W.R. Berkley Corporation

Good day and welcome to the WR Berkeley Corporation's first quarter 2022 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 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, 2021, 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 material 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 Berkley. Please go ahead, sir.

Emma, thank you very much, and good afternoon all, and thank you for finding time to join us for our Q1 call. On this end of the call, in addition to myself, you also have Bill Berkley, Executive Chair, as well as Rich Baio, our Group CFO. We're going to follow the usual agenda where I'm in short order going to hand it over to Rich. He's going to walk through the highlights of the quarter. Then once he's completed his comments, I'll tag along with a few of my own observations. And shortly thereafter, we'll be opening it up for Q&A and happy to take the conversation in any direction participants would like to do so. That having been said, before I do hand it over to Rich, because I always like to steal at least a little bit of his thunder, though I don't think the comments will come as a surprise to anyone that's had an opportunity to review the release. It was a terrific quarter for the organization, really by any metric, to say the least. And quite frankly, we were able to achieve these results because of the efforts of the full team across the country and around the world, all working together to achieve these types of outcomes. I think what's important to that point is to just remind ourselves, remind each other that this effort, this is a team sport. As I've commented in the past, it's not an individual sport. And quite frankly, this isn't rocket science, what we're doing. Yes, we are very fortunate that we have a lot of very intelligent people on the team working very hard. But a lot of our success comes about because of discipline, because we focus on blocking and tackling in a thoughtful and consistent way every day, because we are not only consumed by what's in the rearview mirror, but we are paying close attention to what we see out the front windshield. It seems like common sense. But quite frankly, it requires great effort every day. And again, I think we're achieving these types of results because of the efforts of the full team. So congratulations to all. I think beyond just the results, which again, I think speak for themselves, I would suggest that perhaps what's as if not more exciting is quite frankly how the table has been set for what is likely going to be a very strong balance of 22 Additionally, how things are being set up for what should be a very strong 23. And with every passing day, there are more pieces being put into place that would suggest that it's more likely than not that 24 will also be very promising as well. So we as an organization continue to be very focused on building book value. We have an obsession around the concept of risk-adjusted return. I think that came into focus not just in this quarter, but in our ability to generate good returns regardless of what may have happened on the cap front in any quarter. It's the consistency of strong results that differentiate us in the marketplace. So with that, let me hand it over to Rich to walk us through some of the highlights, and I will be back on the heels of his comments. Rich, if you would, please.

Thanks, Rob. Appreciate it. The company continues to operate extremely well, as Rob had pointed out, reporting record quarterly underwriting income and net investment gains, both of which led to the 157% growth to record quarterly net income of $591 million, or $2.12 per share on a common stock split affected basis. Operating earnings also improved 52% to $307 million or $1.10 per share on a common stock split affected basis. The primary contributors were improvement in underwriting results by 2.3 points to a calendar year combined ratio of 87.8% and growth in net investment income of almost 9.5%. Going more into the details with our top line first, Gross premiums written grew 15.1% to a quarterly record of approximately $2.9 billion. Net premiums written also grew 17.7% to a record of more than $2.4 billion. The higher growth in net premiums written is driven by our decision to retain more business, which is evident by the lower session rate. In the insurance segment, all lines of business grew, generating a combined 19.2% increase to total net premiums written of almost $2.1 billion. The reinsurance and monoline excess segment also increased 9.6% to more than $300 million driven by growth in casualty reinsurance and monoline excess. This represents the fifth consecutive quarter of double-digit growth in premium, which will continue to earn through the income statement and can be seen by the higher growth rate in net premiums earned compared with net premiums written. Record pre-tax quarterly underwriting income of $274 million surpassed multiple quarterly records last year. The quarter improved $92 million and more than 50% over the prior year. Catastrophe losses were well within expectations at $29 million or 1.3 loss ratio points. This compares with $36 million or 1.9 loss ratio points in the first quarter of 2021. The current accident year loss ratio excluding catastrophes improved 0.6 loss ratio points to 58.3%, primarily driven by rate improvement. Prior year loss reserves developed favorably by almost $1 million in the current quarter, bringing our calendar year loss ratio to 59.5%. The expense ratio is in line with expectations at 28.3%. reflecting an improvement of 1.2 points over the prior year's quarter. As previously mentioned, the growth in net premiums earned continues to benefit the expense ratio, even with higher fixed costs coming from compensation, a new operating unit, and increasing travel and entertainment. In summary, these components contributed to our current accident year combined ratio excluding catastrophes of 86.5% for the quarter. compared with 88.4% for the first quarter of 2021. Net investment income increased almost 9.5% to $174 million for the quarter. The growth is primarily related to an improvement in investment funds of 33.6% and the core portfolio of 11.7%. Investment funds outperformed in the real estate, financial services, and transportation funds. and the core portfolio benefited from rising interest rates and dividends received on equity securities. The investment portfolio also maintained the same duration of 2.4 years and credit quality of a AA-. In addition, our strong operating cash flow has enabled us to put more money to work despite retaining a significant position in cash and cash equivalents of approximately $2.1 billion. Record pre-tax net investment gains in the quarter of $366 million is primarily made up of net realized gains on investments of $277 million and the change in unrealized gains on equity securities of $93 million. The key contributor to the realized gains was the sale of the real estate investment in London of $317 million gross or $251 million net of transaction expenses and the foreign currency impact including the reversal of the currency translation adjustment. Corporate expenses increased primarily due to performance-based compensation arising in connection with the record level of earnings. The effective tax rate was 19% in the quarter, reflecting a one-time benefit from the release of a valuation allowance arising from the utilization of tax attributes, as well as investments in tax-exempt securities and dividend-paying equity securities. Stockholders' equity increased to almost $6.9 billion as of the end of the first quarter, representing an increase of 3.2% over the prior year end. Book value per share before dividends increased 3.5% in the quarter and would have marginally increased even without the gain from the sale of the real estate investment in London. The annualized return on beginning of year equity was 35.5% for the quarter. and 18.5% on an operating earnings basis. Rob, I'll turn it back to you for further comments.