W.R. Berkley Corporation

Please stand by, we're about to begin. Good day and welcome to the W.R. Berkley Corporation's fourth quarter and full year 2022 earnings conference call. Just a reminder, 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 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 materially affect our results. W.R. Berkley 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. And now I'll turn the call over to Mr. Rob Berkley. Mr. Berkley, please go ahead.

Bo, thank you very much, and good afternoon, all, and a warm welcome to our fourth quarter call. On this end of the phone, co-hosting with me is Bill Berkley, our Executive Chairman, as well as Rich Baio, our Executive Vice President and Chief Financial Officer. We're going to follow the typical agenda as we have done it in the past, and I'm going to hand it over to Rich momentarily. He's going to walk us all through some highlights of both the quarter and the year. Once he's through with his comments, I'll pick it up from there. offer a few observations and thoughts of my own, and then we will be looking forward to opening up for a Q&A and taking the discussion anywhere participants would like it to go. One thing before I hand it over to Rich, and that is just maybe taking a moment to pause and reflect publicly on the year. And we'll be getting into the numbers and the results. But it does seem appropriate, at least from my perspective and our chairman's perspective, to extend some recognition, a thank you and a congratulations to our colleagues. I have the good fortune of being the mouthpiece or the one that has the opportunity to talk about the results along with Rich and Bill Berkley. But these results, these outcomes were achieved because we have thousands of people that are working diligently every day in a thoughtful and methodical manner. So to all my colleagues that happen to be tuning in, I hope you will accept the heartfelt thank you again and congratulations on a job very well done. With that, Rich, if you would, please.

Of course, and thanks, Rob. Appreciate it. 2022 can be marked as a record year in many areas of the business. The company ended the year with a strong fourth quarter. Net income increased almost 30% to $382 million, or $1.37 per share, with an annualized return on beginning of year equity of 23%. Operating income increased approximately 14% to $323 million, or $1.16 per share, with an annualized return on beginning of year equity of 19.4%. Our results reflected record underwriting income as well as net investment income. Severe named cat activity continued to challenge the industry as evidenced this quarter by winter storm Elliot and prior quarter events like Hurricane Ian amongst many others. Our disciplined underwriting approach and exposure management led to record pre-tax quarterly underwriting income of $292 million representing an increase of approximately 12% over the prior year. On a full-year basis, underwriting income eclipsed the prior year by 21.3%, reaching more than $1 billion for the first time in the company's history. Pre-tax CAT losses were $31 million, or 1.2 loss ratio points in the quarter, compared with $48 million, or 2.2 loss ratio points a year ago. Net premiums written increased to more than $2.4 billion. The growth in the top line was adversely impacted by approximately 75 basis points due to the weakening US dollar relative to many foreign currencies. On a segment basis, insurance grew 7.2% in the quarter to more than $2.1 billion from rate improvement and exposure growth. All lines of business increased with the exception of professional liability. The reinsurance and monoline excess segment increased to $281 million in the quarter and with growth in all lines of business. On a full year basis, gross and net premiums written grew to record levels of $11.9 billion and $10 billion respectively. The current accident year loss ratio excluding catastrophes was impacted in the quarter by non-weather related property losses, which drove the increase of approximately one loss ratio point to 59.3%. Prior year losses developed favorably by approximately $0.3 million, resulting in a calendar year loss ratio of 60.6%. The expense ratio was flat at 27.8% quarter over quarter. Record quarterly net premiums earned grew more than 14% in the quarter, continuing to benefit the expense ratio. We do anticipate that our 2023 full year expense ratio should be comfortably below 30%, taking into consideration investments in technology, rising compensation costs, and new startup operating unit expenses. In summary, our current accident year combined ratio excluding catastrophes for the quarter was 87.2%, and our calendar year combined ratio was 88.4%. Net investment income for the quarter increased more than 40% to a record of approximately $231 million, led by income in the core portfolio, which increased approximately 75%. The combination of our short duration, high quality fixed maturity portfolio, along with record level operating cash flow of approximately $2.6 billion in the full year, enabled us to invest at higher interest rates. Our book yield on the fixed maturity portfolio increased from 3% for the third quarter to 3.6% for the fourth quarter, which compares very favorably to 2.2% in the year-ago quarter. Our new money rate exceeds the roll-off of our invested assets, and we expect net investment income to continue to grow. The investment funds performed well with a book yield of 5.6% despite the deterioration in the broader equity markets in the third quarter. And as you may remember, we report investment funds on a one-quarter lag. The credit quality of the portfolio remains very strong at a AA minus with a duration on our fixed maturity portfolio, including cash and cash equivalents of 2.4 years. Pre-tax net investment gains in the quarter of $75 million is primarily attributable to an improvement in unrealized gains on equity securities of $88 million relating to investments in the industrial, energy, and financial services sectors. The company actively manages its foreign currency exposure. The U.S. dollar weakened in the quarter relative to many foreign currencies, which resulted in a pre-tax foreign currency loss of $34 million. For the most part, this loss was offset by an increase in our currency translation adjustment, a component of stockholders' equity, and accordingly the result was an immaterial net impact on book value. Stockholders' equity increased more than $400 million in the quarter, or 6.3%, to $6.7 billion. The unrealized loss position on fixed maturity securities improved in the quarter. Book value per share increased 8.1% and 6.1% in the quarter and full year before dividends and share repurchases. In addition, book value per share increased 1.7% on a full year basis after returning capital to shareholders of $329 million, and our full-year return on beginning-of-year equity was 20.8%. With that, I'll turn it back to Rob.