Business Wire | Oct 20, 2020 04:10PM EDT

W. R. Berkley Corporation Reports Third Quarter Results

Oct. 20, 2020

GREENWICH, Conn.--(BUSINESS WIRE)--Oct. 20, 2020--W. R. Berkley Corporation (NYSE: WRB) today reported its third quarter 2020 results.

Summary Financial Data

(Amounts in thousands, except per share data)

Third Quarter Nine Months

2020 2019 2020 2019



Gross premiums written $ 2,262,545 $ 2,093,050 $ 6,626,163 $ 6,229,141

Net premiums written 1,879,316 1,749,906 5,464,980 5,202,971



Net income to common 151,678 165,208 218,520 562,638stockholders

Net income per diluted share 0.81 0.85 1.15 2.91



Operating income (1) 121,146 163,761 265,210 451,528

Operating income per diluted 0.65 0.85 1.40 2.33share



Return on equity (2) 10.0% 12.2% 4.8% 13.8%

(1) 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.

(2) Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders' equity.

Third quarter highlights included:

* Average rate increases excluding workers' compensation were approximately 14.5%. * The reported combined ratio was 93.7%. The accident year combined ratio before catastrophe losses was 89.8%. * Catastrophes added 4.2 loss ratio points to the reported combined ratio, with no change in previously reported COVID-19 related losses. * Gross and net premiums written increased 8.1% and 7.4%, respectively. * Book value per share grew 3.7%, before dividends and share repurchases. * Cash and liquid investments of more than $1.6 billion at the holding company.

The Company commented:

The Company reported strong third quarter 2020 results with a combined ratio of 93.7%, in spite of 4.2 points of catastrophe losses. Gross premiums written grew more than 8%, even with the economic disruption and extraordinary challenges COVID-19 presented. Rate increases continued to accelerate in response to rising loss costs and the extremely low interest rate environment. Growth and efficiency initiatives have helped drive our expense ratio to its lowest level in many years.

The Company continues to actively manage market exposure in its investment portfolio by increasing its allocation to high-quality short-term assets, including cash and cash equivalents, which has somewhat moderated fixed-maturity income. We will maintain this defensive position until the uncertainty in the financial markets and the economy begins to abate, and we find a more attractive entry point. Income from investment funds in the third quarter returned to a more normalized level.

The industry's need for disciplined underwriting and additional rate has been reinforced by, among other factors, the global pandemic, the continued increase in the frequency of catastrophe losses, the ongoing impacts of social inflation and the low interest rate environment. We remain focused on profitable underwriting with low volatility, growth in attractive areas of the market, and total risk-adjusted returns in our investment portfolio.

Our Company is built to succeed in periods of uncertainty through a constant evaluation of risk and reward in all aspects of our business, and to excel in periods of market improvement. The momentum is building, and we are excited for the opportunity before us.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on October 20, 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, including claims for cybersecurity-related risks; 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 2019; 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)

Third Quarter Nine Months

2020 2019 2020 2019

Revenues:

Net premiums $ 1,879,316 $ 1,749,906 $ 5,464,980 $ 5,202,971 written

Change inunearned (130,395 ) (73,096 ) (347,727 ) (286,464 ) premiums

Net premiums 1,748,921 1,676,810 5,117,253 4,916,507 earned

Net investment 142,650 161,692 402,844 508,279 income

Net investmentgains (losses):

Net realizedand unrealized (7,772 ) 1,465 (89,404 ) 143,691 (losses) gainson investments

Change inallowance forcredit losses 46,750 - 29,093 - on investments(1)

Net investment 38,978 1,465 (60,311 ) 143,691 gains (losses)

Revenues fromnon-insurance 87,495 101,880 256,966 283,005 businesses

Insurance 21,635 23,681 67,256 71,440 service fees

Other income 140 188 2,446 3,200

Total revenues 2,039,819 1,965,716 5,786,454 5,926,122

Expenses:

Losses and 1,114,632 1,041,471 3,357,011 3,058,950 loss expenses

Otheroperating 593,969 581,045 1,753,142 1,760,961 costs andexpenses

Expenses fromnon-insurance 85,036 101,743 256,032 280,141 businesses

Interest 39,768 38,475 114,874 119,913 expense

Total expenses 1,833,405 1,762,734 5,481,059 5,219,965

Income before 206,414 202,982 305,395 706,157 income taxes

Income tax (54,048 ) (37,831 ) (84,900 ) (141,965 ) expense

Net incomebefore 152,366 165,151 220,495 564,192 noncontrollinginterests

Noncontrolling (688 ) 57 (1,975 ) (1,554 ) interests

Net income tocommon $ 151,678 $ 165,208 $ 218,520 $ 562,638 stockholders



Net income per share:

Basic $ 0.82 $ 0.87 $ 1.17 $ 2.95

Diluted $ 0.81 $ 0.85 $ 1.15 $ 2.91



Average sharesoutstanding (2):

Basic 185,765 190,862 187,338 190,593

Diluted 187,717 193,589 189,515 193,557

(1) The inclusion of the allowance for credit losses on investments commenced January 1, 2020 due to the adoption of ASU 2016-13.

(2) 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)

Third Quarter Nine Months

2020 2019 2020 2019

Insurance:

Gross premiums $ 1,981,816 $ 1,850,012 $ 5,841,328 $ 5,565,862 written

Net premiums 1,628,316 1,529,113 4,754,791 4,601,077 written

Premiums earned 1,531,093 1,493,854 4,481,092 4,396,071

Pre-tax income 178,971 202,390 431,464 612,777

Loss ratio 64.4 % 61.8 % 65.5 % 62.3 %

Expense ratio 29.7 % 31.2 % 30.6 % 31.3 %

GAAP combined 94.1 % 93.0 % 96.1 % 93.6 %ratio



Reinsurance &Monoline Excess:

Gross premiums $ 280,729 $ 243,038 $ 784,835 $ 663,279 written

Net premiums 251,000 220,793 710,189 601,894 written

Premiums earned 217,828 182,956 636,161 520,436

Pre-tax income 61,532 46,863 110,611 144,353

Loss ratio 59.1 % 64.6 % 66.5 % 61.6 %

Expense ratio 31.2 % 33.7 % 32.1 % 35.2 %

GAAP combined 90.3 % 98.3 % 98.6 % 96.8 %ratio



Corporate and Eliminations:

Net investment $ 38,978 $ 1,465 $ (60,311 ) $ 143,691 gains (losses)

Interest (39,768 ) (38,475 ) (114,874 ) (119,913 )expense

Other revenues (33,299 ) (9,261 ) (61,495 ) (74,751 )and expenses

Pre-tax loss (34,089 ) (46,271 ) (236,680 ) (50,973 )



Consolidated:

Gross premiums $ 2,262,545 $ 2,093,050 $ 6,626,163 $ 6,229,141 written

Net premiums 1,879,316 1,749,906 5,464,980 5,202,971 written

Premiums earned 1,748,921 1,676,810 5,117,253 4,916,507

Pre-tax income 206,414 202,982 305,395 706,157

Loss ratio 63.7 % 62.1 % 65.6 % 62.2 %

Expense ratio 30.0 % 31.5 % 30.8 % 31.7 %

GAAP combined 93.7 % 93.6 % 96.4 % 93.9 %ratio

(1) 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)

Third Quarter Nine Months

2020 2019 2020 2019

Net premiums written:

Other $ 606,967 $ 553,802 $ 1,748,338 $ 1,607,613 liability

Short-tail 343,888 318,310 974,941 934,757 lines (1)

Workers' 257,629 303,116 857,951 997,733 compensation

Commercial 230,352 196,851 648,842 608,533 automobile

Professional 189,480 157,034 524,719 452,441 liability

Total 1,628,316 1,529,113 4,754,791 4,601,077 Insurance

Casualty 142,847 132,335 419,235 343,541 reinsurance

Monoline 59,267 49,851 154,105 141,572 excess

Property 48,886 38,607 136,849 116,781 reinsurance

TotalReinsurance & 251,000 220,793 710,189 601,894 MonolineExcess

Total $ 1,879,316 $ 1,749,906 $ 5,464,980 $ 5,202,971



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

Insurance $ 74,038 $ 15,381 $ 244,657 $ 53,444

Reinsurance &Monoline (1,282 ) 16,079 $ 52,733 16,178 Excess

Total $ 72,756 $ 31,460 297,390 $ 69,622



Net investment income:

Core portfolio $ 104,872 $ 134,259 $ 349,598 $ 404,812 (2)

Investment 18,235 19,033 1,260 77,284 funds

Arbitragetrading 19,543 8,400 51,986 26,183 account

Total $ 142,650 $ 161,692 $ 402,844 $ 508,279



Net realizedand unrealized(losses) gains oninvestments:

Net realized(losses) gains $ (38,466 ) $ (2,761 ) $ (27,545 ) $ 27,969 on investments

Change inunrealizedgains (losses) 30,694 4,226 (61,859 ) 115,722 on equitysecurities

Total $ (7,772 ) $ 1,465 $ (89,404 ) $ 143,691



Otheroperating costs andexpenses:

Policyacquisitionand insurance $ 523,349 $ 528,399 $ 1,574,507 $ 1,560,350 operatingexpenses

Insuranceservice 21,034 26,171 64,029 77,513 expenses

Net foreigncurrency 5,078 (22,590 ) (23,845 ) (29,084 ) losses (gains)

Other costs 44,508 49,065 138,451 152,182 and expenses

Total $ 593,969 $ 581,045 $ 1,753,142 $ 1,760,961



Cash flow from $ 557,094 $ 392,398 $ 1,136,945 $ 795,044 operations



Reconciliationof net income to operatingincome:

Net income $ 151,678 $ 165,208 $ 218,520 $ 562,638

Pre-taxinvestment(gains) (39,497 ) (1,552 ) 60,311 (140,797 ) losses, net ofrelatedexpenses

Income taxexpense 8,965 105 (13,621 ) 29,687 (benefit)

Operatingincome $ 121,146 $ 163,761 $ 265,210 $ 451,528 after-tax (3)

(1) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.

(2) Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable.

(3) 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)

September 30, December 31, 2020 2019



Net invested assets (1) $ 21,023,658 $ 19,856,776

Total assets 28,212,370 26,630,030

Reserves for losses and loss expenses 13,459,359 12,583,249

Senior notes and other debt 1,629,077 1,427,575

Subordinated debentures 1,443,736 1,198,704

Common stockholders' equity (2) 5,995,112 6,074,939

Common stock outstanding (3) 178,218 183,412

Book value per share (4) 33.64 33.12

Tangible book value per share (4) 32.38 31.87

(1) 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.

(2) As of September 30, 2020, reflected in common stockholders' equity are after-tax unrealized investment gains of $247 million and unrealized currency translation losses of $418 million. As of December 31, 2019, after-tax unrealized investment gains were $125 million and unrealized currency translation losses were $382 million.

(3) During the three months ended September 30, 2020, the Company repurchased 216,764 shares of its common stock for $13 million. During the nine months ended September 30, 2020, the Company repurchased 5,820,867 shares of its common stock for $312 million. The number of shares of common stock outstanding excludes shares held in a grantor trust.

(4) 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

September 30, 2020

(Amounts in thousands)

Carrying Percent Value of Total

Fixed maturity securities:

United States government and government agencies $ 697,432 3.3 %

State and municipal:

Special revenue $ 2,305,308 11.0 %

Local general obligation 438,272 2.1 %

State general obligation 429,652 2.0 %

Pre-refunded 285,224 1.4 %

Corporate backed 232,600 1.1 %

Total state and municipal 3,691,056 17.6 %

Mortgage-backed securities:

Agency 613,680 2.9 %

Residential - Prime 260,362 1.2 %

Commercial 206,025 1.0 %

Residential - Alt A 9,168 - %

Total mortgage-backed securities 1,089,235 5.2 %

Asset-backed securities 3,306,439 15.7 %

Corporate:

Industrial 2,326,598 11.1 %

Financial 1,524,636 7.3 %

Utilities 355,619 1.7 %

Other 32,687 0.2 %

Total corporate 4,239,540 20.2 %

Foreign government 869,344 4.1 %

Total fixed maturity securities (1) 13,893,046 66.1 %

Equity securities available for sale:

Preferred stocks 274,445 1.3 %

Common stocks 160,858 0.8 %

Total equity securities available for sale 435,303 2.1 %

Cash and cash equivalents (2) 2,745,523 13.1 %

Real estate 2,106,474 10.0 %

Investment funds (3) 1,162,814 5.5 %

Arbitrage trading account 595,727 2.8 %

Loans receivable 84,771 0.4 %

Net invested assets $ 21,023,658 100.0 %

(1) Total fixed maturity securities had an average rating of AA- and an average duration of 2.3 years, including cash and cash equivalents.

(2) Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.

(3) Investment funds are net of related liabilities of $0.9 million.

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