Market Overview

W. R. Berkley Corporation Reports First Quarter Results

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W. R. Berkley Corporation (NYSE:WRB) today reported first quarter 2020 growth in gross premiums written of 9.0%.

Summary Financial Data

(Amounts in thousands, except per share data)

 

 

First Quarter

 

 

2020

 

2019

 

 

 

 

 

Gross premiums written

 

$

2,231,372

 

 

$

2,046,230

 

Net premiums written

 

1,845,846

 

 

1,709,601

 

 

 

 

 

 

Net (loss) income to common stockholders

 

(4,418

)

 

180,722

 

Net (loss) income per diluted share

 

(0.02

)

 

0.94

 

 

 

 

 

 

Operating Income (1)

 

132,623

 

 

128,669

 

Operating Income per diluted share

 

0.69

 

 

0.67

 

 

 

 

 

 

Return on equity (2)

 

(0.3

)%

 

13.3

%

  1. Operating income is a non-GAAP financial measure defined by the Company as net (loss) income excluding after-tax net investment (losses) gains and related expenses.
  2. Return on equity represents net (loss) income expressed on an annualized basis as a percentage of beginning of year stockholders' equity.

     

First quarter highlights included:

  • Net premiums written increased 8.0%.
  • Average rate increases excluding workers' compensation were approximately 12%.
  • The accident year combined ratio excluding catastrophe losses was 91.9%. The reported combined ratio was 96.9%.
  • Catastrophes added 5.2 loss ratio points to the reported combined ratio, including a preliminary provision of 3.9 loss ratio points for COVID-19 related losses.
  • Net investment income increased 10.4%.
  • Total capital returned to shareholders was $223 million, including $203 million of share repurchases and $20 million of ordinary dividends.
  • Cash and liquid investments of more than $1.3 billion at the holding company.

The Company commented:

These are extraordinary times, impacting individuals and businesses alike in unprecedented ways, and our thoughts are with those most affected by the COVID-19 global pandemic. We salute healthcare workers, first responders and others on the front lines of this crisis for their selflessness and tireless efforts and thank our government officials for their leadership. Amidst these challenges, our colleagues throughout the enterprise have demonstrated extraordinary resiliency in serving our customers, our distribution partners and our communities.

The global COVID-19 pandemic had an adverse impact on first-quarter net income. Still, our operating fundamentals remained strong. Underwriting momentum continued to build with net premiums written growing at their fastest rate in five years. Further rate increases were necessary to recognize loss cost trends that have come into focus over the last several quarters. Catastrophe losses for the quarter included an approximate $65 million preliminary provision for COVID-19 related claims activity. We continue to monitor the rapidly evolving legal and regulatory environment and the potential impact it will have on our industry.

While unrealized losses had an adverse impact on first-quarter profits, investment income from the fixed-maturity investment portfolio was in line with our expectations. With an average duration of less than three years, this portfolio's high-quality AA- average rating should continue to hold us in good stead even in these tumultuous times. Income from investment funds was strong as results are reported on a quarter lag. Our cash flow from operations remained healthy and we maintain significant liquidity.

The balance of 2020 will have many challenges, yet our commitments to honoring our contractual obligations to our customers and delivering superior long-term risk-adjusted returns to our shareholders remain unwavering. Although the financial markets remain turbulent and the economy will take some time to restart, our Company is well positioned from the perspectives of risk and cycle management as well as financial strength and flexibility.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on April 21, 2020, at 5:00 p.m. eastern time. The conference call will be webcast live on the Company's website at https://ir.berkley.com/news-and-events/events-and-presentations/default.aspx. Please log on at least ten minutes early to register and download and install any necessary software. A replay of the webcast will be available on the Company's website approximately two hours after the end of the conference call. Additional financial information can be found on the Company's website at https://ir.berkley.com/investor-relations/financial-information/annual-reports/default.aspx.

About W. R. Berkley Corporation

Founded in 1967, W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates worldwide in two segments of the property casualty business: Insurance and Reinsurance & Monoline Excess.

Forward Looking Information

This is a "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2020 and beyond, are based upon the Company's historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the impact of significant competition, including new alternative entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities, epidemics or pandemics, such as COVID-19; the impact of climate change, which may increase the frequency and severity of catastrophe events; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's withdrawal from the European Union, or "Brexit") relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Program Reauthorization Act of 2015; the ability or willingness of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or cyber security issues; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties could cause our actual results for the year 2020 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

Consolidated Financial Summary

(Amounts in thousands, except per share data)

 

 

First Quarter

 

 

2020

 

2019

Revenues:

 

 

 

 

Net premiums written

 

$

1,845,846

 

 

$

1,709,601

 

Change in unearned premiums

 

(154,428

)

 

(116,745

)

Net premiums earned

 

1,691,418

 

 

1,592,856

 

Net investment income

 

174,763

 

 

158,254

 

Net investment (losses) gains:

 

 

 

 

Net realized and unrealized (losses) gains on investments

 

(143,285

)

 

68,653

 

Change in allowance for credit losses on investments (1)

 

(33,889

)

 

 

Net investment (losses) gains

 

(177,174

)

 

68,653

 

Revenues from non-insurance businesses

 

93,729

 

 

91,827

 

Insurance service fees

 

25,751

 

 

25,312

 

Other income

 

2,123

 

 

120

 

Total revenues

 

1,810,610

 

 

1,937,022

 

Expenses:

 

 

 

 

Losses and loss expenses

 

1,107,253

 

 

988,650

 

Other operating costs and expenses

 

578,334

 

 

588,087

 

Expenses from non-insurance businesses

 

94,757

 

 

90,125

 

Interest expense

 

36,734

 

 

40,721

 

Total expenses

 

1,817,078

 

 

1,707,583

 

(Loss) income before income taxes

 

(6,468

)

 

229,439

 

Income tax benefit (expense)

 

2,942

 

 

(47,825

)

Net (loss) income before noncontrolling interests

 

(3,526

)

 

181,614

 

Noncontrolling interests

 

(892

)

 

(892

)

Net (loss) income to common stockholders

 

$

(4,418

)

 

$

180,722

 

 

 

 

 

 

Net (loss) income per share:

 

 

 

 

Basic

 

$

(0.02

)

 

0.95

 

Diluted

 

$

(0.02

)

 

0.94

 

 

 

 

 

 

Average shares outstanding (2):

 

 

 

 

Basic

 

190,287

 

 

190,400

Diluted (3)

 

190,287

 

 

192,669

  1. The inclusion of the allowance for credit losses on investments commenced January 1, 2020 due to the adoption of ASU 2016-13.
  2. Basic shares outstanding consist of the weighted average number of common shares outstanding during the period (including shares held in a grantor trust). Diluted shares outstanding consist of the weighted average number of basic and common equivalent shares outstanding during the period.
  3. During 2020, diluted shares have been reduced by 2.0 million to reflect the anti-dilutive effect of common equivalent shares.

     

Business Segment Operating Results

(Amounts in thousands, except ratios) (1)

 

 

First Quarter

 

 

2020

 

2019

Insurance:

 

 

 

 

Gross premiums written

 

$

1,941,809

 

 

$

1,810,483

 

Net premiums written

 

1,583,318

 

 

1,497,378

 

Premiums earned

 

1,484,955

 

 

1,427,034

 

Pre-tax income

 

175,947

 

 

184,516

 

Loss ratio

 

65.1

%

 

62.2

%

Expense ratio

 

31.3

%

 

31.8

%

GAAP combined ratio

 

96.4

%

 

94.0

%

 

 

 

 

 

Reinsurance & Monoline Excess:

 

 

 

 

Gross premiums written

 

$

289,563

 

 

$

235,747

 

Net premiums written

 

262,528

 

 

212,223

 

Premiums earned

 

206,463

 

 

165,822

 

Pre-tax income

 

36,514

 

 

44,855

 

Loss ratio

 

68.3

%

 

60.7

%

Expense ratio

 

32.3

%

 

36.1

%

GAAP combined ratio

 

100.6

%

 

96.8

%

 

 

 

 

 

Corporate and Eliminations:

 

 

 

 

Net investment (losses) gains 

 

$

(177,174

)

 

$

68,653

 

Interest expense

 

(36,734

)

 

(40,721

)

Other revenues and expenses

 

(5,021

)

 

(27,864

)

Pre-tax (loss) income

 

(218,929

)

 

68

 

 

 

 

 

 

Consolidated:

 

 

 

 

Gross premiums written

 

$

2,231,372

 

 

$

2,046,230

 

Net premiums written

 

1,845,846

 

 

1,709,601

 

Premiums earned

 

1,691,418

 

 

1,592,856

 

Pre-tax (loss) income

 

(6,468

)

 

229,439

 

Loss ratio

 

65.5

%

 

62.0

%

Expense ratio

 

31.4

%

 

32.3

%

GAAP combined ratio

 

96.9

%

 

94.3

%

  1. Loss ratio is losses and loss expenses incurred expressed as a percentage of premiums earned. Expense ratio is underwriting expenses expressed as a percentage of premiums earned. GAAP combined ratio is the sum of the loss ratio and the expense ratio.

Supplemental Information

(Amounts in thousands)

 

 

First Quarter

 

 

2020

 

2019

Net premiums written:

 

 

 

 

Other liability

 

$

581,644

 

 

$

506,950

 

Workers' compensation

 

327,286

 

 

354,187

 

Short-tail lines (1)

 

307,889

 

 

278,836

 

Commercial automobile

 

205,427

 

 

212,955

 

Professional liability

 

161,072

 

 

144,450

 

Total Insurance

 

1,583,318

 

 

1,497,378

 

Casualty reinsurance

 

143,461

 

 

104,516

 

Monoline excess

 

75,267

 

 

67,792

 

Property reinsurance

 

43,800

 

 

39,915

 

Total Reinsurance & Monoline Excess

 

262,528

 

 

212,223

 

Total

 

$

1,845,846

 

 

$

1,709,601

 

 

 

 

 

 

Losses from catastrophes (including a preliminary

provision for COVID-19 related losses):

 

 

Insurance

 

$

65,689

 

 

$

12,618

 

Reinsurance & Monoline Excess

 

22,193

 

 

42

 

Total

 

$

87,882

 

 

$

12,660

 

 

 

 

 

 

Net investment income:

 

 

 

 

Core portfolio (2)

 

$

133,048

 

 

$

136,258

 

Investment funds

 

40,577

 

 

11,411

 

Arbitrage trading account

 

1,138

 

 

10,585

 

Total

 

$

174,763

 

 

$

158,254

 

 

 

 

 

 

Net realized and unrealized (losses) gains on investments:

 

 

 

 

Net realized gains on investment sales

 

$

11,182

 

 

$

26,575

 

Change in unrealized (losses) gains on equity securities

 

(154,467

)

 

42,078

 

Total

 

$

(143,285

)

 

$

68,653

 

 

 

 

 

 

Other operating costs and expenses:

 

 

 

 

Policy acquisition and insurance operating expenses

 

$

531,924

 

 

$

513,791

 

Insurance service expenses

 

22,573

 

 

25,956

 

Net foreign currency gains

 

(21,541

)

 

(6,964

)

Other costs and expenses

 

45,378

 

 

55,304

 

Total

 

$

578,334

 

 

$

588,087

 

 

 

 

 

 

Cash flow from operations

 

$

152,570

 

 

$

78,330

 

 

 

 

 

 

Reconciliation of net (loss) income to operating income:

 

 

 

 

Net (loss) income

 

$

(4,418

)

 

$

180,722

 

Pre-tax investment losses (gains), net of related expenses 

 

177,592

 

 

(65,889

)

Income tax (benefit) expense

 

 

(40,551

)

 

13,836

 

Operating income after tax (3)

 

$

132,623

 

 

$

128,669

 

  1. Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.
  2. Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable.
  3. Operating income is a non-GAAP financial measure defined by the Company as net (loss) income excluding after-tax net investment (losses) gains. Net investment (losses) gains are computed net of related expenses, including performance-based compensatory costs associated with realized investment gains. Management believes this measurement provides a useful indicator of trends in the Company's underlying operations.

     

Selected Balance Sheet Information

(Amounts in thousands, except per share data)

 

March 31,

2020

 

December 31,

2019

 

 

 

 

Net invested assets (1)

$

19,133,822

 

 

$

19,856,776

 

Total assets

26,089,929

 

 

26,643,428

 

Reserves for losses and loss expenses

12,732,515

 

 

12,583,249

 

Senior notes and other debt

1,432,117

 

 

1,427,575

 

Subordinated debentures

1,198,951

 

 

1,198,704

 

Common stockholders' equity (2)

5,493,475

 

 

6,074,939

 

Common stock outstanding (3)

179,837

 

 

183,412

 

Book value per share (4)

30.55

 

 

33.12

 

Tangible book value per share (4)

29.28

 

 

31.87

 

  1. Net invested assets include investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases, net of related liabilities.
  2. As of March 31, 2020, reflected in common stockholders' equity are after-tax unrealized investment losses of $110 million and unrealized currency translation losses of $480 million. As of December 31, 2019, after-tax unrealized investment gains were $125 million and unrealized currency translation losses were $382 million.
  3. During the three months ended March 31, 2020, the Company repurchased 3,650,759 shares of its common stock for $203 million. The number of shares of common stock outstanding excludes shares held in a grantor trust.
  4. Book value per share is total common stockholders' equity divided by the number of common shares outstanding. Tangible book value per share is total common stockholders' equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding.

Investment Portfolio

March 31, 2020

(Amounts in thousands)

 

 

Carrying

Value

 

Percent

of Total

Fixed maturity securities:

 

 

 

 

United States government and government agencies

 

$

739,662

 

 

3.9

%

State and municipal:

 

 

 

 

Special revenue

 

$

2,347,135

 

 

12.3

%

Local general obligation

 

452,348

 

 

2.4

%

State general obligation

 

426,952

 

 

2.2

%

Pre-refunded

 

334,522

 

 

1.7

%

Corporate backed

 

258,062

 

 

1.3

%

Total state and municipal

 

3,819,019

 

 

19.9

%

Mortgage-backed securities:

 

 

 

 

Agency

 

690,908

 

 

3.6

%

Residential - Prime

 

466,374

 

 

2.4

%

Commercial

 

275,737

 

 

1.4

%

Residential - Alt A

 

30,309

 

 

0.2

%

Total mortgage-backed securities

 

1,463,328

 

 

7.6

%

Asset-backed securities

 

2,938,052

 

 

15.4

%

Corporate:

 

 

 

 

Industrial

 

2,151,760

 

 

11.2

%

Financial

 

1,467,403

 

 

7.7

%

Utilities

 

334,578

 

 

1.7

%

Other

 

24,776

 

 

0.1

%

Total corporate

 

3,978,517

 

 

20.7

%

Foreign government

 

727,489

 

 

3.8

%

Total fixed maturity securities (1)

 

13,666,067

 

 

71.3

%

Equity securities available for sale:

 

 

 

 

Preferred stocks

 

209,445

 

 

1.1

%

Common stocks

 

146,658

 

 

0.8

%

Total equity securities available for sale

 

356,103

 

 

1.9

%

Real estate

 

2,084,387

 

 

10.9

%

Investment funds (2)

 

1,177,965

 

 

6.2

%

Cash and cash equivalents (3)

 

1,095,413

 

 

5.7

%

Arbitrage trading account

 

666,829

 

 

3.5

%

Loans receivable

 

87,058

 

 

0.5

%

Net invested assets

 

$

19,133,822

 

 

100.0

%

  1. Total fixed maturity securities had an average rating of AA- and an average duration of 2.7 years, including cash and cash equivalents.
  2. Investment funds are net of related liabilities of $0.9 million.
  3. Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.

 

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