Rob Berkley: We still have reservations about the product line. We’re pleased that we participate in the market. We think our colleagues that are in this space have exceptional expertise and are managing the capital well. But by and large if there is a little bit more of a certainly neutral to defensive posture at this stage, I think as we’ve talked about in the past, we think that the medical trend is going to prove to be challenging. As far as obviously the U.S. comp market is both broad and deep. And from what I hear from my colleagues that are far more knowledgeable than I, I would keep an eye on California for leading the charge as far as market bottoming out.
Mark Hughes: Appreciate it. Thank you.
Rob Berkley: Thanks for the question. Good evening.
Operator: Your next question comes from the line of Mike Zaremski of BMO Capital Markets. Your line is open.
Rob Berkley: Hi, Mike. Good evening.
Mike Zaremski: Hi, good evening. I guess just if we wanted to reflect on the past 12 to 18 months, you’ve discussed it a bit, but there was kind of a pivot downwards in growth for a bit. Did the – was the pivot more the marketplace changed in terms of competition, or was it more so reflection of what you’ve been talking about? Hi, loss costs are – we need to do a bit of a true-up and – you’ve gotten that picture of the Python and kind of now the – it’s kind of a smoother sailing from here. Just kind of curious how much was kind of more, you think, Berkeley-specific versus just market forces and the competitors doing their thing.
Rob Berkley: So the way I characterize it, Mike, is I think that the market is changing every day. And if you go back, call it two years ago, professional liability, D&O, as an example, was in a different place than it is today. So you have that force. On the other hand, clearly, two years ago property was in a different place than it is today. So you have all these pieces that at any moment in time some things are firming, some things are softening, and obviously, that instructs how we feel and how strong or not our appetite is. In addition to that, I think, as we may have flagged in some earlier calls, there were a couple of what I would describe as meaty relationships scale-wise, that we came to a shared understanding that we agreed to disagree as to what an appropriate rate need is and what action was required.
And as a result of that, we wished each other well, or at least we wished them well, and that played a role in it as – in addition to the earlier comments. So do I think that the 12% is this like phenomenal number? That’s one-off. The answer is no. I think that there were some things in the first half of the year that served as somewhat of an extreme drag, and what you’re seeing now is a lot of that shift away has been processed.
Mike Zaremski: Okay, that’s helpful context. Clearly, the ROE for the year ended up being excellent. So I guess just switching gears a little bit, I think you mentioned the reinsurers. Anything we should be thinking about maybe within your expense ratio guidance or just as the year progresses, in terms of if the reinsurers are able to successfully garner higher pricing, seating commissions or whatnot, on what – they charge their counterparties, such as Berkeley for casualty reinsurance. I know you guys have a reinsurance arm, obviously too, so there’s an offset. But just curious if there’s something –
Rob Berkley: Yes, obviously, we take it from one pocket and hopefully, we’re getting it back and then some in the other pocket. I think one of the things that – so do I think it’s possible that you’re going to see some of the reinsurance marketplace trying to take action, for example, with seeding commissions? Yes, I do. The good news for our organization, as we’ve discussed, because of our limits profile and how the business is operated with approximately 90% of our policies that are legally allowed to have limits, having a limit of $2 million or less, that makes us less reinsurance dependent. So consequently, we have the ability to pivot and think about what we buy, perhaps differently than some of our peers, and we also can shift structurally.
So as Rich mentioned earlier, around the seed, part of the reason why the – excuse me, around the expense ratio partly has to do with seed, where people wanted to cut seeding commissions. So maybe we switched to an XoL structure that made sense to us, given the rate environment, and that worked out. So the punchline is this, Mike, a hardening reinsurance market when it comes to the casualty lines, net net will be very good for us as an organization because it will force further discipline and consequently pricing power for the primary market. And in addition to that, my colleagues on the reinsurance side, I’m sure will be right in there seizing the opportunity.
