W.R. Berkley Corporation

Good day, and welcome to WR Berkeley Corporation's fourth quarter and full year 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, 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, where 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 Berkley. Please go ahead, sir.

Josh, thank you very much and good afternoon all and I would echo Josh's comment. Welcome to our fourth quarter call. Joining me or co-hosting with me is also Bill Berkley, Executive Chairman and Rich Baio, Group CFO. We're going to follow a similar agenda to what we've done in the past. I'm going to hand it over to Rich in short order. He's going to walk us through some of the highlights from the quarter and the year, and then he'll hand it back to me. I'll offer a couple of quick thoughts, and then we'll quickly move on to the Q&A session. But before I do hand it over to Rich, I did want to make a couple of very quick comments. I guess number one is I think anyone who's had an opportunity have a look at the release, you would have recognized that it was a great year and it was a great way to finish off with a strong quarter. You know, this doesn't happen on its own and I just wanted to take, again, a moment to both thank and congratulate my colleagues. This is very much a team sport, so the appreciation goes to everyone throughout the organization. Let me pivot also to a couple of macro observations. We can obviously get consumed by the results of the past 90 days or the results for the year, but we also spend a good deal of time thinking about what the business is going to be doing going forward, how we are positioned for the environment that we see coming our way. And quite frankly, we are very encouraged on multiple fronts. If we start by examining the underwriting side of the business, the growth that you saw throughout the year, including the fourth quarter, remains very robust. It's coming through in both exposure as well as rate. And we really do not see that losing momentum. And Rich and I will be talking a little bit more about that later on. But again, as we see it, the growth will continue and the rate increases. There's nothing that leads us to believe that we will not continue to be able to get rate increases, that outpaced trend by something that would be measured in the hundreds of basis points. So again, very promising on that front. Pivoting over for a moment to the investment side of the business, again, we have – in my opinion, taken a very disciplined approach for an extended period of time in keeping not just the quality high, but the duration short. As we've discussed in the past, this has come at a price, but we think that we are going to be rewarded for that discipline going forward as you see interest rates moving up. You're going to see an opportunity for us to invest at higher rates, and you're going to see an opportunity for us to, under those circumstances, take the duration back out or extend it. Both of these circumstances on the underwriting side and how we are poised there, as well as how we've positioned on the investment side, are going to have very meaningful impact on the company's economic model. And as this unfolds, I think it's going to be quite consequential what it's going to mean for the earnings power of the business. Let me pause there and I will hand it over to Rich and I'll be back once he's through with his comments with a few other observations and then we will, again, as promised, move it over to Q&A. Rich?

Thank you, Rob. Obviously, I'll be focusing on the financial side here. The company had another terrific quarter, as Robert alluded to, with a number of areas reaching record levels on a quarterly basis as well as on a full year basis. Operating income increased 64% over the prior year's quarter to a record $284 million, or $1.53 per share. On a full year basis, operating income reached a record $952 million, or $5.10 per share. The key contributors are related to record underwriting results for the quarter and full year, as well as strong net investment income. The positive momentum in the business continued throughout the year, with growth in quarterly gross premiums written of 24.5% to almost $2.8 billion, bringing us to a record $10.7 billion for the full year. Similarly, net premiums written grew 26.6% quarter over quarter, to about $2.3 billion, and a record full year of approximately $8.9 billion. On page 7 of the earnings release, you'll see net premiums written by line of business for the comparable periods. All lines of business grew in the insurance segment, including workers' compensation, albeit from increasing payrolls. The total for the segment amounted to $2 billion, with a growth of 25.8% over the prior year. The reinsurance and monoline excess segment also grew in all lines of business, totaling $273 million and growing 33% for the quarter. The growth in exposure and compounding rate improvements in most lines of business will continue to earn through the income statement. In the three most recent consecutive quarters, total net premiums written had an average increase of almost 26%. which has contributed to the acceleration in net premiums earned of 17% for the full year. Pre-tax quarterly underwriting income was a record $261 million, surpassing two other quarterly records this year. On a full year basis, record pre-tax underwriting income of $845 million was more than twice the next closest year, which occurred in 2019. The company continued to demonstrate its management to cat-exposed business and despite heightened CAT activity, such losses did not materially impact our earnings. We reported CAT losses of $49 million, or 2.2 loss ratio points, compared with $42 million, or 2.3 loss ratio points in the prior year. The current accident year loss ratio, excluding catastrophes, improved one loss ratio point to 58.2%, primarily driven by rate improvement. Prior year loss reserves developed favorably, by approximately $1.3 million in the current quarter. That brings our reported loss ratio to 60.4%. The expense ratio continued to improve over the prior year, representing a benefit of 1.8 points to 27.8%. The growth in net premiums earned continues to be a major contributor to the improvement in our expense ratio, as it outpaced expenses by 7.4% in the quarter. Our newer operating units continue to grow their portfolio, adding scale to the business and moving closer to a more normalized expense ratio. We continue to make investments in the business, as evident by the three newly formed operating units, and we look forward to their future prospects. We anticipate that our expense ratio for 2022 should be in the range of 28 to 29%. Closing out the underwriting performance, our current accident year combined ratio excluding catastrophes was 86% for the quarter compared with 88.8% for the prior year quarter. Turning to investments, net investment income was $165 million for the quarter. The alternative investment portfolio, primarily investment funds, provided strong results. Our core portfolio improved despite the low interest rate environment. On a full year basis, our investment income of $672 million is only a few million dollars lower than our record reported in 2018. We continue to maintain a highly liquid portfolio with a duration of 2.4 years and maintained a high credit quality of AA minus. Operating cash flows remain strong throughout the year with a record level of almost $2.2 billion for the full year. Pre-tax net investment gains in the quarter was driven by increased unrealized gains in our equity portfolio, contributing to the full year results of $107 million. The full year realized gains included the sale of a private equity investment and real estate property sales. The effective tax rate was 17% in the current quarter, which largely benefited from a lower foreign effective tax rate and investments in tax-exempt securities and dividend-paying equity securities. along with closing certain examinations with tax authorities and truing up our prior year tax accrual. Stockholders' equity increased to almost $6.7 billion as of year-end after returning capital of $200 million in the quarter and $478 million for the full year. The company repurchased 1.75 million shares throughout the year at an average price per share of $69.85. Book value per share before dividends and share repurchases increased 3% in the quarter and 12.5% on a full year basis. The annualized return on beginning of year equity for the quarter was 18.7% and 16.2% for the full year. With that, I'll conclude my remarks and turn it back to Rob.