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Operator
Today, welcome to WR Berkeley Corporation's third quarter 2022 earnings conference call. Today's 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, 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 materially affect our results. WR Berkeley 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 Berkeley. Please go ahead, sir.
Rob Berkeley
Beau, thank you very much, and let me echo your welcome to all to our third quarter call. We appreciate you finding time to join us. Joining me on this end of the call is also Bill Berkley, our Executive Chairman, as well as Rich Baio, Executive Vice President, Chief Financial Officer. We're going to follow our typical agenda where, in very short order, I'm going to be handing it over to Rich. He's going to run through some highlights of the quarter. I will follow with a couple of observations on my end, and then you will have the three of us at your disposal to take a Q&A session anywhere people would like to take it. Before I hand it over to Rich, I did want to flag or raise a thought for participants' consideration and something that we spend a good deal of time thinking about on our end. And it particularly comes into focus during periods of time like what we saw in the third quarter when cat activity spiked considerably and great attention amongst many turned to trying to understand exposures, trying to understand claims activity and what does that mean from a dollars and cents perspective. And those questions are well placed and are all important and appropriate. That having been said, In the flurry of activity around trying to understand what has transpired from a financial perspective, it is easy to lose sight of the more what I would call the human aspect and the loss that has occurred and how that impacts individuals, not just their homes being destroyed, but oftentimes something even more severe such as the loss of life. So I did want to just comment on this, that it is something that my colleagues and I pay great attention to, we are sensitive to, and all of those impacted by the events of the third quarter are certainly in our thoughts. Furthermore, we have many colleagues, particularly on the claims side of the business, that are working tirelessly to make sure that we as an organization are servicing customers, making sure we as an organization are living up to our commitments and our promises, which is something we take very seriously. And finally, from our perspective, to the extent there is any type of silver lining in these type of situations, clearly it is an opportunity for the industry to demonstrate the value that it brings to society. We cannot undo what has been done, but we certainly are in a position to assist society in picking up the pieces and trying to put it back together. That is not just an obligation, but an opportunity that we as an organization take very seriously. So I will leave it there for the moment. And now, Rich, if you wouldn't mind taking us through the numbers, having said all that. Rich, please.
Beau
Sure. Thank you, Rob. Appreciate that. Operating income increased 14.2% to $282 million, or $1.01 per share. with operating return on equity of 16.9%. Net income of $229 million or 82 cents per share resulted in a return on equity of 13.8%. The company reported strong underwriting income in spite of the industry-wide catastrophe events. In addition, the record quarterly net investment income and foreign currency gains resulting from the strong U.S. dollar contributed to our excellent quarterly results. Pre-tax underwriting income of $192 million demonstrates the resiliency of our underwriting portfolio in an environment facing many challenges, including social and economic inflation, as well as frequency and severity of natural catastrophes. We reported pre-tax catastrophe losses of $94 million in the quarter, or 3.9 loss ratio points, compared with $74 million, or 3.5 loss ratio points in the prior year. Probably of no surprise, the main driver in the quarter was Hurricane Ian. We developed our best estimate on a ground-up basis, operating unit by operating unit, the predominance of which is IBNR due to the timing of the event. Focusing next on our top line, the company grew gross premiums written to a record of almost $3.1 billion. Net premiums written increased 10.8% to approximately $2.6 billion. Breaking this down further between segments, insurance grew 11.5% to $2.2 billion, while reinsurance and monoline excess increased 6.8% to $340 million. Exposure growth is a significant contributor to the increase in premium. The current accident year loss ratio excluding catastrophes improved 30 basis points over the prior year to 58.6%. Prior year loss reserves developed unfavorably by 1.6 loss ratio points in the current quarter, bringing our calendar year loss ratio to 64.1%. Record quarterly net premiums earned benefited the expense ratio of 28%. We continue to invest in the business and identify strategies to operate more efficiently and optimize our technological capabilities. Wrapping up underwriting performance, Our current accident year combined ratio excluding catastrophes was 86.6%, and our calendar year combined ratio was 92.1%. Record quarterly net investment income of $203 million was led by growth in the core portfolio of 51%, and better than average investment fund results despite the significant downturn in the equity markets. The increased invested asset base, along with higher interest rates, is contributing to much of the growth in the core portfolio. Book yields on the fixed maturity securities have sequentially improved each quarter this year, with 2.2% in the first quarter, 2.6% in the second quarter, and 3% in the current quarter. The short duration of our investment portfolio of 2.4 years, combined with strong operating cash flows of almost $1.8 billion year to date, should contribute to further growth in net investment income and improving book yields. At the same time, the short duration in the portfolio and high credit quality of AA- has tempered the market value impact on book value. As it relates to the investment funds, our diversification strategy has benefited our results to date despite certain funds' correlation with the equity markets. Our investment funds are reported on a one-quarter lag And in light of the third quarter deterioration in the broader equity markets, we may see our fourth quarter results impacted. Pre-tax net investment losses in the quarter of $67 million is primarily attributable to the net change in unrealized losses on equity securities of $50 million, which largely related to sector declines in technology and financial services. Stockholders' equity was more than $6.3 billion as of September 30, 2022. Strong earnings of about $1 billion on a year-to-date basis has mostly offset the impact from rising interest rates and unrealized losses. At the same time, we've proactively managed our capital position as evidenced through regular and special dividends of approximately $209 million year-to-date, along with share repurchases in the third quarter of almost $7 million. Fitch validated this view of our financial strength early last week with an upgrade to AA- from A+. With that, I'll turn it back to you, Rob.
Rob Berkeley
Rich, thank you very much. So let me just offer a few comments. I promise I'll keep it on the brief side, though I think I say that every time, and I rarely do, but I guess it depends on your definition of brief. So the marketplace overall remains a very interesting one from our perspective. There are pockets of the market that remain extremely attractive, and there are others that is surprising the level of competition. One of the observations that we have shared in the past and we continue to see very much a reality is how The market is still as cyclical as ever. That having been said, different product lines are marching, not in lockstep, but very much to the beat of their own drum, which translates to they are at different points in the cycle at any moment in time. I would tell you that the specialty space, in particular the ENS space, remains very attractive. In addition to that, I would tell you that if it is a piece of business that falls within the appetite of the standard market, particularly a national carrier and some regional carriers, it is shocking to us how competitive some participants are willing to be. That having been said, if you have an opportunity to look at our release and you look at page seven, you would have seen the different product lines and where the growth is coming from. Certainly, in our opinion, a leading indicator is if we are growing at a healthy rate, it means that we think there's margin there and we are leaning into it. When you look at the various product lines, certainly short tail lines, in particular property, as of late, is demonstrating more opportunity. In addition to that, when you look at the reinsurance space, we are seeing a similar opportunity and it's likely you'll see us leaning into that even more. On the other hand, you have professional liability with particularly public D&O standing out as a product line that has become increasingly competitive. And workers' compensation, that is a product line that we've been talking to those that are willing to listen for an extended period of time that we've been surprised by the level of competition. You might say, how do you reconcile that with the growth rate that you have in the product line during the period? To make a long story short, it's just exposure, if you will, growth in payroll. Overall, we as an organization benefit from the diversity of our product offering. As a result of that, at any moment in time, there are parts of our portfolio that are shrinking and there are parts of our portfolio that are growing and growing dramatically. We are in the marketplace every day trying to optimize our The market may move towards us, it may move away from us, but we are consistently there at a rate that we think is appropriate or then some. When you look at the growth that Rich talked about in the quarter, approximately 11% we think is reasonably healthy. Again, the discipline on the professional liability that I alluded to a few moments ago I think has created a little bit of a headwind. That having been said, our discipline remains with our renewal retention ratio remaining at approximately 80%, and we're getting a bit of a premium on new business relative to our existing portfolio, which, as we've discussed in the past, we think makes sense because you know more about your renewal book than your new book. As you would have also picked up during somewhere in the release, We made some good progress on the rate front, coming in at 7.3% ex-workers comp. And at that pace, we're quite comfortable that in the aggregate, we are keeping up with trend. I think another data point that's important, particularly in an inflationary market, and that is audit premiums. To what extent, if the exposure is growing, are you capturing that and making sure after the policy incepts that you're going back to collect everything you should have? and we were pleased to see the growth in our audit premiums over the corresponding period last year up 42%. Rich walked through the loss ratio with you all, the 64.1%. For those that subscribe to the but-for model, it's a 58.6%, the 64.1% when the day is all done, in my opinion. That is reality. That having been said, break, get down. Rich walked you through the cats of 3.9%. And the last piece, as far as the development goes, was essentially entirely related to what I would define as isolated and unique events stemming from COVID. And to the best of our knowledge, and as clearly as we can see it, we do not envision this being an ongoing issue. Again, we view it as isolated to two unique situations. And that's how it looks to us at this point. So that's the best of our knowledge. With the 58.6, as Rich flagged, a bit of a small step in the right direction and improvement of call it 30 basis points on the XCAP accident year. Look, when the day is all done, we are pushing on the race and we are not going to declare victory prematurely. I understand some people have done the math and said, well, why isn't your XCAT accident year loss ratio improving more, and it's because of something called inflation that comes in two different flavors that we are exposed to, both financial or economic, as well as social. Expense ratio at a 28, we think that is pretty healthy by any measure, particularly for a specialty writer. Some of the realities that we had talked about during COVID and the COVID benefit on expenses, Those are starting to dissipate as people are traveling and entertainment is coming back to be part of our business. That having been said, also costs are going up. We are not just focused on inflation as far as raising our rates and what it means for our lost costs and how we respond to that with rate increases. Also, it impacts our operational costs in making, whether it be remuneration or any other expenses that we have. Rich touched on the investments. I'm just going to, I guess, echo a couple of his comments. Long story short, I think we are very much being rewarded for the discipline. I have made the comment in the past how we went for many years keeping our duration short and not compromising on quality. And quite frankly, that came at a cost. There were others that were compromising on quality and taking duration out, and they served themselves well for that day but did not position themselves particularly well for tomorrow. And guess what? Tomorrow is here. As a result of that foresight and that discipline, we are enjoying the benefits as to what the impact has been on our book value as far as the unrealized, or some perhaps other organizations maybe are realizing it, And in addition to that, we have the benefit of being able to put money to work at higher rates much more quickly than others. As Rich flagged for you, our book yield kicked up considerably in a 90-day period going from about 2.6 to 3. And obviously, you all can do the math as easily as we can as to where the new money rate is likely going given where interest rates are today. And it would seem as though that they are headed tomorrow. So we have a lot of room to push the duration out a bit if we think it makes sense, if we are getting paid for it, and we think that we are very well positioned. So long story short, and I guess desperately trying to live up to my word that I would keep it short, what's the punchline? The punchline is that we are an organization that has, is, and will continue to be very focused on risk-adjusted return. When we think about risk-adjusted return, we clearly take volatility into account. We have the ability to pivot from one product line to another, emphasizing and de-emphasizing products as we see fit, depending on market conditions. Certainly, it is very possible, for example, that you will see us participate more significantly in the property tax space. It would be my expectation, to the extent we chose to participate, depending on how attractive the market gets, that we would probably participate for a year or two, unlikely more than three in a significant way. We are going to deploy capital with an eye towards risk-adjusted return, and we are not going to be shy to let the business go when we don't think it makes sense anymore. That same focus on risk-adjusted return that applies to underwriting also, as I mentioned a moment or two ago, applies to our investment activities. We are disciplined. We are focused on the idea of how much risk we are taking on and are we getting paid appropriately for it. When the day is all done, we are in business to build book value for shareholders. And we think that we have been able to do that, again, because our eye towards risk-adjusted returns. So let me pause there. And, Beau, we would like to open it up for questions, if we could, please.
Operator
Thank you, Mr. Berkley. Ladies and gentlemen, at this time, any questions or comments, simply press star 1. And if you found your question has already been addressed, you can remove yourself from the queue by pressing star 1 again. And we'll pause for just one moment. We'll go first this afternoon to Elise Greenspan of Wells Fargo.
Berkley
Hi, Elise. Good afternoon.
spk00
Hi, thanks. Good evening as well. My first question, you guys saw a little bit, if we look at your pricing disclosure, a little bit of an uptick. You give us the ColorX workers comp in the quarter. Can you just go into more details on, you know, what drove that? And then given, right, that, you know, Hurricane Ian is going to be a pretty large loss, would you expect that, you know, that number would, you know, continue to trend higher in the fourth quarter?
Rob Berkeley
So we... We're not going to unpack the rate number by product line, but what I would tell you is that we are very focused on rate adequacy or rate adequacy plus, and we're conscious of the environment, and while we all would like to grow, that is not going to overshadow our focus around rate adequacy. So, again, I would be careful not to read too much one way or another into a certain number of basis points, but I can tell you that rate adequacy remains a priority. As far as market conditions going forward, it is pretty clear to us that property pricing, particularly tax-exposed property pricing, but property pricing in general, is going up. We haven't seen it in a long time, but it's likely to be led by the reinsurance market and the insurance market, I expect, will follow. and we will be leading into that in every way that we think makes sense for the organization. Will there be a spillover to other product lines? We will see with time. It's not as clear to us that that will be the case, though to the extent those opportunities present themselves, I promise you we will be there to catch them and try and take advantage of them. But again, certainly as far as property and cat exposed property and perhaps the most interesting property cat reinsurance or even certain types of retro. Those are things that we are paying close attention to, not just as a buyer, but potentially as a meaningful seller. But again, we would be there when we think the margin is there. Typically, The vast majority of the time during a cycle, we do not believe the margin is there, which is why we control it very tightly, but we are not shy to lean into it if we think that it makes sense from a risk-adjusted return base.
spk00
Is there a level, like sticking with the property cat re-comment, is there a level of rate that you guys are looking to at January 1 when you think about incrementally adding to your property cat reinsurance exposure?
Berkley
More. More.
spk00
Okay. And then in terms of the prior year development, I know you guys typically wait for the queue to give the color by segment, but it was a large number this quarter. And for those of us trying to get a sense of the underlying margins by segment, can you just give us a sense of that $39 million of adverse development?
Rob Berkeley
It was basically the isolated COVID stuff that I was referring to and two what I would define as unique and isolated situations that Primarily, the vast, vast, vast majority of the development came from the insurance segment.
Mike
Thank you.
Berkley
Yep. Thanks for the questions.
Operator
Thank you. We'll go next now to Mike Cerinsky of BMO.
Mike Cerinsky
Hi, Mike. Good evening. Hey. Good evening. First question, trying to get a little more color, if you're willing, on unpacking. the spread that you feel there is between lost cost inflation and pricing. Inflation came up a lot in your prepared remarks, obviously, and I think last time you gave us an update on this, I think you said something in the magnitude of rate was exceeding lost cost trend by hundreds of basis points. Just curious if that spread has narrowed a bit over the last couple quarters. and any color you might want to offer.
Rob Berkeley
You know, Mike, I think that we're trying to try and get into the weeds, and obviously it varies by product line, but in the aggregate at the 7.3 that we're talking about, I think that we are comfortably outpacing loss trend via a meaningful margin, and that would be, in all likelihood, more than 100 basis points My crystal ball is really no better than anyone else's, and we are trying to err on the side of being measured around loss picks in general. But again, at 7.3, I think it's still very fair to say that we are outpacing it by more than 100, maybe it's 200 basis points, but it's a pretty healthy margin. That having been said, as I have suggested, we are not going to declare victory prematurely. There's a huge amount of sensitivity around those assumptions, and if it proves that it's something more than we expected, we're going to make sure that we have the ability to try and absorb that. So it's going to take some time for that to season, and ultimately we'll have some clarity.
Mike Cerinsky
That's helpful. Maybe moving to the investment portfolio looks like cash levels have come down. Duration, you're kind of staying put for now. Room to extend there. I guess just curious, interest rates have risen a lot, but I guess is the bottom line that you have an extended duration because you think there's an increased potential for for interest rates to move a lot higher? Or is there just a, is there a, I guess, a magic number?
Rob Berkeley
Maybe a couple of quick comments. Mike, first off, I think that our view is that it is likely rates are going to move up from here. And while they may not move up at the same pace that they have been going up as of late, we think they're still going higher. In addition to that, the fact of the matter is while to move the duration out in a meaningful way would require us to go pretty far out on the yield curve. And we don't think you get paid enough, quite frankly, to take it out. And we're pretty comfortable in what I would define as three to five-year zone, if you like, probably at this moment a little bit closer to three than five, but sort of in between. And that will naturally even may take the duration up a little bit, but not a huge amount. And I think you're going to see the book yields continue to tick up at a pretty healthy pace. As we get to, you know, start to think that maybe rates are peaking or close to the peak, you know, we're going to think about duration a little bit differently, perhaps. But at the moment, we think there's still a bit of runway ahead of us.
Mike Cerinsky
Okay. And just to sneak one last one in, I'm just curious if If reinsurance – so thinking about the primary side of your portfolio, not the cognizant that you write a good amount of reinsurance. Just on the primary side, if reinsurance rates do move up meaningfully, especially on the property side, should we be thinking about any changes in kind of growth to net strategies or any lines of business you might have to change kind of your strategic view on?
Rob Berkeley
Thanks. There's really nothing that we do today that we would feel as though we would have to curtail, if you will. As, you know, Mike, I think we've mentioned in the past, if you look at our business, approximately 90% of our policies have a limit of $2 million or less. So we tend to buy what we really, you know, we buy some corporate covers and we have the ability just to dial that down and increase our nest and just think about it. capital allocation in a different way. Simultaneously, if we find ourselves in a position that the reinsurance market is that hard, it's likely you will see that part of our business grow and we will deploy capital in that direction. So do I think it's caused some people a little bit of agita and maybe a bit of a headache? Yeah. Do I think for us it can create opportunity?
Mike
Yes, I do. Thank you. Thank you. And we'll go next now to Michael Phillips, excuse me, Morgan Stanley.
Michael Phillips
Thanks. Good evening, Rob. Thanks for your time. First question, not so much to your numbers on Ian, but more specifically just kind of your thoughts on industry observations here. There's been two schools of thought that are kind of thrown around. Industry numbers could move up from what we've seen from the modeling numbers, or there's another school of thought that says they could move down given some things that have been happening in Florida. I guess I'm just curious which side you'd be on. Is there more risk of current industry numbers moving up or down from what we see today?
Rob Berkeley
I think it really depends on which estimates you're talking about. But what I would tell you is that it's likely this is going to prove to be a very, very significant flood issue. which obviously will impact the loss for many on the homeowner's side and on the property side. Obviously, auto is a different animal. I think the auto loss is likely to prove to be far more severe than maybe the models would have initially suggested. So long story short, I don't think there's a huge amount of clarity. It's not that we take any particular great issue seriously. with the numbers and sort of that 50 to 70 as bookends, you know, that's probably not a bad range. That having been said, I think the way it's going to get allocated amongst product lines may prove to be a little bit different than what people anticipated. And my best guess is that it's probably between those bookends towards the lower end and the higher end.
Michael Phillips
Okay. Thank you. The second question is more of a follow-up to the first set of questions from Elise. When you talked about risk-based returns of volatility and pivoting and the property cut, I don't think I understood what you meant in your second answer when you said more.
Rob Berkeley
That was me being a wise-ass, which probably – No, I know.
Michael Phillips
I know.
Mike Cerinsky
Yeah. So I guess – Here's the story.
Rob Berkeley
From our perspective, for an extended period of time, and we've offered this perspective in the past, the reinsurance marketplace has kind of gotten led around by the nose by the insurance marketplace. And there's enough pain out there that has been building for an extended period of time. It would appear, though, that the reinsurance marketplace maybe has gotten the courage and the discipline that has been a long time coming. And we have our view on what is rate adequacy. And if we see, for example, in particular, property tax reinsurance pricing getting to a level that we think makes sense, we have been making plans and positioning ourselves, as you would expect, or if you don't, you should be expecting, to be able to participate in a meaningful way. But we are only going to do that if we think you are getting paid enough. We are not in that product line day in and day out, riding the cycle up and down. We are going to participate, call it on average, when we think everything lines up, the planets and stars line up, for call it two years out of every 15 years. And it is certainly very possible that 2023 could be one of those two years. But
Berkley
If we don't like it, if it doesn't get hard enough, we're not going to stick our toe in the water, let alone a foot.
Michael Phillips
Okay. So you mean that it's still too early to say whether the rates are up enough where you want to participate until it can be determined?
Rob Berkeley
It is too early to decide to what extent we would participate or whether we will participate really in a meaningful way at all. But we do have the colleagues with the expertise all lined up. The distribution knows that we are here, that we want to see what's out there, and we will participate, again, to the extent that it makes sense. If it doesn't make sense and the pricing doesn't get to where we think it needs to get to, then we have absolutely no problem sitting back and, you know, putting our powder away.
Michael Phillips
Okay, wonderful. Thanks for the clarification.
Rob Berkeley
Thank you. Sorry for the confusion.
Operator
And we'll go next now to Ron Kinnar at Jefferies.
Ron Kinnar
Thank you. Good afternoon. Good afternoon. I want to go back to the commentary around really being focused on clearing the return hurdles. Are those hurdles going up? I would assume that the cost of capital is going up, but at the same time, we're also getting probably better investment returns. How are you thinking about those return hurdles from an underwriting perspective?
Rob Berkeley
Yes, our benchmarks are clearly going up, but ultimately, we also think about our overall economic model. Obviously, as everyone on the call knows, we generate return in two ways, one being underwriting and the other one being investment income. But perhaps if I'm understanding your question appropriately, there is no movement on our end to look to start to compromise our loss ratio picks because of a higher interest rate environment. We are not, have never been, and will never be, as long as the chairman and I are here, cash flow underwriters. That's not what we do. So, again, I'm not a big fan of the but-for, but, you know, we are, I think that the The loss ratios that we generated or the combined ratios that we generated in the quarter were, you know, on a calendar year, certainly not what we targeted, but certainly not the end of the world. And we have no interest in compromising on our targets at this time. That's helpful. Thank you.
Ron Kinnar
And then my second question, just looking at the professional liability line within insurance down a little bit this quarter, year over year, I'm assuming that's transactional business that's slowing down a bit year over year and maybe slower rates as well. So maybe you can abuse that note.
Rob Berkeley
The professional liability on the insurance side, I think, was up about 1%. And the big movers in that were particularly D&O. And there are a couple of drivers there. One, I think it's competition. But two, the demand has slowed a little bit, particularly around IPOs and to a lesser extent, but still there, SPACs. And those two pieces drove a meaningful percentage of the demand. So I think that's a piece of it. Also, in addition to that, look, it's still a cyclical market, as I was suggesting earlier on. And, you know, people are becoming more competitive. So, you know, we accept that reality. And that's why you've What was a product line for us that was growing at a very rapid pace, if you go back, you know, to this time last year or the year before, you know, you'll see that underwriting discipline here, and that's coming through, and the growth rate's slowing considerably. And at some point, I expect that plus one is going to turn into a negative number, and that's okay. But we take one day at a time.
Ron Kinnar
And where does cyber fit into this? What kind of opportunities does that maybe offset on the slowdown in D&L?
Rob Berkeley
You know, we are a player in the cyberspace, though I would define in a very controlled and limited way. We have an outstanding group of people that have terrific expertise. And, you know, at this stage, that business remains one that we think there's still much opportunity ahead of us.
Mike
Thank you. Thank you for the questions. And we'll go next now to Josh Shanker at Bank of America.
Josh Shanker
Hi, Josh. Good evening. Hello there. Hello there. For the Berkeleyologists, I'm trying to remember in 2002 or 2006 whether you ever engaged in either participation or rhetoric about meaningfully participating in the property cap market. I don't seem to recall it, but I might have not as good of a memory as some people on the call.
Rob Berkeley
Josh, so in 2002, we did enter into what I would define as some short-term quota shares with a couple of facilities in London. And we wrote a fair amount of business for a very defined period of time. I don't remember if it was started in 2002, maybe 2003. And it proved to be very lucrative for the shareholders. And shortly thereafter, as it became a less attractive market, we faded into the background.
Josh Shanker
Okay. And then, you know, there's chatter about another hard market coming. I think all lines move differently, and there's different things happening in different lines. But I think that you're still in the position that you're going to keep your focus on margins, but you're rate adequate in a lot of places, and you're looking to grow, maybe preferring growth over trying to take rate at this point. For the companies that are chattering about another hard market, do you think that your competitors are underpricing and need to take price? And that's why we're hearing it. If you're rate adequate, you obviously don't know where they are. But at the same time, your psychology of the market, are there a lot of competitors out there who need to take rate at this point, do you think?
Rob Berkeley
Josh, you're using a pretty broad brush, and if you don't mind, I might try and narrow the brush for a moment. I think generally speaking, the reinsurance market across the board will benefit from greater discipline, and that's in all products. In addition to that, I think the standard market needs to be paying more attention, in my opinion, to lost trends than it would appear as though from a distance that some of them are. As far as the specialty carriers go, I think it varies by product line and by carrier. I think there are some that are very responsible and very disciplined. It's not clear to me. It's reasonably clear, I should say, to me at this time that property pricing is going up. It may not happen as quickly as one might think it should happen. It's starting to happen today, and I expect you're going to see it become even more visible as we make our way through next year. What the spillover will be into some of the other product lines, I don't know. I think one of the pieces that we have talked about in passing is workers' compensation, and I would suggest to you that's not one to lose sight of. given that I believe it still is the largest component of the commercialized marketplace from a premium perspective. And we have got to be getting close to the bottom there. And that may mean it's going to take another year or two, and that's going to need to tick up. So I think there's meaningful pain to come and come. I think properties, people are recognizing they need to change. I think on some of the liability lines, particularly in the standard markets, I think they better be careful of lost rent.
Josh Shanker
Is there a gap year in 2023 for a lot of property writers where they need to take price, but over the near term, they're going to have to pay more for the reinsurance and some margins are going to get squeezed for one year period? Does that happen? Or am I thinking about this too simply?
Rob Berkeley
No, for what it's worth, I agree with your question and your observation. I think there could be a lag, And that's why particularly for those in the standard market, they have to get filings approved and how quickly can they pivot and how much can they debit accounts to get to a rate to support those higher reinsurance costs. We'll have to see with time. But if we go back to a period that we were touching on earlier in our discussion, I think you flagged 2002. If you go back to the end of 2001, right around 9-11, the market was starting to firm a bit, and then 9-11 served as a significant catalyst to firming and giving people the conviction to really push. But if you go back and you look at the 2002 year, for much of the market, that did not prove to be such a great year because pricing started to go up. But just because it was going up, it really didn't become truly adequate until 2003. So if you look at those policy years, it was really the 2003 year where it started to become more attractive. So long story short, Josh, I think there is a lag. I think you raise, in my opinion, an important point. And I think that ultimately that lag oftentimes proves to be a further catalyst to get people to push even harder. So that's nothing more than speculation from one observer.
Josh Shanker
Thank you for all the detail. I do appreciate it.
Berkley
Thank you for the questions.
Mike
Thank you.
Operator
We'll go next to Ryan Tunitz at Autonomous Research.
Ryan Tunitz
Hey, good evening, guys. First, I just wanted to clean up some numbers questions. So you guys disclose an insurance I'm trying to figure out how much of short tail lines is, you know, cat exposed, like exposed to Florida or anything else we'll see a bunch of rate. We just see the short tail lines. I don't know how much of that broader specialty. And I guess the same question for reinsurance. How much of property is property cat?
Rob Berkeley
I don't have the percentages in front of me. I would tell you that on the property side, on the insurance front, it's not going to be a huge amount. And we have the ability to flex that up, which we will be looking at very closely. But by design, we have limited the amount of aggregate we are willing to put out in certain zones and certain zip codes. And it's a similar story on the reinsurance front. where, again, we have the ability to flex, but just demonstrating through action, if you will, we have not found the pricing to be particularly attractive until as of late, and it will likely become even more attractive, which is why if you look at sort of where our growth is and what's happened in the third quarter, it was really some recent opportunity to for us to try and take advantage of a changing market, and you may see more of that. But, again, we are not a big player in the space today, and I don't think it's ever going to be the lion's share of our business, but it could become a more significant part of our business temporarily over the next year or two.
Ryan Tunitz
Got it. And, Rob, you mentioned standard lines being a little bit more competitive. Definitionally, I guess that's always tricky, admitted, not admitted, yada, yada. But just directionally, what percentage of your insurance book do you think of as kind of having the characteristics of standard?
Berkley
Modest, and that's by design. Got it.
Rob Berkeley
Okay. You know, we like the stuff that falls off the table of the standard markets. and we'll leave it to the 800-pound gorillas sitting up at the table to fight over what they keep up there.
Berkley
We're very – because the stuff that falls off the table, we can charge what we want.
Ryan Tunitz
Got it. And then I guess our last question, Rob, just to follow up on the reserve charge. I get that it's one time in nature, but – It's just interesting. Every quarter, there's pluses and minuses. It's always very, very de minimis one way or another at Berkeley. I'm guessing you had that observation, too, about this quarter. It's the first time that I think I've seen more than $10 billion favorable, unfavorable. Is there maybe less of it all said? I'm looking for some perspective on in the past, the number is Bidding to minimus, this time it's a little bit higher.
Rob Berkeley
Just how would you interpret that? Let me try and share with you as much as I can. So we had two specific and unique situations where our, again, from my perspective and my understanding, which I did get into the weeds on these situations, they were very much one-offs. And as you referenced earlier, we usually don't have a lot of development one way or another. It's because we're constantly trying to get the porridge just right in every nook and cranny of the organization. And there's no sense in trying to put lipstick on the pig. Long story short, Ryan, these were two, again, isolated situations that we're not going to pretend it's something that it isn't and try and obfuscate the picture. That's just not how we operate. But long story short, we do not think that this is something that we're going to see more of based on everything I can see at this time.
Mike
Thank you. Thanks for the question. And we'll go next now to Brian Meredith at UDS.
Brian Meredith
Hi, Brian. Good evening, Rob. Hey, good. Listen, just quickly following up on Ryan, just a quick question on the reserve charge. Does it all kind of make you think about the conservatism of your other COVID-related reserves that are still up? Are you kind of going to rethink those a little bit given these two events?
Rob Berkeley
Yeah, you know, Ryan, I think a very fair question, and that was probably a self-serving comment on my part because we asked ourselves that same question. And I promise you that it served as the catalyst that you're suggesting where we took a look to see, do we think we have anything else that's material out there of this nature that we should be looking into? And again, based on what I know today and what my colleagues know today and the stones that we looked under, we feel comfortable about where we are. I can assure you, I'm not interested in being on this type of call three months, six months, whatever from now, and having to talk about this again. So I can't promise, but we made every reasonable effort to try and make sure that there's nothing else that we could see at this time.
Brian Meredith
Great. Appreciate that. And then my second question, Rob, is coming into this year, you were pretty optimistic, bullish about growth prospects. I think you threw out the 15% to 25%. you know, top line growth. Clearly this quarter, you know, wasn't there, was good, but not there. And I guess my question is, one, what's changed since then? Is it because the professional lines maybe is a lot worse pricing wise, as you considered? Is there a change in the market that's kind of worse than you were thinking? And then as I look forward, are you maybe increasing a little bit more optimistic about that growth given what's transpired recently? Yeah.
Rob Berkeley
So the answer is yes, as you flagged, Brian, I agree with the point. The professional liability has slowed considerably, and we applaud the discipline of our colleagues, but that is certainly having somewhat of an impact. That having been said, yes, In addition to that, we've been a little bit surprised by how some of the liability lines and professional lines within the casualty reinsurance space have become more competitive as of late. But to the second part of your comment slash question, I do think, you know, we'll see what the fourth quarter holds, you know, encouraging so far, but we'll see. It's still very early. But I would expect that there should be in much of the marketplace we participate in, some very attractive opportunities in early next year and beyond. Great.
Mike
Thank you.
Berkley
Thanks for the questions.
Operator
And we'll take our next question now from Mark Dwell at RBC Capital Markets.
Brian Meredith
Hi, Mark. Good evening. Yeah. Good evening. Between Brian and Ryan, they covered the ground I wanted to cover, so I don't have any further questions.
Mike
Okay. Thanks for dialing in. We'll go next now to Mark Hughes at Truist Securities.
Mark Hughes
Thank you. Good afternoon. Good evening. Rob, in the past you've mentioned the paid loss ratio, and I'm not sure if you gave any specific numbers this quarter, but If there's any detail you could share on that front, I'd be interested.
Rob Berkeley
Yeah, we'll have to follow up on that. I'm in a conference room, and I left all my notes down the hall, which I apologize for. That is something that the past couple of quarters we've tried to flag for folks. So what we'd like to do is, if you don't mind, just give Karen or Rich or myself a call, and we'll have that for you in the morning. But I just – It was like the one sheet that didn't make the six-inch stack that I brought down with me. So apologies for that.
Mark Hughes
Quite all right. One sort of follow-up. When you think about the rate increase this quarter, obviously a little bit more, was that reflective of the broader market that the pricing environment improved, or was it that you pushed a little bit harder to get rates? and you achieved it, and perhaps that impacted the top line growth a little bit?
Rob Berkeley
Look, if you look at our renewal retention ratio, it's kind of hanging in there, and it kind of fluctuates between 79% and 82% quarter in and quarter out. Our colleagues, you know, and again, it's at a pretty granular basis. They're looking at each one of the product lines that they're operating with within their P&L, we're looking at at a granular level. And people are trying to pay close attention to where the environment is and where lost costs are going. What do we need to make sure we're rate adequate plus? And there continues to be sensitivity to inflation of both types. So again, I think that we continue to push on the rate and I don't think there's any reason to expect we are not going to continue to push into the fourth quarter and through next year.
Mike
Thank you.
Berkley
Thanks for the question.
Operator
And we'll take our next question now from David Mott-Maden at Evercore.
Berkley
Good evening, David.
David
Hey, good evening, Rob. I have a question kind of following up on Ryan's question on the property side. If I look at just short tail and property, it's around 20% of your premium mix right now or over the last 12 months. Is there a ceiling that you think about, like how big you would allow this to get, assuming pricing is where it needs to be to produce attractive returns? Is there a ceiling there? just a level where you just don't want to let it go above as you think about like maybe introducing a bit more net cap volatility or just, you know, attritional volatility into results?
Rob Berkeley
You know, we do have some numbers internally that many of us sit around a table and we grapple with and one person will argue one side and the other will argue the other. And after we are tuckered out, we'll exchange who's arguing which side. But when the day's all done, We have a fair amount of headroom to the extent we see the opportunity presenting itself. And I would tell you that it's somewhat on a sliding scale. The more attractive we see the opportunity, the more healthy we see the risk-adjusted return, the more inclined that we are to write more of this type of business. Do I think that we are going to become a leading property cat underwriter overnight? No, I do not. At the same time, do I think it could become a more meaningful part of what we do in the short run? Yes, I do. But that doesn't mean that it's not going to become more than half of what we do or something like that. But it will be noticeable relative to its size today and its contribution today.
Berkley
Again, if the opportunity is there.
David
Yep, got it. Understood. And then maybe just another question, you know, I guess were there any other changes or any changes in terms of how you're thinking about lost cost trends here in the last quarter or two, both on – I'm particularly focused on long-tail lines, but also on the short-tail lines as well. Any sort of changes there in terms of how you're thinking about that would be helpful.
Rob Berkeley
Yeah, there is nothing that we see – that would suggest the social inflation challenge is becoming any more benign. It remains alive and well and very challenging. And on the financial or economic side, I mean, we all see where inflation is running at. We see where CPI is. We see where core is. And, you know, there clearly continues to be pressure there. So... When we look at it, do we think this pace will keep up forever? No, we don't. But that having been said, from our perspective, we will continue to price as we see fit.
Mike
Got it.
David
Okay, yeah, that makes sense. And then maybe just lastly, if I can squeeze it in, Just on the commentary, just on rate being 100 basis points or so above or 100, 200, I don't know exactly what the number was. Yeah. Rate being above trend. I mean, I believe that is excluding workers' comp. How should we think about it just on an overall basis? Are we still at a level where we're above trend?
Rob Berkeley
As far as comp goes or the whole thing or what are we – The whole book if I sort of mixed in comp. If you include comp in it, we're very comfortable that our comp book is priced at a very healthy level.
Mike
So in the aggregate, yes, we're feeling very comfortable where we are. Got it. Okay. Thank you. And gentlemen, it appears we have no further questions this afternoon.
Operator
Mr. Berkley, I'll hand things back to you for the closing comments.
Rob Berkeley
Okay. Well, Bo, thank you very much, and thank you to all that dialed in. Again, I think in spite of the challenges that came the industry's way in the quarter, we still performed quite well and generated a healthy return. You know, we'll have to see where the property cap market goes. Again, I don't think we are going to become a property cap writer overnight, but we do have the ability to participate in a very select manner for a defined period of time when we think the opportunity is there. But we are going to remain core to being a specialty, primarily liability underwriter, and that remains the focus of the business. Though, again, we are in a position to take advantage of market opportunities when they present themselves. We thank you all for your participation, and we look forward to catching up with you early next year. Thank you.
Operator
Thank you. And again, ladies and gentlemen, I will conclude W.R. Berkeley Corporation's third quarter 2022 earnings call. Again, thank you all for joining us. I wish you all a great evening. Goodbye.
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