Good day, and welcome to W. R. Berkley Corporation's first quarter 2019 earnings conference call. Today's conference call is being recorded. The speaker's remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words, including, without limitation, believes, expects, or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates, or expectations contemplated by us will in fact be achieved. Please refer to our annual report on Form 10-K for the year ended December 31st, 2018, and our other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. W. R.
Berkley Corporation is not under any obligation and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. I would now like to turn the call over to Mr. Rob Berkley. Please go ahead, sir.
Thank you very much, Jimmy, and good afternoon all again, and thank you for joining us. With me on this end, we also have Bill Berkley, our Executive Chairman, and Rich Baio, our EVP, CFO, CPA, and probably a bunch of other acronyms as well. We're going to change the agenda around a little bit from what we've followed in the past, and we're going to start off with Rich walking you through the quarter, hitting some of the highlights and framing it for you a bit. Then I will follow on his comments with a few brief thoughts, and we will quickly make our way over to Q&A. Rich, if you would please.
Thanks, Rob. To begin with, our results are adjusted to reflect the three-for-two stock split. We reported an increase in net income of approximately 9% to $181 million or $0.94 per share. This compares with $166 million or $0.87 per share for the prior year's quarter. Our return on equity for the quarter on an annualized basis improved one point to 13.3%. Pre-tax underwriting income improved in the quarter, along with net investment income from our core investment portfolio, net investment gains, and foreign currency gains. Offsetting these improvements is lower net investment income from investment funds and higher non-recurring other costs and expenses for performance-based compensation. Pre-tax CAT losses in the quarter were $12.7 million or 0.8 loss ratio points. We did experience slightly elevated non-CAT weather-related losses due to winter storm events. The total non-CAT weather-related losses amounted to 0.9 loss ratio points.
Both CAT and non-CAT weather-related losses were in line with expectations and within a reasonable range of our reported results over the past several years. Prior year loss reserves developed favorably by $7 million or 0.4 loss points, compared with $12 million or 0.8 loss points for the same period last year. Accordingly, the current accident year loss ratio before CATs of 61.6% was largely unchanged from the year ago quarter. To level set the comparable period, pre-tax underwriting income on an accident year basis excluding CATs was $96 million, compared with prior year's quarter of $79 million, representing an increase of approximately 22%. Before discussing the segment results, we have highlighted for numerous quarters that our reinsurance operation declined due to the competitive nature of the business. As such, the reinsurance business has become a more modest percentage of the overall group.
We have continued to evaluate our reporting segments and concluded we should reclassify an operation that solely retains risk on an excess basis. This reclassified business has similar characteristics to the excess of loss reinsurance business. To this end, we've renamed the reinsurance segment to Reinsurance & Monoline Excess. Net premiums written increased 2.7% to approximately $1.7 billion. The insurance segment grew 1.6% to about $1.5 billion, while the Reinsurance & Monoline Excess segment grew to $212 million. The expense ratio improved by 0.9% to 32.3% quarter-over-quarter and 0.6% better than the preceding consecutive quarter. The benefit in the expense ratio is driven by higher net earned premium as well as lower underwriting expenses. In dollar terms, underwriting expenses declined 1.2%, while net premiums earned increased 1.6%. The improvement in underwriting expenses is primarily attributable to lower commissions and compensation.
We continue to innovate and bring operational efficiencies to the business and expect to benefit from these initiatives. As a reminder, the improvement in our expense ratio may not be a smooth linear decline due to investments we are making in the business. This brings our reported combined ratio for the first quarter 2019 to 94.3% and our accident year combined ratio excluding CATs to 93.9%. Net investment income is $158.3 million compared with $174.5 million for the year ago quarter. The core investment portfolio increased approximately $7 million or 5.6%, led by six maturity securities with an investment yield of 3.6%. The arbitrage trading account, which focuses on publicly announced M&A transactions, also improved 104% to approximately $11 million. Investment funds declined to $11 million, primarily due to real estate and energy funds.
You may recall that first quarter 2018 reflected significant mark-to-market adjustments in the real estate funds, contributing to the heightened investment income from investment funds of $40 million. The current quarter's investment income from investment funds of $11 million is marginally below our expected range, primarily due to mark-to-market adjustments on energy funds. We also have maintained an average rating of double A minus and slightly reduced the average duration to 2.7 years for fixed maturity securities, including cash and cash equivalents. We are well-positioned to benefit from rising interest rates while minimizing any adverse impact on the balance sheet. We reported pre-tax net realized and unrealized gains on investments of $69 million. First quarter 2019 marks the first quarter of comparable accounting treatment for equity securities as it relates to the change in unrealized gains and losses through the income statement.
The pre-tax realized gains from the sale of investments amounted to $27 million, and the change in pre-tax unrealized gains on equity securities was $42 million. The effective tax rate was 20.8% for the quarter, largely unchanged from a year ago. The effective tax rate differs from the U.S. federal income tax rate of 21%, primarily because of tax-exempt investment income offset by foreign operations with a higher tax. Stockholders' equity increased 6% or approximately $325 million from the prior consecutive quarter. The growth in book value was comprised of strong quarterly earnings, as well as an increase in after-tax unrealized investment gains of $125 million and a reduction in the currency translation loss of approximately $20 million. Thanks, Rob.
Rich, thanks very much. Let me offer a couple of quick thoughts, again, as promised, we'll get onto your questions in short order. I had an opportunity as I was trying to stare out the window and figure out what I could share with you all beyond Rich's comments. One of the thoughts that my mind kept being drawn back to is something that my boss taught me early in my career in the industry. That is that for the industry to change, it always seems to take longer than you would expect it would or than it should. That was clearly the case a couple of decades ago when I was taught that lesson, and I think it's still the case today in spite of the fact that we have better data and analytics.
I think the other piece that was shared with me or thought that was shared with me is that as a result of that delay in recognizing the need for change or the opportunity for change, when things look bad, they tend to actually end up being worse than you expect. When things look good, they tend to actually be better than you expect. I think those two thoughts apply very well to the industry every day, but they are particularly applicable these days. The property market, everyone expected, would have shifted after the cat activity that we saw in 2017. It didn't respond in early 2018. We are now seeing early signs, but meaningful signs that it is responding to the cat activity.
The casualty market, perhaps even more impaired but not as visible because the nature of the business and the time that it takes for the results to come through, is perhaps equally challenged in the position that it is in. From our perspective, with the exception of workers' compensation, by and large, every major line of business within the commercial lines space is in some point of firming. It is worth noting, as we've commented in the past, all product lines do not march in perfect lockstep with one another. From our perspective also, directionally, they are moving together again with comp being the exception. One of the data points that we have been able to identify to support this is what we were able to achieve in rates during the quarter. Ex-comp, the organization achieved 6.4% rate increase.
It's worth noting that we achieved this with our renewal retention ratio remaining at a similar level to what it has been for the past several years. Lots of people talk about rate, they talk about premium growth in a variety of different things. I want to briefly define for you when we talk about rate increase, what that means for us. We look at a unit of exposure and how much we charge for that unit of exposure, and we compare that with the same unit of exposure, if you will, from prior periods. For us, we are looking to compare the amount of rate or a $ per unit of exposure that we are getting in corresponding periods. There are obviously lots of different ways to do it. That is our approach.
We take a similar approach on new business. Obviously, it's a little bit more challenging for us because the nature of new business and trying to compare that to our in-force book is not as easy. Rich mentioned the loss ratio. The only comment I would add to his were obviously he mentioned the CAT activity as well as the non-CAT weather-related. We use PCS as our definition for CATs, but we did have a fair amount of weather-related losses that did not fall under the PCS umbrella. A lot of people get pretty hung up on this stuff. The math is that we had 1.7 points of weather-related losses. Some folks back it out of the results. From our perspective, it's part of the business and you got to leave it in. It would seem as though we're in the minority.
The expenses. Rich touched on that earlier. Obviously, the 32.3% was a significant improvement. I would caution people not to assume that that is the new run rate for us. I do believe that we should be able to consistently do better than the 33%, but as Rich suggested, we are making some investments. Do I think we're doing better than the 32.9% where we've been running recently? Yes, but I certainly do not think that people should be penciling us in at 32.3%. Rich made the passing comment. I'll just highlight it a little bit. Part of the improvement in the expense ratio came as a result of the loss ratio picking up due to some of the property losses stemming from weather. On the investment side, again, Richie touched on the duration at the 2.7. We do not envision this shortening up from here.
Having said that, I don't think you should expect it to start moving out or lengthening drastically anytime soon. Our view is that the yield curve is pretty flat, so there's no compelling reason to push out. Aside from that, we're not unhappy with the flexibility. I do think as windows of opportunity present themselves, you will see us take the duration out a bit from here. A couple other quick comments just on the investments as well. Rich talked about the realized and unrealized that came through the income statement. That is related to preferreds that we have in Fannie and Freddie that we've touched on in the past. Overall, when we look at the quarter, I think it's pretty clear that we are making rate the priority. There are a whole host of reasons for that, including where we see social inflation.
Having said that, we are feeling pretty comfortable at this stage that on ex-comp, getting 6.4% rate increase for the portfolio overall is well outpacing, in all likelihood, a loss cost trend translating into what is likely to be meaningful margin expansion as you see this higher earned premium earn through. We as an organization are constantly trying to optimize the balance between exposure growth and rate. We are trying to optimize the balance between risk and return. We are trying to ensure we strike the right balance between being opportunistic but obviously offering continuity and predictability to our customers. We as a team take an ownership mentality to how the business is run. We take a long-term view. We are not willing at any time to try and spruce up today to make tomorrow look better.
I think that is what allows us to be able to consistently perform at a reasonably high level. Let me pause there, and we should turn the microphone over to those that have dialed in and answer any questions to the best of our ability that you may have for us.
Ladies and gentlemen, if you'd like to ask a question to our speakers, please hit star then one on your touch-tone telephone. If your question has been answered and you wish to remove yourself from the queue, please hit the pound key. Again, if you'd like to ask a question, please hit star then one on your touch-tone telephone. Our first question comes from Michael Zaremski with Credit Suisse. Your line is now open.
Hi, Mike. Good afternoon.
Hey, good afternoon. First question on the P&C kind of competitive environment. Clearly, there's some pricing momentum ex comp that you've spoken to for a couple of quarters now. Anything else happening in terms of maybe changes in terms of conditions, or I think you used the term returning discipline in the earnings release? Just curious if anything other than pricing is kind of going to help your margins going forward that maybe we're not thinking about.
Yeah, I think if you look back in history, there's a series of steps and, I guess, if you will, the playbook that we use. First, you start to see the rate move up. That's followed by tightening of terms and conditions kind of overlapping somewhat simultaneously, that once we get the terms and conditions and the rate where we like, you're going to start to see the exposure count, if you will, grow as well. We're pretty happy where their margins are today, but you're going to probably see them enhance tomorrow. Again, I think step one is the rates moving up, and as history would suggest, you'll see the terms and conditions start to tighten from there in the market. Again, that will be sort of our strike zone to open up the faucet a bit more.
Okay. In terms of the top line, clearly profitability is excellent. I guess if I look at consensus and what the top line's growing at, it was a little below expectations, even though the expense ratio came in better than expected. Just curious, do you expect growth to pick up in the coming year?
Do I expect growth to pick up?
Maybe workers' comp pricing is more negative than Q4 too.
My sense is that we should be able to more than offset comp. Again, I'm kind of looking into a foggy crystal ball, the latest data points that we have would suggest that we should be able to accelerate the growth from here. Again, no promises. Do I think it's going to be explosive growth? No, not yet. Part of it, again, going back to the comment earlier, at this stage, we are more focused on pushing for the rate, and as we see that rate get to a certain level, then you will see us look to really try and expand the exposure or policy count, if you like. Yes.
Thanks for the comment.
We'll grow more.
Thank you.
Thank you.
Thank you. Our next question comes from Amit Kumar with Buckingham. Your line is now open.
Hi, Amit. Good afternoon.
Good afternoon. I guess I wanted to build upon Zaremski's question. Just going back to the discussion on pricing and the 6% number is very strong versus Q4 of 4%. Is there some way to maybe talk about, broadly, some of the components. Was property meaningfully higher and casualty was a much smaller number, and hence it netted out to 6%? How should we think about how the components might be different now versus Q4?
What I would tell you is that we perhaps look at it at a more granular level than you're suggesting. We look at it via operating unit within the group. We are looking at by product line with each operating unit in the group. Clearly, the challenges that the industry has faced in such product lines as commercial auto, certain components of professional liability, certainly much of the property marketplace, are leading to opportunities where there is meaningful rate increase available. Again, I would tell you, but also as I commented earlier, other than workers' compensation, we are getting rate increases in every major product line we participate in.
Got it. There is no outlier per se which is averaging out to a big number.
I beg your pardon, sir?
There is no outlier per se. There is no one sub-segment which is having material rate increases. I think what you're saying is that it's probably well distributed and obviously the CAT exposed lines will have a higher number.
Well, I don't want to mislead you.
I think that each product line, it's not 6.4% across the board.
Sure.
We use a much finer scalpel than that. It is by product line. I would tell you again that things such as commercial auto, parts of professional liability, and certainly much of the property market are probably amongst the areas that are getting the most meaningful rate increases, and a couple of others as well. Again, it's not a barbell, it's more of a bell curve.
That's what I was looking for. Okay. The other question is also sort of a follow-up. There is this debate in the marketplace about admitted versus non-admitted, and I think you referred to the competition and I think you made an interesting comment. There's always a lag when the market actually responds. Can you maybe talk about the admitted versus non-admitted discussion a bit more?
Well, hold on one second. Maybe I'm the boy in the bubble here, but what's the broad chatter in the marketplace about admitted versus non-admitted that you're referring to?
No, the point is that legacy carriers are beginning to withdraw or restrict their writings, and that's why there seems to be a discernible uptick. It's happening only very recently, where some numbers that you read, the rate parameters have changed.
Yeah, look, I don't think that there's been this dramatic speed change. I think it would sort of revert back to some of the comments I at least tried to allude to earlier, that I think there's a gradual building or incremental firming that is going on. There is no doubt that there are components of the marketplace that operate in a standard or admitted manner that probably overreached a bit and are choking and really should have left it to the non-admitted market. Yeah, that's going on anytime. Do I think there's a little bit more of that today than there was yesterday? Absolutely. Do I think there'll be more of it tomorrow than there is today? Yes, I do.
Got it. I've exhausted my quota. I will stop here. Thanks for the answers and good luck to you.
Okay. Thanks for calling in. Jimmy?
Thank you. Our next question comes from Michael Phillips with Morgan Stanley. Your line is now open.
Hi, Michael. Good afternoon.
Hey, good afternoon. Thanks, everybody. I'm not going to get the direct quote from what you said, Rob, earlier, but kind of paraphrasing. When things look bad, they're probably worse than you think, and obviously, casualty lines are pretty impaired. It's harder to see, obviously, because of the tail. One way to interpret that Is that since we're seeing more of a firming in rates for the industry, and certainly in the casualty lines, if things look bad, they're worse than you think, then maybe the era of kind of industry reserve releases is coming to an end. We know that a lot of that has been comp, has driven a lot of the releases, but ex comp, it's not been that bad in terms of charges.
I wonder, I guess, just want to get your thoughts on that for the casualty line specifically, what you think about that, I guess, in terms of reserve adequacy for the industry.
Look, I think there are others that can speak to the reserve adequacy of the industry better than I in general. My two cents for what it's worth is that I think the industry has recognized some positive development over the past few years, which is, quite frankly, it's a tough business when you don't know your cost of goods sold until some number of years after the fact. I think we went through what was a very benign period that the casualty market enjoyed, particularly on the frequency side. I think that there are increasing signs that that benign environment no longer exists, not to the same extent, and that may prove to create some challenges for the industry today. The question is, are people appropriately pricing for the legal environment, for example, that we are in today?
Look, I'm not going to predict the redundancy or the deficiency of the industry. I'll leave that to brighter people than me. I would tell you that I think that the marketplace has been pretty aggressive for the past couple of years. I think a lot of that has been glossed over as a result of what was a benign CAT environment, as well as positive development from earlier years for the industry. I think that, at some point, you can't keep putting lipstick on the pig, as my boss says.
Okay, I haven't heard that one before. Thanks. Then, I guess. Oh, I'm sorry.
Go ahead. Sorry.
Okay. Last quarter, I want to drill down a little bit more on the D&O market, where last quarter you talked about we can expect to see some meaningful change over the next few quarters, I guess. Anything that you've seen since those comments in the D&O market?
Yeah, I think that certainly our perception is that that would be, when I mentioned earlier parts of professional liability firming a fair amount, I think there are parts of the D&O market that are getting what I would define as significant rate increases. Rate increases that the industry hasn't seen for some period of time.
Okay. Thank you, Rob. I appreciate that.
Thank you.
Thank you. Our next question comes from Yaron Kinar with Goldman Sachs. Your line is now open.
Hi, good afternoon. First question, just with regards to the resegmentation, or the move of some of the excess mono from insurance to reinsurance. Can you help us think about maybe run rates for the accident year loss ratio or the expense ratio for the two segments as they currently stand?
Obviously, it depends on the performance of the business from any one period to another period. Certainly what you saw in the release is not a bad placeholder for people to use going forward. Again, that's subject to the performance of the business in any 90-day period.
Okay. Is there any seasonality in that block?
Well, yes, there is, but there always has been seasonality. Obviously in the reinsurance business, certain dates such as 1/1 are very material, and while we do not write a significant CAT exposed book, there is a little bit there. Depending on how you want to define seasonality from a premium perspective or a loss perspective, it's there, but it's been there in the past.
Okay. Then, my other question is just around net investment income. If I think about the core portfolio, the core investment portfolio, how should we think about the impact of a lower yield environment? Do you think that you can still achieve yield expansion here, or should we expect some yield compression in the core portfolio?
Well, you've been kind of silent the whole call. Why don't you do this one?
We think that at the moment in the current environment with the flat yield curve, we can maintain the current yield in the portfolio. Clearly, if we have a slowing down of the economy, that would be more challenging. At the moment, we think we could pretty much stay where we are. I would not anticipate improving yields.
Okay. Can you achieve this current yield? Are you doing that by changing any of your portfolio mix, or is that simply keeping your portfolio as is?
Generally as is. Security selection, slight change in mix, but no consequential change. Still maintaining the double A-minus quality. As I say, we'd like to find opportunities to improve the yield and extend the maturity, but that doesn't seem to be in the cards at the present time.
Thank you.
Thank you. Our next question comes from Joshua Shanker with Deutsche Bank. Your line is now open.
Yeah. Thank you.
Josh, good afternoon.
Good morning. Good afternoon. I suppose part of your hesitation to talk about workers' comp is that you don't want to give away corporate secrets, which makes sense. Maybe can you tell us what you think.
We're not hesitant to talk about workers' comp. We're happy to chat with you about it.
Where do you think pricing is right now in workers' comp? Where do you think relates to loss cost trends? Can you talk about the variance between primary and excess pricing?
Yes. As far as loss cost trends, I'm going to try and answer your question to the best of my ability. Loss cost trends have remained remarkably benign, primarily due to frequency or a lack of, if you will. Severity continues to tick up a bit just because of healthcare costs continuing to move up. It's astonishing how benign the frequency trend continues to be. I would tell you that I struggle with that long term and whether it's sustainable. Clearly, we have better safety and a whole host of other things in place as a society, which we benefit from. At the same time, as we've suggested in the past, the tight labor market historically can lead to a tick up in injury of workers.
Partly as a result of people not being as well trained, partly as a result of people working overtime, quite frankly, when people are tired, they may not be as alert and take the same precautions. When it comes to certain aspects of inflation, as you know, comp is partially insulated because of the fact that comp is priced off of payrolls. As long as payrolls are keeping up or in some cases outpacing inflation, that is something that needs to be factored in. I would tell you right now, do I think is comp overall losing a little bit of altitude for the moment? Yeah, I think it probably is losing a little bit of altitude.
Having said that, I think when the industry looks back on the past few years, it's likely, in my opinion, to prove that there was more margin in the business than perhaps the industry realized. I think 2018 and 2019 are possibly the time, a point of inflection when that may start to flip. As far as the excess market goes, it's a pretty big space and overall, we're reasonably happy with where the pricing is there. I think it's tricky to start trying to compare it to the extent that the question may have suggested.
I guess if we have benign frequency and slightly elevated severity, can we assume that loss cost inflation in comp is still greater than zero?
It's sort of been hovering right around there. I would tell you that, again, as you know as well as we do, Josh, that one of the tricky parts of this industry is you're pricing your product before you know your cost of goods sold. Back to that comment around frequency, I'm not convinced at this stage that 2019 is going to benefit from the same frequency trend that we have seen in the past decade-ish or so. I think clearly it's possible that 2018 is going to prove to be okay. I feel even better about 2017 and earlier. 2019, it's really even almost too early to start speculating, at least on a conference call.
Okay. Well, thank you for all the answers. Appreciate it.
Yes, sir.
Thank you. Our next question comes from Meyer Shields of KBW. Your line is now open.
Hey, Meyer. Good afternoon.
How are you? I guess starting off, in the insurance segment, we see a little bit less than 3% gross written premium growth, and ceded premiums were up a little bit more than 9%. I was hoping you could talk about what's driving that decision.
Not ignoring you, I'm just thinking about it. Ultimately, it may have to do with just different programs that we're buying. It may have to do with pricing in the reinsurance marketplace. It may have to do with a variety of different things. Ultimately, I would encourage you not to read too deeply into it. We have not changed our philosophy around how we buy reinsurance.
Okay. Thank you. That's helpful. Second, just hopefully an easy one. Should we look at the Monoline Excess line of business as being predominantly excess workers' compensation?
Rich, what's the breakdown, premium-wise?
Yes. Yes.
Yeah, no, it is excess. I'm sorry, I misunderstood you. It's The insurance, but as far as the Monoline Excess, it is at this stage, solely excess comp.
Okay, perfect. Thank you very much.
Thank you.
Thank you. Our next question comes from Brian Meredith with UBS. Your line is now open.
Hey, Brian. How are you doing?
Hey. A couple of things here for you. First one, just curious, big growth in the casualty reinsurance area. Were there some kind of one-off transactions, or has that all of a sudden become a much more attractive market?
I think there were a couple of pieces that are a couple of opportunities that we saw that we thought made sense. Some of that growth actually is coming from outside of the U.S. as well, where, I didn't mention this earlier, but when we think about the reinsurance business, I think certainly the U.K. and certain other territories are probably a couple of paces ahead of the U.S. treaty market in firming, though, there are early signs that the U.S. market may be moving in that direction.
Great. I guess it's a couple of opportunities, type of growth that you're seeing in casualty reinsurance. Should we expect that that may continue here going forward, or just opportunities this quarter, opportunistically?
Look, I don't even want to speculate beyond what I've already speculated. I think that we feel as though that the reinsurance market is starting to grapple with the realities of the mistakes that the industry had made in the past, and as a result of that, are beginning to incrementally take action, and our hope and quite frankly, expectation is that it will build from here. I think some of the business that they see is reasonable business, but in many, many cases, the ceding commissions are not sustainable. As the results come through, I think the reinsurance market is responding to that reality, and there is across the board, or virtually across the board, pressure on ceding commissions for ceding.
Makes sense. Then second question, Rob. It's been a couple of years since you started Berkley One. I'm just curious, any observations on that business? Is it better than you kind of had expected it be? A little bit more challenging? Just curious what your thoughts are. I know it's still quite small for you guys.
I think a couple of reactions would be, you got to understand, this comes from someone who, when we've done most of our startups, a lot of them, well, they're almost all commercial lines, and a lot of them are non-admitted. A team joins us, and two days later, we'll run it on Excel and Word until we have a system in place. We're not accustomed to or experienced with the significance of the platform that was required to build, not just from an IT perspective, but from a people perspective, as well as from a filings perspective. It's just a big platform.
From our perspective, while that does take time, we think that that is really a great opportunity, and if you build it right, it serves as a, I wouldn't say a barrier to entry for others because we're doing it, but it certainly is an obstacle for others to come in. I think there are a few people that have come into the space, and when I look at the platform that they've cobbled together, and I look at what my colleagues are building, I think it's like day and night. To that, long story short, I think the team of people that we have is as good or better than we could have even hoped for. I think the platform that they are building is as robust as any out there, and certainly second to none.
Having said that, I think that it's a little bit longer of a road to get that platform stood up than some of us. At the same time, if we could do it all over again, wouldn't pause twice, would definitely do it. I think it is going to prove to be a tremendous asset for our shareholders.
Great. Thanks for the answers.
Thank you. As a reminder to our listeners, if you'd like to ask a question, please hit star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may hit the pound key. Our next question comes from Ryan Tunis with Autonomous Research. Your line is now open.
Hi, Ryan. Good afternoon.
Hey. Good afternoon, guys. Just had a few. First one, in terms of the workers' comp, I'm curious if you're seeing anything different from a loss cost standpoint on the excess monoline versus just the normal primary comp. I know that there's more of a severity element there. Is it pretty much still benign, just like what you're seeing on the primary book?
I mean, obviously, they are different animals, I would tell you what we're seeing on both fronts are reasonably consistent with what we've seen over the past couple of years.
Got you. I guess the other thing that, shifting gears to premium growth, a question in insurance, something that stood out to us was, it actually looked like the premium growth was the least in the lines where I would have expected the most incremental rate. Short tail, professional liability, and commercial liability, it looks like they lagged out of liability and comp. Just trying to sort through why that might be the case.
I would interpret that as underwriting discipline and places where we have decided that we want rate. When you think about sort of the rate/growth balance or trade, we choose rate. I think what you will see happen over time, or at least history would suggest you will see, and I believe you will see as well, is that those lines where we're pushing the rate, you are going to, at some point, start to see those oftentimes are some of the lines where the growth rate will eventually evolve to be the highest. It starts out in these product lines where we are digging our heels in and saying, "We will get this much rate, or we will not write the business." We expect that over time, the market will cooperate, and it's cooperating somewhat, and we expect that that will accelerate.
I mean, Yeah, sorry, go ahead. Pardon me.
All right. We just have a history as an organization of trying not to be late. When we identify something, we get on it, and when we look at these lines of business, we're saying we need rate, and we are going to have it, or we will not write the business. I think it will come more into focus for others, but maybe they are not as inclined to move in as timely a manner as we are.
Not to put words in your mouth, Rob, but it sounds like you're saying that the rate environment's better, but in a lot of these lines we know are loss-affected, rates pricing is probably not adequate yet. Is that probably the right way to think about it?
It really depends on the particular product line. My comment to you is that when we look at the loss environment, and we also look out on the horizon with sort of the legal environment, some of the issues we've talked about around social inflation, our view is that it makes sense to charge more on some of these lines of business for a unit of exposure. If we are not able to get what we believe is an adequate rate, then we will not write the business, and that's okay, too. If we end up not writing the business and have excess capital, we'll return it to our shareholders.
Having said that, certainly the early signs would say that we are able to achieve the rate, and the market will start to bear it more and more, and we expect that other market participants will be moving in a similar direction.
Fair enough. Just quickly, one other one on the non-CAT weather piece. Not used to you calling that one out, Rob, but I guess it is useful. It was a point this quarter. What would you expect that to be in a normal quarter?
I don't know. Richie is saying 60 basis points, so he's usually right about this stuff, so that's the number. At the same time, it's part of the business. People who back out CATs, the but for, I think, doesn't make a whole lot of sense unless you're going to back out the premium, too, as my boss says. Yeah. The delta is sort of the 30 basis points between the .9 and the .6.
Cool. All right. Thanks so much, guys.
Thank you. Have a good evening.
Thank you. I'm showing no further questions in the queue at this time. I'd like to turn the call back to Rob Berkley for any closing remarks.
Okay. Thank you, Jimmy. First off, thank you all for calling in. We appreciate your time and interest. From our perspective, we think that there's many encouraging signs on the horizon here, more than we have seen in some extended period of time. What we were able to achieve with rate and also maintain a renewal retention ratio, I think, speaks volumes to the fact that the market is willing to accept it, and we have every intention of continuing to ensure that we are getting an appropriate risk-adjusted return and that we optimize whatever the opportunity may be. Thank you again for calling, and we'll speak with you next quarter. Goodbye.
Ladies and gentlemen, thank you for your participation in today's call. This does conclude your program. You may all disconnect. Everyone have a great day.