W.R. Berkley Corporation

Good day and welcome to WR Berkeley Corporation's second quarter 2023 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 representation by us the future plans estimates or expectations contemplated by us will in fact be achieved please refer to our annual report on form 10k for the year ended december 31 2022 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 the new information, future events, or otherwise. I would now like to turn the call over to Mr. Rob Berkeley. Please go ahead, sir.

Brianna, thank you very much, and good afternoon all, and again, welcome to our second quarter call. Along with me on this end of the phone, we also have our Executive Chairman, Bill Berkley, as well as Chief Financial Officer, Rich Baio. We're going to follow our typical agenda, where momentarily I'm going to hand it over to Rich, who will walk us through some highlights from the quarter. I will follow up with a few observations after Rich makes his comments, and then we will be opening it up for Q&A. Before I hand it over to Rich, a few comments from me. Based on everything I can see, it would look as though the stage is being set for what one might call yet another but-for quarter for the industry. It would seem as though cat losses don't make a difference. And bizarrely, from our perspective, People seem very quick to back out cat losses as though it's not real money. But ironically, they don't seem to back out the premium associated with the exposure that just had the losses. So again, from our perspective, it's no wonder why the industry struggles oftentimes to make good risk-adjusted returns. In order to do that, one needs to recognize the exposure taking on and not pretend that it doesn't exist. particularly when it occurs. Through our lens, we are in the capital management business. We are focused on risk-adjusted returns. And around here, CAT losses count. In our opinion, it is not monopoly money. It is real money. And when we measure how we are doing, we do not back out CAT losses. Perhaps we are a bit of an exception to the industry. But ultimately, we think it is an economic reality, and that's not something we shy away from. So with that, Rich, if you would, please.

Of course. Thanks, Rob. Net income doubled from the prior year quarter, resulting in $356 million, or $1.30 per share. Annualized return on beginning of year equity was 21.1%, driven by strong underwriting and record investment income results. Operating return on equity was excellent at 18.4%, and the heightened industry-wide catastrophe activity in the quarter enabled us to once again demonstrate our underwriting discipline in challenging environments. Simultaneously, our decision to maintain a short-duration, high-credit-quality investment portfolio has enabled us to benefit from higher interest rates. Net investment income increased almost 43% to a record $245 million. The core investment portfolio grew 71.6% driven by a higher book yield at 4.2% in the quarter compared with the preceding consecutive quarter of 3.8% and second quarter of 2022 of 2.6%. Second quarter operating cash flows of $709 million combined with the first quarter brings us to a first half year record of almost $1.2 billion. and strengthens our ability to grow investable assets at higher interest rates. A duration of 2.3 years also positions us well to reinvest assets at a higher new money rate on fixed maturity securities compared to the roll-off of existing investments while maintaining our high credit quality of a AA-. The investment funds reflected a loss of $1 million driven by a decline in market values in certain funds, in the consumer goods, real estate, and financial services sectors. Please keep in mind that we report our investment funds on a one-quarter lag. Pre-tax net investment gains in the quarter of $59 million is comprised of net realized gains on investments of $47 million and an improvement in unrealized gains on equity securities of $21 million, partially offset by an increase in current expected credit losses of $10 million. Turning to underwriting results, underwriting income was $265 million representing a calendar year combined ratio of 89.6%. Current accident year catastrophe losses were $54 million or 2.1 loss ratio points compared with the prior year of $58 million or 2.5 loss ratio points. Prior year development was favorable by $3 million or 0.1 loss ratio points bringing our current accident year combined ratio, xCATS, to 87.6%. Current accident year loss ratio, xCATS, was 59.5%. The expense ratio ticked up 0.4 points to 28.1% in the quarter, consistent with the expectations we previously communicated. The two main contributors include the change in reinsurance structures as well as increased compensation costs and startup operating unit expenses. We're working hard to identify and implement innovative strategies to drive operating efficiencies and leverage technology in order to reduce operating expenses across the entire organization. Closing out the underwriting discussion with premium production, we increased gross premiums written by 9.3% to a record $3.3 billion. and net premiums written increased 8.7% to a record $2.8 billion. All lines of business grew in the insurance segment, with the exception of professional liability and workers' compensation, while property reinsurance grew in the reinsurance and monoline excess segment. Stockholders' equity remained strong at almost $6.9 billion after returning more than $320 million of capital to shareholders in the quarter. We repurchased almost 5.1 million shares for $292.5 million at an average price per share in the quarter of $57.79. In addition, we paid regular dividends of $28.3 million. The combination of these capital-related actions for the first quarter, including the special dividend, translates to $614.5 million returned to investors on a year-to-date basis, or 9.1% of the beginning of year stockholders' equity. Rob, I'll turn it back to you. Thanks.