W.R. Berkley Corporation

Good day, and welcome to WR Berkeley Corporation's second 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 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 31st, 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 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 to all, and thank you for joining our second quarter call. Co-hosting with me this afternoon is Bill Berkley, our Executive Chairman, as well as Rich Baer, our Executive Vice President and Chief Financial Officer. We're going to follow the usual agenda where I'm going to hand it over to Rich momentarily. He's going to run through some highlights of the quarter. Once Rich has completed his comments, I'll receive the baton back from him, offer a few thoughts of my own, and then we'll be pleased to open it up for Q&A and take the conversation anywhere participants would like to take it. But before I hand it over to Rich, there is one point or topic that I did want to flag. And it's something that we talk about with some regularity within our shop. And I don't think it's a unique observation. I'm sure everyone on the call and beyond is acutely aware of this point. But nevertheless, I think it easily falls off the radar screen as we can easily get consumed by other aspects of the industry. And that is the macro observation or reality that this is a very unusual industry for a variety of reasons, but one of them is this is an industry where you do not know your costs of goods sold until oftentimes many years after the transaction has actually occurred. That creates additional complexity in how one operates the business. It's less consequential when you're operating through an extended period of time where things are quite stable. But when you're in a period of time where change is abound, volatility is material, it becomes much more consequential. Businesses in other industries, I would suggest the way they operate is akin to how you steer a car. You turn the wheel of a car, the wheels in the front of the car turn, and the car will turn quickly. Because of what we're discussing now, this reality of the timing of costs of goods sold relative to when the transaction occurs, in this industry is different from driving a car. In some ways, it's more like steering a boat. where the rudder is in the back of the boat as opposed to the wheels in the front of the vehicle. The difference in this industry, like a boat or a ship being steered from the back, is one needs to anticipate. One needs to not just be consumed by what has occurred yesterday, not just be preoccupied with what is immediately in front of them, But one needs to anticipate what is coming their way because of the delay in response to steering the ship. One needs to be trying to figure out what is around the next corner or over the hill. This is something that we spend a huge amount of time working at, grappling with as a team. It is one of the reasons why we have been focused on certain things for a long period of time. Whether it's social inflation or economic or financial inflation, these are two macro topics that we have been talking about and acting upon for several years at this stage. You can see it in our underwriting and how we have selected loss picks. and how we have priced our book of business. You can see it in our investment portfolio and how we have managed our duration. So while these types of topics have become very topical today, and we hear people chatting about it, these are things that we anticipated and have been preparing for for, as I suggested earlier, years. It's one of the reasons why we are so well-positioned. It's not easy. It requires expertise. It requires experience. It requires discipline. It requires foresight. And it requires courage. Fortunately, my colleagues throughout this organization have those characteristics and traits. And that, in my opinion, is the leading reason why this organization is so well positioned today and by extension is enjoying the results that we are talking about today and anticipate we will be talking about for many, many quarters and years to come. So with that, so much for me just keeping it short at the beginning and handing it over to Rich. Let me hand it over to Rich now and I promise I'll be somewhat brief after he provides his thoughts and comments.

Rich, if you would please. Of course. Thank you, Rob. I appreciate it. The company reported another strong quarter, as you saw, with operating income increasing 43% to $313 million, or $1.12 per share. The key contributors include strong underwriting income driven by continued growth in premium volume, which I'll discuss in just a moment, along with improving net investment income and foreign currency gains. We also reported net income of $179 million or 65 cents per share. Pre-tax underwriting income of $268 million in large part kept pace with the record first quarter representing an increase of 32.6% over the prior year of second quarter. Our year to date quarterly results of $543 million increased 41% over the prior year and surpassed all prior full year results with the exception of 2021, which was a record year. Despite the heightened frequency of natural catastrophes, we reported pre-tax CAT losses of $58 million in the quarter, or 2.5 loss ratio points, compared with $44 million, or 2.2 loss ratio points, last year. Drilling down further into our underwriting results, gross premiums written grew to a record level of almost $3.1 billion, Net premiums written grew 16.9% to a record of nearly $2.6 billion. Our decision to retain more business on a net basis can be seen by the lower session rate in the quarter and on a year-to-date basis. Net premiums written increased in all lines of business as we disclosed in the earnings release. The insurance segment grew 16.6% to more than $2.3 billion. while the reinsurance and monoline excess segment increased 19.1% to almost $260 million. The overall growth is significantly coming from increased exposure. The current accident year loss ratio excluding catastrophes improved 0.3 loss ratio points to 58.5%. Prior year loss reserves developed favorably by $2 million in the current year, bringing our calendar year loss ratio to 60.9%. The expense ratio continues to benefit from scaling the business, as evident by the outpaced growth in net premiums earned relative to underwriting expenses. In addition, we continue to make investments in strategic initiatives to optimize efficiency. And as such, the expense ratio improved one point to 27.7% over the prior year's quarter. In summary, the current accident year combined ratio excluding catastrophes improved 1.3 loss points, to 86.2% compared with the second quarter of 2021 of 87.5%. The reported calendar year combined ratio was 88.6% for the current quarter compared with 89.7% for the prior year. Net investment income for the quarter was approximately $172 million. The rising interest rate environment is a key contributor to growth in income from the core portfolio of almost 30%. On investment funds, you may recall we report on a one-quarter lag, and despite the decline in the equity markets in the first quarter, the investment funds performed well with a book yield of 8.3%. The transportation, real estate, and energy funds led the way. The overall investment portfolio also maintained the same duration of 2.4 years and a credit quality of a AA-. Pre-tax net investment losses in the quarter of $172 million is primarily attributable to the net change in unrealized losses on equity securities of $132 million, which related to sector declines in financial services, energy, and metal mining and manufacturing. Stockholders' equity was $6.5 billion as of June 30, 2022. Year-to-date earnings have more than offset the change in unrealized losses on investments and currency translation adjustments, both items being components of stockholders' equity. We returned capital to shareholders in the first six months of the year through regular and special dividends amounting to $182 million, of which $159 million was in the second quarter. The annualized operating return on beginning of year equity was 18.8% for the quarter and 10.8% on a net income basis. Rob, I'll turn it back to you.