W.R. Berkley Corporation

Good day and welcome to WR Berkeley Corporation's first quarter 2024 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 on Form 10-K for the year ended December 31, 2023, 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 Berkley. Please go ahead, sir.

Audra, thank you very much, and let me echo your words earlier with a warm welcome to all that are participating in the call today. We appreciate your time and look forward to discussing with you our 2124 results. In addition to myself, we also have Bill Berkley on the call, Executive Chairman, and Rich Baio, Chief Financial Officer. And we are going to follow our typical agenda where I'm going to be handing it over to Rich shortly. He will be running through some highlights. Once he's completed his comments, I'll follow along with a few additional thoughts, and then we will be pleased to open it up for questions, comments, discussions. But before I do hand it over to Rich, I think anyone who's had an opportunity to flip through the earnings release would understand already, but I'll say it regardless, that we had a very strong and solid quarter, a great way to start the year. And when you really look at the results and unpack it a little bit, as we'll be doing over the next hour or so, it's pretty clear that the business is firing on many cylinders or essentially all cylinders at this stage. Rich, again, will get into some details. And while there are a couple of moving pieces in the investment portfolio that merit some conversation or discussion, I think the overall story is that whether it's on the investment side or on the underwriting side, the business continues to benefit from the foundation that was poured yesterday We continue to pour it today and position the business for continued success. This is really a result of the whole team, and in particular, I think it's worth noting the level of expertise, the focus, and as important as anything, the discipline that exists on both the underwriting part of the business as well as the investment part of the business. For us, we're pleased with the quarter. Rich is going to give you some more detail on it. In addition to that, we're probably even more enthusiastic because of how we see the business unfolding, not just for the balance of this year, but with every passing day, you know, we are laying the groundwork for what 25 and beyond will look like as well. So with that, let me hand it to Rich, and he will share with us some of his thoughts on the quarter. Rich, good morning.

Thanks, Rob. Appreciate it. As you mentioned, we're off to a terrific start in 2024 with record quarterly operating income driven by record net investment income and our best first quarter underwriting income. Operating income increased 53.4% to $423 million, or $1.56 per share, with an annualized operating return on beginning of year equity of 22.7%. Net income increased 50.4% to $442 million or $1.64 per share with an annualized return on beginning of year equity of 23.7%. Our growth in net premiums written accelerated to 10.7% to a record of almost $2.9 billion. Rate improvement and exposure growth continue to contribute to the increase in our top line. Before discussing the segment results, we reclassified a program management business from the insurance segment to the reinsurance and monoline excess segment. This reclassified business has similar characteristics to one of our reinsurance operations already in the reinsurance and monoline excess segment and has common management for both operations. And accordingly, reclassifications have been made to the company's 2023 financial information to conform this presentation. Having said that, the insurance segment increased net premiums written by 11.9% to more than $2.4 billion, and the reinsurance and monoline excess segment increased 4.2% to more than $400 million. Pre-tax underwriting income increased 31.8% to $309 million, and our calendar year combined ratio improved 1.8 points from the prior year to 88.8%. The current accident year combined ratio X-CATS was flat year over year at 87.7%. A reduction in the current accident year catastrophe losses contributed to a benefit of 80 basis points to the calendar year loss ratio of 60.2%. CAT losses were $31 million or 1.1 loss ratio points in the current quarter versus $48 million or 1.9 loss ratio points in the first quarter of 2023. Combining this improvement along with the prior year favorable development of approximately $1 million brings our first quarter 2024 accident year loss ratio, XCAP, to 59.1%. The slight uptick in the ratio from the prior year is due to business mix. The expense ratio improved 20 basis points to 28.6% due to a non-recurring benefit associated with compensation. We remain confident that our 2024 full-year expense ratio should be comfortably below 30%, even with the previously announced new startup operating unit expenses. Pre-tax net investment income grew 43.2% to a record $320 million in the current quarter. Our core portfolio increased more than 63%, which was influenced by Argentine inflation-linked securities. We don't expect the remainder of 2024 to benefit us significantly from much of these securities, which have matured in the first quarter. Partially offsetting this benefit is a loss of $29 million from investment funds. As you may recall, we report investment funds on a one-quarter lag, and since our first quarter represents the fourth quarter of the year for investment funds, we believe their mark-to-market process is more rigorous due to financial statement audits. The two primary fund strategies for the current quarter's loss were transportation and financial services. To synthesize this down for the second quarter of 2024, we expect investment funds will have less impact from mark to market and perform more like they did in the fourth quarter of 2023, as we expect the Argentine inflation linkers to do as well. We had very strong operating cash flow of $746 million in the first quarter, an increase of almost 68% compared with last year. The combination of new money rates above the roll-off yields on our fixed maturity portfolio and increasing investable asset base, the company is well-positioned for future investment income growth. In addition, credit quality of the portfolio remains at a AA-, duration increased from 2.4 years to 2.5 years in the first quarter. The effective tax rate increased to 23% in the first quarter, and we expect this to remain elevated throughout 2024 when compared to the prior year. The amount of foreign income and its contribution to the global earnings of the company at tax rates greater than 21% statutory rate in the U.S. will likely result in a higher annual expected effective tax rate. Our stockholders' equity remains very strong at a record $7.8 billion, despite an increase in unrealized losses and currency translation losses of $98 million in the quarter. Book value per share was $30.34 at quarter end, an increase of 4.4% from year end, and 14.7% over the prior year quarter. With that, Rob, I'll turn it back to you.