The W. R. Berkley Corporation's Second Quarter 2024 Earnings Conference Call is being recorded and may contain forward-looking statements. The company cautions that these statements should not be taken as a guarantee of future results. The annual report and other SEC filings should be referenced for a better understanding of the business environment and important factors that may affect results. The company is not obligated to update these statements. The call will be led by Rob Berkley, with Executive Chair Bill Berkley and CFO Rich Baio also present. The agenda includes highlights from Rich, observations from Rob, and a Q&A session.

In the second quarter, the organization was able to differentiate itself and deliver a 91% combined despite modest severity on the property front. The goal is to generate good risk-adjusted returns and avoid steps backwards. The company's annualized return on equity was 20% on a net income basis and 22.4% on an operating earnings basis. Operating income increased by 35% to $418 million, driven by strong underwriting and investment income. Net premiums written reached a record $3.1 billion, with a growth rate of 11.2% (12.1% excluding foreign currency impact).

The company experienced growth in both its Insurance and Reinsurance & Monoline Excess segments, with 12.2% and 3.5% increases respectively. Pre-tax underwriting income was $254 million, with $90 million in catastrophe losses. The accident year loss ratio, excluding cat losses, was at 59.4%. The expense ratio increased to 28.5%, primarily due to higher commissions. Net investment income increased by 52% to $372 million, driven by fixed maturity securities and investment funds. The company expects to continue seeing growth in net investment income due to strong operating cash flow and reinvestment opportunities. The credit quality and duration of the investment portfolio remains strong.

The company's effective tax rate was 23.7% and is expected to remain at that level due to foreign earnings. The company returned $381 million to shareholders through share repurchases and dividends, resulting in an increase in stockholders' equity and book value per share. The industry is responding to pain and there are signs of tempering on the financial and economic inflation front, but social inflation remains a challenge. The company has been actively addressing social inflation since 2018. However, there is resistance in some insurance departments to allow rate filings to keep up with loss cost trend.

The rise of social inflation has created an opportunity for specialty lines, particularly in the excess and surplus (E&S) market, as standard market rates are unable to keep up with trends. Auto liability remains a concern, as it is the most exposed product line to social inflation. In the quarter, gross and net growth were both up, with the increase in net being driven by captive business, new operations, and taking advantage of a softening ILW market. The 8.3% rate increase, excluding comp, is in line with trend, but terms and conditions also play a significant role in underwriting outcomes.

The article discusses the changing legal environment in certain territories and the stability of the company's expense and loss ratios. The company is making investments in technology and data and analytics. There is also mention of the challenges of predicting future losses and the company's approach of respecting the unknown.

The speaker discusses their company's approach to social inflation, stating that they will hold their picks at a higher level and monitor them over time. They provide data points on their paid loss ratio and initial IBNR relative to net earned premium. They also mention their strong investment portfolio and cash flow, and address their positioning for the rising interest rate environment.

The speaker believes that the country has a serious issue with deficit and spending, which will not be curtailed anytime soon. The challenge is compounded by the decrease in foreign buyers of US treasuries. However, they believe that even if short-term rates come down, the yield curve will un-invert and provide an opportunity to increase duration. They also mention the potential impact of immigration policies and tariffs on inflation. The company plans to continue growing at a rate of 10-15%.

The company has been consistently generating high returns and has a lot of visibility for the future. They are in a strong position and have a lot of flexibility. The speaker suggests that the listener follow up for more detail on reserves, which were released by $1 million in the quarter, with $2.5 million favorably developed in the Insurance segment and $1.5 million unfavorably developed in the Reinsurance & Monoline Excess segment. The company looks at reserves by operating unit and product line.

In the second quarter, the company reported $63 million in inflation-linked securities, which was within the expected range. Looking ahead, they anticipate a contribution of $20-30 million in the next few quarters, depending on inflation. However, there were also foreign currency losses of $50 million that offset the net investment income. The workers' comp rate increased by 50 basis points, with the main driver being an increase in charges across multiple lines.

The speaker, Rob Berkley, responds to a question about reserves by product line. He clarifies that there was no commentary on reserves by product line and that there are many factors that contribute to the overall development of reserves. He suggests that more details will be provided in the Q.

In response to a question about IBNR reserves and loss trends in the Insurance segment, the speaker does not recall any specific issues and feels confident about their picks. They are paying close attention to the auto liability line, but do not see any noteworthy patterns in property claims. They are focused on the overall claims environment and staying aware of any changes.

The company is taking various actions and paying close attention to commercial auto and auto liability. They are being cautious and sensitive to different legal venues. The proportion of alternative investments has been increasing, but this is due to commitments made in the past. The company is primarily focused on fixed income opportunities and is not very interested in alternatives due to low interest rates.

The speaker is discussing the impact of social inflation on liability lines, particularly auto liability, which is facing increased attention from the plaintiff bar. They also mention the effects of the soft market on the profitability of the workers' compensation market, with a focus on the medical component. The speaker suggests that the comp benefit schedules in many states may be suppressing profitability.

The speaker believes that the company has benefited from Medicare pricing, but this may not continue indefinitely. They believe that medical trend is a wildcard and will eventually lead to problems. The speaker also mentions that some insurance departments are resistant to allowing carriers to get the rate increases they need on the commercial line side.

The speaker discusses the healthy flow of business into the specialty market and the E&S market, which has been beneficial for their organization. This is due to standard markets not being able to get the rates they need, creating opportunities for organizations like theirs. The speaker also mentions that investment income is expected to increase in the future, but the expense ratio in the reinsurance segment may stay at its current level due to investments in technology and the success of short-tail lines.

The speaker discusses the potential for the business to grow or shrink depending on market conditions. They mention that the E&S business is growing at a rate of 50% more than the standard market rate, and this growth may be slightly better than last year. The speaker also mentions that the $90 million in cat losses within Insurance were primarily due to SCS in the US. They then discuss the company's capital return strategy, which includes regular dividends and occasional special dividends for flexibility.

The speaker discusses the recent cyber issue with CrowdStrike and its potential impact on the company's cyber exposure. They do not believe it will have a significant impact on their business, but acknowledge the possibility of some loss activity. They also mention the potential effects on the industry as a whole, such as pricing and loss costs.

The speaker discusses the impact of recent events on the insurance industry and society, stating that it may serve as a reminder of the systemic exposure present in technology. They also mention that the growth in commercial auto may have been driven by rate increases, but they are actively monitoring the risk margin and feel reasonably comfortable at this time. They then address the accident year loss ratio, which remained flat year-over-year but increased slightly from the first quarter, and mention that there were various factors contributing to this.

The company experienced a slight increase in the second quarter, mainly due to incremental changes in the auto and umbrella insurance lines. They are closely monitoring the auto line and making reserve increases as needed. There is no evidence of issues in other product lines, but the trend in auto claims is concerning and requires close attention.

The speaker is discussing the performance of the company's professional liability business, which has seen growth for the first time in over a year. However, they note that the D&O submarket continues to be challenging, with transactional liability shrinking rapidly due to unfavorable market conditions. The speaker also mentions that the non-D&O portion of the professional market is performing well.

The speaker talks about how changes in terms and conditions have contributed to the profitability of the business. They give an example of a contractor moving from the admitted market to the E&S market and paying more for coverage, but getting better terms and conditions. The speaker also mentions that a significant portion of their business is in the E&S market.

The speaker is discussing the growth of the standard market and the E&S market. They also mention a slowdown in the growth rate of short-tail lines in Insurance, specifically in the property market. In the investment portfolio, there was a decline in the carry to value of common stock equity compared to the previous quarter, which was due to selling off some common stock and realizing gains.

During a conference call, Bill Berkley, CEO of an insurance company, explains that the company has decided to stay away from the stock market for the time being, except for specialty positions. This decision is not based on any macro view, but rather on the company's focus on managing shareholder capital and achieving risk-adjusted returns. The company is well positioned and has been able to deliver a strong outcome despite challenges in the environment. The call ends with closing remarks from Rob Berkley, the company's representative.

This summary was generated with AI and may contain some inaccuracies.