W.R. Berkley Corporation

Today, welcome to WR Berkeley Corporation's third quarter 2022 earnings conference call. Today's 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 Berkeley. Please go ahead, sir.

Beau, thank you very much, and let me echo your welcome to all to our third quarter call. We appreciate you finding time to join us. Joining me on this end of the call is also Bill Berkley, our Executive Chairman, as well as Rich Baio, Executive Vice President, Chief Financial Officer. We're going to follow our typical agenda where, in very short order, I'm going to be handing it over to Rich. He's going to run through some highlights of the quarter. I will follow with a couple of observations on my end, and then you will have the three of us at your disposal to take a Q&A session anywhere people would like to take it. Before I hand it over to Rich, I did want to flag or raise a thought for participants' consideration and something that we spend a good deal of time thinking about on our end. And it particularly comes into focus during periods of time like what we saw in the third quarter when cat activity spiked considerably and great attention amongst many turned to trying to understand exposures, trying to understand claims activity and what does that mean from a dollars and cents perspective. And those questions are well placed and are all important and appropriate. That having been said, In the flurry of activity around trying to understand what has transpired from a financial perspective, it is easy to lose sight of the more what I would call the human aspect and the loss that has occurred and how that impacts individuals, not just their homes being destroyed, but oftentimes something even more severe such as the loss of life. So I did want to just comment on this, that it is something that my colleagues and I pay great attention to, we are sensitive to, and all of those impacted by the events of the third quarter are certainly in our thoughts. Furthermore, we have many colleagues, particularly on the claims side of the business, that are working tirelessly to make sure that we as an organization are servicing customers, making sure we as an organization are living up to our commitments and our promises, which is something we take very seriously. And finally, from our perspective, to the extent there is any type of silver lining in these type of situations, clearly it is an opportunity for the industry to demonstrate the value that it brings to society. We cannot undo what has been done, but we certainly are in a position to assist society in picking up the pieces and trying to put it back together. That is not just an obligation, but an opportunity that we as an organization take very seriously. So I will leave it there for the moment. And now, Rich, if you wouldn't mind taking us through the numbers, having said all that. Rich, please.

Sure. Thank you, Rob. Appreciate that. Operating income increased 14.2% to $282 million, or $1.01 per share. with operating return on equity of 16.9%. Net income of $229 million or 82 cents per share resulted in a return on equity of 13.8%. The company reported strong underwriting income in spite of the industry-wide catastrophe events. In addition, the record quarterly net investment income and foreign currency gains resulting from the strong U.S. dollar contributed to our excellent quarterly results. Pre-tax underwriting income of $192 million demonstrates the resiliency of our underwriting portfolio in an environment facing many challenges, including social and economic inflation, as well as frequency and severity of natural catastrophes. We reported pre-tax catastrophe losses of $94 million in the quarter, or 3.9 loss ratio points, compared with $74 million, or 3.5 loss ratio points in the prior year. Probably of no surprise, the main driver in the quarter was Hurricane Ian. We developed our best estimate on a ground-up basis, operating unit by operating unit, the predominance of which is IBNR due to the timing of the event. Focusing next on our top line, the company grew gross premiums written to a record of almost $3.1 billion. Net premiums written increased 10.8% to approximately $2.6 billion. Breaking this down further between segments, insurance grew 11.5% to $2.2 billion, while reinsurance and monoline excess increased 6.8% to $340 million. Exposure growth is a significant contributor to the increase in premium. The current accident year loss ratio excluding catastrophes improved 30 basis points over the prior year to 58.6%. Prior year loss reserves developed unfavorably by 1.6 loss ratio points in the current quarter, bringing our calendar year loss ratio to 64.1%. Record quarterly net premiums earned benefited the expense ratio of 28%. We continue to invest in the business and identify strategies to operate more efficiently and optimize our technological capabilities. Wrapping up underwriting performance, Our current accident year combined ratio excluding catastrophes was 86.6%, and our calendar year combined ratio was 92.1%. Record quarterly net investment income of $203 million was led by growth in the core portfolio of 51%, and better than average investment fund results despite the significant downturn in the equity markets. The increased invested asset base, along with higher interest rates, is contributing to much of the growth in the core portfolio. Book yields on the fixed maturity securities have sequentially improved each quarter this year, with 2.2% in the first quarter, 2.6% in the second quarter, and 3% in the current quarter. The short duration of our investment portfolio of 2.4 years, combined with strong operating cash flows of almost $1.8 billion year to date, should contribute to further growth in net investment income and improving book yields. At the same time, the short duration in the portfolio and high credit quality of AA- has tempered the market value impact on book value. As it relates to the investment funds, our diversification strategy has benefited our results to date despite certain funds' correlation with the equity markets. Our investment funds are reported on a one-quarter lag And in light of the third quarter deterioration in the broader equity markets, we may see our fourth quarter results impacted. Pre-tax net investment losses in the quarter of $67 million is primarily attributable to the net change in unrealized losses on equity securities of $50 million, which largely related to sector declines in technology and financial services. Stockholders' equity was more than $6.3 billion as of September 30, 2022. Strong earnings of about $1 billion on a year-to-date basis has mostly offset the impact from rising interest rates and unrealized losses. At the same time, we've proactively managed our capital position as evidenced through regular and special dividends of approximately $209 million year-to-date, along with share repurchases in the third quarter of almost $7 million. Fitch validated this view of our financial strength early last week with an upgrade to AA- from A+. With that, I'll turn it back to you, Rob.