Q4 2023 Earnings Summary
- WRB experienced strong premium growth of 12% in Q4, and expects meaningful opportunities for continued growth in 2024, possibly exceeding 12%.
- Commercial auto growth has accelerated, driven primarily by significant rate increases, as the company insists on charging more.
- Submission counts remain as robust as ever, and WRB is very encouraged by the opportunities**, indicating potential for continued strong underwriting performance.
- Favorable conditions in the property catastrophe reinsurance market may have peaked, potentially reducing growth opportunities in 2024. The CEO stated, "I think the market is still very attractive, but I also believe it has peaked, at least for the moment."
- Challenges in older accident years (2016-2019) could impact profitability. The company acknowledged that these years are "not without its challenges," and that they "may have gotten caught a little flat-footed" with loss inflation.
- Rising medical costs in the workers' compensation line are anticipated to be challenging, leading to a more defensive posture in this segment. The CEO mentioned, "We still have reservations about the product line... we think that the medical trend is going to prove to be challenging."
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Premium Growth Outlook
Q: Is 12% premium growth sustainable in 2024?
A: Management sees 12% as a reasonable growth rate for 2024 and believes it could even be better, depending on market conditions. They are optimistic about meaningful opportunities ahead but acknowledge that actual results will depend on how the market evolves. -
Casualty Market Strength
Q: Will casualty lines see stronger pricing in 2024?
A: Management expects broader strengthening in casualty lines due to ongoing social inflation and pressures in the reinsurance market. They believe this will introduce further discipline and support continued rate increases, particularly in umbrella and excess markets. -
Reserve Development Trends
Q: How are loss reserves developing, especially older years?
A: Older accident years are beginning to show signs of stabilizing, with years 2016 through 2019 slowing considerably. More recent years are looking encouraging, and as they mature, management anticipates recognizing good news. -
Reinsurance Market Impact
Q: How will reinsurance market conditions affect you?
A: Rising reinsurance costs may lead to adjustments in ceding commissions and structures. Given their lower reinsurance dependency, the company may retain more risk, especially as primary rates are attractive. A hardening reinsurance market is seen as beneficial overall. -
Liability Lines Rate Trends
Q: Are rates increasing in liability lines?
A: Rates in liability lines are robust, with management achieving rate increases that exceed loss trend. They are optimistic that this momentum will continue, driven by loss costs and market focus. -
Improved Loss Ratios
Q: Is the accident year loss ratio ex-cat improving?
A: Yes, the loss ratio has improved due to reduced fire losses and re-underwriting of property risks. Management anticipates a better position going forward, though the process may not be entirely complete. -
Professional Lines Decline
Q: Why is growth down in professional lines?
A: Growth is down due to declining rates in public D&O markets and increased competition willing to undercut on pricing. The company maintains discipline and is not chasing unprofitable business, particularly in lines like medical professional liability and architects and engineers. -
Investment Income Increase
Q: What's driving higher investment income?
A: The book yield increased to 4.7%, up from the previous quarter, driven by reinvesting at higher rates and some inflation-adjusted securities. Management is seeing benefits from higher new money rates over roll-offs. -
Duration Strategy
Q: Will you extend investment portfolio duration?
A: Management aims to modestly extend duration from 2.4 years, targeting 2.5 to 2.7 years when market opportunities arise. They are navigating market volatility and will adjust duration sensibly as conditions allow. -
Client Rate Pushback
Q: Is client pushback increasing on rate hikes?
A: While industry returns are strong in some areas, management believes that not all lines have been profitable, and discipline is necessary. They acknowledge that some clients may resist rate increases, but they emphasize the importance of adequate pricing given loss cost trends.