W. R. Berkley - Q3 2023

Transcript

Operator (participant)

Good day, everyone, and welcome to W. R. Berkley Corporation's Q3 2023 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 in fact be achieved. Please refer to our annual report and Form 10-K for the year-end December 31, 2022, 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.

Rob Berkley (President and CEO)

Lisa, thank you very much, and good afternoon, all, and I guess a second welcome to our Q3 call. We appreciate you dialing in and your time and your interest today. Joining me on the call, at least on this end, is Bill Berkley, Executive Chair, as well as Rich Baio, EVP and Chief Financial Officer. We're going to follow our typical agenda, where momentarily I'll be handing it over to Rich. He's going to give us a bit of an overview and flag some highlights from the quarter. I will follow with a few comments of my own, and then we'll be pleased to open it up for Q&A.

Before I do hand it to Rich, I just wanted to make a couple of quick observations and really one macro one in particular, and that is on the results of the quarter. I think by any measure, call it a 20% return is really an outstanding result. The fact is, there were no one time this or one time that in there. That is truly when you strip it down to its fundamentals, that is how the business is performing. And these great results are really a reflection of a team. This is a team sport, not an individual sport. So my congratulations to all of our colleagues throughout the organization on a job very well done. I have the good fortune of being their mouthpiece in these types of settings, but again, this achievement was a team achievement.

To that end, obviously, it was a quarter where the organization was able to demonstrate, excuse me, our value proposition to capital. The idea of less risk for more return. We've talked to you all in the past about how we are preoccupied with a concept that we refer to as risk-adjusted return. You can see it in moments like these that we just saw in Q3 very clearly. When, as our Chairman says, "The tide goes out, you get to see who's where and what." You could see it in both aspects of our business activities, one being underwriting, the other one being investing. Our underwriting results of a combined of a 90 during a period that had meaningful cat activity is really exceptional.

Additionally, on the investing activity, clearly a book yield of 4.5% while maintaining a quality of AA- and additionally, a new money rate of approximately 6%, that is no accident either. These results, these achievements, are a result of our colleagues, their focus, their discipline, and their expertise. This call certainly is about reviewing what happened in the Q3, but I would suggest even more than that, it is about how the table is set, not just for the coming quarters, but the next several years. So I think we are very well positioned. I think there is a fair amount of visibility. We will be getting into that in a bit more detail later in the call, but at this moment, let me hand it over to Rich, and he's going to walk us through some numbers.

Rich, if you would, please.

Rich Baio (EVP and CFO)

Of course. Thanks, Rob. Appreciate it. Net income increased 45.7% to $334 million, or $1.23 per share, with a return on equity of 19.8%. Operating income increased 30.1% to $367 million or $1.35 per share, with an operating return on equity of 21.7%. The company's strong performance was driven by another quarter of significant underwriting profits, bringing the nine months year to date to a record despite consecutive quarters of outsized industry-wide catastrophe losses. In addition, net investment income accelerated throughout the year to yet another quarterly record. Drilling further into the underwriting results, net premiums written grew 10.5% to a record of more than $2.8 billion.

We significantly grew the insurance business by approximately 17.5% in other liability, short tail lines, and commercial automobile through rate and exposure. Decreases in workers' compensation and certain professional lines certainly tempered the growth in net premiums written, bringing the overall insurance segment growth to 12.1%. The Reinsurance and Monoline Excess segment was flat quarter-over-quarter, with continued growth in Monoline Excess and property reinsurance. Pre-tax underwriting income was $259 million, with a calendar year combined ratio of 90.2%. The current accident year combined ratio, excluding catastrophe losses, was 87.9%. Current accident year catastrophe losses in the quarter were $62 million, or 2.3 loss ratio points, compared with $94 million in the prior year quarter, or 3.9 loss ratio points.

The prior year favorable development was approximately $1 million, and the current accident year loss ratio, ex cats, was 59.6%. The expense ratio increased 0.3 points to 28.3% from the prior year and remains in line with our nine months year-to-date. The small increase is attributable to the same items we've communicated during the past couple quarters. That being the change in outward reinsurance structures impacting ceding commissions and increased compensation costs, along with startup operating unit expenses. We also continue to invest in technology and areas to drive operational efficiencies. Record quarterly net investment income of $271 million grew by 33.6%, with the core investment portfolio increasing by 59.3%.

There are two main drivers for the significant increase in the core portfolio, including the rising interest rate environment benefiting the reinvestment of fixed maturity securities as they mature or are redeemed. Second, the increase in the size of the portfolio due to continuous record levels of operating cash flows. In the Q3, we reported another record level of operating cash flow of almost $1.1 billion. To put some context around this point, the book yield has grown from 3.8% in the Q1 of 2023, to 4.2% in the Q2, to 4.5% in the current quarter on fixed maturity securities. The current nine-month year-to-date book yield of 4.2% compares to 2.6% for the prior year period.

It's also worth noting that almost 81% of our net invested assets are in fixed maturity securities, cash, and cash equivalents. The credit quality of the fixed maturity securities remains strong at AA-, and the durations ticked up to 2.4 years from the consecutive quarter of 2.3 years. Partially offsetting the increase in the core portfolio is net investment income from investment funds. You may recall this asset class is generally reported on a one quarter lag and will more closely correlate with the broader equity markets. Accordingly, reported net investment income from investment funds was approximately $4 million, representing a marginal improvement from the first half of 2023. We continue to proactively manage our capital position. As you saw, our announcement of the $0.50 special dividend per share late in Q3, in addition to our regular quarterly dividend.

This brings total capital return to investors on a year-to-date basis to approximately $775 million, with stockholders' equity increasing to more than $6.9 billion. Book value per share before dividends and share repurchases on a year-to-date basis has increased 13.7%, excuse me. With that, I'll turn it back to you, Rob.

Rob Berkley (President and CEO)

Rich, thanks very much. That was great. So I'm just going to offer a couple of other quick observations on the quarter and how we see things unfolding from here, and then again, we'll move on to the Q&A. Rich touched on the top line, obviously, building momentum again, as promised. Just as a reminder to some, some number of quarters ago, we agreed to disagree with a couple of partners as to what we thought was an adequate rate. They did not think that we needed that much rate, and again, we decided to part ways. That had a meaningful impact to the negative on our top line. That pig's making its way through the python, to the extent that it's of interest, that was in the auto line.

So we wish them well, and we'll see how that unfolds. Speaking of different products, obviously, the marketplace for the past 12, 18, 24 months or so has been very focused on property and with good reason. I would suggest to you, as we've commented in past quarters, auto liability is one that people need to continue to pay close attention to. I think as far as product lines, when it comes to social inflation, auto liability has the biggest bullseye on its chest, and by extension, that clearly spills over to excess and as well as umbrella. That having been said, just in general, social inflation continues to burn, and we do not see that abating anytime soon. Quick comment on workers' comp. I know we've touched on this in the past.

We continue to be of the view that one needs to be very mindful of medical cost trend. We went through a period of time where it was pretty benign. We think that is shifting very quickly. We've touched on it in the past. We think it's going to become more and more into focus for a broader audience over the coming quarters. In addition to that, the benefit that comp was getting, both as it relates to COVID and frequency, and then on the heels of COVID, a tight labor market and wage inflation, I think those benefits have run their course, and clearly, wage inflation is slowing. I mentioned a moment ago the topic of social inflation. We are very focused on it.

You can see it in our rate increases, ex-comp coming in at 8.5%. We have every intention of continuing to stay on top of it. We think the market is accepting our rate increases, and you can see that in part demonstrated by our renewal retention ratio continues to be at approximately a steady 80%. Another number that I find useful, perhaps others do as well, is the paid loss ratio.

This is a number that we flagged for you all in the past, again, coming in at a very healthy, 47.9% for the quarter, which obviously, given where we are booking the business, would lead one to believe that the strength of our IBNR speaks for itself and would encourage people to look at our IBNR relative to case and IBNR relative to total reserves, to the extent you're interested in the topic. As far as the investment portfolio goes, again, Rich went into some detail on this. I touched on it earlier, but without a doubt, it's not just about the 4.5% that we're getting on the book yield. I think the bigger story is the new money rate today of give or take 6%.

You compound that with the strength of the cash flow that the business is experiencing, I think it's, again, setting a table for a very encouraging future. The duration we did bump out from 2.3 to 2.4, I think it's more likely than not over time you're going to continue to see that push out. But the fact is, having kept it short the way we have, has given us greater flexibility to take advantage of the higher rates in a more immediate or over a shorter period of time. Yeah, finally, and perhaps a little bit on the forward-looking and picking up on the comments about the investment portfolio. Nobody knows with certainty what tomorrow will bring, and there certainly is the potential for volatility to be around the corner.

That having been said, you can see the business's ability to weather a choppy time as far as CAT activity. You can see the rate increases that we are getting, and you can see how, quite frankly, I should say, we can see where the book yield is going. So that all having been said, I think it's very clear where the business is positioned for the coming quarters and the coming years, and the earnings power of the business is likely to be accelerating from here. Lisa, I'm going to pause there, and why don't we go ahead and open it up for Q&A?

Operator (participant)

Thank you. If you would like to ask a question on the phone lines today, please press star one on your telephone keypad. If you would like to remove yourself from the queue, that is star one again. We'll take our first question from Mike Zarembski with BMO. Please go ahead.

Rob Berkley (President and CEO)

Hi, Mike. Good afternoon.

Mike Zaremski (MD and Senior Equity Research Analyst)

Hey, good afternoon. Maybe, to your comments, yeah, about the table being set and kind of a bit more visibility, you know, is it—I just want to just make sure that, you know, this visibility is increasingly coming from the investment income, whereas kind of you do talk about, you know, there being still continued uncertainty, you know, on social inflation and, you know, medical cost trends, etc. Just, you know, curious to the latter comments, you know, has Berkley changed its kind of view at all, materially over the last, you know, couple of months or a few months, on loss cost trends?

Rob Berkley (President and CEO)

I think social inflation continues to be a challenge, but if you look at the rate increases that we are achieving ex-comp of 8.5%, I think that we're in a comfortable position to be able to, more likely than not, absorb whatever that inflation trend is sending our way. So do I think there's opportunity for the underwriting result to show improvement over time? Yes, I do. That having been said, when we're generating a 20% return, there is no need to push the envelope. I think if you look at the paid loss ratio and how it's been running for some number of quarters, that should be a pretty good leading indicator. As far as the investment portfolio goes, to the point that you raised, Mike, I think it's pretty straightforward.

You know, you can see what the new money rate is, you know what the duration is, and you can just, it's not that hard to calculate the upside from here. As you know, time goes by, we're just locking in every day, higher and higher rates and pushing that duration out. From my perspective, certainly there's a lot of upside on the investment portfolio, but I would encourage people not to discount the opportunity on the underwriting side either.

Mike Zaremski (MD and Senior Equity Research Analyst)

Okay, understood. And maybe as a follow-up on the top-line growth, you mentioned there were some partners you know you parted ways with that might have led to some of the decline. I don't know if that was last year, but you know, this year we're seeing some momentum in the top line at PW, just by kind of pricing, let's say, being flattish. Any story underlying that you'd like to share or trend line?

Rob Berkley (President and CEO)

I think it's just at least what I was trying to articulate, to make a long story short, the momentum is returning on the top line because those relationships that we're in the process of parting ways with are getting towards the tail end, and the impact on the top line is diminishing with every passing quarter. As a result of that, it's impacting the overall less and less. In addition to that, you know, the other piece that I should mention is there are parts of the professional liability market that are really, really competitive, and we're just not going to follow things down the drain. If we, you know, it doesn't make sense, we're not going to do it. And it's a similar story with workers' comp.

Fortunately, there's lots of opportunities in other parts of the marketplace, and, you know, we are going after those, and, and that's what's driving the growth that you see. And I think you're like, more likely than not to see more of that. Sure. Is the rate increase a component of it? Yeah, but it's certainly not the whole story.

Rich Baio (EVP and CFO)

Thank you.

Operator (participant)

We'll take our next question from Elyse Greenspan with Wells Fargo.

Elyse Greenspan (MD)

Hi, thanks. Good evening. My first question is, I guess, you know, building upon the growth conversation. You know, as you guys had alluded to, like, growth within the insurance book did pick up in the quarter. Obviously, pushes and pulls across the different business lines. Rob, just based off of your overall outlook, you know, how would you expect, I guess, premium growth within that book to trend, not only in the Q4, but, you know, also in 2024 as well?

Rob Berkley (President and CEO)

Yeah, obviously, Elyse, nobody knows exactly what tomorrow will bring, but as you would see over the past several quarters, there's been momentum that's building, and there's nothing that I see today that's going to take the wind out of that sail.

Elyse Greenspan (MD)

Okay. And then in terms of the prior year development, so $1 million overall favorable, was there any noise in either insurance or reinsurance within that $1 million or any noise within, you know, different accident years that you want to call out? I know you typically wait for the 10-Q, but anything worth flagging tonight?

Rob Berkley (President and CEO)

Yeah, I don't think there was anything particularly noteworthy. Rich, did you have anything that you wanted to flag on the call?

Rich Baio (EVP and CFO)

I would agree with your comment, Rob. I don't think there's much, you know, in terms of from a segment perspective, pretty benign, you know, in each of the segments. So I think, that's all I would comment before the Q.

Rob Berkley (President and CEO)

Okay.

Elyse Greenspan (MD)

Okay. Thank you.

Rob Berkley (President and CEO)

Thanks, Elyse.

Operator (participant)

We'll take our next question from Mark Hughes with Truist.

Rob Berkley (President and CEO)

Hi, Mark. Good afternoon.

Mark Hughes (Equity Analyst)

Yeah, thank you. Good afternoon, Rob. Hello, Rich. General liability, you had another acceleration this quarter. Anything going on there? Are you seeing some sort of a rehardening perhaps in GL?

Rob Berkley (President and CEO)

I think that it's a combination of things. One is rate, and two, certainly our E&S businesses in particular are benefiting from that as well as our specialty businesses overall. I think there's a recognition, two things: One, there's discipline. People are taking the rate. And two, I think that there's a growing percentage of the audience that is looking to do business with carriers that they can have confidence in. And that's not just about ratings and in the eyes of the insured, I think it's also distribution partners, where they are trying to narrow the number of relationships they have and have those relationships be more important and really focusing on partners that they know will be there tomorrow in a predictable and consistent manner.

Mark Hughes (Equity Analyst)

Understood. How about the property reinsurance market? Had a little slower growth this quarter compared to the last couple of quarters. What do you see happening there?

Rob Berkley (President and CEO)

Yeah, I wouldn't read too much into that. There's just a fair amount of seasonality, if you will, to how that business is written. There's still a good opportunity there, and our colleagues, I think, are very focused on it.

Mark Hughes (Equity Analyst)

Appreciate it. Thank you.

Operator (participant)

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

Alex Scott (Equity Research Analyst)

Hi. Good afternoon. So I wanted to ask you about the paid loss ratios. I mean, you know, I think in 1Q, it was 48%. It sounds like it's around that level now still. Can you help us think through, like, how much is that benefiting from the growth in the business, just with insured values and so forth, going up? You know, and how does that compare over, like, a longer period of time, X, you know, sort of those items? I'm just trying to think through. I mean, it seems like that's an important part of why you're so optimistic on the future. You know, as you all know, there's a fair amount of, you know, criticism of some of the older accident years.

So I'm just trying to think through, you know, order of magnitude, like, you know, that, that dynamic and sort of how seasoned the older stuff is. I mean, any way you can help me think through all that?

Rob Berkley (President and CEO)

Sure. So maybe a couple of comments. First off, as far as the growth and the benefit of the growth, I would encourage you to go back and look at how much growth has occurred because of exposure, if you will, versus how much is, the growth has come because we're just charging more for each unit of exposure. And I would tell you, a lot of it is driven by that. In addition to that, as far as reserves and how they develop out, the average duration of our loss reserves is give or take three and a half years, and that's paid. So what my point is, is that the years that perhaps are viewed as more challenging, I think you should have some level of comfort and sense of where those are coming out at this stage.

Alex Scott (Equity Research Analyst)

Got it. That's helpful. Second question I had for you is, you know, I guess on general liability, other liability, and maybe the preference between primary versus reinsurance. You know, I'm just noticing the casualty reinsurance, you know, has been declining a bit, and, you know, we've heard some, you know, more cautious commentary from some of the global reinsurers. So I'm just wanting to understand what you're seeing there that's causing you to favor the primary versus reinsurance exposure.

Rob Berkley (President and CEO)

Well, I think there are a couple of things. First off, a lot of it is not necessarily that the underlying business is less attractive. It may be about the ceding commissions that they're able to command, and at some point, maybe we think the underlying business is okay, but the ceding commissions that our competitors are willing to play on the reinsurance side, they don't make sense to us. In particular, I would call out some of the professional liability space, but I'm not going to get into more detail than that. As far as on the liability side, on the director insurance front, you know, it's just where we see opportunities, and we like what we see in much of the marketplace, particularly specialty. If you want to get even more granular, much of the E&S market.

And as you and others are aware, we're one of the largest players in the E&S space, and in particular, in the liability lines. So, this is just a good moment. And again, what's going on with the reinsurance isn't necessarily that we just think that the market has gone to hell as far as the primary. We just may not agree with what some others are viewing as an appropriate cede. You know, I have heard as of late from some reinsurers commenting on social inflation, and all of a sudden they've discovered this thing called litigation funding, and, you know, it kind of makes you scratch your head and wonder where they've been for the past decade, because these are not new phenomenon.

These are things that, those of us that are in the marketplace, at least in the weeds, we've been not just talking about, but dealing with for an extended period of time. There's nothing new there. I think it's great that they're focused on it. Maybe they'll help bring more discipline to the marketplace.

Alex Scott (Equity Research Analyst)

Got it. Thank you.

Operator (participant)

Our next question comes from Josh Shanker with Bank of America.

Rob Berkley (President and CEO)

Hi, Josh. Good afternoon.

Josh Shanker (MD)

Good afternoon. Thank you for taking my call. I hope everyone's well. Can we talk a little bit, you know, short-tailed lines, a lot of growth there. I mean, you know, that says to me there's property in there, but short tail is a pretty big catch-all for a lot of things, a lot of growth. Interested in what you're finding there and what the opportunities are.

Rob Berkley (President and CEO)

Lion's share of its property. There's a little bit of auto physical damage in there. You know, on both fronts, particularly in the property, I think you know the story as well as we do. There is a need for rate, there's an opportunity for rate, and we are trying to make the most of it.

Josh Shanker (MD)

Obviously, your reinsurance costs are up a little bit. You're not a huge buyer of reinsurance, but are you able to take on some of that increased price to the benefit of shareholders, or is some of that getting passed off to the reinsurance market?

Rob Berkley (President and CEO)

The short answer is, Josh, that we are trying to ensure that the additional cost of that capacity that we rent is being passed on to the client, and I think we're doing that reasonably well. Not a perfect indicator, but you can see that in the difference between the gross and the net in part.

Josh Shanker (MD)

I mean, look, it, it's down a lot from where it was in Q3 2022, but the cat loss in the reinsurance segment was somewhat high. I don't think you're a big Hawaiian writer, but maybe there's some homes in Hawaii you write or the El Niño in the Panhandle in Florida, just doesn't seem like that would have been a big area for you. Can you talk about the cat loss a little bit in the reinsurance segment?

Rich Baio (EVP and CFO)

Yeah. The long story short, did we have modest exposure to the things that you're talking about or that you flagged? Yes. And then there was also some SCS exposure in there, too.

Josh Shanker (MD)

Okay. If I can get one more in.

Rob Berkley (President and CEO)

Sure.

Josh Shanker (MD)

In terms of, you know, I know you guys give the rate, not really loss trend. You talk a lot about commercial and where it can be. What is the loss trend in commercial auto, and what are you reserving to giving your concerns about social inflation? Is there a variance between where you think the loss trend is currently and where you're booking it? I know you try and be conservative, but is there something that's being prepared for in how you're pricing it and what not?

Rob Berkley (President and CEO)

The short answer is, and it depends on the part of the portfolio, but generally speaking, we are looking to build in a risk margin beyond what the actuarial answer would be.

Josh Shanker (MD)

Okay. Well, thank you and have a good evening.

Rob Berkley (President and CEO)

Thank you, Josh. You too.

Operator (participant)

Our next question comes from David Motamedi with Evercore ISI.

Rob Berkley (President and CEO)

Hey, David. Good afternoon.

David Motamedi (Analyst)

Hey, Rob. Good afternoon. Just had a question on the commercial auto premium growth, and, you know, I guess I hear your commentary loud and clear on social inflation impacting that line. So I was, you know, a little surprised that the growth accelerated there. Was that more a function of, this partner that you parted ways with, you know, resulting in, I guess, a, an easier comp? Or have you seen something change there on the pricing side this quarter that makes you want to lean into the commercial auto market, a little bit more?

Rob Berkley (President and CEO)

So, a couple of things that's worth noting. Yeah, part of it has to do with a bit of runoff, as you alluded to, but the bigger story, from my perspective, is the rate that we are achieving. And we are pushing very hard on the rate, and we're getting it. And ultimately, we have a view as to how much we need for rate, and to the extent that we're getting it, then we don't have a problem writing the business. But we are not going to write it if we don't think we can get the rate that is required plus to achieve our targeted return.

David Motamedi (Analyst)

Got it. Thanks. That's, that's encouraging. And then maybe, you know, and I know you guys have been vocal on just workers' comp, medical cost inflation, and staying on top of those trends. I'm wondering if you're actually starting to see that come through, and manifest in your claims data, just in terms of, of the, the medical cost, inflation starting to impact, your payments.

Rob Berkley (President and CEO)

We certainly are seeing early signs of it, and we've been seeing it for a little while, which has really been one of the, the catalysts for the, the caution. I think we've been talking about for some time how the providers, if you will, their economic model is not sustainable. They, many of them, particularly the large health systems, are destroying huge amounts of capital, and something's going to have to give. And ultimately, part of how that riddle is going to get solved is through the payers. Workers' compensation is not going to be insulated from that. The story is not just about pharma, it's about other components of medical costs. And, you know, I think you're putting the comp component aside for a moment.

If you talk to large payers, the United, the Cigna, etc, and you talk about the type of trend that they are seeing, and then you extrapolate from that, what does it mean for workers' comp? Who, by the way, actually we definitely don't have the same negotiating leverage that someone like a United would have. I think that's pretty instructive.

David Motamedi (Analyst)

Got it. Understood. And then maybe if I can sneak one more in, just a quick one. You know, I didn't hear you talk at all about the fire losses, and I think, is that fair to assume that that's pretty much done? You know, you guys have reunderwritten that book, and that's no longer impacting results, or did that have some smallish impact this quarter as well?

Rob Berkley (President and CEO)

The answer is that it wasn't overly noteworthy in the quarter. I'm not inclined to declare victory because then it always comes back to bite us. But I think we're making progress on that front. That having been said, as far as the loss picks go, you know, per our conversation around the environment, we're just not in a rush to do anything but be thoughtful and measured. The fact is the business is generating, by any measure, great returns, and we don't see that changing, so there's no reason to push. Better for us just to make sure that it is thoughtful and well controlled, and if we're going to err, we're comfortable erring on the side of caution.

David Motamedi (Analyst)

Got it. Understood. Thank you.

Rob Berkley (President and CEO)

Thanks for the question.

Operator (participant)

We'll take our next question from Ryan Tunis with Autonomous Research.

Ryan Tunis (Partner)

Hey, Rob. How's it going?

Rob Berkley (President and CEO)

Good afternoon, Ryan.

Ryan Tunis (Partner)

First question, just on short tail lines. Obviously, there's been some mix shift in that direction. I'd think that that would have somewhat of a lower underlying loss ratio. Is that the right way to think about it, structurally?

Rob Berkley (President and CEO)

I think it, I think it potentially does, but with a lot of those lines, you got to remember, we carry a cat load, so we are not going to release the cat load prematurely. So that could spill over. That benefit may not be realized, if you will. We may carry that through into a future period. But yes, to your point did it have a lower loss ratio? Oftentimes, yes.

Ryan Tunis (Partner)

And then, I guess just bigger picture with commercial auto. It seems like it's been, like, almost an impossible line to underwrite over the past decade. Just curious, like, for a business like Berkley, why does that line need to be such a large component of what you underwrite? Is it that it's bundled with other stuff, or you think you can ultimately get it right? I'm just curious why structurally, that has to be such a large part of your mix.

Rob Berkley (President and CEO)

Yeah. So I think we need to dissect that a little bit, and apologies in advance if this proves to be more of an answer than you're looking for. But you know, as far as commercial auto goes, you know, I would draw the analogy, perhaps to your point, that it's sort of the industry's version of whack-a-mole. As far as our book goes, we write it both standalone, and we also write it as part of a package. Is it relevant to how you write a package? Yes, it is, but that doesn't mean you should write it in an undisciplined manner.

I think as far as the monoline goes, we play when we think we're making a buck, and quite frankly, a lot of our monoline guys, we think over the past few years have done very well. So, you know, we'll see over time, but I think we just have some reservation and concerns about where the marketplace is going. That having been said, you know, it has caused us indigestion from time to time. I think we've, as of late, have more consistently done better where we're writing at monoline because we are very focused on it. I think there are some examples where we've written this part of a package, where we probably haven't been as focused and didn't have as strong an expertise being brought to bear, and that is something that we're working at changing.

But yeah, there are moments in time where I look at it and I say, "How does this make sense?" That having been said, there are many parts of this organization where they are doing it consistently well.

Ryan Tunis (Partner)

Fair enough. Thanks, Rob.

Rob Berkley (President and CEO)

Thanks for the question.

Operator (participant)

We'll take our next question from Brian Meredith with UBS.

Rob Berkley (President and CEO)

Hey, Brian, good afternoon.

Brian Meredith (MD)

Hey, afternoon to you. Rob, just curious, any green shoots at all in the professional liability, you know, line and maybe even related to cyber? And we've seen some big losses come through in the cyber area of late, and is that causing any kind of upward pressure on rates and maybe some opportunity there around that line?

Rob Berkley (President and CEO)

I guess my answer would be not yet.

We'll have to see what comes about, particularly as far as cyber goes. It's gonna be interesting to see what type of pressure the reinsurance marketplace brings to bear on the underlying or the insurance marketplace. As far as D&O goes, it continues to be very, very competitive. Other parts of professional liability, I would tell you that to a varying degree, it's you know, pretty challenging out here. So again, I think that you can still make a buck in a bunch of pockets, but you need to be careful.

Brian Meredith (MD)

Got you. Makes sense. And then, Rob, just remind me, you know, that bad business going through the Python, is it any big impact on your underlying or your loss picks, so you're just having to set them a little more conservatively? Is that book kind of the earn kind of runs off here?

Rob Berkley (President and CEO)

The answer is as it, we saw what was going on with it, we pushed the picks up, and we think what we're carrying makes sense and won't be an issue. You know, quite honestly, we wish them well, but we're not gonna miss them.

Brian Meredith (MD)

Great. Thanks.

Operator (participant)

We'll take our next question from Meyer Shields with KBW.

Rob Berkley (President and CEO)

Hey, Meyer, good afternoon.

Meyer Shields (MD)

Hi, good afternoon. How are you?

Rob Berkley (President and CEO)

Good. How are you?

Meyer Shields (MD)

Good, thank you. I wanted to drill down a little bit more maybe into ceding commissions on casualty reinsurance, because we've been re-reading a lot, as you said, of maybe European reinsurers getting nervous about social inflation. I'm wondering, is it too early, or are in your current discussions, shall let's say, one-one casualty reinsurance renewals, is there any indications of ceding commissions improving?

Rob Berkley (President and CEO)

They, they don't invite me to their pricing meetings, so I don't know. That having been-

I mean, given the chatter, you know, I, I think they're, they're thinking about it. You know, we'll, we'll have to see whether the dialogue and the commentary materializes in action.

Meyer Shields (MD)

Okay, fair enough. I wanted to take a step back, because you talked about Berkley's willingness to write more property in the current environment, and I'm wondering about now that we're nine months through the year, how the growth that you've seen compares with the expectations you had and the opportunities you spot if you go back to December of last year?

Rob Berkley (President and CEO)

I think that we feel quite good about what has been accomplished by our colleagues. And I understand that, you know, many of you, the only barometer you have is how much premium that we're writing. But what may not always come through as clearly is maybe we're collecting the same amount of premium, but we've reduced the exposure by a third, or maybe we're collecting 30% more premium, but we've reduced the exposure considerably. So it's not just a matter of how much you write, it's a matter of how much you're gonna make, obviously. And I think our colleagues both domestically as well as outside of the U.S. have done a nice job navigating the channel and continue to.

Meyer Shields (MD)

Okay, fantastic. Thank you very much.

Rob Berkley (President and CEO)

Thanks for the question.

Operator (participant)

Our next question comes from Mark Hughes with Truist.

Mark Hughes (Equity Analyst)

Yes, thanks. Hello again. I wanted to ask about the expense ratio, particularly in the reinsurance segment. It was pretty low this quarter. Just any general thoughts about expense ratio overall?

Rob Berkley (President and CEO)

Look, I think the, as we've suggested to people in the past, our view is that we're gonna be able to keep the expense ratio, more likely than not, comfortably below 30%. That can obviously be impacted, as you're familiar, Mark, and others are as well. Our oftentimes preferred approach for growth is through de novo or starting new businesses. When you start a new business and it's in its infancy and doesn't have scale, not a lot of earned premium, that has a negative impact on your expense ratio. That having been said, we think it's a much more controlled model to growing the business. So again, it does tick up a little bit.

It can go up, it can go down, but probably the biggest driver around that is businesses that we start and the timing for them to get to scale. But I think we remain convinced that we should be able to keep it starting with a two.

Mark Hughes (Equity Analyst)

Nothing unusual this quarter in the Reinsurance and Monoline excess?

Rob Berkley (President and CEO)

Richie, is there anything that you can think of?

Rich Baio (EVP and CFO)

No, I think it's for the same reasons that we've been talking about and that you alluded to, Rob.

Mark Hughes (Equity Analyst)

Excellent. Thank you.

Operator (participant)

Just a reminder, everyone, that is star one to ask a question.

We'll take our next question from Yaron Kinar with Jefferies. Thank you, Rob. Good afternoon.

Rob Berkley (President and CEO)

Hi, good afternoon.

Yaron Kinar (Equity Research Analyst)

My first question, and I may be paraphrasing what I think I heard from you, but I think you're not taking the foot off the pedal in terms of rate. At the same time, you are achieving a ROE of about 20%. New money rates would suggest upside there. So why is there a need to continue to aggressively push rate here? Is it that you're worried about medical inflation, social inflation, and kind of-

Once they rear their heads, they, they quickly impact margins?

Rob Berkley (President and CEO)

Well, I don't think it's once they rear their heads. I think their head is fully reared at this stage, and the neck just keeps growing. So from my perspective, it is exactly what you suggested. It is loss cost trend, and while perhaps there's some evidence that financial or economic inflation is slowing, though still elevated relative to what it's been in the recent past, there is no evidence that social inflation is abating at all. And, you know, as a result of that, we're just gonna keep pushing, and at a minimum, we need to keep up with that.

Yaron Kinar (Equity Research Analyst)

Got it. We haven't heard in a while about the international book. Can you maybe give us a quick update there? Is it margin accretive, dilutive for the quarter, for year to date? How are growth patterns developing there?

Rob Berkley (President and CEO)

It's accretive. We have some terrific businesses outside of the United States, run by some outstanding people with a shared set of values that we have in other parts of the business. Very focused on a lot of the things that we talked about, particularly risk-adjusted return. It is certainly not dilutive to the franchise overall.

Yaron Kinar (Equity Research Analyst)

Got it. If I could just take one last one, if I may. On the property book and the loss fix there, I would assume those develop a bit faster than you see in the casualty line. So how long before you start updating those? Is it mostly frequency driven, and we could see those start to move according to kind of the actual frequency, within a couple of quarters, or does it take longer?

Rob Berkley (President and CEO)

It takes a little bit of time. We look at it every 90 days or so and don't want to get ahead of ourselves. I think there's two pieces to it. One is, well, how do we think about attritional or, if you will, the risk book, versus how do we think about the cat exposure? The cat piece is a little bit of a different story, as I was at least trying to suggest earlier. You know, we have a cat load that we build in, and we're not gonna release that prematurely. We'll have that roll over from quarter to quarter. As far as the attritional goes, you know, we just want to give it a little bit of time to see how it plays out. But yeah-it's not. It shouldn't be measured in years and years.

Yaron Kinar (Equity Research Analyst)

Okay. Thank you very much.

Rob Berkley (President and CEO)

Thank you.

Operator (participant)

That concludes the question and answer session. I'd like to turn the call back over to Rob Berkley for any additional or closing remarks.

Rob Berkley (President and CEO)

Okay. Lisa, thank you very much for hosting us. Thank you to our colleagues for participating in the call. I think just going back to some of the earlier comments, the table is set, and it's pretty visible how it's set. I think the earnings power of the business is just gonna be growing for the foreseeable future. More likely than not, we're going to get the double benefit of both of our core activities, both the underwriting and the investing, and the momentum should continue. So thank you again, and we will look forward to speaking with you early next year. Have a good night.

Operator (participant)

Concludes today's presentation. Thank you for your participation, and you may now disconnect.