W.R. Berkley Corporation

Good day, everyone, and welcome to WR Berkeley Corporation's third 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 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 in Form 10-K for the year in December 31, 2022 and our other filings made with the SEC for description of the business environment in which we operate and the important factors that may materially 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.

Lisa, thank you very much, and good afternoon, all, and I guess a second welcome to our Q3 call. We appreciate you dialing in and your time and your interest today. Joining me on the call, at least on this end, is Bill Berkley, Executive Chair, as well as Rich Baio, EVP and Chief Financial Officer. We're going to follow our typical agenda where momentarily I'll be handing it over to Rich. He's going to give us a bit of an overview and flag some highlights from the quarter. I will follow with a few comments of my own, and then we'll be pleased to open it up for Q&A. Before I do hand it to Rich, I just wanted to make a couple of quick observations, and really one macro one in particular, and that is on the results of the quarter. I think by any measure, I call it a 20% return is really an outstanding result. The fact is there were no one time this or one time that in there. That is truly when you strip it down to its fundamentals, that is how the business is performing. And these great results are really a reflection of a team. This is a team sport, not an individual sport. So my congratulations to all of our colleagues throughout the organization. on a job very well done. I have the good fortune of being their mouthpiece in these types of settings. But again, this achievement was a team achievement. To that end, obviously, it was a quarter where the organization was able to demonstrate our value proposition to capital. The idea of less risk for more returns. We've talked to you all in the past about how we are preoccupied with a concept that we refer to as risk-adjusted return. You can see it in moments like these that we just saw in Q3 very clearly. When, as our chairman says, the tide goes out, you get to see who's wearing what. You could see it in both aspects of our business activities, one being underwriting, the other one being investing. Our underwriting results of a combined of a 90 during a period that had meaningful CAT activity is really exceptional. Additionally, on the investing activity, clearly a book yield of 4.5% while maintaining a quality of AA-, and additionally a new money rate of approximately 6%, that is no accident either. These results, these achievements are a result of our colleagues, their focus, their discipline, and their expertise. This call certainly is about reviewing what happened in the third quarter, but I would suggest even more than that, it is about how the table is set, not just for the coming quarters, but the next several years. So I think we are very well positioned. I think there is a fair amount of visibility. We will be getting into that in a bit more detail later in the call. But at this moment, let me hand it over to Rich, and he's going to walk us through some numbers.

Rich, if you would, please. Of course. Thanks, Rob. Appreciate it. Net income increased 45.7% to $334 million, or $1.23 per share, with a return on equity of 19.8%. Operating income increased 30.1% to $367 million or $1.35 per share with an operating return on equity of 21.7%. The company's strong performance was driven by another quarter of significant underwriting profits bringing the nine months year-to-date to a record despite consecutive quarters of outsized industry-wide catastrophe losses. In addition, net investment income accelerated throughout the year to yet another quarterly record. Drilling further into the underwriting results, net premiums written grew 10.5% to a record of more than $2.8 billion. We significantly grew the insurance business by approximately 17.5% in other liability, short tail lines, and commercial automobile through rate and exposure. Decreases in workers' compensation and certain professional lines certainly tempered the growth in net premiums written bringing the overall insurance segment growth to 12.1%. The reinsurance and monoline excess segment was flat quarter over quarter, with continued growth in monoline excess and property reinsurance. Pre-tax underwriting income was $259 million, with the calendar year combined ratio of a 90.2%. The current accident year combined ratio, excluding catastrophe losses, was 87.9%. Current accident year catastrophe losses in the quarter were $62 million, or 2.3 loss ratio points, compared with $94 million in the prior year quarter, or 3.9 loss ratio points. The prior year favorable development was approximately $1 million, and the current accident year loss ratio ex-cats was 59.6%. The expense ratio increased 0.3 points to 28.3%, from the prior year and remains in line with our nine months here to date. The small increase is attributable to the same items we've communicated during the past couple quarters, that being the change in outward reinsurance structures impacting seating commissions and increased compensation costs along with startup operating unit expenses. We also continue to invest in technology and areas to drive operational efficiencies. Record quarterly net investment income of $271 million grew by 33.6%, with the core investment portfolio increasing by 59.3%. There are two main drivers for the significant increase in the core portfolio, including the rising interest rate environment benefiting the reinvestment of fixed maturity securities as they mature or are redeemed, and second, the increase in the size of the portfolio due to continuous record levels of operating cash flows. In the third quarter, we reported another record level of operating cash flow of almost $1.1 billion. To put some context around this point, the book yield has grown from 3.8% in the first quarter of 2023 to 4.2% in the second quarter to 4.5% in the current quarter on fixed maturity securities. The current nine-month year-to-date book yield of 4.2% compares to 2.6% for the prior year period. It's also worth noting that almost 81% of our net invested assets are in fixed maturity securities, cash, and cash equivalents. The credit quality of the fixed maturity securities remains strong at AA-, and the durations ticked up to 2.4 years from the consecutive quarter of 2.3 years. Partially offsetting the increase in the core portfolio is net investment income from investment funds. You may recall this asset class is generally reported on a one-quarter lag and will more closely correlate with the broader equity markets. Accordingly, reported net investment income from investment funds was approximately $4 million, representing a marginal improvement from the first half of 2023. We continue to proactively manage our capital position, as you saw our announcement of a $0.50 special dividend per share late in third quarter, in addition to our regular quarterly dividend. This brings total capital return to investors on a year-to-date basis to approximately $775 million, with stockholders' equity increasing to more than $6.9 billion. Book value per share before dividends and share repurchases on a year-to-date basis has increased 13.7%. And with that, I'll turn it back to you, Rob.