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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day. And welcome to W.R. Berkley Corporation’s First Quarter 2022 Earnings Conference Call. Today’s conference call is being recorded.
The speakers’ remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words including without limitation, believe, expects, or estimates.
We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates, or expectations contemplated by us will, in fact, be achieved.
Please refer to our Annual Report on Form 10-K for the year ended December 31, 2021, 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 immaterially 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.
Emma, thank you very much and good afternoon all and thank you for finding time to join us for our Q1 call. On this end of the call in addition to myself you also have Bill Berkley, Executive Chair; as well as Rich Baio, our Group CFO.
We are going to follow the usual agenda, where I am in short order, going to hand it over to Rich. He’s going to walk through the highlights of the quarter. Then once he’s completed his comments, I will tag along with a few of my own observations and shortly thereafter we will be opening it up for Q&A and happy to take the conversation in any direction participants would like to do so.
That having been said, but before I do hand it over to Rich, because I always like to steal at least a little bit of his thunder though I don’t think the comments will come as a surprise to anyone that’s had an opportunity to review the release.
It was a terrific quarter for the organization really by any metric to say the least. And quite frankly we were able to achieve these results, because of the efforts of the full team across the country and around the world all working together to achieve these types of outcomes.
I think what’s important to that point is to just remind ourselves and remind each other that this effort this is a team sport, as I have commented in the past it’s not an individual sport. And quite frankly, this isn’t rocket science what we are doing.
Yes, we are very fortunate that we have a lot of very intelligent people on the team working very hard, but a lot of our success comes about because of discipline, because we focus on blocking and tackling in a thoughtful and consistent way every day, because we are not only consumed by what’s in the rearview mirror, but we are paying close attention to what we see out the front windshield.
It seems like common sense, but quite frankly, it requires great effort every day, and again, I think, we are achieving these types of results because of the efforts of the full team. So congratulations to all.
I think beyond just the results, which again, I think, speak for themselves, I would suggest that perhaps what’s as if not more exciting is quite frankly how the table has been set for what is likely going to be a very strong balance of 2022.
Additionally, how things are being setup for what should be a very strong 2023 and with every passing day there are more pieces are being put into place that would suggest that it’s more likely than not that 2024 will also be very promising as well.
So we as an organization continue to be very focused on building book value. We have an obsession around the concept of risk adjusted return. I think that came into focus not just in this quarter, but in our ability to generate good returns regardless of what may have happened on the cash front in any quarter. It’s the consistency of strong results that differentiate us in the marketplace.
So, with that, let me hand it over to Rich to walk us through some of the highlights and I will be back on the heels of his comments. Rich, if you would, please.
Thanks, Rob. Appreciate it. The company continues to operate extremely well, as Robert pointed out, reporting record quarterly underwriting income and net investment gains, both of which led to the 157% growth to record quarterly net income of $591 million or $2.12 per share on a common stock split affected basis.
Operating earnings also improved 52% to $307 million or $1.10 per share on a common stock split affected basis. The primary contributors were improvement in underwriting results by 2.3 points to a calendar year combined ratio of 87.8% and growth in net investment income of almost 9.5%.
Going more into the details with our topline first, gross premiums written grew 15.1% to a quarterly record of approximately $2.9 billion. Net premiums written also grew 17.7% to a record of more than $2.4 billion. The higher growth in net premiums written is driven by our decision to retain more business which is evident by the lower session rate.
In the Insurance segment, all lines of business grew generating a combined 19.2% increase to total net premiums written of almost $2.1 billion. The Reinsurance & Monoline Excess segment also increased 9.6% to more than $300 million, driven by growth in casualty reinsurance and Monoline Excess. This represents the fifth consecutive quarter of double-digit growth in premium, which will continue to earn through the income statement and can be seen by the higher growth rate and net premiums earned compared with net premiums written.
Record pretax quarterly underwriting income of $274 million surpassed multiple quarterly records last year. The quarter improved $92 million in more than 50% over the prior year.
Catastrophe losses were well within expectations at $29 million or 1.3 loss ratio points. This compares with $36 million or 1.9 loss ratio points in the first quarter of 2021. The current accident year loss ratio, excluding catastrophes improved 0.6 loss ratio points to 58.3%, primarily driven by rate improvement, prior year loss reserves developed favorably by almost $1 million in the current quarter, bringing our calendar year loss ratio to 59.5%.
Expense ratio is in line with expectations at 28.3%, reflecting an improvement of 1.2 points over the prior year’s quarter. As previously mentioned, the growth in net premiums earned continues to benefit the expense ratio, even with higher fixed costs coming from compensation, a new operating unit and increase in travel and entertainment.
In summary, these components contributed to our current accident year combined ratio, excluding catastrophes of 86.5% for the quarter, compared with 88.4% for the first quarter of 2021.
Net investment income increased almost 9.5% to $174 million for the quarter. The growth is primarily related to an improvement in investment funds of 33.6% and the core portfolio of 11.7%. Investment funds outperformed in the real estate, financial services and transportation funds, and the core portfolio benefited from rising interest rates and dividends received on equity securities.
The investment portfolio also maintained the same duration of 2.4 years and credit quality of a AA-. In addition, our strong operating cash flow has enabled us to put more money to work, despite retaining a significant position in cash and cash equivalents of approximately $2.1 billion.
Record pretax net investment gains in the quarter of $366 million is primarily made up of net realized gains on investments of $277 million and the change in unrealized gains on equity securities of $93 million.
The key contributor to the realized gains was the sale of the real estate investment in London of $317 million gross or $251 million net of transaction expenses and the foreign currency impact, including the reversal of the currency translation adjustment.
Corporate expenses increased primarily due to performance-based compensation arising in connection with the record level of earnings.
The effective tax rate was 19% in the quarter, reflecting a one-time benefit from the release of a valuation allowance arising from the utilization of tax attributes, as well as investments in tax exempt securities and dividend paying equity securities.
Stockholders’ equity increased to almost $6.9 billion as of the end of the first quarter, representing an increase of 3.2% over the prior year end.
Book value per share before dividends increased 3.5% in the quarter and would have marginally increased even without the gain from the sale of the real estate investment in London. The annualized return on beginning of year equity was 35.5% for the quarter and 18.5% on an operating earnings basis.
Rob, I will turn it back to you for further comments.
Okay. Rich, thank you very much. That was great. So let me keep this somewhat brief, because I am sure people have their own topics and questions I’d like to get on to. But maybe just through my lens, a couple of sound bites, the topline, obviously, just shy of 18% from my perspective by any measure is very healthy and if we unpack that a little bit, a couple of other data points for folks, as far as the rate increase that component in their ex comp came in at 8.3%.
And let me give you a couple of other numbers and then I want to dig into this a little bit more. So the new business relativity, which is a metric that we have shared with some of you in the past, is how we measure our new business pricing relative to our renewal pricing.
From our perspective, when you look at new business, one needs to recognize that there often times, not always, but often times could be more risk associated with it. Your renewal book you know more about, new business you know less about and to make a long story short, our new business relativity for the quarter came in at 1.018. So what does that mean? That means based on our macro measurements, we are charging just shy of 2% more for new business relative to renewal business.
Another relevant -- at least in my opinion, relevant data point is our renewal retention ratio came in at 82% and change. Why is that important? Because it tells you that we are -- to get the growth we are not churning the book. We are keeping the portfolio intact and from our perspective that is a very healthy number, and certainly, from our perspective also is as an invitation if you will to keep pursuing additional rate.
I think that when you look at the 8.3%, it’s also important that people understand that there’s several dimensions that we are able to see that perhaps those from the outside looking in can’t see. We look at this business by operating unit, by product line and are constantly assessing the margin that we believe exists in the business.
And there is a constant balance or rebalancing that we are doing on a daily basis, as to what type of rate we need, what margin we think is in the business and at what point in time when we see the margin that is available is growth of exposure the priority or is rate the priority and between those two components which one is more of a priority.
So at this stage we feel very good about the available margin, and as a result, in many product lines, we are willing to allow exposure growth to be the priority over rate but not across the Board.
I also want to spend a couple of moments talking about staying on that topic of exposure, because obviously for some number of years we have been beating the drum about social inflation. I think we were on the earlier side compared to many of our peers some folks may have labeled us chicken a little, but nevertheless, I am grateful that our colleagues have the inside and we took the action that we did.
That having been said, obviously as of late, this concept of economic or financial inflation seems to be getting all the headlines with good reason. And it’s important, I think, for observers to understand, to take into account that the majority -- in our organization’s case, I can’t speak to others, but in this organization’s case, the majority of the policies that we write are based on or priced off of, if you will, exposure.
So what do I mean by that? I mean, we price our policies off of payroll, off of receipts or revenue or off of appraised value, which is done in a very timely manner at the time when we are underwriting the policy.
So I mention this because as people are grappling with what is the impact of economic inflation on our business model, certainly we are not insulated from it. We will in a couple of moments potentially get into the discussion around what does it mean for the investment portfolio.
But from an underwriting perspective, why are we are not completely insulated, the majority of our business activities, the pricing, if you will, feeds off of exposure, i.e. in other words, if you own a deli and you are charging a dollar more a sandwich and we are pricing your GL, we are pricing it off of your revenue and your receipts. Consequently, the premium is going up as your revenue and receipts are going up. That is separate and distinct from rate.
Rate is a separate activity, if you will and how one thinks about it from exposure growth, and again, obviously, inflation to a great economic and again, obviously, inflation to a great extent -- economic inflation to a great extent is contemplated in exposure growth.
A couple of quick sound based on the loss ratio, continued improvement from there. As Rich mentioned, we did have some cat activity. Really, the two pieces that are most noteworthy would be, one, the European storms during the quarter, as well as the Australian floods to the extent people want more detail, we can certainly get into that in Q&A probably best just to pick it up in the queue.
The other piece I wanted to flag on the loss ratio and I may have touched on this last quarter, I can’t remember and I didn’t go back and look at the transcript. But it’s something I look at and perhaps it’s of interest to others and that is the paid loss ratio.
I am just going to which came in in the quarter at a 45.3%. I’d like to give you a couple of historical data points, which you can always dig up on your own. But let me save you the work and the numbers I am going to read off are over the past couple of years for the first quarter what the paid loss ratio was and I want to give it to you for the corresponding periods because that way we are getting as close to apples-to-apples as possible, though it’s not a perfect comparison because of mix of business, et cetera.
But if we, again, 2022 for the quarter, it came in at a 45.3%. So let’s go back to 2017. If you go back to 2017, Q1 paid loss ratio 55.5%, 2018 Q1 paid loss ratio 58.8%, 2019 paid loss ratio 54.2%, 2020 loss -- paid loss ratio 56.1%, 2021 paid loss ratio for the first quarter 48.2%.
So I flag it because it’s one of the first things that my father taught me about the insurance business. The paid loss ratio there’s really not much room for grey. It’s a black and white number, it’s a real number. And again, I think that it is one data point, which people can interpret any way they want, but I think it’s, in my opinion, a helpful indicator or trend as to where things are going.
Rich talked about the expenses. Obviously, there are two things that we are experiencing -- three things that we are experiencing in there, A, earned premium continues to grow. We are getting a benefit there. Going the other way, T&E is starting to pick up again as fortunately knock on wood, COVID is hopefully in the rearview mirror and shrinking, and then, lastly, we have one new operation which now is feeding into the reported expense ratio and it takes time for it to scale, as we have discussed in the past and we are confident it will be accretive over time.
Let me offer a couple of quick sound bites on the investment portfolio and then I promise I will be finishing up and it will be the participants turn. The investment portfolio, I think, is a great example of some of the comments that I offered earlier around a focus towards discipline, a focus out of the front windshield, not just the rearview mirror, and quite frankly, I think we started to see some benefit really towards the end of last year and that benefit is really starting to crystallize and likely more to come. So as Rich mentioned, duration for the portfolio at the end of the quarter was 2.4 years. Another data point, the book yield on the portfolio was 2.2%.
Given where interest rates have gone, our new money rate in the quarter is approximately 100 basis points above that. So as they say, you can do the math and figure out what does the 100 basis points benefit mean for our investment income and our fixed, for our investment income, given the movement in rates that we are seeing on the fixed income portfolio.
So when we talk about the table being set for the future and the opportunities coming our way and what this means for our economic model and the earnings power of the business, I think that’s an important data point for people to be considering again in my opinion.
Another point that I’d like to make, and quite frankly, it’s a little bit of a pet peeve around here and that has to do with gains. Certainly, we have noticed that people have a tendency to back gains out of our results. And quite frankly, people can look at the numbers any way they want, but from our perspective, we think that, that’s just not appropriate.
We give up a fair amount of operating income, if you will, to invest in alternatives, particularly some of the activities that have a focus towards gain. We are focused on total return and we think that is what is in the best interest of the shareholders, and again, obviously, we take an approach very focused on risk adjusted return.
So I think that we are already benefiting from the discipline that we have exercised over the past several years, keeping that duration short. I think that benefit is going to be coming more and more into focus over the coming quarters and years, and quite frankly, I think it was a few quarters ago, we talked about how, quite frankly, if rates move up, we didn’t think that we were getting paid enough by taking the duration out. I think that reality has come into focus. And I think in part that was demonstrated as Rich referenced a few moments ago.
But if you look at our book value and even if you chose, which I do not agree, but if you chose to back out the gain from the building that we sold in London. Our book value, in spite of what happened with interest rates, still went up, which I think given what has happened in the bond market is pretty outstanding. So, again, congratulations, job well done to my colleagues on the investment side.
So that was probably a lot more than anyone was looking for or bargain for, but thank you for your patience and listening to me.
And Emma, why don’t I pause there and let’s open it up for questions.
Thank you. [Operator Instructions] Your first question today comes from Elyse Greenspan with Wells Fargo. Your line is now open.
Hi, Elyse. Good afternoon.
Hi. Thanks. Good evening. My first question, I was hoping to get just more color on what you guys are broadly seeing within the E&S market. It seems from the growth and the commentary right that you are not seeing competition pick up there, just any color there? And Rob, when you think out over the balance of this year, how do you expect the underlying dynamics between the standard ford and the E&S market to play out?
So --my, well, first, thanks for the question, and second of all, when we look at the submission flow that’s coming into our specialty businesses in general, in particular the E&S businesses, but the specialty businesses in general, it was very strong in the quarter.
My observation from a distance, and again, we are much, much, much more a specialty player than not. But it would seem, again from a distance that the standard market, they have a very firm view as to what is in their appetite, what isn’t in their appetite. And if it’s out of their appetite, they -- we did out of there very quickly and very abruptly.
But if it’s staying in their appetite, they seem to be apparently very, very aggressive. It’s almost that they don’t understand the inflationary environment that we are operating in. But we are a specialty player more than that, so maybe I am mistaken.
Long story short, flow of submissions remains very encouraging, and quite frankly, in particular, noticed March was particularly strong. So there’s really nothing that we are seeing that would suggest that the momentum is getting derailed in the specialty specifically E&S space, I think was your question, but across the Board.
Okay. Thanks. And then, you guys seem still pretty positive on pricing. So how should we think about the rate versus loss trend dynamic, as we think about that, what can be earned in over the balance of the year?
Okay.
Should -- would you expect within range of, I guess, the 60 basis points that we saw this quarter without losses you have?
Well, I -- there’s a -- I think a limit as to how far I can go without the room and then getting stormed by lawyers. But what I would tell you is that, I think that at this stage, based on how we think about loss cost trend.
And the rate that we are achieving, there is reasonably compelling evidence that the rate we are achieving is in excess of loss costs and by something that would be measured in 100 basis points. How quickly we recognize that?
Okay.
We -- it’s not lost on us, how leveraged, some of these assumptions are. I think, as Elyse, we have discussed in the past calls like this, we are just not going to push it. It’s a complicated environment with a lot of unknowns. The business is running from our perspective quite well. We think we are on a good trajectory. But, again, when we do the math, we think that it’s a pretty healthy delta.
Okay. Great. Thanks for the color.
Thank you.
Your next question comes from Mark Hughes with Truist. Your line is now open.
Good evening, Mark.
Yeah. Thank you. Good evening. How much of the improvement in paid loss ratio do you think comes from claims dynamic, frequency or severity? How much are they bouncing back relative to kind of pre-COVID or is that all a rate dynamic?
Look, I think, we will not have clarity around that other than through the passage of time. That having been said, clearly, there was a pinch point, if you will, in the claims activity due to COVID, though, we think it’s gradually catching up.
From my perspective, I think, we are in a pretty good place, and to my many colleagues credit, I think much of the improvement you are seeing is as a result of their efforts and their performance. And having been said, we will have greater clarity to your question with time and I would be reluctant to try and answer it in a definitive way, but certainly there are a lot of encouraging signs.
But that having been said, that’s why we are carrying the loss picks in a -- what I would define as a thoughtful and measured manner, and not wanting to declare victory prematurely. But even with that taking a measured approach, obviously, the business continues to perform at a very healthy return with or without gain.
Understood. Thank you for that. And Rich, the reserve development in the quarter, what was that again overall and then do you have it by segment by any chance?
We in total it was about a $1 million of favorable development and we don’t typically provide the split between segments. We disclose that information in the 10-Q.
Thank you.
Your next question comes from Michael Phillips with Morgan Stanley. Your line is now open.
Good evening, Michael.
Hey. Thanks. Good evening. Rob, I guess, more on the last topic, you talked last couple of quarters about kind of the picture is pretty foggy and I imagine it’s -- I am going to ask is it more or less foggy today than it was say three quarters ago? Is it harder to put numbers around that today than it was from quarter ago is kind of the question? And the reason I ask is, because when you talk about that rate versus loss trend in excess of 100 basis points, I think, it’s pretty close to what you said last couple of quarters as well. So I am just curious how you look at loss -- that differential if foggy picture is perhaps even foggy than it was three quarters ago?
Well, I don’t think, I think actually with every passing day, as the underwriting years become more seasoned and we can -- we -- the policy is I should say become more seasoned. We have greater clarity as to what the ultimate outcome will be. But, obviously, during COVID, there was a bit of a pinch point in the legal system and how quickly things were getting resolved.
From our perspective, with every passing day, we have more clarity around the 2020 and 2021 year, and we are refining our views. But even as I said with a -- what I would define as a thoughtful and measured loss pick, we are still comfortably clearing that hurdle by what would be measured at 100 basis points.
Okay. Thanks, Rob. That’s helpful. The second question it’s just kind of more general higher level. But you clearly are a specialty player one of the best out there, that word specialty is getting more overused today than probably social inflation was part of it. And I ask if you feel the competitive nature in your business is, has it changed in and say I am not talking less every month or the next three months, but it’s more like last five years. Are there more players that are interested in that space than you thought were the case again a longer term horizon, because it’s a term that just everybody’s kind of talking about?
Well, everybody wants to be special. I guess we all are special, right? But putting that aside, look, we certainly have -- we do have peripheral vision, but we spend a lot of time just trying to focus on what we need to be doing, what our goals are, how we need to execute.
And are there -- one of the things at least I think is important to keep in mind and you may want to consider is that as opposed to past cycles of becoming more and more of the cases that different product lines are marching through the cycle on their own, they are not all in perfect lockstep. So as a result of that different product lines are in different places.
There are certain product lines where we are watching the competition increase. There are certain product lines where we are watching the competition diminish. But, overall, in the specialty space, the competitors that we view as real competitors, the ones that we respect. They are basically the same names today as they were two years ago.
We have been doing the specialty business, if you will. It’s been a focus of ours since 1979. So it’s not that the world is stagnant. It’s not that any of us live in a vacuum. Obviously, it’s continuing to change. But we have a lot of expertise. We got a lot of data. We got a lot of intellectual capital, and quite frankly, tribal knowledge and relationships that exist within the organization and I think that that bodes well for us.
But that all having been said, in spite of a lot of the chatter, we -- the competitors that we respect today tend to be, by and large the same list that existed two years, three years, four years, five years ago.
Yeah. Okay, sir. Thank you for your time. I appreciate your comments.
Thank you for your question. I appreciate your engagement.
Your next question comes from the line of Yaron Kinar with Jefferies. Your line is now open.
Hi. Good afternoon. Thanks for taking my questions.
Good afternoon.
I will continue beating this beat, I guess, on loss trends. You said that you have several 100 basis points in excess of trend here in rate. I think you made that comment in the prior year or two as well. So, I guess, with that, when do we start seeing some of that develop more fully and fix themselves, I mean, how many years of maturation do you need in the portfolio? I guess what I tie it to is your comment around 2024, I guess, you are becoming more confident and how that will play out? Is that essentially going to come through reserve releases as you start gaining more and more confidence in the maturity of that portfolio?
Well, look, I think, to your point, it takes time for this to come through and we will have to see how it develops. The assumption that I am making or a statement or that I was suggesting or that I was alluding to around 2020 -- the balance of this year, 2023 and 2024, first off, obviously, we all know how you write -- the timing difference between written versus earned. Second of all, as far as next year goes, clearly some of the business that we write on the reinsurance side that positions us well.
I think the other piece is that we understand what new money rates are and we know what that’s going to mean for our economic model as well. So, again, with every passing day, as I suggested, the table is being set for tomorrow.
Are we banking on positive reserve developments in the statement I made? No, sir, we are not doing that. Do I think that we are being measured in our picks and there is a certainly a chance that things could work out better than what we are carrying the reserves at? Yes, I do. Will that come into focus over time as we have more clarity? That is the expectation.
But in part, as I think we have discussed as a group in the past, COVID perhaps has created a delay and how quickly things are coming into focus. I think there are some people that would suggest that there’s a year, maybe 18 months of a delay in aspects of the legal system and we are just not going to declare victory prematurely.
So it’s going to take some time. We are going to see how things play out over the coming quarters and into next year, and as we have more clarity, you will see us, taking the action that we think is appropriate with the loss picks that we are currently carrying.
Okay. And then my second question goes to premium growth.
Yeah.
You had 19% net premiums written growth in insurance. I think at a conference a month or two ago, you talked about maybe 15% to 25% growth for 2022. So seems like you are kind of in the middle of that range. But 1Q 2021 seems to be a little bit of an easier comp than the rest of the year. So can you help us think through that 15% to 25% growth number?
Ultimately from our perspective as I suggested earlier there’s certainly evidence that would suggest there continues to be great opportunity for specialty players. I can’t promise to anyone, including myself what tomorrow will bring, but I can share with you my interpretation of the available data.
And when we look at the strength of the submission flow particularly in the specialty space and including the E&S space and the quarter including what we saw later in the quarter we are feeling pretty good about it. Could -- May or June or something could have turned out to be something very different? Absolutely. Do I see that as the likely outcome? No, sir, I do not.
Thank you.
Your next question comes from the line of Ryan Tunis with Autonomous Research. Your line is now open.
Hi, Ryan.
Ryan, good afternoon.
Hey. Good afternoon. First question is on the expense ratio. I noticed in the past couple of years it’s a little bit elevated in the first quarter relative to the remainder of the year. Is there something seasonal to that and is there a reason to think that might be true this year as well?
Rich, I don’t know, is there anything around remuneration?
Yeah. I was going to say, I think, it might be attributed to the incentive compensation, because we obviously accrue throughout the year based on our best views of what the year is going to play out for. But then, ultimately, we wait until the year ends and then make any adjustments with regards to bonus accruals that are going to get paid out, profit sharing, long-term incentive comp and the like.
Understood.
But just -- but -- and Ryan, just to be clear…
Go ahead.
… that would be -- that’s not an overwhelming sum.
Correct.
I mean, that would be, whatever, 10 basis points, 20 basis points, something like that, right, Rich?
Yeah. That’s right.
Understood. And then, so, yeah, Rob, in your prepared remarks the comment on not feeling good about just 2023 but also some confidence in 2024. But you said, you are not -- it’s not based on you banking on unreserved releases. So maybe you just go a little bit more into the specifics about what’s giving me that level of visibility, was that a comment about gross pricing or just visibility into solid underlying trends?
So, from my perspective -- well, a couple of things, Ryan. First off, I think, we need to and I think you have, but I am not sure if others have, given appropriate consideration to what this change in interest rate environment means for our economic model. And I tried to flag that when you think about what our book to yield is today versus what our new money rate is and where that’s likely to go.
But let’s put the investments to the side for a moment. The other piece is, every day that we are writing business in 2022 that goes by and we are earning it in over 12 months and we are achieving rate that we believe is comfortably above trend that bodes well for what the outcome is likely to be.
And number three, I just don’t see things going. It’s not like an on-off switch. The market doesn’t be on a great trajectory and then all of a sudden the bottom falls out.
And I guess the last comment and I apologize for being a bit repetitive, but I think that you are going to see certain product lines that have been doing particularly well over the recent past, at some point they are going to peak out. But I think simultaneously some of the product lines that perhaps haven’t been as robust, at some point, you are going to see them start to kick up.
So let’s use worker’s compensation as an example, worker’s comp for the past several years, it’s been a very competitive market, state reading bills have been taking the action they have been taking, and ultimately, if history is any indicator for what is what we should all be expecting, eventually it will end in tears for the industry.
Commercial lines -- workers comp is one of the largest components of the commercial lines marketplace. When that turns that is going to be offsetting my, is what I am suggesting. Other product lines that may have peaked and are go the other way.
So, again, I think that there is a lot of momentum out there today. I think that there are a lot of pieces in place that will bode well for tomorrow. And I think that there’s the argument that you are going to be seeing as the cycle has changed and our product lines aren’t marching in lockstep, you are going to see other things that will come along and perhaps lift certain portfolios for certain carriers.
Thank you.
Thank you.
Your next question comes from Alex Scott with Goldman Sachs. Your line is now open.
Hey. Thanks for taking the question. So I wanted to ask about this balance between growth and rate taking. Just listening to your comments, it sounds like maybe in more products than our growing number of products here you are letting exposure growth be the priority. When we think about that which is sort of separate from what you are saying on exposure, growth from inflation where that directly feeds the premiums and then it’s also separate from rate. I mean, because of that decision to maybe lean a little more into growth in certain product lines, should we expect to see maybe even more of an inflection in terms of the amount of growth that you can get despite rate decelerating a little bit?
Well, a couple of things there just to make sure we are on the same page. I think clearly as we are seeing inflation in the economy and we are seeing prices go up on goods and services, we are seeing wage inflation, which has an impact on payrolls that is impacting exposure growth. And as we write in the business, we price the business off of exposure to a great extent. That is as you pointed out separate and distinct from rate.
So when we think about rate going up and rate going up in excess of our view on trend. In other words that could suggest that you will see further margin expansion on a policy or basis. Furthermore, again, as I said in the aggregate, our rate increases are outpacing what we believe our loss cost trend is, and that is the case in the aggregate and that is the case in the majority of the product lines we right. Did I answer your question?
Yeah. I think you did. I -- yeah, I think you got it. Maybe just for a follow up.
Yeah.
Separately on net investment income, do you mind giving an update and just how you are feeling about the duration at this point and what at what point would you consider lengthening out the duration? I mean, I think the EPS sensitivity to you lengthening it out to where liabilities are as reasonably material. So I am just trying to understand over what time period you would consider looking to do that?
It’s something that we are looking at every day at this stage, taking starting to buy bonds out in the five-year and 10-year range. We don’t think you are really at the moment getting paid for it, but it’s certainly something that we are paying attention to and as my -- from our perspective, we are paying close attention to it.
But taking out the duration is an option that we have, but we are going to exercise that option when we think it makes economic sense again through a lens of risk adjusted return. I don’t know if you want to add on?
I would only say that we think that the uncertainty of inflation when it is going to end and how quickly it ends, as well as issues about flow of funds, as well as investments of the fed in non-government securities, all together make us want to be a little hesitant.
For now if you said, you want your duration to go from 2.4 years to 2.5 years, yeah, that would be great. You want us your duration go to three years now? I don’t think so. So we are happy where we are going out a little bit maybe, but we are not yet comfortable that this is where we should start to move it out.
And just as a reminder, we have a lot of runway ahead of us, because the average duration of our liabilities is, Rich, I believe it’s about four years, yeah.
That’s correct.
Thank you.
Thanks for the question.
Your next question comes from the line of Meyer Shields with KBW. Your line is now open.
Hi, Meyer. Good afternoon.
Great. Hi, Rob. How are you?
Good. How are you?
Good. Thanks. First question, I guess, it looks like growth in the Reinsurance segment slowed more quickly than in the Insurance segment. And I am wondering, if there’s anything meaningful in that?
Yeah. Not really. Quite frankly, I think, what does it mean? Obviously, on the surface, I mean, we wrote less Reinsurance business than Insurance business or Reinsurance and Access business. But I would suggest that people not least to any conclusions on that. We obviously are paying attention to it, but we are not really bothered by it at all and we will see what the balance of the year holds. But, again, I would encourage you not to read too deeply into that. Well, we will see what unfolds from here.
Okay. That’s helpful. You also mentioned on the Insurance segment lower session. I was wondering do they, profile of that that you could provide, are you retaining more lower level of risk or is it just some other component of Reinsurance buying that seems less necessary?
Look, we look at everything we buy and we think about, is it something that we think makes sense? How do we think about the risk and the return? How do we think about the volatility? How do we think about the rate that we are paying? And ultimately, we also have a panel of reinsurers. Some are our partners. Some are people that are just people that we trade with.
So, long story short, we have the luxury of buying Reinsurance when we think it makes economic sense for the company to a great extent, because, again, we as an organization are not a big limited player. For the most part, approximately 90% or so of our policies have a limit of $2 million or less.
At the same time, we buy when we think it makes sense for the shareholders, and at the same time, of course, we are conscious of our long-term relationships with our partners on the Reinsurance side. So long story short, we are happy with how we are and we look at what makes sense for the company.
Okay. Understood. And one last question if you can throw it in. You talk about that 1.8% premium on new businesses versus renewal and we have generally…
1.18%, call it, 2%.
Okay. Right. So, historically, we have looked at that as sort of a reflection of competition in the industry where it’s below 1% that maybe the industry is being more competitive. But I was wondering if you could talk about how that delta actually how well does it represent the lack of knowledge in newer business? Is that enough of a premium? Should it be bigger? Could it be smaller?
Look, the long story short, one you need to understand that’s an aggregation of 57 different operating units. Number -- so please keep that in mind. Number two is it enough if you will push in or we appropriately taking into account the risk? I guess, the short answer is that, yeah, I think, so, my colleagues that are selective on pricing risk are I think very skilled, very thoughtful and generally speaking very experienced and it’s not like it’s just whatever being thrown over the transom or spaghetti being thrown against a loan, we see what sticks. These people are experts in their field, they understand the exposures and they are able to make judgments as to what’s an appropriate rate. So is that the right number? I guess we will all see with time, but do I think it’s sensible and reasonable? Yes, I do.
Okay. Perfect. Thanks so much.
Thank you.
Your next question comes from the line of David Motemaden with Evercore. Your line is now open.
Good afternoon, David.
Hey. Good afternoon. Thanks. I guess just maybe just a question on the loss trend assumption and if you made any changes to that during the quarter, whether that be on the property side with regards to higher CPI inflation or also just on the liability side. And maybe if you could just comment on what you are seeing from a core activity standpoint, whether you are seeing it start to thaw in the legal system thus far during the year.
So the short answer is that, we are constantly thinking about our loss picks and we are equally conscious of what economic inflation means for our loss picks, just as we are continue to be preoccupied with what do we think social inflation means for our loss picks.
So I don’t think it makes sense for us to get into the nooks and crannies as to what it means for these various different product lines. But what I can tell you is, by operating in a by product line, we have and continue to do in a pretty timely way a drains up review around what do these various components mean for lost trend and how it may impact our costs? Sorry, what the second piece, I beg you for answer?
I guess I am just wondering in terms of specifically this year what you are seeing from...
The legal thing that’s in farm.
Yeah. Yeah. Are you seeing any…
Are we…
…any more verdict…
Yeah.
… or the size of the verdicts that you are seeing, are those noticeably higher…
I think social inflation …
… than they were in the past?
Social inflation persists, anyone who doesn’t see it, probably, they needs to flip on their glasses or look a little closer and anyone who doesn’t appreciate again it’s a very much a reality. It’s more severe in certain regions of the country than others. But I would say just generally speaking it’s pervasive across the nation. There’s probably a variety of contributing factors. Clearly society is opening up and that includes the legal system. Have we completely caught up? Probably not. But are we in the process of catching up? Yes, gradually, would be my estimation.
Got it. Okay. That’s helpful. And then if I could just sneak one more in. You mentioned that just the standard lines players within their defined risk appetite competition appear to be picking back up. Are you seeing them expand at all into some of those higher excess layers and casualty lines are starting to maybe expand what what’s in their risk appetite or is that just still not happened yet?
Yeah. Not really. Honestly my -- yeah, I got a lot of colleagues that could probably answer the question better than I, but based on my engagement with them and what they have shared with me, I think it is still a very good market for us and we are looking forward to making continuing to make as much as hey as we can while the opportunity continues to present itself.
But, no, we are -- the standard market they see, again, based on the flow that we are seeing, they seem to continue to be in a moment where they are contracting much of their appetite. But again, from a distance, it looks like whatever is still within their strike zone, they are really leaning into.
And it’s bizarre to me, just to digress for a moment. It kind of makes me wonder. Do they really understand what the impacts of social inflation? Are they fully contemplating certain aspects of economic inflation and what that may mean for their portfolio, that may not necessarily be being captured in the exposure component.
But, look, they -- we got enough to worry about on our end just with the business that we all work for and I am sure they know what they are doing, so we wish them well and we hope they wish us the best, too.
Got it. Thank you.
Thank you.
Your next question comes from the line of Josh Shanker with Bank of America. Your line is now open.
Hi, Josh. Good afternoon.
Good afternoon to you, Rob. A lot of moving parts in the quarter, you guys sold this wonderful building in London and have big profit and you grew book value. Of course, you should be very proud of that. But I want to be able to compare your results apples-to-apples with everybody else, obviously, you are a different kind of apple. Can you talk a little about what the mark-to-market on the bond portfolio was? You are sure that everyone else I assume that you are going to compare very favorably on that compared to others.
Rich, can -- do you have the number handy. Forgive me, Josh, I don’t have it off the top of my head. Rich if you don’t have it, Josh can we circle back to you.
Josh we have disclosed in the supplemental information, I think, that was page seven. I believe from memory the movement from year end to the end of first quarter was about $425 million after tax.
Okay. That’s great. Thank you. And in terms of thinking about your various alternative styles and investments, is this a time to be deploying into arbitrage? Is this a time to be deploying capital into the partnerships and/or maybe real estate, how are you thinking about the non-traditional aspects of the investment portfolio?
Josh, from my perspective no different than on the investment side, we have a lot of very capable people that understand the goal of the exercise is a good risk adjusted return, but obviously with an eye towards total return.
From -- when we think about it, we are happy to wait all day long for our picks and I think the teams have done a great job doing that over the years. So there’s a lot of challenge and there’s a lot of opportunity out there and I expect they will continue to do a great job separating the wheat from the chaff. But I don’t think we have any specifics and I don’t know you may have additional comments.
No. I think that we over the past year reduced our exposure in real estate by a substantial amount. But I think we are constantly opportunistic in looking individually at the kinds of things we do and we will continue to do that. so…
And …
…if we have no individual particular thing that’s going to make us change your mind I know at least that I can see.
Josh, did you have another one there?
It would be reasonable. Yeah. Just one quick one this is probably maybe longer, but can you compare and contrast is there anything we should take away different that’s going on in the worker’s comp market versus the excess worker’s comp market?
I think it would seem as though at least in the recent past the primary comp market has been notably competitive. It would be wrong to suggest that the excess comp is not competitive, but I would suggest that the primary comp is probably even more so.
Obviously that varies based on region or specialty, but we have noticed in the comp market putting aside rating bureau action. We have seen certain players looking for ways to buy market share through increase in commissions. We have seen examples where it would appear as though people are miscategorizing exposures in order to justify how they can write premium.
And again, Josh, look at my crystal ball is no clearer than anyone else’s, probably would help if I change the batteries in it. But long story short, I think, comp is going to have a bumpy road over the next, I don’t know more than 12 months, less than 36 months. But that’s just one person’s personal view.
That’s a very reasonable view. Thank you very much for the answers.
Thanks for the questions.
Your next question comes from the line of Mark Hughes with Truist. Your line is now open.
Yeah. Thank you. Just a quick question. The investment funds, I think, many of those are priced on a one quarter lag. Any early read on what we might expect when you report Q2?
Nothing that’s particularly noteworthy at this stage and that’s not leading that one way or the other, it’s just we for a lot of it, we don’t have the information yet. A lot of the funds, it takes them some time to get the marks and deliver it to us so. We will see how it plays out. But we don’t have clarity to share with you at this stage.
Thank you.
But just one thing to the extent that it’s helpful, we are not a heavy participant in the tech space, if you would, if that’s of interest.
Thank you.
Thanks for the question.
Your next question comes from the line of Brian Meredith with UBS. Your line is now open.
Yeah. Thanks.
Hi, Brian. Good afternoon.
Good afternoon and evening. A couple of ones here for you. First, Rob, I am just curious, noticed a kind of meaningful slowdown in the growth in professional liability and commercial auto, anything noteworthy there? And then particularly on commercial auto, just kind of given the hiring environment that we are hearing about in the trucking business, any caution there with respect to potential frequency?
Look, I think, the -- maybe take I mean the opposite order, if you don’t mind.
Yeah.
As far as commercial auto, I think that there’s clearly a shortage of drivers. It’s been a problem. It’s a bigger problem today than it was yesterday, but it was a problem yesterday. Clearly, training and experience is also something that I think one needs to recognize and what does that mean?
Presumably, people take that into account. We are certainly trying to take it into account when we are looking at exposures and how we underwrite, whether it be purely in the underwriting and the data and the information that we collect on the employees and the hiring practices and so on and the training, obviously we are getting into that in our loss engineering or loss control as well. So it’s an important piece and I share the question, and quite frankly, the concern.
Brian, I would suggest that one could expand that a bit even beyond the challenges that a commercial auto space faces to the broader. The reality is it’s a very tight labor market and I think as we have shared the observation in the past, often times that will lead to people working overtime. That’s when things sometimes can go wrong. In addition to that, oftentimes you will have people that are not as well trained in positions and that can lead to unfortunate situations as well.
As far as the professional liability space, I would suggest that you are not read too much into it. There is one piece of the professional liability space that I think we have an appropriate level of severe caution around and that is large law firms and that may be a contributing factor to what you are referring to.
But generally speaking, we still see a lot of opportunity in the vast majority of the professional space and it’s still a cyclical business, but at the moment and for the foreseeable future, we like the opportunities.
Great. And then my follow up question here. If I look at your short tail lines some pretty good growth. How much of that growth is coming from your Homeowners Insurance business? And also on that, are you seeing more opportunities in that high net worth Homeowners business just given the incredible increase we have seen in housing prices in the U.S.?
So, first off, certainly, a meaningful percentage is coming from the high net worth operation, but it’s also coming from lots of other parts of the business that are writing property. So it’s not all on their shoulders. It’s shared amongst many.
And as far as your specific questions on the high net worth space, as far as I am concerned, while I am sure there are some outside of the organization that may disagree. I think by a wide margin we have the best team in the business and it’s all about knowledge, expertise, and quite frankly, how they work as a team.
So I think the value proposition that they bring to the marketplaces is second to none and I think that is quite frankly reflected in how the distribution and by extension customers are responding and engaging with them. So, lots of good momentum there and I think it’s really just a reflection of the people.
Terrific. Thank you.
Thank you.
Your next question today comes from the line of Alex Scott with Goldman Sachs. Your line is now open.
Hey. Thanks for taking the follow up question. I just wanted to ask if you could comment at all on just the Russia-Ukraine conflict and if you have any exposure we should think about and if even if there’s a small amount of yet any claims associated with it?
So we have to say limited would probably be overstating it dramatically, we are closer to none than limited. And during the quarter, I think, we had claims associated with that. Rich, correct me if I am wrong, but I think it was about $2.5 million.
Yes. On a net basis. That’s right.
So, again, it’s a very concerning situation. Our hearts go out to those that are affected. But as far as the business and the exposure on the underwriting side or the investment side, it’s barely rounding is that.
Thanks.
Yeah.
There are no further questions at this time. Mr. Rob Berkley, I turn the call back over to you.
Okay. Emma, thank you very much. We appreciate your assistance to the call and also thank you very much to all those that dialed in. We appreciate your engagement too. I think, again, as I suggested earlier, the quarter clearly speaks for itself. I think that what is more exciting and hopefully appreciated by those that are observing the business is not just performing well today, but everything is sort of lined up planets and stars for us to have a very, very attractive 2022, likely 2023 and ever more increasingly likely 2024 as well. So, thanks for dialing in and we will talk to you in 90 days or so. Take care. Good night.
This concludes today’s conference call. Thank you for attending. You may now disconnect.