W.R. Berkley Corporation

Good day and welcome to WR Berkeley Corporation fourth 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 limitations, believe, expects, or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that future report on Form 10-K for the year ended December 31, 2019, and there are 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. Berkley Corporation is not under any obligation and expressly disdains 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 Berkley. Please go ahead, sir.

Christine, thank you very much, and welcome all to our fourth quarter call. I think we're well on our way to our safe harbor statement being the longest component of our call. But perhaps that's just a reflection or a sign of the times. On the call, in addition to me, you also have Bill Berkley, Executive Chairman, as well as Rich Baio, Executive Vice President and Chief Financial Officer. We're going to follow a similar agenda to what we have in the past, where Rich is going to lead us through some highlights of the quarter. I will follow with a couple of observations on my end, and then we will open it up for Q&A, and the three of us are available to answer your questions to the best of our ability. So with that, Rich, do you want to lead off, please?

Absolutely. Thanks, Rob. Good evening, everyone. The company reported record quarterly net income of $312 million, or $1.67 per share. Despite the heightened catastrophes experienced by the industry and slowdown in the economic environment due to the global pandemic, our financials significantly improved in the quarter. This improvement was evidenced in our current accident year combined ratio ex-cats of 88.8% and strong investment income and net investment gains, which contributed to an annualized quarterly return on equity of 20.6%. Starting first with our top line, Growth in our gross premiums written accelerated through the year, with fourth quarter representing growth of 9.3%. Similarly, net premiums written grew by 8.2% to approximately $1.8 billion in the quarter. All lines of business grew in the insurance segment, with the exception of workers' compensation, increasing net premiums written by 7.2% to approximately $1.6 billion. Professional liability led this growth with 29.6%, followed by commercial auto of 20.6%, other liability of 10.6%, and short tail lines of 2%. Growth in the reinsurance and monoline excess segment was 16.8%, bringing net premiums written to $205 million. Casualty reinsurance led this growth with 21.2%, followed by 9.3% in property reinsurance and 6% in monoline excess. Rate improvement along with lower claims frequency and non-CAT property losses contributed to our improvement in underwriting income of 44.2% to $165 million. Offsetting this improvement were higher catastrophe losses resulting from natural cats and COVID-19 related losses. We recognize $42 million of total catastrophe losses in the quarter, or 2.3 loss ratio points, of which 1.5 loss ratio points relates to COVID-19. You will see in our earnings release supplemental information that the CAT losses for the reinsurance and monoline excess segment is negative due to a reclass of COVID-19 IB&R to the insurance segment. The current quarter's natural CAT losses compare favorably with the prior year quarter of $20 million or 1.2 loss ratio points. The reported loss ratio was 61.3% in the current quarter compared with 62.4% in 2019. Prior year loss reserves developed favorably by $4 million or 0.2 loss ratio points in the current quarter. Accordingly, our current accident year loss ratio excluding catastrophes was 59.2% compared with 61.4% a year ago. Rounding out the combined ratio, we benefited from an improving expense ratio of 1.3 points to 29.6%. We continue to benefit from growth in net premiums earned of 5.6%, which outpaced an increase in underwriting expenses of 1.2%. In addition, the expense ratio is benefiting from reduced costs impacted by the global pandemic, including travel and entertainment. This contributes a benefit of more than 50 basis points to the expense ratio. Touching on investments, net investment income for the quarter increased 32% to approximately $181 million. The increase was driven by investment fund income of $53 million due to market value adjustments. an arbitrage trading income of $26 million, in large part coming from investments in special purpose acquisition companies. Investment income from the fixed maturity portfolio declined due to lower reinvestment yields compared with the roll off of securities due to maturities, calls, and pay downs. In addition, we continue to maintain a cash and cash equivalent position of approximately $2.4 billion, enabling us to maintain a relatively short duration of 2.4 years and significant liquidity. Pre-tax net investment gains in the quarter of $163 million is primarily attributable to realized gains of $127 million and changes in unrealized gains on equity securities of $36 million. As previously announced, the realized gain was largely driven by the sale of a real estate investment in New York City, which resulted in a gain of $105 million. Foreign currency losses in the quarter were driven by the weakening U.S. dollar. Two items of note. First, you'll see that on a year-to-date basis, we were about breakeven. Second, the loss in the quarterly income statement is offset considerably by the increase in stockholders' equity. In the quarter, our unrealized currency translation loss improved by $66 million, resulting in a net equity pickup of approximately $47 million. As a reminder, expenses included a non-recurring cost of $8.4 million relating to the redemption of our $350 million subordinated debentures in the quarter. Stockholders' equity increased 5.3% in the quarter and book value per share before share repurchases and dividends increased 6.1%. We ended the year with more than $6.3 billion in stockholders' equity after share repurchases of approximately 6.4 million shares for $346 million at an average price per share of $54.43 and ordinary dividends totaling $84 million. That brings total return to shareholders of $430 million in the year. Finally, the company had strong cash flow from operations in the quarter, of $480 million and more than $1.6 billion for the full year, an increase of more than 41%. With that, I'll turn it back to Rob. Thank you.