Business Wire | Jul 21, 2020 04:10PM EDT

W. R. Berkley Corporation Reports Second Quarter Results

Jul. 21, 2020

GREENWICH, Conn.--(BUSINESS WIRE)--Jul. 21, 2020--W. R. Berkley Corporation (NYSE: WRB) today reported its second quarter 2020 results.

Summary Financial Data

(Amounts in thousands, except per share data)

Second Quarter Six Months

2020 2019 2020 2019



Gross premiums $ 2,132,246 $ 2,089,861 $ 4,363,618 $ 4,136,090 written

Net premiums 1,739,818 1,743,464 3,585,664 3,453,065 written



Net income tocommon 71,260 216,709 66,842 397,431 stockholders

Net income per 0.38 1.12 0.35 2.06 diluted share



Operating 11,552 158,798 144,064 287,773 income (1)

Operatingincome per 0.06 0.82 0.76 1.49 diluted share



Return on 4.7 % 15.9 % 2.2 % 14.6 %equity (2)

* Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains (losses) and related expenses. * Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders' equity. Second quarter highlights included:

* Average rate increases excluding workers' compensation were approximately 13.0%. * The accident year combined ratio before catastrophe losses was 90.2%. The reported combined ratio was 98.7%. * Catastrophes added 8.7 loss ratio points to the reported combined ratio, including 5.1 loss ratio points for COVID-19 related losses. * Book value per share grew 7.7%, before dividends and share repurchases. * Total capital returned to stockholders was $117 million, including $96 million of share repurchases and $21 million of ordinary dividends. * Cash and liquid investments of more than $1.5 billion at the holding company.

The Company commented:

The second quarter of 2020 was most notably characterized by the COVID-19 pandemic and its impact on the U.S. and global economies. As previously announced, the Company incurred $85 million of net COVID-19 related losses during the period. The losses reflect newly available information and legal and regulatory developments that arose during the quarter. The total represents our best estimate of ultimate losses based on currently available information. Total catastrophe losses also included $20 million for losses related to civil unrest and $40 million primarily attributable to severe weather-related events in the U.S. Notwithstanding, inclusive of all these events, the Company reported a 98.7% combined ratio.

In spite of the current challenges, positive rate momentum persisted. The primary impetus for this continued momentum is the growing industry concern over the low interest rate environment and social inflation, which has shown no signs of abating. We believe that the current environment has heightened risk awareness and further reinforced this trend. Average rate increases excluding workers' compensation in the second quarter of 2020 of approximately 13% mitigated the top-line impact of the shrinking economy. Consequently, gross premiums written grew despite the current economic environment. While re-opening the global economy is unlikely to be a smooth process, we anticipate that it will have a meaningful favorable impact on our future growth.

Net investment income was adversely impacted by a $58 million loss from investment funds, which are reported on a one-quarter lag. The loss was driven by the first quarter downturn in the financial markets resulting from the COVID-19 related economic shutdown. We continue to manage our portfolio for total return in light of low interest rates and maintain a conservative fixed-maturity portfolio with an average rating of AA- and a duration of 2.4 years. Given the uncertainty in the financial markets and the economy, we have taken a defensive position to enhance our liquidity by investing in high-quality shorter-term assets, including cash and cash equivalents.

The first half of 2020 has been highly unusual in many regards. Our Company has performed relatively well and our people have demonstrated tremendous resiliency. Much remains unknown as we move into the second half of the year, yet often the best opportunities for the market to correct itself and provide an appropriate risk-adjusted return arise from periods of the greatest uncertainty. We see this as one of those moments, and we are well positioned to realize these opportunities as the economy improves.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on July 21, 2020, at 5:00 p.m. eastern time. The conference call will be webcast live on the Company's website at https://ir.berkley.com/news-and-events/events-and-presentations/default.aspx. Please log on at least ten minutes early to register and download and install any necessary software. A replay of the webcast will be available on the Company's website approximately two hours after the end of the conference call. Additional financial information can be found on the Company's website at https://ir.berkley.com/investor-relations/financial-information/annual-reports/default.aspx.

About W. R. Berkley Corporation

Founded in 1967, W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates worldwide in two segments of the property casualty business: Insurance and Reinsurance & Monoline Excess.

Forward Looking Information

This is a "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2020 and beyond, are based upon the Company's historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the ongoing COVID-19 pandemic, including the related impact on the U.S. and global economies; the cyclical nature of the property casualty industry; the impact of significant competition, including new alternative entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities, epidemics or pandemics, such as COVID-19; the impact of climate change, which may increase the frequency and severity of catastrophe events; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's withdrawal from the European Union, or "Brexit") relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Program Reauthorization Act of 2015; the ability or willingness of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or cyber security issues; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties could cause our actual results for the year 2020 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

Consolidated Financial Summary

(Amounts in thousands, except per share data)

Second Quarter Six Months

2020 2019 2020 2019

Revenues:

Net premiums $ 1,739,818 $ 1,743,464 $ 3,585,664 $ 3,453,065 written

Change inunearned (62,903 ) (96,623 ) (217,331 ) (213,368 ) premiums

Net premiums 1,676,915 1,646,841 3,368,333 3,239,697 earned

Net investment 85,431 188,333 260,194 346,587 income

Net investmentgains (losses):

Net realizedand unrealized 61,653 73,574 (81,632 ) 142,226 gains (losses)on investments

Change inallowance forcredit losses 16,232 - (17,657 ) - on investments(1)

Net investment 77,885 73,574 (99,289 ) 142,226 gains (losses)

Revenues fromnon-insurance 75,742 89,297 169,471 181,124 businesses

Insurance 19,870 22,446 45,621 47,759 service fees

Other income 183 2,893 2,305 3,013

Total revenues 1,936,026 2,023,384 3,746,635 3,960,406

Expenses:

Losses and 1,135,126 1,028,830 2,242,379 2,017,479 loss expenses

Otheroperating 580,840 591,828 1,159,173 1,179,916 costs andexpenses

Expenses fromnon-insurance 76,238 88,272 170,996 178,397 businesses

Interest 38,373 40,718 75,105 81,439 expense

Total expenses 1,830,577 1,749,648 3,647,653 3,457,231

Income before 105,449 273,736 98,982 503,175 income taxes

Income tax (33,793 ) (56,309 ) (30,852 ) (104,134 ) expense

Net incomebefore 71,656 217,427 68,130 399,041 noncontrollinginterests

Noncontrolling (396 ) (718 ) (1,288 ) (1,610 ) interests

Net income tocommon $ 71,260 $ 216,709 $ 66,842 $ 397,431 stockholders



Net income per share:

Basic $ 0.38 $ 1.14 $ 0.36 $ 2.09

Diluted $ 0.38 $ 1.12 $ 0.35 $ 2.06



Average sharesoutstanding (2):

Basic 185,979 190,512 188,133 190,456

Diluted 187,862 193,059 190,078 192,804

* The inclusion of the allowance for credit losses on investments commenced January 1, 2020 due to the adoption of ASU 2016-13. * Basic shares outstanding consist of the weighted average number of common shares outstanding during the period (including shares held in a grantor trust). Diluted shares outstanding consist of the weighted average number of basic and common equivalent shares outstanding during the period.

Business Segment Operating Results

(Amounts in thousands, except ratios) (1)

Second Quarter Six Months

2020 2019 2020 2019

Insurance:

Gross premiums $ 1,917,702 $ 1,905,367 $ 3,859,511 $ 3,715,850 written

Net premiums 1,543,157 1,574,585 3,126,475 3,071,964 written

Premiums earned 1,465,044 1,475,184 2,949,999 2,902,218

Pre-tax income 76,546 225,871 252,493 410,387

Loss ratio 67.0 % 62.9 % 66.1 % 62.5 %

Expense ratio 30.7 % 30.9 % 31.0 % 31.4 %

GAAP combined 97.7 % 93.8 % 97.1 % 93.9 %ratio



Reinsurance &Monoline Excess:

Gross premiums $ 214,544 $ 184,494 $ 504,107 $ 420,240 written

Net premiums 196,661 168,879 459,189 381,101 written

Premiums earned 211,871 171,657 418,334 337,479

Pre-tax income 12,566 52,635 49,080 97,490

Loss ratio 72.2 % 59.2 % 70.3 % 60.0 %

Expense ratio 32.9 % 36.0 % 32.6 % 36.0 %

GAAP combined 105.1 % 95.2 % 102.9 % 96.0 %ratio



Corporate and Eliminations:

Net investment $ 77,885 $ 73,574 $ (99,289) $ 142,226 gains (losses)

Interest (38,373) (40,718) (75,105) (81,439) expense

Other revenues (23,175) (37,626) (28,197) (65,489) and expenses

Pre-tax income 16,337 (4,770) (202,591) (4,702) (loss)



Consolidated:

Gross premiums $ 2,132,246 $ 2,089,861 $ 4,363,618 $ 4,136,090 written

Net premiums 1,739,818 1,743,464 3,585,664 3,453,065 written

Premiums earned 1,676,915 1,646,841 3,368,333 3,239,697

Pre-tax income 105,449 273,736 98,982 503,175

Loss ratio 67.7 % 62.4 % 66.6 % 62.2 %

Expense ratio 31.0 % 31.5 % 31.2 % 31.9 %

GAAP combined 98.7 % 93.9 % 97.8 % 94.1 %ratio

* Loss ratio is losses and loss expenses incurred expressed as a percentage of premiums earned. Expense ratio is underwriting expenses expressed as a percentage of premiums earned. GAAP combined ratio is the sum of the loss ratio and the expense ratio.

Supplemental Information

(Amounts in thousands)

Second Quarter Six Months

2020 2019 2020 2019

Net premiums written:

Other liability $ 559,727 $ 546,861 $ 1,141,371 $ 1,053,811

Short-tail 323,164 337,611 631,053 616,447 lines (1)

Workers' 273,036 340,430 600,322 694,617 compensation

Commercial 213,063 198,728 418,490 411,683 automobile

Professional 174,167 150,955 335,239 295,406 liability

Total Insurance 1,543,157 1,574,585 3,126,475 3,071,964

Casualty 132,927 106,690 276,388 211,206 reinsurance

Monoline excess 19,571 23,929 94,838 91,721

Property 44,163 38,260 87,963 78,174 reinsurance

TotalReinsurance & 196,661 168,879 459,189 381,101 Monoline Excess

Total $ 1,739,818 $ 1,743,464 $ 3,585,664 $ 3,453,065



Losses from catastrophes(including COVID-19 related losses):

Insurance $ 114,038 $ 25,446 $ 170,619 $ 38,064

Reinsurance & 31,822 57 54,015 99 Monoline Excess

Total $ 145,860 $ 25,503 $ 224,634 $ 38,163



Net investment income:

Core portfolio $ 111,679 $ 134,294 $ 244,727 $ 270,552 (2)

Investment (57,552) 46,840 (16,975) 58,251 funds

Arbitrage 31,304 7,199 32,442 17,784 trading account

Total $ 85,431 $ 188,333 $ 260,194 $ 346,587



Net realizedand unrealized gains (losses)on investments:

Net realized(losses) gains $ (261) $ 4,156 $ 10,921 $ 30,730 on investments

Change inunrealizedgains (losses) 61,914 69,418 (92,553) 111,496 on equitysecurities

Total $ 61,653 $ 73,574 $ (81,632) $ 142,226



Other operatingcosts and expenses:

Policyacquisition andinsurance $ 519,234 $ 518,160 $ 1,051,158 $ 1,031,951 operatingexpenses

Insuranceservice 20,423 25,386 42,995 51,343 expenses

Net foreigncurrency (7,382) 470 (28,923) (6,494) (gains) losses

Other costs and 48,565 47,812 93,943 103,116 expenses

Total $ 580,840 $ 591,828 $ 1,159,173 $ 1,179,916



Cash flow from $ 427,282 $ 324,316 $ 579,851 $ 402,646 operations



Reconciliationof net income to operatingincome:

Net income $ 71,260 $ 216,709 $ 66,842 $ 397,431

Pre-taxinvestment(gains) losses, (77,785) (73,375) 99,807 (139,245) net of relatedexpenses

Income taxexpense 18,077 15,464 (22,585) 29,587 (benefit)

Operatingincome $ 11,552 $ 158,798 $ 144,064 $ 287,773 after-tax (3)

* Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines. * Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable. * Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains (losses). Net investment gains (losses) are computed net of related expenses, including performance-based compensatory costs associated with realized investment gains. Management believes this measurement provides a useful indicator of trends in the Company's underlying operations.

Selected Balance Sheet Information

(Amounts in thousands, except per share data)

June 30, December 31, 2020 2019



Net invested assets (1) $ 20,202,785 $ 19,856,776

Total assets 27,322,349 26,630,030

Reserves for losses and loss expenses 13,088,904 12,583,249

Senior notes and other debt 1,725,449 1,427,575

Subordinated debentures 1,199,198 1,198,704

Common stockholders' equity (2) 5,801,116 6,074,939

Common stock outstanding (3) 177,931 183,412

Book value per share (4) 32.60 33.12

Tangible book value per share (4) 31.33 31.87

* Net invested assets include investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases, net of related liabilities. * As of June 30, 2020, reflected in common stockholders' equity are after-tax unrealized investment gains of $209 million and unrealized currency translation losses of $459 million. As of December 31, 2019, after-tax unrealized investment gains were $125 million and unrealized currency translation losses were $382 million. * During the three months ended June 30, 2020, the Company repurchased 1,953,344 shares of its common stock for $96 million. During the six months ended June 30, 2020, the Company repurchased 5,604,103 shares of its common stock for $299 million. The number of shares of common stock outstanding excludes shares held in a grantor trust. * Book value per share is total common stockholders' equity divided by the number of common shares outstanding. Tangible book value per share is total common stockholders' equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding.

Investment Portfolio

June 30, 2020

(Amounts in thousands)

Carrying Percent Value of Total

Fixed maturity securities:

United States government and government agencies $ 693,767 3.4 %

State and municipal:

Special revenue $ 2,253,542 11.2 %

Local general obligation 441,919 2.2 %

State general obligation 421,765 2.1 %

Pre-refunded 325,431 1.6 %

Corporate backed 232,730 1.2 %

Total state and municipal 3,675,387 18.2 %

Mortgage-backed securities:

Agency 622,965 3.1 %

Residential - Prime 319,371 1.6 %

Commercial 217,558 1.1 %

Residential - Alt A 9,336 - %

Total mortgage-backed securities 1,169,230 5.8 %

Asset-backed securities 3,098,198 15.3 %

Corporate:

Industrial 1,999,122 9.9 %

Financial 1,431,704 7.1 %

Utilities 322,715 1.6 %

Other 19,040 0.1 %

Total corporate 3,772,581 18.7 %

Foreign government 871,922 4.3 %

Total fixed maturity securities (1) 13,281,085 65.7 %

Equity securities available for sale:

Preferred stocks 245,297 1.2 %

Common stocks 116,968 0.6 %

Total equity securities available for sale 362,265 1.8 %

Cash and cash equivalents (2) 2,665,235 13.2 %

Real estate 2,072,772 10.3 %

Investment funds (3) 1,158,344 5.7 %

Arbitrage trading account 580,950 2.9 %

Loans receivable 82,134 0.4 %

Net invested assets $ 20,202,785 100.0 %

* Total fixed maturity securities had an average rating of AA- and an average duration of 2.4 years, including cash and cash equivalents. * Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases. * Investment funds are net of related liabilities of $0.9 million. View source version on businesswire.com: https://www.businesswire.com/news/home/20200721005887/en/

CONTACT: Karen A. Horvath Vice President - External Financial Communications (203) 629-3000