W. Robert Berkley
President and Chief Executive Officer at W. R. Berkley
Emma, thank you very much, and good afternoon, everyone. Thanks for joining for our third quarter call. So in addition to me on this end of the phone, you also have Bill Berkeley, our Executive Chair; as well as Rich Baio, Executive Vice President and Chief Financial Officer.
We are going to follow our typical agenda where in a couple of moments, I'm going to hand it over to Rich, who is going to walk us through the highlights from the quarter. I will follow him with a couple of brief sound bites or reflections. And then in pretty short order, we will open it up for Q&A and happy to take the conversation in any direction where people would like to.
But before I hand the mic to Rich, I did want to flag with folks one sort of macro observation. We were chatting internally earlier and how it seems like the quarterly calls oftentimes turn into an every 90-days session talking about certain numbers, which oftentimes go out of certain number of basis points. And while those discussions are worthwhile and productive from our perspective, it's also important that people not lose sight of the macro. And it is something that we spend a lot of time every day thinking about. And that is what is the goal of the exercise, what we are trying to do.
And clearly one of the cornerstone goals is building book value. Building book value is an important thing for a whole host of reasons, including building book value allows the organization to live up or meet the needs of the various stakeholders. When we think about building book value, we approach it with an idea that we'll refer to as risk adjusted return that many of you have heard us talk about in the past. We take this approach and apply it to both our investing, as well as our underwriting activities.
And while you probably hear more companies did not in their own words talk about these concepts, I think one of the differentiating, excuse me, ways that we approach this idea is how we think about volatility as a component of risk. And again this is something that we've discussed in the past, but I think it's particularly -- timely particularly relevant when we have a quarter for the industry for society like we saw in Q3.
This idea of volatility as a component of risk adjusted return, we certainly grapple with on both the investing and underwriting side of the business. You can see it on the investment side, for example, and how we have thought about duration and how we have been willing to keep our duration short and even though that comes at a cost, we do not think the risk adjusted return is there to justify going out on the curve and extending that duration. We do not believe you get paid enough for that potential risk.
In addition to that, again as it once again crystallized in the third quarter when we think about underwriting activities. And we think about volatility as a component of risk. Clearly the industry is feeling the challenges that come along with cat activity. From our perspective, cat activity is there on a regular basis. And why people choose to back it out on a regular basis, it doesn't make a whole lot of sense to us. Our view is that volatility is real -- it is a real component of risk. When we think about running the business, it is of great priority to us and how we think about deploying capital.
So I'm going to pause there, but before I do, I guess one last comment. I know that there are a lot of people that will look at our numbers and Rich will walk you through it and you'll do the math and you'll come up with an ex-cat accident year loss ratio. And what does that mean, it is on a combined ratio and that will probably get you to approximately an 86.9%. But from our perspective, if one chooses to slip off the rose colored glasses for a moment, we generated 90.4%. That is reality from our perspective. But in spite of the cat and the impact, we did achieve a very healthy underwriting result. And in the process, we achieved a 16.6% return on equity.
Ultimately, when one thinks about building book value, you can't just think about the steps forward that you take, you need to think about how you avoid the steps backwards. And when you think about compounding book value over an extended period of time, when you think about value creation for shareholders amongst other stakeholders. Not taking those steps backwards is a big part of the puzzle.
So with that, Rich, I will hand it over to you. If you would please walk us through.