W.R. Berkley Corporation

Good day and welcome to W.R. Berkeley Corporation's Third Quarter 2020 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 31st, 2019 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. W.R. 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.

David, thank you very much, and thank you all for dialing in to our third quarter call. Similar to the past, we also have Bill Berkeley, executive chairman on the call on our end, as well as Rich Baio, CFO and executive vice president. We're going to follow a similar agenda to what we've done in the past. We're going to ask Rich to start off with some of his thoughts and highlights from the quarter, and then I will follow with a few comments, and we will be opening it up for Q&A. Rich, if you could, please.

Thanks, Rob. Good evening, everyone. The company reported a strong quarter despite the ongoing complexities arising from the global pandemic and the heightened natural catastrophes facing the industry. Our underwriting results improved both on a calendar year basis and even more so on a current accident year basis, excluding catastrophes. Net income for the quarter was $152 million, or 81 cents per share, resulting in an annualized return on equity of 10%. Drilling down into the key drivers for the quarter, I'll start with our top line. Gross premiums written grew by 8.1% in the quarter despite limited economic growth. Net premiums written grew 7.4% to approximately $1.9 billion in the quarter. The insurance segment increased 6.5% to more than $1.6 billion, primarily driven by most lines of business with the exception of workers' compensation. The growth in the quarter was led by professional liability of 20.7%, followed by 17% in commercial automobile, 9.6% in other liability, and 8% in short tail lines. The reinsurance and monoline excess segment grew by 13.7% to $251 million in the quarter due to an improving market, as evidenced by an increase in property reinsurance of 26.6%, Monoline excess of 18.9% and casualty reinsurance of 7.9%. Pre-tax underwriting income of $111 million improved 3.7% despite increased natural catastrophe losses in the quarter. There were an above average number of windstorms, named hurricanes making landfall, and West Coast wildfires in the quarter. resulting in approximately $73 million or 4.2 loss ratio points impacting our underwriting results. This compares with last year's catastrophe losses of approximately $31 million or 1.9 loss ratio points. The reported loss ratio is 63.7% in the current quarter compared with 62.1% in 2019. Prior year loss reserves developed favorably by $5 million or 0.3 loss ratio points in the current quarter. Accordingly, our current accident year loss ratio excluding catastrophes was 59.8% compared with 60.4% a year ago. The improvement is driven by lower claims frequency and non-cap property losses as well as a change in business mix. The expense ratio was 30 percent, reflecting a decrease of 1.5 percent compared with a year ago. The improvement in the expense ratio is attributable to the growth in net premiums earned of 4.3 percent and the reduction in underwriting expenses of 1 percent. We've already talked about the contributors to the growth in top line, which we'll continue to earn through our income statement. The lower underwriting expenses is primarily due to the reduction in travel and entertainment costs due to the global pandemic, which represents a little more than 50 basis points of favorable impact on the expense ratio. The accident year combined ratio excluding catastrophes for the quarter was 89.8% compared with 91.9% for the prior year. Pre-tax underwriting income on a current accident year basis excluding catastrophes improved approximately 32.5% to $179 million. On the investment front, net investment income for the quarter was approximately $143 million, primarily reflecting a decline in our fixed maturity portfolio offset by favorable market value movements in our arbitrage trading account. The decline in fixed maturity portfolio is due to a larger cash and cash equivalent position, which we discussed on our second quarter earnings call. Cash and cash equivalents are more than $2.7 billion or approximately 13% of invested assets. And finally, income from investment funds in the quarter returned to a more normalized level. We believe the investment fund managers will be cautious to increase market values in their respective portfolios due to the potential market volatility and uncertainty surrounding the global pandemic. Pre-tax net investment gains in the quarter of $39 million is primarily attributable to an increase in unrealized gains on equity securities and an improvement in the allowance for expected credit losses. Much of the reduction in this allowance was attributable to foreign government securities that were sold at a realized loss in the quarter, effectively creating an offsetting result. Turning to the balance sheet, fixed maturity investment portfolio maintained a high credit quality of AA minus and reported additional growth in our after-taxed unrealized gains from the second quarter. In addition, the U.S. dollar weakened relative to several foreign currencies, resulting in an improvement in our currency translation adjustment, which is a component of stockholders' equity. Stockholders' equity was approximately $6 billion at the end of the quarter, reflecting an increase of approximately $200 million from the second quarter after dividends and share repurchases of $34 million. Book value per share grew 3.7 percent in the quarter before dividends and share repurchases. The company had strong cash flow from operations in the quarter of $557 million, The liquidity remained strong at the holding company with more than $1.6 billion in cash and liquid investments. During the quarter, we further managed our capital position through two record low financing transactions for Berkeley. First, $170 million, 3.1% effective interest rate, 30-year senior note. And second, a 40-year subordinated hybrid debt offering of $250 million at a coupon of 4.25%. The use of proceeds in large part have been and will be used to redeem $350 million of our five and five-eighths subordinated hybrid debt in October. Accordingly, two things for you to consider in your future modeling that will impact our financial statements. The reduced annual pre-tax interest expense of about $3 million and the non-recurring debt extinguishment cost in the fourth quarter of approximately $8.5 million pre-tax. With that, I'll turn it back to Rob. Thank you.