W.R. Berkley Corporation

Good day and welcome to WR Berkeley Corporation's first quarter 2021 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, beliefs, 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, 2020 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. WR 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 like to turn the call over to Mr. Rob Berkley. Please go ahead, sir.

Mike, thank you very much, and good afternoon, all, and welcome to our Q121 call. On the call, in addition to myself, you also have Bill Berkley, our executive chairman, and Rich Baio, group chief financial officer. We're going to follow a similar agenda to what we've done in the past. Rich is going to do the initial heavy lift and walk us through the quarter and some of the highlights. I will follow him with a few comments, and then we will be opening up for Q&A. I'm happy to take the conversation anywhere participants would like to take it. So with that, Rich, if you want to get us going, please.

Sure, Rob. Thank you, and good afternoon, everyone. The headline this quarter is a record underwriting profit with premium growth of more than 11% and solid net investment income and gains, which resulted in a return on beginning of year equity of 14.5%. The company reported net income of $230 million or $1.23 per share. The breakdown is operating income of $202 million or $1.08 per share and after-tax net investment gains of $28 million or $0.15 per share. Beginning with underwriting income and the components thereof, Gross premiums written grew by more than $250 million, or 11.4%, to almost $2.5 billion. Net premiums written grew 11.1% to more than $2 billion, reflecting an increase in both segments. The insurance segment grew approximately 10% to almost $1.75 billion in the quarter, with an increase in all lines of business, with the exception of workers' compensation. Professional liability led this growth with 37.6%, followed by commercial auto of 21%, other liability of 13.1%, and short tail lines of 5.6%. All lines of business grew in the reinsurance and monoline excess segment, increasing net premiums written by 18.2% to more than $300 million. Casualty reinsurance led this growth with 21.9%, followed by 13.8% in property reinsurance and 13.6% in monoline access. The compounding rate improvement in excess of lost cost trends has partially contributed to the expansion of underwriting income. Other contributors have included lower claims frequency and non-CAT property losses, along with growth in lines of business that are generating the best risk-adjusted returns. Underwriting income increased approximately 250% to $183 million. The industry continued to experience above-average catastrophe losses in the quarter, including the winter storms in Texas, and we have again been able to demonstrate our disciplined management to CAT exposure. Our current accident year catastrophe losses were approximately $36 million or 1.9 loss ratio points, including 0.8 loss ratio points for COVID-19 related losses. This compares with the prior year CAT losses of $79 million or 4.7 loss ratio points, which included three loss ratio points for COVID-19 related losses. The reported loss ratio was 60.6% in the current quarter compared with 65.5% in 2020. Prior year loss reserves developed favorably by $3 million or 0.2 loss ratio points in the current quarter. Accordingly, our current accident year loss ratio excluding catastrophes was 58.9% compared with 61% a year ago. The expense ratio was 29.5% reflecting an improvement of 1.9 points over the prior year quarter. The growth in net premiums earned continues to outpace underwriting expenses by a margin of almost 7%, significantly benefiting the expense ratio. Although we continue to benefit from reduced costs associated with travel and entertainment due to the pandemic, we are implementing initiatives that will enable us to operate more efficiently in the future. Summing this up, Our accident year combined ratio excluding catastrophes was 88.4%, representing an improvement of four points over the prior year quarter. Shifting gears to investments, net investment income for the quarter was approximately $159 million. The alternative investment portfolio, including investment funds and arbitrage trading account, provided strong results. The fixed maturity portfolio declined due to the lower interest rate environment and the higher cash and cash equivalent position we've maintained over the past few quarters. We did begin to reinvest cash as interest rates rose in the quarter, however, continue to maintain a defensive position with more than $2 billion in cash and cash equivalents. Our duration remains relatively short at 2.4 years, enabling us to further benefit from future increases in interest rates. And at the same time, our credit quality remains strong at a double A minus. Pre-tax net investment gains in the quarter of $35 million is primarily made up of realized gains on investments of $76 million, partially offset by a reduction in unrealized gains on equity securities of $24 million, and an increase in the allowance for expected credit losses of $17 million. The realized gain was primarily attributable to the sale of a private equity investment and real estate assets. Corporate expense partially increased due to debt extinguishment costs of $3.6 million relating to the redemption of hybrid securities on March 1st. In line with our plans to benefit from the low interest rate environment, we've pre-funded for a redemption and a couple maturities in early 2022. To this end, you will have seen that we announced the redemption of our hybrid securities for June 1st, which will result in debt extinguishment costs in the second quarter of approximately $8 million pre-tax. Stockholders' equity increased more than $100 million to approximately $6.4 billion after share repurchases and dividends of $51 million in the quarter. The company repurchased approximately half a million shares for $30 million in 2021, and an average price per share of $63.82. Our net unrealized gain position in stockholders' equity declined by $90 million due to the rise in interest rates in the quarter. However, this was partially mitigated by our decision to maintain a relatively short duration. Book value per share grew 2.4 percent before share repurchases and dividends. And finally, cash flow from operations more than doubled quarter over quarter to over $300 million. And with that, I'll turn it back to you, Rob. Thank you.