Good day and welcome to the Robert Berkley Corporation's Second Quarter 2017 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 31, 2016, and 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. Robert 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. Robert Berkley. Please go ahead, sir.

Bruce, thank you very much and good afternoon all. Thank you for calling in this afternoon. Let me just clarify something to avoid any misunderstanding. The name of the company is still W. R. Berkley Corporation and I am still Robert Berkley. We have not changed the name of the company and I am still employed at least for the moment. So on this end of the phone as in the past, we have our Executive Chairman who the business is named after Bill Berkley, we also have Gene Ballard, our Executive Vice President and Rich Baio our Chief Financial Officer joining. So the agenda for the call, similar to what we've done in the past I'm going to start out with some macro comments and thought if you will. On the industry I'll give you a few sound bites on my take on our quarter and then I am going to hand it over to Rich to give you some color at a more granular level. So the insurance market clearly going through a time of transition from our perspective. Without a doubt there is a grown ground swell of competition. You can see it manifesting itself in a couple of difference ways. A couple of macro observations will be the standard markets, particularly national carrier seems to be expanding their appetite and spilling over into what a while had been viewed as specialty market exposure. We also are seeing a state-assigned risk plan beginning to depopulate, again as carriers are I guess expanding their appetite if you will. Having said that, at times like this when we are going through a period of transition where we believe knowledge and expertise is the great differentiator. When we see what's going on among some carriers out there that are new…

Thanks Rob, appreciate it. We've reported net income of $109 million or $0.85 cents per share which is unchanged from the prior year's quarter. Our total return investment strategy continues to pay off with pretax realized investment gains of $40 million for the quarter and $93 million year-to-date. Net investment income also increased 4.8% quarter-over-quarter, while year-to-date investment income rose 9.6%. In light of the increasingly competitive market conditions as Rob was alluding to, we're pleased with our pretax underwriting results of $76 million for the second quarter. This represents a small decline of $3 million from the prior year largely due to a more active combined catastrophe and non-cat weather related loss environment in the quarter. Certain areas in the market are too competitive to meet our risk adjusted returns and as a result, we've repositioned certain of our underwriting portfolio and managed our risk selection and exposures giving rise to a decline in our net premiums written of 4.8% to $1.56 billion. Much of this decline is attributed to the North American property casualty treaty reinsurance businesses as Rob referenced, where sources of capital are plentiful putting significant downward pressure on rate. Our reinsurance stagnant declined almost $53 million to $126 million in the quarter. The insurance segment experienced a small decline in net premiums written of 1.7% which was largely attributable to the exit of a few lines of business as certain operating unit due to the inadequate opportunities to achieve targeted risk adjusted returns. The accident year loss ratio before cast was 60.7% compared with 60.2% a year ago. About half of the difference relates to non-cat weather related losses which equated to 70 basis points in the current quarter. Cat losses declined $7.5 million from a year ago to $33 million. This translates into 2.1…

Thank you, Rich. Bruce, at this time we'd like to open it up for questions. And all four of us are here to try and answer any questions people may have on the quarter or beyond. Thank you.

[Operator Instructions] Our first question comes from Arash Soleimani from KBW. Your line is now open.

Hi, good afternoon. Can you - the $21 million of favorable development. Can you break that out between insurance and reinsurance?

Yes, we typically don't go into that detail. But it will be in the queue.

Okay. And last call you had mentioned potentially seeing signs of increase in loss inflations. I just wanted to know if you can provide some updated thoughts around that please.

Honestly, I think we did talk about it last quarter and it's something that we're paying closer attention to. But it doesn't really move that much in a 90 day period. We certainly are conscious of some of the things I think we talked about last time around as to what we're seeing in the legal environment and the word is moving and that's something that we continue to pay attention to. Again, we wouldn't want to leap to one conclusion or another after a 90 day period. But it remains something that we are sensitive to.

Thanks. My last question, I know it's a smaller piece. But can you just provide a reminder what runs through the arbitrage trading account?

Rich you want to comment on that?

We have a merger arbitrage trading account effective and we are only investing in announced transaction and those transactions generally are very short term in nature in terms of less than a four month period of time.

Alright. Great. Thank you very much for the answers.

And our next question comes from Ryan Tunis from Credit Suisse. Your lines are open.

Hi, thanks. I guess my first question is just on the reinsurance premium growth. And I mean you guys said it was North American treaty, quotations are competitive. I guess the question is it seems like conditions have been pretty competitive there for several years and we've seen just kind of an acceleration of decline in premiums there in 2017. I guess sort of what is different now relative to maybe what you would have seen in 16, when you are into that?

I think what happens is that you get to a point where you say no more. And we are in the market every day, it's not that we are not in the market any longer, but we have a view as to what type of return we're willing to accept and we have a view as to how flexible we are prepared to be throughout the cycle. And once you get to a breaking point, we are prepared to say no more. We have a pretty straight forward view, we are in business to make money and if we don't think we can make good risk adjusted returns recognizing things such as relationship matter and you need to take a long term view throughout the cycle, but there is a breaking point there too. And in many of these situations that quite frankly are relationships or accounts that have moved away from us, because they can find cheap capacity that they can arbitrage and they are not looking to partner with. So we accept that reality.

So as a longer term view of the attract ability of that business changed at all or should we just think about that right now?

No, we believe that the reinsurance business is still an attractive business and we are fully committed to it. Having said that, we also recognize some of the imperfections in the business and we are not going to expose capital in a manner that we don't think makes sense.

Got you. And then just, I guess in primary insurance. I mean if you could just remind us, I think it was upward tick on the expense ratio from new business starts that's always been a Berkley thing to do the organic growth of that. I am just curious over a longer time period, if we were to look back, three to five years some timeframe, what percentage of your premium today comes from those types of new business starts? I am just kind of trying to get a feel for how significant all of this today in the expense headwind, what that could be in the future in terms of your overall NPW? Thanks.

Well the businesses that we have and their instance that are having a negative impact on the expense ratio and I think Rich mentioned them earlier combined with some of the things that we have in the incubator if you like that are contributing to the corporate expense line. Our view is depending on what the horizon that you'd like to use. Those businesses will contribute premium certainly in less than five years will be literally 100's and 100's of millions of dollars of premium would be our expectation.

Thank you. That's alright.

Our next question comes from Kai Pan from Morgan Stanley. Your line is now open.

Thank you. First question on investment side, your investment fund return are reported on lag basis is that right?

Correct. Quarterly, most of the funds are in a quarterly lag.

Do you have any other indication for the third quarter?

You know, I think that we don't provide those numbers or that type of guidance. But as suggested earlier obviously we have some exposure to energy I'm sure you have a sense as to where energy prices are just like everybody else.

Okay. That's great and then on your realized gains it looks like $40 million this quarter and next quarter it's going to be $120 million or more and so that's kind of run rate even though there volatility from quarter-to-quarter way above your $100 million kind of guidance you talked about in the past.

That's correct but as we've also talked about in the past, it's lumpy right and we've accepted that lumpiness which doesn't always suit people who are in your line of business that are trying to predict. But ultimately while we're interested in and what you're trying to do you know we work for the shareholders and are focused on the total return. So the run rate is up substantially this year as mentioned in the prior release and Rich referenced as well and I tried to reference when I was choking before. We're going to have a big game coming through in the third quarter and between what we've had so far this year as well as what's coming through in the third quarter it is going to be a big year for us, but again it is going to be lumpy. Having said that, I think it is our general view that what you see on our balance sheet those not fully reflect at all the gains that we see that exist in our investment portfolio.

This is Bill, I think that it's important to understand. How equity represents a substantial part of our unrealized gains and is in fact reflected on our balance sheet. Most of the gains we have shown come from other non-securities kinds of gains. That our businesses we own that we bought with the purpose of settling, real estate that we own and other kinds of non-securities transaction. So they're not mark-to-market on the balance sheet, those who carry it - until we realize it. So as we've discussed in the past, there's quite a few $100 millions of unrealized gains that aren't reflected on the balance sheet, but that will come through. So for example the building we sold was already on the balance sheet the gain wasn't reflected. We expect that there are other things like that will come through over the next year or 2 or 3 or 4.

That's great Bill, can you talk a little bit more about the market based on the investment side are you more on a hovering mode in monetizing the gains or basically do you see potentially downside in the market?

The kinds of things that we've invested in are long term investment, that everything reaches its peak at a different time. So it's a great time to harvest today in New York may not be a great time in Washington or in Florida or someplace. So I think that there's no generality we give. So private equity business -- we kept a lot of our shares. Every private equity investment, every real estate investment, every kind of investment like that has no cycle and it's not a mode of harvesting whatever. We've been doing this for a while some of them have matured and have good opportunities and some of them we'll keep for an extended period of time.

Okay. The following question is on the underwriting side. You saw some of the spend that carriers they talking about the pricing stabilize or even increase at the same time you're talking more about the growing premiums at the same time you saw increase in competition in the marketplace and you are shrinking your premiums. I just try to compare and contrast to see if you can provide any more details?

Sure. So for starters I think it's important to understand that one needs to use a very fine brush. So there are parts of our business, particularly in the insurance segment where we are growing and we're seeing great opportunity. There are other parts of our business that we are contracting and there are few isolated situations where we have decided to withdraw from a particular class or a particular line of business in a particular geography. I think from my perspective, the market is not a situation where the bottom has fallen out I think that there are still meaningful opportunities and particularly in the insurance space. Having said that, I think there is no doubt that it is becoming more competitive and I think that the rate that people are getting in the auto space is to a certain extent overshadowing some of the challenges that people face when it comes to rate and other product lines. Workers compensation would be an example of that. So, I'm not aware or in touch exactly with what other people are doing I just know what we see in the marketplace and I think that there are still clearly opportunities and there are ways for us to grow our business but there are parts in the marketplace that are without a doubt more challenging today than they were yesterday.

Great. Thank you so much for all the answers.

Our next question comes from Howard Flinker from Flinker Company. Your line is now open.

Good afternoon. Hello?

Howard your line is now open.

Can you hear me?

Yes, thank you.

I'm going to remind you of what terrific position you guys made a few years ago and then I'm going to ask what you see. Right after - blew up in the Gulf of Mexico, you guys decided that it was time to provide coverage and what was the marketplace that was probably ripe with scared underwriters. And of course rates went up a lot right after you start writing business. What do you see now, I'm just curious. I'm comparing a rising demand from activity in the oil business, I guess rising supply of too many people from our business plowing money into the property and casualty side. So back to the oil business, what do you see just generally?

What do we see in the oil business as it relates to the insurance industry serving the oil industry?

Yes.

We find it to be at this moment in time exceptionally competitive. Particularly the offshore is very competitive, having said that there are signs that it is bottoming out. Obviously the health and the prosperity of the insurers in the oil and gas industry have an impact on the opportunity for the insurance industry that's serving them.

So that's kind of a barometer what's going on in the rest of the business when you went into certain sectors as supply was short and prices favored you. Now supply is plentiful and prices aren't as good. Is that a fair assessment?

Well, I think that again one needs to use a finer brush. From our perspective we are in the marketplace every day trying to offer continuity in the market and there are moments in time that the market moves away from us because if the others are willing to offer a product at a cheaper price and oftentimes over time that will move back to us.

Okay thanks.

Sure.

And our next question comes from Brian Meredith from UBS. Your lines are open.

Yes, thanks couple ones here for you Rob.

Hi Brian. Good afternoon.

Yes. The workers compensation insurance growth that you guys are seeing in 8% is that new accounts of that wage inflation that you're seeing in comp given the competitive pricing environment?

It's a combination of both. Part of it is underlying wages going up and also my comments again tend to deal with a very broad brush. So there are parts of the workers comp market that we think remain exceptionally attractive. I think if you go back to years ago one didn't need to use such a fine brush, you could write more of a quota share if you will on the comp market overall and you do okay. These days you can't do that, you need to use a laser. But there are parts of the market that we still find very attractive.

Excellent. And then Rob, I want to talk a little bit more on a little bit on your comment about the national accounts kind of getting into the carriers getting specialty. Are you referring to basically then relaxing some of their underwriting standards here and taking a non-standard risk and making standard or are they actually getting into specialty areas?

If seen from my perspective, we're seeing them broaden their appetite having retracted over a few years. And now they're stepping back in and broadening their appetite. It's not that they're necessarily starting a new venture so to speak and going into the specialty space as much as standard line underwriters seems to be spreading their wings a little bit and broadening their appetite. Which we've seen in the past and I suspect we'll see again in the future, but that is the one of the leading indicators that makes one wonder where the market is going.

Thanks Rob, appreciate it.

Now we have a follow up of Kai Pan from Morgan Stanley. Your line is now open.

Thank you for fitting in for the follow-ups. The first one is on the capital management. It looks like you prefer now to using specialty events rather than share buybacks. I just wonder your capital management sort of strategies do you feel is particularly because of the stock valuation or something else?

We go on opportunistic direction as you know. We try to measure what we can do with returns. What we do with stock buyback or whether within sidelines for expanding the business in one way or the other. And it's a constant evaluation of what there is and Rob and I generally sit down and make that assessment. And it's just a constant evaluation of what's going on and certainly it's impacted by the number of realized gains which add immediate additional capital to our financial statements even more than we would expect in our ordinary operating.

Okay. Last one on the expense ratio -- be higher in the insurance operation, I just wonder will that be kind of steady state for now or it can drift a little bit higher as you are making some new investment in the new initiatives and before it is coming down when you have leverage in the new business?

So I think that's really going to be driven by a couple of things, when we have pieces moving in both directions. One piece is that some of the businesses that Rich had mentioned as well as others they will be getting a critical mass over time and there aren't premium well build and you will see them become less of a drag over time. On the other hand as suggested in Berkeley One being an example that is going to be shifting over from corporate expense into the expense ratio in all likelihood we would expect in the fourth quarter as it becomes operational. So long story short, I would expect the impact in the fourth quarter from Berkeley One will offset or perhaps offset and then some benefits that we get from the existing businesses leveraging their expenses.

Great. Thank you so much for your time.

Thank you.

And at this time, I'm showing now further questions.

Okay. Well, thank you very much all for joining us. From our perspective, it was a very a quarter that by and large was in line with our expectations as far as the lost activity goes, the top line I think is just a reflection of our underwriting discipline and our commitment to deploy capital in a manner that we think makes sense as I was suggesting earlier. We do think that the actions that we're taking now are going to have a meaningful impact on our underwriting margin as these actions begin to earn through. And when the day is all done, we are very focused on one thing and that is risk adjusted returns and how we apply that to our underwriting activities as well as our investment activity. So thank you again for calling and we will speak with you in 90 days. Thank you, Bruce.

Ladies and gentlemen, thank you for your participation in today conference. And this does conclude the program, now you may all disconnect. Everyone have a great day.