had a very good year. I think that the performance for the year was adversely impacted primarily by one private equity fund that did not do well. It was a surprise to us on a couple of things. And it had a consequential adverse impact. We think that's behind us. But I think honestly, some of that private equity investing will be reduced as the available returns in more liquid markets are such that the advantage of private equity is somewhat diminished. That doesn't mean we won't take advantage of things when they come up, but our bogey is a little higher with a little less risk. So, it was no doubt a bump in the road, that can always happen, but I wouldn't expect it to be a problem going forward.

Josh, is there another question?

I will cede the evening to you gentlemen. Thank you very much.

Thanks, Josh. Have a good evening. Lisa, any other...

We do have one further question. It's Yaron Kinar from Jefferies.

Okay. Good evening.

Hey, good afternoon. This is Andrew on for Yaron. I was just hoping within insurance and short-tail lines, some pretty good growth this year and particularly in the quarter. Can you help us just think about the drivers there? Was it property, inland marine, A&H?

Yes, yes and yes.

Okay. So, kind of all three is contributing.

Mainland property and inland marine, though it's not as big a play for us as property, but yes, mainland property.

Thank you. And then, just on the 50-basis-points impact to current year picks, I know you mentioned it was business mix, but I would think with the growth in property that would be beneficial to the underlying. So, was perhaps that offset a bit by auto-related exposures or a different factor going on there?

This is Rich. I think that's certainly part of the equation, but you also have to consider the contribution that the short-tail lines make compared to the other casualty lines, which tend to have higher loss ratios. For example, other liability and auto make up nearly 50% of the total business portfolio, and these typically have higher loss ratios than property or short-tail lines.

All right. Thank you.

Thank you.

At this time, there are no further questions. I'll hand things back to Mr. Rob Berkley for any additional or closing remarks.

Okay. Lisa, thank you very much for hosting us this evening, and thank you to all our participants for dialing in. I think I'll just flag, again, clearly an outstanding year, but that's a reflection of what we did yesterday, but perhaps equally, if not more important, is how we have set the table for 2025, and that is very well positioned. In addition to that, with every passing day, we are setting the table for '26. So, the business is firing on all cylinders, and we do not see that changing for the foreseeable. Thank you again for dialing in, and we look forward to speaking with you in about 90 days. Have a good evening.

And once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.