W.R. Berkley Corporation

Good day and welcome to W.R. Berkeley Corporation's third 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 view 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 please refer to our annual report on form 10k for the year ended december 31st 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. 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 Berkeley. Please go ahead, sir.

Christa, thank you very much, and echoing Christa's comments, a welcome to our Q3 call. In addition to me on this end of the phone, you also have our Executive Chairman, Bill Berkley, and Chief Financial Officer, Rich Baio. We're going to follow a typical pattern, and that is Rich is shortly going to walk you through the highlights. I will then follow up with a few comments and then of course we're very happy to open it up to Q&A and address any questions participants would have. Before I hand it over to Rich, two points that I'd like to make. One, obviously the third quarter and then more recently even in the fourth quarter there's been a significant amount of NACAT activity. And oftentimes on these calls or any industry discussions, as we've flagged in the past, people start talking about estimates and models and numbers, and those are all important and real to consider. That having been said, from our perspective, this has impacted countless people's lives, and that is not lost on us. So while we are certainly focused on the numbers and the economics, my colleagues and I are also acutely aware of the challenges that many people in this country are facing as a result of this cat activity. Further, in addition to extending our concern to all those impacted, I'd like to thank our claims colleagues that are going above and beyond to ensure that we deliver on our promise to all of our policyholders that have been impacted by these events. So again, thinking of those impacted and sending thanks to those that are doing their job and making sure that we deliver on our promise. The second topic I did want to flag, and it really stems from a subject matter that has been getting greater attention more recently, and that is the growth in the specialty space and in particular the E&S market. I don't think it's lost on any of us the pace of change in the world, how it seems to be accelerating, the level of complexity and risk continues to be on the rise, and certainly there are many contributing factors, but amongst those contributing factors would, without a doubt, be climate change as well as social inflation. Both of these items are playing an important role in having a meaningful impact on the insurance industry. And quite frankly, as these two items are impacting lost cost trend, I think much of the standard market, and specifically the admitted market, is having a difficult time pivoting. That is creating opportunity for, in particular, the non-admitted market. One of the pinch points that is not discussed as actively in the commercialized market space as it is in the personalized market space is the challenges on the regulatory front. There are many insurance departments that are struggling from a staffing perspective. And also we, in addition to that, we see the impact of politics creeping in as well. So as we look at the circumstance and we see this pinch point on the regulatory front, we think that that is likely to continue. That is likely to continue to drive more business into the specialty, and in particular, the E&S market. And by extension, we think that that is going to bode well for an organization such as ours with a particularly large footprint in the specialty space overall, and in particular, the E&S marketplace. So with that as a bit of a backdrop, I'm going to pause there. And Rich, I'll hand it over to you, please.

Great. Thanks, Rob. Good evening, everyone. Our record third quarter net income resulted in an increase of almost 10% over the prior year to $366 million, also contributing to a nine-month record net income of approximately $1.2 billion. We continue to generate outstanding returns on equity of 20% in the quarter and more than 21% year to date. Both strong underwriting and investment income contributed to our operating earnings of $374 million, or 93 cents per share. Despite the above-average catastrophic activity experienced by the industry, we've once again been able to demonstrate our careful and prudent underwriting discipline, and in particular, stability in earnings. Our calendar year combined ratio was 90.9%, inclusive of 3.3 loss ratio points from several CAT events, and 87.6% on an accident year ex-cat basis. During the quarter, there were four hurricanes that made landfall, with Helene being the most destructive across several states and continuing SCS activity that contributed modestly to the total amount of cat losses. Our net premiums written grew above $3 billion for the second consecutive quarter and continues to benefit our record net premiums earned which increased 10.8 percent over the prior year current accident year underwriting income excluding cats increased 13.4 percent to 362 million dollars pre-tax adjusted for cat losses of 98 million dollars and prior year favorable development of one million dollars our current accident year loss ratio x cat improved quarter over quarter by one half point to 59.1% driven by business mix. We continue to invest in the business to drive efficiencies and better experience for our customers, combined with new startup operating units that we've announced before. The combination of these items, along with the changes in business mix and reinsurance structures, have contributed to the increase in our expense ratio by 20 basis points to 28.5%. As previously communicated, we continue to believe that our expense ratio should remain comfortably below 30%. Turning to investments, pre-tax net investment income increased 20% to $324 million. Fixed maturity securities grew by more than $50 million with the Argentine inflation-linked securities normalizing to an amount commensurate with the prior year quarter. We do not anticipate much change on a prospective basis regarding these securities. However, do remind you that when modeling out 2025, you should factor in the elevated non-recurring income in the first and second quarters of 2024. Record operating cash flow in the quarter of $1.25 billion contributes to the record year-to-date cash flow of almost $2.9 billion. Combining the increase in investable assets with the new money rate that's higher than the roll-off book yield on our fixed maturity securities, we remain well positioned for further investment income growth. The credit quality of the investment portfolio remains at a AA minus and the duration is 2.4 years for the quarter. Foreign currency losses in the quarter of $25 million related to the US dollar weakening relative to most other currencies. As mentioned in the past, we actively manage our foreign currency exposure, and you'll note an improvement in our currency translation adjustment in stockholders' equity, which offsets the amount in the income statement. The effective tax rate remains elevated relative to the prior year and has been the case in the first half of the year due to the contribution of foreign earnings taxed at rates greater than the U.S. statutory rate of 21%. This quarter was 23% and we expect the fourth quarter will likely revert to the high 23 to 24% area that we saw earlier in the year. Stockholders' equity increased above $8 billion for the first time to more than $8.4 billion. Strong earnings of $366 million coupled with an improvement in after-tax unrealized investment losses of $381 million, and currency translation gains of $49 million fueled the increase. The company also returned total capital of $138 million, consisting of $95 million of special dividends, $31 million of regular dividends, and $12.5 million of share repurchases at an average price per share of $52.30. Our total capitalization remains strong. And our financial leverage ratio of 25.2% is at its lowest level in almost two decades. Book value per share before share repurchases and dividends grew 10% in the quarter and 20.1% year to date. And with that, I'll turn it back to you, Rob.