W.R. Berkley Corporation

Good day and welcome to the W.R. Berkeley Corporation's fourth quarter and full year 2023 earnings 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 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 new information, future events, or otherwise. I would now like to turn the call over to Mr. Rob Berkeley. Please go ahead, sir.

Sarah, thank you very much, and good afternoon, all, and welcome to our fourth quarter call, and for that matter, full year 23 call. In addition to me, you also have Bill Berkley, Executive Chairman on the call, as well as Rich Baio, Chief Financial Officer of the company. We are going to follow our usual agenda where very shortly I'm going to hand it over to Rich. He's going to walk us through some highlights from the quarter. Once he's completed his comments, I'll offer a couple of thoughts of my own, and then we'll be pleased to open it up for Q&A. Before I hand it over to Rich, I did just want to offer a thought or two, and for some participants this probably won't be new. It's, I guess, a discussion that we've had in the past. For our organization, there is without a doubt amongst all of us colleagues a shared recognition that the goal of the exercise is value creation. We approach this through a lens that we've again touched on in the past, but I'll flag it again, a lens that we refer to as risk-adjusted return. All returns are not created equal. One needs to consider the type of risk that you are taking on in order to achieve that return. And in contemplating that risk, one needs to consider volatility as a component of that. One needs to ask themselves the question, Am I getting paid enough for that risk? And of course, in considering that, what role volatility plays. In the fourth quarter of 23, there should be many market participants that report good numbers. But I think that one needs to look beyond just a quarter. One needs to look at the year. One needs to look at the past several years. When it comes to value creation, it's not just about a step forward. It's about consistently taking steps forward and it's about avoiding taking steps backwards. When you look at the results of our quarter, without a doubt, they are very strong, very robust by any measure. But I would encourage people to look at the full year and look at the past many years and our ability to create value Taking into account the risk that we are accepting in order to achieve those returns is really the cornerstone why we've been able to build value for shareholders so successfully over many years. This quarter and this year, no exception. So to that end, before I hand it over to Rich, I would like to thank and congratulate my colleagues throughout the organization on a really outstanding quarter. outstanding year and yet another year of a job very well done. Also, on behalf of my colleagues, I would like to thank our shareholders for allowing us the opportunity and the privilege for managing capital on their behalf. I will pause there, and Rich, over to you. What do you have for us?

Thanks, Rob. Appreciate it, and good afternoon, everyone. The company continued to report record-setting financial results in the quarter, leading to an outstanding full year. Net income increased to $397 million, or $1.47 per share, compared with $382 million, or $1.37 per share in the prior year quarter. Annualized return on beginning-of-year equity was 23.6%. Record operating income increased more than 21% to $392 million, or $1.45 per share, with an annualized return on beginning of year equity of 23.2%. Our extreme ownership in maximizing risk-adjusted return in everything we do contributed to our record full-year underwriting income, net investment income, operating income, and net income. Our top line growth accelerated throughout the year, with the fourth quarter reflecting a 12% increase in net premiums written to more than $2.7 billion, bringing the full year to a record of almost $11 billion. On a constant foreign currency exchange rate basis, the quarterly and full year growth was adversely impacted by approximately 50 basis points due to the weakening U.S. dollar. On a segment basis, insurance grew 12.3%, to more than $2.4 billion in the quarter from rate improvement and exposure growth. The reinsurance and monoline excess segment increased 10.2% to more than $300 million. This marks a record level for full-year growth and net premiums written for each segment. Turning to underwriting performance, record quarterly pre-tax underwriting income increased 8.2% to $316 million representing a calendar year combined ratio of 88.4%. Current accident year catastrophe losses were flat at 1.2 loss ratio points for the comparable quarters, with $32 million and $30 million reported in fourth quarter 2023 and 2022, respectively. Prior year development was favorable by $1 million, bringing our current accident year loss ratio X-CATS to 58.8%. The improvement over the prior year's quarter of 50 basis points was primarily due to business mix and lower attritional property losses. The expense ratio increased 60 basis points to 28.4% in the current quarter, flat to the 2023 full year. The increase from the prior year's quarter is consistent with our prior communication, that being lower seating commissions resulting from business mix, and reinsurance structure changes over the past year. In addition, increased compensation costs and startup operating unit expenses have also contributed to the small increase. We expect that our 2024 full year expense ratio should be comfortably below 30%, taking into consideration investments in such things like technology and data and analytics, as well as new startup operating unit expenses. So in summary, Our current accident year combined ratio excluding catastrophes for the quarter was 87.2%. Record quarterly pre-tax net investment income increased more than 35% to $313 million, bringing the full year to more than $1 billion for the first time in the company's history. The combination of our short duration and record level operating cash flow of more than $2.9 billion in the full year has positioned us well to invest in securities with higher interest rates. The book yield on the fixed maturity portfolio continued to advance throughout the year to 4.4% on a 12-month basis. Our net invested assets increased approximately 10% in the past year to almost $27 billion. The credit quality of the portfolio remains very strong at AA-, with a duration on our fixed maturity portfolio including cash and cash equivalents of 2.4 years. The investment funds improved from the consecutive quarter to $11 million, although declined from the prior year in large part due to market value adjustments in the real estate fund area. As a reminder, the investment funds are generally reported on a one-quarter lag. Foreign currency losses in the quarter related to the U.S. dollar weakening relative to most other currencies. It's worth noting, however, that the net effect to stockholders' equity is negligible since the improvement in our currency translation adjustment more than offset the amount reflected in the income statement. Stockholders' equity increased to a record of almost $7.5 billion. Careful capital management throughout the year resulted in three special dividends of 50 cents each per share, plus regular quarterly dividends totaling $501 million. In addition, share repurchases in the quarter of almost 1.6 million shares contributed to a total of more than 8.7 million shares repurchased during the year, amounting to $537 million, or $61.69 per share. So our capital management during 2023 aggregated to more than $1 billion, the most we've returned to shareholders in one year, while growing shareholders' equity more than 10%, and maintaining more than adequate capital support ongoing growth in the business. Book value per share increased 11.6% and 25.5% in the quarter and full year before dividends and share repurchases. And Rob, with that, I'll turn it back to you.