W. R. Berkley - Earnings Call - Q1 2025

Executive Summary

• Delivered strong profitability despite heavy catastrophe losses: ROE 19.9%, operating ROE 19.3%, combined ratio 90.9%, record net premiums written of $3.13B; net investment income rose 12.6% to $360.3M.
• EPS (operating) was $1.01 versus S&P Global consensus $0.99*, and GAAP diluted EPS was $1.04; total revenues of $3.55B materially exceeded consensus $3.02B*, aided by higher new-money yields and investment fund income; catastrophe losses were $111.1M.
• Sequentially versus Q4 2024: revenues moderated to $3.55B from $3.67B and the combined ratio rose to 90.9% from 90.2%; YOY, revenues grew and net investment income accelerated while cat losses stepped up sharply.
• Guidance signals: 2025 effective tax rate ~23% (+/−), full‑year expense ratio expected comfortably below 30%, and next quarter investment fund income likely at the lower end of the $10–$20M range, with catalysts from higher new‑money rates vs. book yield and growing invested assets.

What Went Well and What Went Wrong

What Went Well

• Record net premiums written ($3.13B) and strong operating ROE (19.3%), demonstrating resilience amid elevated industry catastrophe activity.
• Investment engine “firing on all cylinders”: book yield ~4.7% with new money around ~5.2%, duration extended to 2.7 years, and AA‑ credit quality maintained—positioning for further net investment income growth.
• Expense ratio improved 80 bps YOY to 27.8%, with half of the improvement from a nonrecurring compensation-related benefit; management expects the expense ratio “comfortably below 30%” for FY 2025.

What Went Wrong

• Catastrophe losses of $111.1M (3.7 points) drove the reported combined ratio to 90.9% and raised the current accident year loss ratio ex-cat by ~30 bps YOY due to business mix.
• Insurance segment loss ratio deteriorated YOY (63.9% vs. 61.8%), with competitive pressure in professional liability (including D&O and cyber); management curtailed certain casualty reinsurance treaties on economics.
• FX losses: net foreign currency losses were $19.4M; while equity translation improved, FX remains a headwind.

Transcript

Operator (participant)

Good day and welcome to W. R. Berkley Corporation's first quarter 2025 earnings conference call. Today's conference call is being recorded. The speaker's 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 be, in fact, achieved. Please refer to our annual report on Form 10-K for the year ended December 31st, 2024, 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.

Rob Berkley (CEO and President)

Krista, thank you very much, and good afternoon, good evening all. Thanks for dialing in, and let me echo Krista's warm welcome to our Q1 call. In addition to me on this end of the phone, you also have Executive Chairman Bill Berkley, as well as Principal Financial Officer Rich Baio. We're going to follow our typical agenda, where momentarily I'll be handing it over to Rich. He's going to run you all through some of the highlights from the quarter. I will follow behind him with a couple of additional observations, and then we'll be very pleased to open it up for Q&A. Before I hand it over to Rich, maybe just a sound bite or two from me, perhaps stating the obvious or not perhaps, actually stating the obvious.

I think the world is chockablock full of volatility these days, these weeks, these months, and perhaps this year and maybe beyond. It seems to be presenting itself in a variety of different ways: political, social, economic, and certainly natural catastrophes as well. It is, without a doubt, a moment where the realities of risk-adjusted return come into very sharp focus. From our perspective, it applies to both of the business activities that we participate in, that being underwriting and investing. The resilience of our business model was once again demonstrated over the first quarter, and we feel as though it is another example of how this organization is not just built to perform well during moments where there is a tailwind or smooth seas, but in fact, it is built to continue to excel or succeed during more challenging environment circumstances.

From our perspective, it's very important to not lose sight of the goal of the exercise. The goal is to create value. In our opinion, it's not just about the steps forward you take; it's also about the steps backwards that you avoid. As we talk about the quarter, there is going to be no but-fors. There is going to be no lipstick on the pig or any other analogy. We're going to talk about what the results were with cat activity and with a variety of other events and how we managed to navigate through it. It is the reality, again, that when it comes to value creation and the power of compounding and what that means for value creation, avoiding steps backwards is very consequential. With that, I will hand it over to Rich. Rich, if you want to run us through the highlights, please. I apologize every now and then if you hear a cough or a sneeze here in the Northeast. It is very much peak allergy season. Richie, over to you.

Rich Baio (EVP and CFO)

Great. Thanks, Rob. Appreciate it. Good evening, everyone. As you saw, the company started 2025 with a strong first quarter, reporting net income of $418 million or $1.04 per share and an annualized return on beginning-of-year equity of 19.9%. Despite significant industry-wide catastrophic activity led by the California wildfires, we continue to demonstrate stability in underwriting earnings and continued growth in net investment income. Operating earnings were $405 million or $1.01 per share, yielding an annualized return on beginning-of-year equity of 19.3%. The calendar year combined ratio was 90.9%, and the current accident year combined ratio, excluding cut losses, was 87.2%. The driver for this difference was cut losses of 3.7 loss ratio points, or $111 million, representing an above-average cat quarter primarily attributable to the California wildfires. Prior year development was favorable in the current quarter by approximately $1 million, with small offsets between segments.

Accordingly, the current accident year loss ratio, excluding cuts, was 59.4%, representing a 30-basis point increase over the prior year, largely due to business mix. The expense ratio of 27.8% continues to benefit from the growth in net premiums earned, which grew to a record $3 billion. In addition, the 80-basis point improvement over the prior year quarter includes a non-recurring compensation-related benefit of approximately half of this amount. We believe the expense ratio should be comfortably below 30% for the full year as we continue to invest in our newer operating units and make investments in our infrastructure. As it relates to premium production, the company grew net premiums written to a record of more than $3.1 billion. The insurance segment grew 10.2% to our second-best quarter of $2.7 billion, with growth in all lines of business.

The reinsurance and monoline excess segment grew 8.2% to a record quarter of $439 million, with growth in property and excess workers' compensation, partially offset by a small decrease in casualty. Turning to investments, net investment income increased 12.6% to $360 million. The improvement is primarily attributable to two items. First, our record net invested assets of $30.7 billion and higher new money rates on our growing fixed maturity portfolio, along with strong operating cash flows in the quarter of $744 million. Second, higher investment fund income arising from transportation and financial services-related sectors. As a reminder, we report investment funds on a one-quarter lag, and with the recent volatility seen in the equity markets, you may expect some correlation between public and private equity markets.

Accordingly, we anticipate investment fund income may be at the lower end of our quarterly range of $10-$20 million in the next quarter. The credit quality of our portfolio remains very strong at a AA-, with the duration on our fixed maturity portfolio, including cash and cash equivalents, increasing from the fourth quarter of 2.6 years to the current quarter of 2.7 years. Foreign currency losses in the quarter of $19 million related to the weakening US dollar relative to most other currencies. Offsetting this income statement loss is an improvement in the currency translation loss in stockholders' equity of $24 million. The effective tax rate was 22.5% in the quarter, and we continue to expect 2025 will be 23% plus or minus. Stockholders' equity increased by more than $500 million, or 6.2%, over the beginning of year to a record $8.9 billion.

Book value per share before dividends and share repurchases grew 7.1% in the quarter. Our balance sheet remains strong with cash and cash equivalents of more than $1.9 billion and financial leverage of 24.2%, the lowest level in decades with no debt maturities until 2037. Rob, with that, I'll turn it back to you.

Rob Berkley (CEO and President)

Okay. Rich, thank you very much. That was great. Let me offer a couple of additional comments just to piggyback on what Rich just shared. As far as the top line goes, it came in where we were up about 10%, or to be more specific, if I were a CPA, I would call it 9.9%. But we were pretty pleased with that. Obviously, rate contributed to that, ex-comp coming in at 8.3%. In addition to that, the renewal retention ratio continues to hang around 80%. I mean, it's like ballast to the ship. It just doesn't move around very much. I think it's a relevant data point because it tells you as we continue to push for rate and making sure that we're getting paid what we need to get paid, we are not churning the book.

Drilling down a little bit more on the insurance front, particularly as it relates to market conditions, and I would tell you that professional liability has become particularly competitive. We've been talking to you all about the D&O market for some period of time. I would add cyber as well as far as competitive. At the risk of being a little bit rude, which I apologize for in advance, I think transactional liability as far as the marketplace probably gets the stupid award. As far as maybe one other data point, we've chatted with you all about some of our reservations around workers' compensation and medical trend.

You might look at our numbers in the release and some of the exhibits and say, "Well, how does that reconcile with the growth that they're seeing?" Let me, again, similar to last quarter, flag for you that the growth that we are seeing is really driven by specialty comp. What do I mean by that? Typically, it's a little higher hazard in nature. There is less competition, and you're not seeing both regional and, in particular, national carriers trying to play the game and leverage the multi-line offering to get the comp. That continues to be a good opportunity from our perspective. Switching over to the other segment, that being reinsurance and excess, I would call out here, and I do not think we break out all this detail, but it will be in the queue. That is professional liability as a component of casualty.

Our professional liability book as it relates to reinsurance was down a little over 25%. That is really just a reflection of market conditions. Quite frankly, our colleagues have the discipline and the courage to do the right thing. We will have to see. I have commented in the past how it seems like the reinsurance market, just as it was some number of years ago, is sluggish to respond to property, particularly cat. It seems as though yet again we are seeing something similar just in the casualty lines and in particular professional. We will stay tuned and see how that unfolds. Rich covered the loss ratio earlier. As far as the ex-cat accident year and how it ticked up about 30 basis points, as he mentioned, that is really due to mix.

The only other comment I would make is we are paying close attention, as you would expect, to the tariffs. It is a very fluid situation as everyone has an appreciation. Trying to unpack that and figure out what it means for loss costs, that's something that we are working on actively. As that comes into sharper focus, that may be instructive to us as to how we think about both loss ratio as well as rate need. Just as far as the expense piece goes, I would echo Rich's comment about comfortably under 30. The only other comment I would make, yes, he did flag that we had a bit of a benefit from an over-accrual from last year.

Maybe that skewed it a little bit in the quarter, but arguably it also meant that we overstated our expense ratio a little bit as it turns out last year. It was actually a little bit better last year than we had reported. Flipping over to the investment component. Really, things are firing on all cylinders. Not that there are not challenges, but we are really pleased with the portfolio, how it is managed, how it has been positioned. Rich commented on the duration ticked out to 2.7 years and continued to maintain that very strong quality at a strong AA-. I think one of the important punchlines here is the opportunity or the upside that we see both on the underwriting side and now specifically in the investment side. We have a book yield on the domestic portfolio of approximately 4.7%.

We got what's rolling off the portfolio is something below that. We are going to see some lift from that. In addition to that, we have a new money rate that's probably give or take around 5.2%. You got a $30 billion investment portfolio, call it $27 billion or so, is interest-sensitive/fixed income, cash, etc. If you take, call it 50 plus basis points and you apply that to $27 billion, that gives you a sense of where the earnings power is going. It is certainly possible that at some point you could see the interest rates at the shorter end of the curve come down, but from our perspective, the intermediate and longer-term end, we do not see that backing off. If anything, it could tick up from here. Long story short, the business had a very good quarter, to say the least.

Flirting with a 20% return in an environment such as this where we saw exceptional cat activity, I think is a very strong outcome. What is, in my opinion, even more encouraging is the rate adequacy that we continue to maintain while growing the business. In addition to that, what we've been able to do with the investment portfolio. As rosy as the picture is here, and it's not that there aren't headwinds and challenges, I think it's pretty evident that not only did we have a good quarter, but the balance of 2025 is looking very encouraging. The foundation that we're beginning to pour for 2026 appears to be quite solid as well. Did you guys have anything else you wanted to add at this time? Okay. Krista, why don't we take a pause there? We are very pleased to open it up to any Q&A that folks would like to have.

Operator (participant)

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw that question, again, press star one. Your first question comes from the line of Andrew Kligerman with TD Securities. Please go ahead.

Andrew Kligerman (Managing Director)

Close enough. Hey, good evening. I was particularly interested in the short tail lines up 13%. Rob, what areas did you get excited about? Because as I'm thinking about the property subset, and you called out rates being up 8.3% ex-property, meaning like property.

Rob Berkley (CEO and President)

I'm sorry. Excuse me, Andrew. I beg your pardon it's 8.3 ex-comps. I'm sorry if I misspoke.

Andrew Kligerman (Managing Director)

Oh, okay.

Rob Berkley (CEO and President)

It's 8.3 ex-comps.

Andrew Kligerman (Managing Director)

Thank you.

Rob Berkley (CEO and President)

As far as.

Andrew Kligerman (Managing Director)

Yeah. Okay.

Rob Berkley (CEO and President)

Sure. As far as the growth goes, we're continuing to see opportunity on the property lines. In addition to that, we are seeing opportunity in the A&H space as well. Those are probably the big drivers as far as the short tail.

Andrew Kligerman (Managing Director)

I see. A&H and property. And within the property component, I mean, I guess property pricing is there's so many sublines, but I'm hearing kind of down mid-single digit. Could you maybe elaborate a little bit on that? What property lines do you like? And what are you seeing in rate in property?

Rob Berkley (CEO and President)

As far as the insurance market space with regards to property, and obviously, it's a pretty broad space, we continue to see opportunity to push rate at a pretty healthy pace on the risk front, on the cat front. Certainly, there's a bit more competition, particularly coming out of the likes of Lloyd's, both directly as well as through binding authorities that they seem to, for some reason, be empowering. In addition to that, Berkley One, our private client, High Net Worth Personal Lines business, continues to be able to demonstrate their considerable value proposition to the marketplace and grow their footprint while simultaneously taking very healthy rate. Then lastly, our A&H business, which has a rich history of performing at a very high level, continues to be able to capitalize on market conditions.

Andrew Kligerman (Managing Director)

Got it. In the reinsurance segment, I mean, again, you put up another fabulous combined ratio. I guess you did an 85.4, and that's even with 10.9 points of cat. Should we be thinking about that as a stable kind of run rate for reinsurance? I mean.

Rob Berkley (CEO and President)

I think that we are very pleased with the performance of the business and how our colleagues have very effectively positioned it. I do not think any of us know what tomorrow will bring with certainty. That having been said, I think the portfolio and how it has been created and put together has put us on very firm ground, both where we are today and how we are positioned to capitalize tomorrow. I think that we, again, remain very encouraged with that business and how it is positioned.

Andrew Kligerman (Managing Director)

Awesome. Thank you.

Rob Berkley (CEO and President)

Thanks for the questions. Have a good afternoon.

Operator (participant)

Your next question comes from the line of Elise Greenspan with Wells Fargo. Please go ahead.

Rob Berkley (CEO and President)

Hi, Elyse. Good afternoon.

Elyse Greenspan (Managing Director)

Hi. Thanks. My first question, I know I think in the prepared remarks, you guys said pointed out the $1 million of development in the quarter. I think said it seems like nothing to call out in the segments. Would you be willing to give us, just if it's immaterial numbers, just how much reserves in the quarter moved in both insurance and reinsurance?

Rob Berkley (CEO and President)

Yeah. Richie, I don't have them. Rich, do you have each segment? Because it was again, I think people look at the combined and they kind of scratch their head, but we got a lot of moving pieces that come out to this in the wash. So what were the pieces?

Rich Baio (EVP and CFO)

For the insurance segment, it was $11 million unfavorable prior year development. In the reinsurance and monoline excess, it was favorable by $12 million.

Elyse Greenspan (Managing Director)

Thanks. My second question was on the underlying loss ratio. I think you guys said mix, right? The prior question hit on reinsurance, which had a strong improvement in the quarter. We did see some year-over-year deterioration in insurance in the Q1. Can you just, I'm assuming maybe mix was also attributed to that segment. Can you just walk us through what was going on within the underlying loss ratio and insurance in the Q1?

Rob Berkley (CEO and President)

Go ahead, Richie.

Rich Baio (EVP and CFO)

Sure. As you pointed out, Elise, yes, it is business mix. Obviously, one of the elements that plays into that is also our outward reinsurance purchasing that we do. You might recall we purchase reinsurance both at the group level, but we also purchase it at the operating unit level. We have 58 plus operating units across the group. Theoretically, if some businesses are growing, others are shrinking, perhaps the level of reinsurance plays into that because of the impact on the ceding commissions, on the quota share arrangements, etc. That is really, in large part, what drives that 30 basis point swing from the prior quarter.

Elyse Greenspan (Managing Director)

Thanks. My last one, obviously, you guys recently announced that Mitsui Sumitomo is going to take the 15% stake in the company. I know in the presentation that was put out, it pointed to them starting in May. I'm not sure if this is a question for you or them, but is there an update on the regulatory process? Is that May timeframe still intact?

Rob Berkley (CEO and President)

They are going through the process that they need to go through. We tried to be helpful as we would with any shareholder. I think, as you pointed out, Elise, it is more of a question for them than for us. We are not in all of the details and will not be in the details because we are not going to be precluded from being able to repurchase stock in the ordinary course as we have in the past.

Elyse Greenspan (Managing Director)

Got it. Thank you.

Rob Berkley (CEO and President)

Thank you.

Operator (participant)

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

Rob Berkley (CEO and President)

Hi, Rob. Good afternoon.

Rob Cox (VP of Equity Research)

Hi. Good afternoon. Hey, I wanted to zone back in on the tariffs impact. I know you guys are still assessing, but maybe specifically on the property lines of business and the high net worth homeowners. How are you thinking about what the impact of tariffs might be?

Rob Berkley (CEO and President)

As you'd expect, Rob, we're particularly focused on the shorter tail lines, both auto, particularly around the physical damage, as well as property. I think it would be a mistake for one to discount other lines as well. For example, workers' compensation and what the impact could be around pharma. A lot of drugs are manufactured outside of the United States. It is something that we're very focused on. The whole tariff situation, again, as mentioned earlier, and I know you and others appreciate, is very fluid. We are doing our best to try and read the tea leaves. We are actively doing a variety of different analyses to try and figure out what this means for loss picks and how that would instruct rate need. Yes, does it have an impact on property? Yeah, potentially it would. Would that include personal lines and homeowners?

Without a doubt. Certainly, another obvious one is auto physical damage. While those may be the two more significant spots, I would encourage folks not to underestimate or completely ignore other product lines as well.

Rob Cox (VP of Equity Research)

Got it. Thank you. That's very helpful. Maybe just as a follow-up on the pricing, sounds like it accelerated 60 basis points or so in the quarter. What are you seeing in terms of outliers by line of business? Is that any different from recent quarters? What kind of feel of the acceleration?

Rob Berkley (CEO and President)

Yeah. I think it's pretty consistent with what we've seen in the past. There are some product lines that we've talked about in the past, like auto liability as an example, where we are very focused on loss cost trends, social inflation, and doing what we need to do to keep up with that and other liability lines as well. As we've called out in the past, auto liability and particularly umbrella and how the auto liability feeds the umbrella exposure are areas that we continue to push pretty hard on. I also would suggest that I wouldn't get overly preoccupied with 60 basis points one way or the other. I would suggest, in my mind, the takeaway is that the company remains very focused on rate adequacy and keeping up with trend.

I think that is evidenced both in what we've delivered this quarter as well as what we've delivered for the past many quarters.

Rob Cox (VP of Equity Research)

Thanks a lot.

Rob Berkley (CEO and President)

Thank you.

Operator (participant)

Your next question comes from the line of Mike Zaremski with BMO. Please go ahead.

Rob Berkley (CEO and President)

Hey, Mike. Good afternoon.

Mike Zaremski (Senior Equity Research Analyst and Managing Director)

Hey, good afternoon. I guess going back to the macro and pushing that with the tariffs, there's lots of uncertainty. Maybe curious if you can kind of talk high level about your view on work comp profitability under a recession scenario. I know you just kind of typically said keeping an eye on tariffs' impact on pharma costs. I guess curious more specifically, has higher than historical wage inflation levels, has that been a material tailwind in recent years that we should be thinking about too under a recession scenario? Any kind of high-level thoughts given that this line of business continues to be just highly profitable and we're getting a lot of recession questions. Thanks.

Rob Berkley (CEO and President)

I think the answer is yes. I think coming out of COVID when we saw significant wage inflation that comfortably outpaced much of the medical inflation equation, that created a bit more tailwind or wiggle room for the industry. Obviously, that can cut both ways. Medical costs are a little bit more than 50% of every claims dollar. One should not, in our opinion, underestimate the significance around that. Long story short, to your point, Mike, I think it does cut both ways. One will need to see how it unfolds. Again, as far as the growth that we're seeing in comp, it partly has been due to wage inflation.

Even more so as we flagged earlier today, as well as I think in the prior call, we see opportunity in some of the comp market that is less commoditized and is more specialty in nature. Yeah, I think to get to your specific question, I think wage inflation was a plus, but that can cut both ways. To your point, I think people need to be very conscious of that.

Mike Zaremski (Senior Equity Research Analyst and Managing Director)

Okay. That's very helpful. Maybe switching gears a bit to lawsuit/social inflation. If thinking kind of looking at Berkley's debt disclosure and just the industry as well, other liability occurrence continues to be I know you said no analogies, but kind of pig through the Python. Do you feel pricing levels for other liability occurrence? I know that it works its way through different lines. Do you feel that pricing has hit kind of a level where directionally Berkley can start playing offense? Or do we really need to continue to see a material increase in pricing there to really feel like the coast is clear?

Rob Berkley (CEO and President)

I think that we've done a pretty good job keeping up with it. The question really is how the balance of the market will behave. We are encouraged by what we saw, quite frankly, more recently with additional discipline coming into the market in certain product lines. That having been said, we do not know necessarily what tomorrow will bring. Will there be an opportunity for us to accelerate the growth? We will have to see with time. Again, one of the things, and I think you are in some ways flagging it right now, is how different the market is and how product lines have decoupled. One of the benefits that we as an organization are enjoying is the breadth of our offering. There are parts of the marketplace that we participate in where we are maintaining very much of a defensive posture.

There are other parts of the marketplace where we're finding opportunity to lean in. Other liability occurrence, we'll have to see how it unfolds. Clearly, there are many folks that have taken some bumps and bruises, particularly on the excess and umbrella. Historically, that would suggest that will lead to opportunity. If that is the case, we look forward to participating.

Mike Zaremski (Senior Equity Research Analyst and Managing Director)

Okay. Got it. I'll sneak in just a follow-up question to Rob Cox's question and your answer about tariffs impacting more than just the auto line. I probably just need to do more homework myself. But have you been willing to quantify just directionally commercial property? Would tariffs under their current form potentially impact loss ratio by just I don't know if you have a quarter or very low single digit?

Rob Berkley (CEO and President)

Mike, the answer is that the tariff discussion coming out of Washington, particularly led by the administration, I think is still a bit of a moving target. For us to put a number down right now, I'm hoping that that's something we can do, give or take 90 days from now for you and others. Right now, I think it would be premature. My message to you is that we are very focused on it and making sure that we will take the appropriate action from a loss ratio as well as what those implications are from a pricing perspective as well. The short answer is if it comes to be as it's been advertised, yeah, it's going to drive up loss costs. Do I have a number for you?

No, not that would be particularly valuable to you or valuable to us sharing with anyone at this moment.

Mike Zaremski (Senior Equity Research Analyst and Managing Director)

Understood. Thank you.

Rob Berkley (CEO and President)

Thank you.

Operator (participant)

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

Rob Berkley (CEO and President)

Hi, Josh.

Josh Shanker (Managing Director)

Good evening, everyone. How are you all doing?

Rob Berkley (CEO and President)

We're doing great. How are you?

Josh Shanker (Managing Director)

Good. Good. Thank you. I wanted to dig into some of the comments you mentioned in your prepared remarks that you have to concentrate on specialty workers' comp to understand why Berkley grew in the quarter and otherwise tepid comp environment. You always have a specialty as what you're writing. Were there a few unique opportunities that you saw in 1Q 2025? Should we expect that workers' comp is going to be a unique area that Berkley's able to grow for the next few quarters while the industry struggles?

Rob Berkley (CEO and President)

I think that maybe thanks for flagging that, Josh. Let me try and do a better job articulating the thought than I did. You're absolutely right that by and large, all we do is specialty in nature. Some of what we do that is specialty in nature oftentimes by the standard market is mistakenly not recognized as specialty. That tends to be smaller and mid-sized accounts. As they are mistakenly coming into that marketplace, that creates more competition. We have no qualms letting that part of the portfolio shrink. That having been said, what I was attempting to flag was there is a part of the comp market which is perhaps even more specialized.

What I mean by that, it's even higher hazard in nature where the standard market has a greater recognition for the complexity and is less inclined to try and come into that marketplace and cut rates and try and leverage their multi-line offering. Apologies if I muddied the waters, but hopefully that adds a bit of clarity.

Josh Shanker (Managing Director)

Is there anything we can use by looking at this number to think about the remainder of the year?

Rob Berkley (CEO and President)

Josh, both you and I, along with others, know that nobody knows exactly what tomorrow will bring. If market conditions in that part of the comp market continue as they have been more recently, we will look forward to continuing to lean into that opportunity. If that opportunity or window of opportunity were to close, you will see us do what you would expect us to do. We will have no qualms letting the business move in a different direction or away from us.

Josh Shanker (Managing Director)

If I could ask the same question but about a different market, about commercial auto liability, it's been a tough market for a while. This is the first time that I've really seen Berkley's premium volume really fade compared to the prior quarters. Has something changed in the last three months?

Rob Berkley (CEO and President)

I think what it is is just our commitment to rate adequacy. The rest of the marketplace has been a bit sluggish, particularly earlier in Q1. I would tell you more recently, perhaps there are early signs of a green shoot coming through. Hard to know whether that is green grass or a weed, but we remain hopeful.

Josh Shanker (Managing Director)

Okay. If I can sneak one other in, Andrew mentioned about the cats. Notably, Berkley has no exposure to California homeowners, which they avoided. They did not avoid completely, obviously, but they avoided the line of business that was most exposed to the biggest cat in the quarter. Yet this was quite a big quarter for catastrophe losses for Berkley. Has the premium footprint changed as you've moved into short tail lines and exposed yourself more to property such that we should revise our priors and how we think Berkley's cut loss exposure evolves relative to the market more broadly?

Rob Berkley (CEO and President)

Josh, the way I would answer that is no, not really. First off, as far as the homeowners piece, I want to make sure there's no misunderstanding. It wasn't that Berkley One didn't get to expanding to California. A conscious and deliberate decision was made not to enter California. As far as the balance of the loss as it relates to that, it has to do with our commercial lines book. We have felt as though the property market, as we've talked about in the past, is reasonably well priced. That's why we were prepared to take on a bit more exposure. I think that view was validated because if you look at the result we delivered, even with having opportunistically modestly expanded our footprint or participation in the property space, we still delivered a 19-plus % return.

Long story short, do I think you should come away from this feeling like there's been a sea change in our approach to property and cat-exposed property? No, I think that would be a mistake. Do I hope that you'll continue to recognize that we are an organization that is opportunistic? And when we see things that are well priced, we're willing to take on a bit more exposure? Yes, I would hope that that would be the takeaway. No, there is not a sea change in our appetite for cat, if you will. That's why arguably a $40 billion-$50 billion event relative to our size, I think by any measure we are underweighted as far as our cut loss.

Josh Shanker (Managing Director)

Thank you for all the answers. Appreciate it.

Rob Berkley (CEO and President)

Thanks for calling in.

Operator (participant)

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

Rob Berkley (CEO and President)

Hi David. Good afternoon.

David Motemaden (Managing Director and Senior Equity Research Analyst)

Hey, good afternoon, Rob. I had just a follow-up question on the reserve development within the insurance segment, the $11 million. I was hoping to get a little bit more detail in terms of some of the moving pieces there.

Rob Berkley (CEO and President)

I do not have that in front of me. If you would like, maybe you could give Karen or Richard a call tomorrow and we can unpack it. I think we have about $17 billion of reserves. I did not view $11 million as the be-all and end-all, but we are happy to do our best to unpack that for you.

David Motemaden (Managing Director and Senior Equity Research Analyst)

Great. Thanks. I know not a big line for you guys either, but the property reinsurance growth was a pretty nice tailwind this quarter, ticked up quite a bit, I guess. How should we think about how sustainable growth is in that market within the property cat market?

Rob Berkley (CEO and President)

I think it depends on what tomorrow holds. Look, when the day is all done, the property market, particularly as it relates to reinsurance, was not as rosy at this 1-1 as it was a year earlier. We still think that it's well priced. As we've demonstrated in the past, whether it's property or any product line, if that opportunity shifts and is less attractive, we're very happy to let it go. What will tomorrow bring? I don't know. Right now, we think that there's still a reasonable risk-adjusted return to be had. That having been said, we all saw a fair amount of erosion at 1-1. I don't know if there's another year or not in the tank.

David Motemaden (Managing Director and Senior Equity Research Analyst)

Got it. Thanks. Maybe just lastly, there have been some efforts at tort reform in Georgia. I know you guys are a decent-sized player in Georgia within GL and commercial auto. I guess just curious on your thoughts in terms of what that does to sort of address some of the social inflation issues that have been problematic there.

Rob Berkley (CEO and President)

I guess the short answer is we're pleased that it's getting the attention. Not sure if it's enough, but it's a step in the right direction.

David Motemaden (Managing Director and Senior Equity Research Analyst)

Great. Thank you.

Rob Berkley (CEO and President)

Thank you.

Operator (participant)

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

Rob Berkley (CEO and President)

Hello, Mark. Good afternoon.

Mark Hughes (Analyst)

Yeah. Thanks. Hey, Rob. How are you?

Rob Berkley (CEO and President)

Doing fine. Thanks. I hope you're well.

Mark Hughes (Analyst)

Anything to say on admitted versus E&S and the mix shift? It seems like it's continued in E&S. How did you see that play out this quarter? Any commentary on submission growth would be great.

Rob Berkley (CEO and President)

Using a pretty broad brush, we are pretty pleased with the continued flow in the E&S market, ever increasing, particularly around some of the liability lines, casualty in particular, and for that matter, excess and umbrella. As far as the property piece goes, there's still opportunity there, but probably a bit less than there was yesterday. January was a little bit more challenging, but we were very pleased to see how the balance of the quarter unfolded and found it to be quite encouraging.

Mark Hughes (Analyst)

Thank you for that. Rich, on the reinsurance purchasing that you talked about influencing the mix, which influenced the current accident year, is that an ongoing phenomenon, do you think? Is there some timing about the purchasing of that reinsurance that might have influenced Q1 more than others?

Rich Baio (EVP and CFO)

I don't think it has to do with the timing of the purchasing. It really is just driven by each of those operations, whether they're growing or shrinking or moving in or out of particular businesses and what the contribution is to the overall. If you have a business, as an example, that we quote a share of some of that out to third party reinsurers and you don't have as much net premiums written contributing to the overall total net premiums written, it will obviously have an impact one way or the other. No, I think if you look at our session rate, we kind of hover in that high 14% to low 15% rate. I think that our session rate is pretty consistent from period to period. It's really just the composition across the 58 plus operating units.

Mark Hughes (Analyst)

Very good. Thank you.

Operator (participant)

Your next question comes from the line of Andrew Andersen with Jefferies. Please go ahead.

Rob Berkley (CEO and President)

Hi, Andrew. Good afternoon.

Andrew Andersen (SVP of Equity Research)

Hey, good afternoon. Just on casualty reinsurance, you had mentioned the professional liability component. I was just hoping you could touch on kind of the rate and discipline that you're seeing in the market and expectations or thoughts of that maybe improving as we go through the year.

Rob Berkley (CEO and President)

The punchline is a lot of it has to do with a fair amount of it has to do with D&O. A fair amount of it has to do with cyber and transactional as well. To make a long story short, it's not that we're writing the same number of treaties and the rates just getting cut or the underlying is collecting less premium. It's our colleagues drawing a line in the sand and saying, "This treaty does not make any sense to us any longer. We are not going to do it given the economics" which we very much applaud. Thank you, Kevin.

Andrew Andersen (SVP of Equity Research)

Got it. Maybe still some non-renewals as we go throughout the year on that line, perhaps?

Rob Berkley (CEO and President)

Obviously, 1-1 is a big date, but we'll have to see how it unfolds. Again, of course, the stuff, it comes through throughout the year.

Andrew Andersen (SVP of Equity Research)

Okay. And then just on specialty workers' comp, is the rate there kind of similar to traditional workers' comp, or what are you seeing in that market?

Rob Berkley (CEO and President)

It's a healthier market where we find the rates are higher and we think the rate adequacy is more appropriate.

Andrew Andersen (SVP of Equity Research)

Thank you.

Rob Berkley (CEO and President)

Thank you.

Operator (participant)

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

Brian Meredith (Managing Director)

Yes, thanks. Hey, how are you? Two quick ones here for you. First one, just on the property reinsurance again, were there any kind of reinstatement premiums or anything in there that may have kind of elevated the growth on a year-over-year basis? Just given the cut losses.

Rob Berkley (CEO and President)

Nothing. Not material.

Brian Meredith (Managing Director)

Okay. Excellent. Actually, the next one is for Bill. Just curious, Bill, during the 1970s, we had stagflation. Maybe tell us what that kind of means for the commercial insurance industry and kind of what it was like back then with stagflationary environment.

Bill Berkley (Executive Chairman)

First of all, that's age discrimination. I think that stagflation was a problem, but the inflation was somewhat different. It was much more focused, and you saw it. It wasn't quite across the board in the stagnant economy. There were a lot of different moving parts. I think that the industry, when that happened, went through a tough period of pricing pressures. It wasn't a disaster by any means. I think the industry was able to move along, raising prices and keep up with that. There was less growth because the economy really wasn't growing. Less growth, pricing was okay, and the industry lifeblood of new companies and change was diminished. Flexible, modest-sized and larger-sized companies did well. Not a lot of new companies getting started was really when we were just getting into the business.

You had lots of issues, including things we faced when we were just getting into the business. In fact, just looking back at what that was, it opened the doors to really a much improving period of time. Margins were not what they were, although interest rates moved up. We had improving interest rates. That was when interest rates started to move up, where they had been settled at 3% to where they became settled at 6%. It was an okay time for the industry if you paid attention to risk. Overall, bigger companies did better than smaller companies, and opportunities existed still. Like everything, there's no broad brush that gives you an answer. Very, very differentiated.

Brian Meredith (Managing Director)

Thank you.

Operator (participant)

Your next question comes from the line of Wes Carmichael with Autonomous Research. Please go ahead.

Wes Carmichael (Senior Analyst)

Hey, good evening. I just wanted to come back quickly to the increase in the underlying loss ratio that was driven by mix. Rich, I heard your commentary on reinsurance, and I do not think it sounds like it, but I just want to confirm, is there any mix standpoint on the expense ratio that you are seeing?

Rich Baio (EVP and CFO)

There could be as well because, as I was alluding to earlier, depending on the contribution from quota shares with ceding commissions, that could also have an impact on the expense ratio. Yes.

Rob Berkley (CEO and President)

In this case, that was less the case in the quarter.

Rich Baio (EVP and CFO)

Correct. That's right.

Wes Carmichael (Senior Analyst)

Okay. Understood. Thank you. In the insurance segment, I wondered if you could just unpack growth a bit more. Rob, you talked a bit about workers' comp for a while. Any more color on the other lines, including other liability that you might call out in the quarter or going forward?

Rob Berkley (CEO and President)

I think it's a combination of just making sure we're staying on top of it with the rate and market conditions where we are seeing opportunity to grow. We are making the most of that where the opportunities are. Long story short, some of the product lines, it's rate, rate, rate all day, like auto as an example. There are other product lines where rate adequacy remains very important and market conditions are such that it's allowing us not just to grow through rate, but to grow through exposure.

Wes Carmichael (Senior Analyst)

Great. Thanks so much.

Rob Berkley (CEO and President)

Thank you.

Operator (participant)

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

Meyer Shields (Managing Director)

Thanks. If I can go back to the specialty workers' compensation driving the growth, are the underwriting and claims handling tools different from the prior book of workers' compensation at Berkley?

Rob Berkley (CEO and President)

Sorry, what was the last piece, Meyer I beg your pardon? Are they different from what?

Meyer Shields (Managing Director)

The legacy, in other words, the workers' compensation business that you've written over the last few years.

Rob Berkley (CEO and President)

I think the answer is that each one of the businesses is specialized in nature. Some of the opportunity, as we alluded to earlier, with some of the higher hazard is creating a meaningful opportunity for us. We are leaning into that. Yes, it has teams of people, as you know, were set up, the decentralized structure with different businesses with their own focus and expertise to support that area of focus or to go hand in hand with that area of focus. The answer is yes.

Meyer Shields (Managing Director)

Okay. Completely changing topic. In the press release confirming Mitsui Sumitomo, their President and CEO talked about deploying their network to grow the value of their investment, which I think means Berkley. I was hoping you could flesh out what that means in terms of growth potential for Berkley.

Rob Berkley (CEO and President)

will have to see over time. Obviously, they are a large organization with a meaningful footprint in different parts of the world. If there is opportunity for us to partner with them and bring some of our expertise and skills, then if that is something that makes sense for the business, that is something that we are very open to.

Meyer Shields (Managing Director)

Okay, that is nothing 2025?

Rob Berkley (CEO and President)

We'll have to see.

Meyer Shields (Managing Director)

Okay. Fair enough. Thank you very much.

Rob Berkley (CEO and President)

Thank you.

Operator (participant)

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

Rob Berkley (CEO and President)

Krista, thank you very much. Thank you all for dialing in. As suggested earlier, I think by any measure, a very solid quarter, let alone when we had a cut of this size. Additionally, I think it was very encouraging, the top line that we were able to enjoy. Of course, that was nicely complemented by the continued benefits on the investment portfolio as well. Thank you all. We look forward to connecting with you in 90 days or so. Have a good night.

Operator (participant)

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