I am very pleased to have here with me Bill Berkley, Chairman, and Rob Berkley, the CEO of W. R. Berkley. Thank you all for being with us. Very much appreciated. I'm going to start. The format here is going to be Q&A, fireside chat. At the end, I might stop a few minutes short to take a question or two from the audience, if that works. I'm going to kick it off with a pretty broad question. I thought I'd start with just if you could describe how you view the current state of the commercial property and casualty market, and how you view W. R. Berkley in terms of its positioning in that market. You want to- No open up? You got 2x the amount of time in the industry I do. Yeah, but you're smarter. All right. He's lying. AI, first off, thanks for having us. It's a pleasure to be here. It's an interesting moment in the industry at this time, and I think it's an interesting moment for a variety of reasons. Number one, I think it's important to recognize that this is an industry that has been historically viewed as one that is cyclical, and that remains very much still the case. However, one of the differences is that it was always viewed as all product lines marched in lockstep throughout the cycle somewhat together. What we're seeing today is we have different major product lines under the commercial lines umbrella that are in different points, if you will, of the cycle. For example, you could see the property market, particularly cat-exposed property, which is really poised for firming like we haven't seen in years. On the other hand, you have workers' compensation, which continues to erode. When we look at the marketplace, we think that it's a very interesting moment. We think that you can't use a broad brush and just make a statement across all product lines. Nevertheless, there are also some other realities that all product lines are facing. One of them being social inflation, which is the legal and social environment and how that's driving claim costs. Of course, economic inflation, which obviously plays an important role in driving claim costs as well. Those two catalysts are, without a doubt, having an impact on loss costs, which by extension, is driving pricing to a great extent. In addition to that, you have the reinsurance marketplace, which is a key component of providing capacity to the broader insurance industry that has gone through an extended period of time of getting, quite frankly, beaten up and bruised pretty badly. You're seeing a level of discipline returning to that part of the market, and there is a waterfall effect. I think the only other comment that's worth mentioning, and perhaps we'll get into it in more detail later if people choose to, is the interest rate environment. We all know that we've been through an extended period of time where interest rates were exceptionally low. We are all aware as to what has happened with interest rates as a result of a variety of things, particularly inflation stemming from stimulus activity, so on and so forth. What this means for the insurance industry is material. It certainly gets to the issue of what does it mean for capital accounts as people are having to recognize what's happened in the bond market, what that's meant for their bond portfolios and ultimately their book value. In addition to that, what does it mean for the investment income component of an insurance company's economic model? For the slow, stodgy, sleepy insurance industry, which most of the world chooses either not to associate with or views it as a necessary evil, it's actually a moment that is as dynamic as I think it's been in years and years and years. The next question I have is- Let me add one thing. Yes. There is a misconception in the investment community and in much of the world, that is, if you look historically over a long run, the property casualty business does well during inflationary periods. What Rob said at the end explains why, that is you get higher interest rates. Investment income is a multiple of assets compared to premium. Investment returns relate to inflation. Inflation ends up creating higher returns for the property casualty industry. It is a better time than non-inflationary times. Most people don't realize that. They get afraid with inflation instead of clapping their hands and saying, "Oh, good. So- This is an oh good time. Yeah. To that point, Al, just fully hijacking the conversation at this stage. One of the reasons, I think you mentioned, what does it mean for us as an organization, and how are we positioned? To the comments that were made just a moment ago We've had a view about inflation and by extension what that meant for interest rates for an extended period of time. As a result of that, the investment portfolio was positioned a certain way. When we saw inflation coming our way, we did a couple of things. One, on the underwriting side, we said we better make sure that we are on top of our loss costs, and we're capturing and we're recognizing where loss costs are going and pricing for that because we are in an unusual industry where you don't know truly your cost of goods sold until oftentimes many years after you actually sold the policy. You need to anticipate and address that, recognizing where things are going. Then the other piece of equally important is the investment portfolio, how the decision was made very actively to keep the duration short, to keep the quality high. While, yes, for many years we gave up a certain amount of investment income because of that decision, I think if you look at how things have panned out, we were rewarded for that decision. A lot of that goes to the idea of how we operate the business, whether it's on the underwriting side or the investment side, a keen eye towards risk-adjusted return. When I think about the capital strength you're talking about the firm market that we've had for an elongated period. Can you talk about broadly how you feel about price adequacy? Are there enough areas, you mentioned that it sort of depends on which product, but are there enough products where you feel strongly about your price adequacy that you're positioned for growth at this point as an organization? The short answer is yes. There are pockets of the marketplace that we participate in that we are letting business go, or we are in the marketplace at what we think is a responsible rate and responsible terms and conditions, and there may be competitors that have a different view, and the business is moving away from us. There are many pockets of the marketplace where we like the margins a lot. We like the rate increases we're still able to achieve, and we are seeing a very healthy flow of business coming our way. One of the benefits of our organization is the diversification. The way we are structured, it allows us to remain very focused. At the same time, we have a diversified platform. In a marketplace that is all product lines not marching in lockstep, and there are areas where you want to grow and be leaning into it, and products and areas where you want to be playing more defense, if you will, and letting the business move away, the diversified play lends itself well. Our decentralized structure, where we have 58 operating units, each one focusing on a particular niche, that allows us to make sure that we do have that level of focus that complements the diversity. The next question I wanted to ask you about the reinsurance market specifically, maybe you could help us think about where we're at right now, what's driving the potentially large price increases that the market's seeing, and what kind of opportunity is that for you as we get through the end of the year? I think that what drives the insurance cycle, as it's been suggested for years by the gentleman to my immediate left, is two human emotions. Putting aside all the data and the analytics and all the other wonderful tools we have, there's two human emotions that drive the cycle, and that's fear and greed. Those two are alive and well, and you see it time and time again. When you want to talk about the reinsurance market, and perhaps the most extreme example within that space is the property cat market. There is no question that there is fear that is abound, and that people have gotten to the point where they say, "We cannot afford to continue to destroy capital the way we have historically. We are going to bring in a level of discipline that we have not seen in many years." That does not apply across the board. I think while there is discipline in the reinsurance market in general, more so perhaps than yesterday, a lot of it at the moment is focused on property cat. The question is, how long will that last? If we sail through 2023 without any cat activity, when we're sitting here a year from now, will property cat rates be coming down already? I don't know. History would suggest the answer is yes. The reinsurance marketplace, particularly property cat, is in a moment of firming. That having been said, there is no question it is a commodity product, and it is very much driven by supply and demand. Will, you may have a different- Well, I think why don't you comment upon our reinsurance business? Sure. Because it's the part of our business that has grown and has shrunken more than any other part just because of that. Well, just to follow up on that- In everything we do, again, back to this idea of risk-adjusted return, we are only interested in exposing the capital when we think that you're getting paid a reasonable return for that. We believe one of the issues the industry doesn't, generally speaking, focus on appropriately is the role that volatility plays when considering risk and return. For our purposes, we are in business to make good risk-adjusted returns. If market conditions are not allowing for that, we're prepared for the business to shrink. Parts of our reinsurance business, they shrunk down to being 30, 40% of what they were at their peak, and that's perfectly acceptable of us. Again, some people would say we're opportunistic, and quite frankly, I take issue with that because I don't think we're opportunistic at all. I think we're actually very consistent. We are just disciplined. We have a view as to what is an appropriate price level, what is appropriate terms and conditions, and to the extent that others are willing to compromise off of that, well, the business will move away from us. We are, generally speaking, just staying on property cat for a moment because it's the flavor of the day, and we'll see how long that day is. It's certainly possible that we will participate a bit more in that than we have. For example, if you go back in history, in 2002 and 2003, we as an organization flexed up our participation in the property cat space. By 2004 and following, we started to bring that back down as the market moved away from us. Are we going to become a major property cat writer overnight? Absolutely not. Are we going to, in a controlled and thoughtful way, participate in a window of opportunity? We think that's part of what we're in business to do. One of the drivers of margin improvement that companies have talked about is unit exposure, and it's both economic growth and insured values with inflation. It seems like it's had an impact on the industry in a significant way over the last year. Could you talk about this dynamic and what we should expect in terms of the performance of the book as maybe some of these tailwinds subside as we think through 2023, whether it's economic growth or inflation? I think one of the things that's important, at least in our opinion, certainly my opinion, I think our opinion, to draw a distinction between two points, and that is exposure growth versus rate increase. Exposure growth is, just to pick an example, you have a commercial transportation account with a bunch of trucks. Let's say the account has 50 trucks, 50 power units, and they add a certain number of power units. They add 20 power units, so now they have 70. That's additional premium you're going to get on those power units, but that doesn't mean that your margins are necessarily getting better. It means that you just are selling more widgets. Versus a rate increase, which is where you are actually charging more premium per power unit, if you will. I think oftentimes in some of the commentary, particularly around quarterly earnings calls, that becomes more gray than it should be between those two things. If you really want to talk about true margin expansion, the margin expansion comes from rate increases, pure rate per power unit, if you will, or per widget, that you are getting above and beyond loss cost trend. To the extent you're getting rate more than loss cost trend per power unit, you're gaining altitude. To the extent you are getting less per power unit, you're losing altitude. One of the other things that's important to please keep in mind about this industry is that there are certain product lines that adjust for exposure. Workers' compensation, for example, as many are aware, prices off of payrolls. Payrolls go up because of wage inflation or people add to headcount or employee count. Workers' compensation adjusts for that through the payroll. For many casualty lines on a GL product, you will price something off of receipts, if you will, or revenue. On a property account, you will typically price it off of an appraised value. Presumably, that is keeping up with inflation as long as the appraisal is up to date and one's taking into account timing. The industry, from my perspective, when you're evaluating margin and where it is going, one needs to take into account exposure growth versus true rate growth. In addition to that, one needs to unpack certain product lines were built into the rating mechanism. There's the ability to keep up with exposure change. As far as we're positioned, we have been very focused on inflation, both flavors, social and economic, for an extended period of time. We were early, and quite frank, and pushing rate because we saw this coming and we didn't want to get caught flat-footed. As a result of that, quite frankly, there were moments where we didn't grow as much as we could have if we were operating the way some peers did. That having been said, we think that it's going to inure to our benefit in the long run. In addition to that, we've also paid very close attention to what I touched on a few moments ago, and that is appraised values. When you're writing property accounts, making sure that that appraised value is up to date is very important. Oftentimes, people will be looking at appraisals that are as much as six months old. In an inflationary environment like we've been through, if you think about, okay, that's six months old, then you have an annual policy and you have a claim in the third or fourth quarter of the policy, that delta can be pretty material, particularly if you apply it to a portfolio. Keeping up with that piece is very important and we've been very focused on as well. The next one I have, V, is just on specialty versus standard lines. You made some comments on your last earnings call on this topic, but I was just interested in how you see that dynamic in terms of competitiveness. What are the ways that you're able to avoid some of the most intense competition in the P&C commercial industry? In the industry, in our opinion, no one can really be all things to all people, you ultimately need to decide how you want to play the game. Are you going to be a specialty player or are you going to be a commodity player? To be a commodity player, you have to have the most efficient factory floor, the cheapest cost of capital. When the day is all done, we reached a conclusion that we are not going to be, and we don't want to be State Farm or Travelers or Liberty or any of those household names. They're bigger than us. They're a whole host of things. We need to figure out how we're going to play the game in a manner that makes sense for us. That's what drew us to the specialty lines. We think the specialty lines are not about who has the cheapest cost of capital, though, of course, we care about our cost of capital. It's much more about knowledge and expertise and intellectual capital, which is how you differentiate yourself and how you select and how you price risk, and how you adjudicate claims and everything in between those bookends. We have deliberately focused on the specialty lines, and the more specialized, the better, which is one of the reasons why we're such a significant player, particularly in the E&S space. We think that you can, quite frankly, make better risk-adjusted returns, and it just lends itself to us, and that's how we've built the business today. As far as flow and opportunity, look, the standard market continues to, specifically your question, Alex, have a very clear appetite, at least through their lens. To the extent that a risk falls within what they have defined at any moment in time as their appetite, then it is remarkable to us how aggressive they're prepared to be. To the extent it falls outside of their strike zone, that's what creates opportunity for us. We certainly continue to see examples of the standard market narrowing further their appetite, and we are very happy to pick up those crumbs that fall off their table and have every intention of making a healthy and appropriate risk-adjusted return on that business. You'll hear perhaps from others throughout the conference, but certainly from our perspective, there remains a very healthy flow of business coming out of the standard market into the specialty market, which is, again, our area of focus. Next one I had, is a little more philosophic. When you think about the benefit of higher interest rates and your net investment income, the higher ROEs that potentially gives you access to required because the cost of capital is increasing from interest rates as well, or would you think about net investment income at higher levels assisting in making business adequately priced on the underwriting side is sort of an offset to margin erosion? I have a view, but I've been talking a lot, so maybe you'd like to I think that the property casualty business in a broad sense is a risky business, and the returns have been barely above or slightly below our targeted returns of 15% after taxes. We think investment income is going to bring them to where they're at or above that targeted rate of return, and that's where we think they need to be. Our targets for underwriting profitability are not going to change. Our overall targets for return on capital are not going to change. We're going to continue with that 15% target, and we expect that we'll be able to exceed that with investment income levels where they are. We, in spite of what people suggest, expect interest rates to move higher, and it'll give us an opportunity to increase the yield on our portfolio substantially. We'll move somewhat out of some of our alternatives and more back into fixed income. We went into more alternatives than historically because the returns on fixed income were so crummy. We'll probably move a little more back into fixed income, but we're going to continue to find places where we can get good returns and continue working and adequate returns on investments will not lower our standards for underwriting profits. In fact, we'll point out that lower underwriting standards just should show the laziness of those underwriters, which he's in charge of course. I would just maybe add to put a slightly finer point on it. I don't see the industry anytime soon, and even if it did, we would not participate in this concept of cash flow underwriting. I believe the industry's a long way from that, and that's not something that we would ever subscribe to. While we certainly understand relative returns and things like that, when the day's all done, one needs to achieve a certain margin if you insure this building. That is an absolute risk, if you will. We would believe that from an underwriting perspective, we are going to charge whatever that is, whatever it would approach The next topic I have for you is the paid loss ratios. You've mentioned these stats on some of your earnings calls, and the trend's been pretty favorable in terms of paid loss ratios improving, I think at times more significantly than the actual loss ratios or on a GAAP basis. I just wanted to see if you could help us think through that. At this point, court reopenings have flushed out, I think more fully it seems anyway. Is that a trend that you'd expect to continue from here? Or do you think your balance sheet strength is at a point where more of that would begin to flow through into GAAP earnings? From my perspective, one of the things that's challenging is to find ways without overstepping, but at the same time, try and give people that are interested in what's happening in the business a taste or a flavor. I think one of the problems with financial services is, and insurance included, is trying to assess really what the ultimate outcome is going to be, whether it's a bank and loan loss reserves, or whether an insurance company and how you set your loss picks and set reserves. Ultimately, it's only through the passage of time that you know really what the ultimate outcome is. In addition to the numbers that everyone and their cousin provides, we've oftentimes tried to provide people with this paid loss ratio number because that's one number that nobody can fudge. There's no ways about it. Here are the claims that came in that you settled, you paid, and you wrote a check for, and that's it. There is no shades of gray about that. It's an important number because it gives you a degree of certainty. We share it with people because there's been a lot of discussion around the inflationary environment. What are loss picks? How does that fit together or hang together with what you've been able to achieve as far as rate goes, how does this all fit? Which in part, Alex, I think is a piece of what you're getting at. We offer the paid loss ratio number because we're trying to send people a message that this is what it looks like as far as the losses that we're paying. Please understand the average duration of our loss reserves is give or take four years. We've been through a period of time where there's a fair amount of volatility and unknown, and we are not going to declare victory prematurely. At the same time, we want to give you visibility as to how the business is running. The delta between the paid versus what we're booking or the incurred, yes, it is meaningful. Over time, will that delta narrow as those policy years season out? Without a doubt. Given the leverage around some of the assumptions, particularly inflation, we're just not going to get ahead of ourselves prematurely. Even without getting ahead of ourselves, we think we're with comfort delivering some pretty healthy risk-adjusted returns to the owners of the business. There is no need to push the business harder. There is good reason to respect the unknown and wait for more information to become available. Got it. After the next question, I'll open it up to the audience. Before I do that, I wanted to ask you about workers' compensation. That's an area where you've expressed a little bit of concern over time around the price adequacy. More recently, I think we've seen the NCCI pricing data has suggested maybe further pressure on pricing. I just wanted to see what your view was there and how we should think about your presence in the excess workers' comp market. As far as workers' comp goes, obviously from a premium perspective, last time I checked, it's the largest component of the commercial lines marketplace. It's an important part of the market. I think NCCI does a great job. I've been involved with the organization. I think they bring tremendous value. That having been said, they have a long history of getting it wrong. I don't know whether they will get it wrong this time or not, but they do tend to be consumed by what's in the rear view mirror, and they are not as perhaps focused on what's out the front windshield. I think the comp market has been on a remarkable trajectory for, I don't know how many years it is at this stage when it comes to frequency trend. I think it has clearly been a friend. I do not know if it is OSHA or other safety regulations that have led to the improvements on the frequency trend, but clearly it is real, it is there. We are more concerned about the severity trend. When you look at the typical claims dollar, more than $0.50 on a dollar in the workers' comp space is medical driven. From our perspective, there is a growing chance you are going to see an increase in medical inflation over the coming years. Look, they have a tremendous amount of data. I think that the industry has caught a break with frequency trend, particularly during COVID, and we are very focused on the severity trend, and we think that there could be challenges to come. That having been said, we have several companies within the organization that we work for that participate in the workers' comp space, and they are run and operated by some remarkably capable people, and we have a high degree of confidence in their ability to manage the capital. Any questions from the audience? Do you mind grabbing the mic? Thank you. You guys have done a great job managing the interest rate exposure of the investment portfolio, keeping duration low. I believe you have extended out duration a bit, but just any more thoughts on where we think rates might go? Longer rates have come down a bit. Then the impact it might have on your book yield over time. I don't know what your new money rate is today, but I would assume that's going to increase over the next couple years. Any comments on that? I think first of all, we're marginally extending duration. Because of the shape of the yield curve, we're not investing long. That's okay because if we have what we would expect, which is a modest recession coming up, longer term rates will go up, shorter term rates will go down. We'll get an opportunity to extend duration as the cycle moves. We think the Fed will continue to raise rates. 50 basis points, I think, is sort of baked in already. We would expect at least one or two more increases. The economy isn't slowing down, the things that will cause inflation to continue are still there, and they're wage increases. The reason we're not seeing such pressure on inflation is the supply chain issues are easing up. Inflation is not going away. It's easing, there's no question. For interest rates to get where the Fed says they want to, you see another at least 100 basis points increase from where they are, maybe 150 basis points. You have a while to go. We expect our portfolio duration will move up back to where it's historically been, 3.5 to 4 years, over the next two years. I would expect that the yield will move up substantially. It's already moved up probably 80 basis points. We expect to continue to do so as we reinvest the money. We're getting over 5% now for our new money. Just to follow up on that. I think at the end of Q3, our book yield was roughly about 3% or so, I think everyone here can do the math as to what does that mean. The new money rate's probably at, give or take. You can extrapolate from there as to what it means. I'm really glad that you raised the question because I think it's one of the things that is perhaps not fully appreciated about the economic model of the business that we work for and the upside from here. We are going to continue to focus on the underwriting and the blocking and the tackling and generating good combined ratio. The big leverage for us is in the investment portfolio. To the point that you raised, when you look at what that book yield is and you look at the delta between that and the new money rate and you know what the duration is and how quickly that's going to roll over, the leverage, if you will, in the economic model is material. I think that it's directionally understood, I'm not sure many folks have actually done the math and extrapolated for what that means. All right. I think we're at time. Thank you all for joining us. Thanks, Bill. Thanks, Bill. Thanks, Rob.