Business Wire | Jan 26, 2021 04:10PM EST

W. R. Berkley Corporation Reports Fourth Quarter and Full Year Results

Jan. 26, 2021

GREENWICH, Conn.--(BUSINESS WIRE)--Jan. 26, 2021--W. R. Berkley Corporation (NYSE: WRB) today reported its fourth quarter and full year 2020 results.

Summary Financial Data

(Amounts in thousands, except per share data)

Fourth Quarter Twelve Months

2020 2019 2020 2019



Gross premiums $ 2,221,484 $ 2,033,078 $ 8,847,647 $ 8,262,219written

Net premiums written 1,797,457 1,660,528 7,262,437 6,863,499



Net income to common 312,150 119,306 530,670 681,944stockholders

Net income per 1.67 0.62 2.81 3.52diluted share



Operating income (1) 173,043 137,530 438,253 589,057

Operating income per 0.92 0.71 2.32 3.04diluted share



Return on equity (2) 20.6% 8.8% 8.7% 12.5%

(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.

Fourth quarter highlights included:

* All-time record net income of $312.2 million. * Return on equity of 20.6%. * Gross and net premiums written increased 9.3% and 8.2%, respectively. * The reported combined ratio was 90.9%. The accident year combined ratio before catastrophe losses was 88.8%. * Underwriting income increased 44.2% to $165.4 million. * Catastrophes added 2.3 loss ratio points to the reported combined ratio, including 1.5 loss ratio points for COVID-19 related losses. * Average rate increases excluding workers' compensation were approximately 15.4%. * Book value per share grew 6.1%, before share repurchases and dividends.

Full year highlights included:

* Average rate increases excluding workers' compensation were approximately 13.6%. * Paid loss ratio of 51.9%. * Operating cash flow increased 41.3% to more than $1.6 billion. * Gross and net premiums written increased 7.1% and 5.8%, respectively. * Book value per share grew 10.5%, before share repurchases and dividends. * Total capital returned to shareholders was $430 million, including $346 million of share repurchases and $84 million of dividends.

The Company commented:

By every measure, the Company had an outstanding quarter, with earnings of $312 million and more than 9% growth in gross premiums written. We reported a combined ratio of 90.9%, which is the lowest in 13 years, and underwriting income of $165 million, which increased by 44.2%.

Our rate increases continued to accelerate throughout the year in connection with our efforts to stay ahead of current and expected loss trends. The global pandemic, frequent catastrophe losses, social inflation and low interest rates continue to reinforce the industry's need for disciplined underwriting and additional rate.

Our total return investment strategy delivered strong performance, driven by our alternative investment portfolio. Net investment income grew 32%, despite the defensive position in our fixed-maturity securities, where we maintain a relatively short duration and a high level of liquidity.

The Company again delivered a superior risk-adjusted return, in a challenging environment. We see no signs of rate increases moderating and expect that 2021 will provide opportunities for margin improvement.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on January 26, 2021, 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 2021 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 2021 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)

Fourth Quarter Twelve Months

2020 2019 2020 2019

Revenues:

Net premiums $ 1,797,457 $ 1,660,528 $ 7,262,437 $ 6,863,499written

Change in 16,133 56,253 (331,594) (230,211)unearned premiums

Net premiums 1,813,590 1,716,781 6,930,843 6,633,288earned

Net investment 180,977 137,334 583,821 645,614income

Net investment gains (losses):

Net realized andunrealized gains 162,918 (22,988) 73,514 120,703(losses) oninvestments

Change inallowance for 393 - 29,486 -credit losses oninvestments (1)

Net investment 163,311 (22,988) 103,000 120,703gains (losses)

Revenues fromnon-insurance 132,923 123,537 389,888 406,541businesses

Insurance service 21,521 21,240 88,777 92,680fees

Other income 149 170 2,596 3,370

Total revenues 2,312,471 1,976,074 8,098,925 7,902,196

Expenses:

Losses and loss 1,111,695 1,072,166 4,468,706 4,131,116expenses

Other operatingcosts and 637,250 601,121 2,390,392 2,362,082expenses

Expenses fromnon-insurance 128,457 122,527 384,488 402,669businesses

Interest expense 35,663 33,496 150,537 153,409

Total expenses 1,913,065 1,829,310 7,394,123 7,049,276

Income before 399,406 146,764 704,802 852,920income taxes

Income tax (86,917) (26,970) (171,817) (168,935)expense

Net income beforenoncontrolling 312,489 119,794 532,985 683,985interests

Noncontrolling (339) (488) (2,315) (2,041)interests

Net income tocommon $ 312,150 $ 119,306 $ 530,670 $ 681,944stockholders



Net income per share:

Basic $ 1.68 $ 0.62 $ 2.84 $ 3.58

Diluted $ 1.67 $ 0.62 $ 2.81 $ 3.52



Average shares outstanding (2):

Basic 185,693 191,106 186,924 190,722

Diluted 187,180 193,280 188,763 193,521

(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)

Fourth Quarter Twelve Months

2020 2019 2020 2019

Insurance:

Gross premiums written $ 1,996,169 $ 1,832,711 $ 7,837,496 $ 7,398,573

Net premiums written 1,592,311 1,484,932 6,347,101 6,086,009

Premiums earned 1,586,578 1,523,748 6,067,669 5,919,819

Pre-tax income 236,548 202,085 668,012 814,862

Loss ratio 63.4% 62.6% 64.9% 62.4%

Expense ratio 29.4% 30.4% 30.3% 31.1%

GAAP combined ratio 92.8% 93.0% 95.2% 93.5%



Reinsurance & Monoline Excess:

Gross premiums written $ 225,315 $ 200,367 $ 1,010,151 $ 863,646

Net premiums written 205,146 175,596 915,336 777,490

Premiums earned 227,012 193,033 863,174 713,469

Pre-tax income 94,975 44,837 205,587 189,188

Loss ratio 46.7% 61.1% 61.3% 61.5%

Expense ratio 31.1% 34.4% 31.8% 35.0%

GAAP combined ratio 77.8% 95.5% 93.1% 96.5%



Corporate and Eliminations:

Net investment gains $ 163,311 $ (22,988) $ 103,000 $ 120,703(losses)

Interest expense (35,663) (33,496) (150,537) (153,409)

Other revenues and (59,765) (43,674) (121,260) (118,424)expenses

Pre-tax gain (loss) 67,883 (100,158) (168,797) (151,130)



Consolidated:

Gross premiums written $ 2,221,484 $ 2,033,078 $ 8,847,647 $ 8,262,219

Net premiums written 1,797,457 1,660,528 7,262,437 6,863,499

Premiums earned 1,813,590 1,716,781 6,930,843 6,633,288

Pre-tax income 399,406 146,764 704,802 852,920

Loss ratio 61.3% 62.4% 64.5% 62.3%

Expense ratio 29.6% 30.9% 30.4% 31.5%

GAAP combined ratio 90.9% 93.3% 94.9% 93.8%

(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)

Fourth Quarter Twelve Months

2020 2019 2020 2019

Net premiums written:

Other liability $ 594,546 $ 537,674 $ 2,342,884 $ 2,145,287

Short-tail 325,809 319,423 1,300,750 1,254,180 lines (1)

Workers' 241,935 282,840 1,099,886 1,280,573 compensation

Commercial 227,190 188,459 876,031 796,993 automobile

Professional 202,831 156,536 727,550 608,976 liability

Total Insurance 1,592,311 1,484,932 6,347,101 6,086,009

Casualty 141,481 116,698 560,717 460,239 reinsurance

Property 41,174 37,673 178,023 154,455 reinsurance

Monoline excess 22,491 21,225 176,596 162,796

TotalReinsurance & 205,146 175,596 915,336 777,490 Monoline Excess

Total $ 1,797,457 $ 1,660,528 $ 7,262,437 $ 6,863,499



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

Insurance $ 62,380 $ 14,744 $ 307,037 $ 68,187

Reinsurance & (19,934) 5,736 $ 32,799 21,914 Monoline Excess

Total $ 42,446 $ 20,480 339,836 $ 90,101



Net investment income:

Core portfolio $ 102,039 $ 137,022 $ 451,637 $ 541,834 (2)

Investment 52,992 (8,090) 54,253 69,194 funds

Arbitrage 25,946 8,402 77,931 34,586 trading account

Total $ 180,977 $ 137,334 $ 583,821 $ 645,614



Net realizedand unrealized gains (losses)on investments:

Net realizedgains on $ 126,927 $ 7,442 $ 99,382 $ 35,411 investments

Change inunrealizedgains (losses) 35,991 (30,430) (25,868) 85,292 on equitysecurities

Total $ 162,918 $ (22,988) $ 73,514 $ 120,703



Other operatingcosts and expenses:

Policyacquisition andinsurance $ 536,507 $ 529,951 $ 2,111,013 $ 2,090,301 operatingexpenses

Insuranceservice 21,694 23,804 85,724 101,317 expenses

Net foreigncurrency losses 24,207 (1,631) 363 (30,715) (gains)

Debtextinguishment 8,440 - 8,440 - costs

Other costs and 46,402 48,997 184,852 201,179 expenses

Total $ 637,250 $ 601,121 $ 2,390,392 $ 2,362,082



Cash flow from $ 479,740 $ 348,749 $ 1,616,686 $ 1,143,793 operations



Reconciliationof net income to operatingincome:

Net income $ 312,150 $ 119,306 $ 530,670 $ 681,944

Pre-taxinvestment(gains) losses, (162,337) 23,066 (102,027) (117,730) net of relatedexpenses

Income taxexpense 23,230 (4,842) 9,610 24,843 (benefit)

Operatingincome $ 173,043 $ 137,530 $ 438,253 $ 589,057 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)

December 31, December 31, 2020 2019



Net invested assets (1) $ 21,370,503 $ 19,856,776

Total assets 28,606,913 26,662,144

Reserves for losses and loss expenses 13,784,430 12,583,249

Senior notes and other debt 1,623,025 1,427,575

Subordinated debentures 1,102,309 1,198,704

Common stockholders' equity (2) 6,310,802 6,074,939

Common stock outstanding (3) 177,825 183,412

Book value per share (4) 35.49 33.12

Tangible book value per share (4) 34.22 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 December 31, 2020, reflected in common stockholders' equity are after-tax unrealized investment gains of $290 million and unrealized currency translation losses of $352 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 December 31, 2020, the Company repurchased 542,434 shares of its common stock for $34 million. During the twelve months ended December 31, 2020, the Company repurchased 6,363,301 shares of its common stock for $346 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

December 31, 2020

(Amounts in thousands)

Carrying Percent Value of Total

Fixed maturity securities:

United States government and government agencies $ 603,871 2.8 %

State and municipal:

Special revenue $ 2,252,067 10.6 %

State general obligation 493,147 2.3 %

Local general obligation 450,624 2.1 %

Pre-refunded 276,672 1.3 %

Corporate backed 214,473 1.0 %

Total state and municipal 3,686,983 17.3 %

Mortgage-backed securities:

Agency 630,784 3.0 %

Residential - Prime 199,481 0.9 %

Commercial 187,717 0.9 %

Residential - Alt A 8,803 - %

Total mortgage-backed securities 1,026,785 4.8 %

Asset-backed securities 3,194,586 14.9 %

Corporate:

Industrial 2,564,475 12.0 %

Financial 1,575,903 7.4 %

Utilities 421,165 2.0 %

Other 110,038 0.5 %

Total corporate 4,671,581 21.9 %

Foreign government 975,563 4.6 %

Total fixed maturity securities (1) 14,159,369 66.3 %

Equity securities available for sale:

Common stocks 350,181 1.6 %

Preferred stocks 275,486 1.3 %

Total equity securities available for sale 625,667 2.9 %

Cash and cash equivalents (2) 2,889,630 13.5 %

Real estate 1,960,914 9.2 %

Investment funds (3) 1,308,537 6.1 %

Arbitrage trading account 341,473 1.6 %

Loans receivable 84,913 0.4 %

Net invested assets $ 21,370,503 100.0 %

(1) Total fixed maturity securities had an average rating of AA- and an average duration of 2.4 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