W.R. Berkley Corporation

Good day and welcome to WR Berkeley Corporation's second quarter 2021 earnings 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, 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 now like to turn the call over to Mr. Rob Berkeley. Please go ahead, sir.

Suzanne, thank you very much, and good afternoon, everyone. And again, welcome to our Q2 call. Along with me co-hosting, we have our executive chairman, Bill Berkley, as well as Rich Baio, group CFO. We're going to follow a similar agenda to what we've done in the past, where we're in a moment or two going to hand it over to Rich to walk us through the quarter and focus our attention on a few highlights. And once he's through, I'm going to offer a few sound bites, and then we will be opening it up for Q&A. Rich, show a few, please.

Great. Thanks, Rob. And good afternoon, everyone. The positive momentum continues to build in our business as evident by our growth in premium and expansion in underwriting profits as rate improvements and additional premium associated with increase in exposure earned through the income statement. We reported a consecutive quarterly record underwriting profit in the second quarter of 2021, along with strong net investment income resulting in an annualized return on beginning of year equity of 15%. The company reported net income of $237 million or $1.27 per share. The components include operating income of $219 million or $1.17 per share. and after-tax net investment gains of $18 million, or 10 cents per share. Drilling down into our quarterly underwriting performance, you will note that gross premiums written grew by $529 million, or 24.8 percent to almost $2.7 billion. Net premiums written grew $472 million, or 27.2 percent to more than $2.2 billion, recognizing an increase in both segments. Our overall session rate decreased in the quarter due to changes in certain underlying outward reinsurance arrangements, lower reinstatement premium, and business mix. Moving into segment production of net premiums written, the insurance segment grew 29.2% to almost $2 billion, with an increase in all lines of business. Professional liability led this growth with 64.8%, followed by commercial auto of 31%, other liability of 28.7%, short tail lines of 21.2%, and workers' compensation of 15.6%. The reinsurance and monoline excess segment grew about 11% to $218 million, with an increase in monoline excess of 20.9% and casualty reinsurance of 17.5%. partially offset by a decrease in property reinsurance of 13.8%. Underwriting income benefited from the compounding rate improvement above loss cost trends, along with growth in exposure and lower claims frequency in certain lines of business. We did experience an above average level of non-weather related property losses in the quarter that partially offset these benefits. In addition, our current accident year catastrophe losses decreased significantly quarter over quarter from $146 million or 8.7 loss ratio points in the prior year to $44 million or 2.2 loss ratio points in the current quarter. As a result, quarterly underwriting income increased almost 800% to a record $202 million. The reported loss ratio was 61% in the current quarter compared with 67.7% in 2020. Prior year loss reserves developed favorably by about a half a million dollars in the current quarter. Accordingly, our current accident year loss ratio excluding catastrophes was 58.8% compared with 59.2% for the prior year's quarter. The continued growth in net premiums earned has benefited the expense ratio, which was 28.7% in the current quarter compared with 31% a year ago. Net premiums earned outpaced underwriting expenses by a margin of more than 8.5%. We also continue to benefit from reduced costs associated with travel and entertainment, but do anticipate some of this will be given back as the economy more fully reopens. Wrapping up the full picture, on the underwriting side, our current accident year combined ratio excluding catastrophes was 87.5% for the quarter, compared with 90.2% for the prior year quarter. On the investment front, net investment income increased 96.9% to $168 million, driven by strong results in investment funds. The fixed maturity portfolio reflected a decline quarter over quarter due to the lower interest rate environment, although the quarterly gap is closing. We also continue to maintain an above-average level of cash and cash equivalents as of June 30, 2021, which has been decreasing over the past few quarters, where we see opportunities to invest in attractive risk-adjusted returns. Our duration remains flat at 2.4 years while maintaining a high credit quality of AA-. Pre-tax net investment gains in the quarter of $24 million is primarily comprised of realized gains on investments of $39 million, a reduction in unrealized gains on equity securities of $18 million, and a decrease in the allowance for expected credit losses of $3 million. The realized gain was largely driven by the sale of two real estate properties, which also resulted in the reduction in our debt that was supporting one of the real estate properties of approximately $102 million. Corporate expenses increased approximately $13 million due to debt extinguishment costs of $8 million relating to the redemption of hybrid securities on June 1st and higher incentive compensation costs as well. In addition, we announced the formation of a new operating unit in the second quarter, which you may recall that such expenses are reflected in corporate until the operation begins writing business and is then moved into the underwriting expense. Stockholders' equity increased by $164 million to approximately $6.6 billion in the quarter after regular and special dividends of $112 million last year. Book value per share increased 2.5% in the quarter, and book value per share before dividends increased 4.3%. And finally, cash flow from operations continued to be strong with approximately $700 million on a year-to-date basis. And with that, I'll pass it back to Rob. Thank you.