W. R. Berkley Corporation (NYSE: WRB) today reported its first quarter 2021 results.

 

Summary Financial Data

(Amounts in thousands, except per share data)

 

 

First Quarter

 

 

2021

 

2020

 

 

 

 

 

Gross premiums written

 

$

2,484,712

 

$

2,231,372

Net premiums written

 

2,050,038

 

1,845,846

 

 

 

 

 

Net income (loss) to common stockholders

 

229,525

 

(4,418)

Net income (loss) per diluted share

 

1.23

 

(0.02)

 

 

 

 

 

Operating income (1)

 

201,780

 

132,623

Operating income per diluted share

 

1.08

 

0.69

 

 

 

 

 

Return on equity (2)

 

14.5%

 

(0.3)%

(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 (loss) expressed on an annualized basis as a percentage of beginning of year common stockholders’ equity.

First quarter highlights included:

  • Return on equity of 14.5%.
  • Gross and net premiums written increased 11.4% and 11.1%, respectively.
  • The reported combined ratio was 90.1%. The accident year combined ratio before catastrophe losses was 88.4%.
  • Record quarterly underwriting income of $182.6 million.
  • Current accident year catastrophes added 1.9 loss ratio points to the reported combined ratio.
  • Average rate increases excluding workers' compensation were approximately 12.8%.
  • Total capital returned to shareholders was $51 million, including $30 million of share repurchases at an average price per share of $63.82 and $21 million of dividends.

The Company commented:

The Company began the year with a very strong quarter. Premium growth exceeded 11% and we reported a combined ratio of 90.1%, contributing to a 14.5% annualized return on beginning year common stockholders’ equity.

Rate increases continued into 2021 and we expect them to extend for the foreseeable future in light of persistent social inflation and above-average industry catastrophe losses in this and recent quarters. Our combined ratio improved, and we expect it will further improve as compounding rate increases in excess of loss cost trends are fully reflected in underwriting profits.

Our alternative investment portfolio delivered strong performance, driven by our investment funds, arbitrage trading account, and approximately $76 million of realized gains on investments. We began reinvesting a modest portion of our cash as interest rates rose, yet maintain a defensive position in our fixed-maturity securities, with a higher allocation to short-term assets. We remain committed to a total return investment strategy and anticipate that it will continue to generate attractive returns for shareholders.

Our Company’s decentralized model is built to excel in transitioning markets such as this one. Our agility and product focus allow us to quickly emphasize market sectors that offer the best risk-adjusted returns. This competitive advantage uniquely positions us to outperform in the current environment and as the economy expands. We expect to greatly benefit from this opportunity, which should lead to exceptional results.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on April 20, 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 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; the ongoing COVID-19 pandemic; the impact of climate change, which may alter the frequency and increase the 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)

 

 

First Quarter

 

 

2021

 

2020

Revenues:

 

 

 

 

Net premiums written

 

$

2,050,038

 

 

$

1,845,846

 

Change in unearned premiums

 

(200,082)

 

 

(154,428)

 

Net premiums earned

 

1,849,956

 

 

1,691,418

 

Net investment income

 

158,577

 

 

174,763

 

Net investment gains (losses):

 

 

 

 

Net realized and unrealized gains (losses) on investments

 

51,759

 

 

(143,285)

 

Change in allowance for credit losses on investments

 

(16,920)

 

 

(33,889)

 

Net investment gains (losses)

 

34,839

 

 

(177,174)

 

Revenues from non-insurance businesses

 

87,430

 

 

93,729

 

Insurance service fees

 

25,808

 

 

25,751

 

Other income

 

259

 

 

2,123

 

Total revenues

 

2,156,869

 

 

1,810,610

 

Expenses:

 

 

 

 

Losses and loss expenses

 

1,121,592

 

 

1,107,253

 

Other operating costs and expenses

 

616,268

 

 

578,334

 

Expenses from non-insurance businesses

 

86,290

 

 

94,757

 

Interest expense

 

36,651

 

 

36,734

 

Total expenses

 

1,860,801

 

 

1,817,078

 

Income (loss) before income taxes

 

296,068

 

 

(6,468)

 

Income tax (expense) benefit

 

(64,352)

 

 

2,942

 

Net income (loss) before noncontrolling interests

 

231,716

 

 

(3,526)

 

Noncontrolling interests

 

(2,191)

 

 

(892)

 

Net income (loss) to common stockholders

 

$

229,525

 

 

$

(4,418)

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

Basic

 

$

1.24

 

 

$

(0.02)

 

Diluted

 

$

1.23

 

 

$

(0.02)

 

 

 

 

 

 

Average shares outstanding (1):

 

 

 

 

Basic

 

185,195

 

 

190,287

Diluted (2)

 

186,830

 

 

190,287

(1) 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.

(2) During 2020, diluted shares have been reduced by 2.0 million to reflect the anti-dilutive effect of common equivalent shares.

 

Business Segment Operating Results

(Amounts in thousands, except ratios) (1)

 

 

First Quarter

 

 

2021

 

2020

Insurance:

 

 

 

 

Gross premiums written

 

$

2,140,013

 

$

1,941,809

Net premiums written

 

1,739,824

 

1,583,318

Premiums earned

 

1,604,979

 

1,484,955

Pre-tax income

 

257,109

 

175,947

Loss ratio

 

61.3%

 

65.1%

Expense ratio

 

29.3%

 

31.3%

GAAP combined ratio

 

90.6%

 

96.4%

 

 

 

 

 

Reinsurance & Monoline Excess:

 

 

 

 

Gross premiums written

 

$

344,699

 

$

289,563

Net premiums written

 

310,214

 

262,528

Premiums earned

 

244,977

 

206,463

Pre-tax income

 

68,649

 

36,514

Loss ratio

 

56.5%

 

68.3%

Expense ratio

 

30.9%

 

32.3%

GAAP combined ratio

 

87.4%

 

100.6%

 

 

 

 

 

Corporate and Eliminations:

 

 

 

 

Net investment gains (losses)

 

$

34,839

 

$

(177,174)

Interest expense

 

(36,651)

 

(36,734)

Other revenues and expenses

 

(27,878)

 

(5,021)

Pre-tax loss

 

(29,690)

 

(218,929)

 

 

 

 

 

Consolidated:

 

 

 

 

Gross premiums written

 

$

2,484,712

 

$

2,231,372

Net premiums written

 

2,050,038

 

1,845,846

Premiums earned

 

1,849,956

 

1,691,418

Pre-tax income (loss)

 

296,068

 

(6,468)

Loss ratio

 

60.6%

 

65.5%

Expense ratio

 

29.5%

 

31.4%

GAAP combined ratio

 

90.1%

 

96.9%

(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)

 

 

First Quarter

 

 

2021

 

2020

Net premiums written:

 

 

 

 

Other liability

 

$

657,779

 

 

$

581,644

 

Short-tail lines (1)

 

325,051

 

 

307,889

 

Workers' compensation

 

286,724

 

 

327,286

 

Commercial automobile

 

248,567

 

 

205,427

 

Professional liability

 

221,703

 

 

161,072

 

Total Insurance

 

1,739,824

 

 

1,583,318

 

Casualty reinsurance

 

174,864

 

 

143,461

 

Monoline excess

 

85,509

 

 

75,267

 

Property reinsurance

 

49,841

 

 

43,800

 

Total Reinsurance & Monoline Excess

 

310,214

 

 

262,528

 

Total

 

$

2,050,038

 

 

$

1,845,846

 

 

 

 

 

 

Current accident year losses from catastrophes (including COVID-19 related losses):

 

 

Insurance

 

$

32,829

 

 

$

56,580

 

Reinsurance & Monoline Excess

 

3,000

 

 

22,193

 

Total

 

$

35,829

 

 

$

78,773

 

 

 

 

 

 

Net investment income:

 

 

 

 

Core portfolio (2)

 

$

100,568

 

 

$

133,048

 

Investment funds

 

38,935

 

 

40,577

 

Arbitrage trading account

 

19,074

 

 

1,138

 

Total

 

$

158,577

 

 

$

174,763

 

 

 

 

 

 

Net realized and unrealized gains (losses) on investments:

 

 

 

 

Net realized gains on investments

 

$

76,094

 

 

$

11,182

 

Change in unrealized gains (losses) on equity securities

 

(24,335)

 

 

(154,467)

 

Total

 

$

51,759

 

 

$

(143,285)

 

 

 

 

 

 

Other operating costs and expenses:

 

 

 

 

Policy acquisition and insurance operating expenses

 

$

545,750

 

 

$

531,924

 

Insurance service expenses

 

20,786

 

 

22,573

 

Net foreign currency gains

 

(5,594)

 

 

(21,541)

 

Debt extinguishment costs

 

3,617

 

 

—

 

Other costs and expenses

 

51,709

 

 

45,378

 

Total

 

$

616,268

 

 

$

578,334

 

 

 

 

 

 

Cash flow from operations

 

$

310,990

 

 

$

152,570

 

 

 

 

 

 

Reconciliation of net income (loss) to operating income:

 

 

 

 

Net income

 

$

229,525

 

 

$

(4,418)

 

Pre-tax investment (gains) losses, net of related expenses

 

(33,302)

 

 

177,592

 

Income tax expense (benefit)

 

5,557

 

 

(40,551)

 

Operating income after-tax (3)

 

$

201,780

 

 

$

132,623

 

(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)

 

March 31,
2021

 

December 31,
2020

 

 

 

 

Net invested assets (1)

$

22,155,935

 

 

$

21,370,503

 

Total assets

29,791,274

 

 

28,571,965

 

Reserves for losses and loss expenses

14,080,528

 

 

13,784,430

 

Senior notes and other debt

2,021,142

 

 

1,623,025

 

Subordinated debentures

1,289,272

 

 

1,102,309

 

Common stockholders’ equity (2)

6,414,600

 

 

6,310,802

 

Common stock outstanding (3)

177,373

 

 

177,825

 

Book value per share (4)

36.16

 

 

35.49

 

Tangible book value per share (4)

34.90

 

 

34.22

 

(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 March 31, 2021, reflected in common stockholders' equity are after-tax unrealized investment gains of $200 million and unrealized currency translation losses of $348 million. As of December 31, 2020, after-tax unrealized investment gains were $290 million and unrealized currency translation losses were $352 million.

(3) During the three months ended March 31, 2021, the Company repurchased 465,063 shares of its common stock for $30 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

March 31, 2021

(Amounts in thousands)

 

 

Carrying

Value

 

Percent

of Total

Fixed maturity securities:

 

 

 

 

United States government and government agencies

 

$

555,714

 

 

2.5

%

State and municipal:

 

 

 

 

Special revenue

 

$

2,206,460

 

 

10.0

%

State general obligation

 

469,681

 

 

2.1

%

Local general obligation

 

467,053

 

 

2.1

%

Pre-refunded

 

254,040

 

 

1.1

%

Corporate backed

 

172,339

 

 

0.8

%

Total state and municipal

 

3,569,573

 

 

16.1

%

Mortgage-backed securities:

 

 

 

 

Agency

 

747,559

 

 

3.4

%

Commercial

 

179,286

 

 

0.8

%

Residential - Prime

 

147,220

 

 

0.7

%

Residential - Alt A

 

8,060

 

 

—

%

Total mortgage-backed securities

 

1,082,125

 

 

4.9

%

Asset-backed securities

 

3,944,638

 

 

17.8

%

Corporate:

 

 

 

 

Industrial

 

3,060,663

 

 

13.8

%

Financial

 

1,564,369

 

 

7.1

%

Utilities

 

439,329

 

 

2.0

%

Other

 

153,828

 

 

0.7

%

Total corporate

 

5,218,189

 

 

23.6

%

Foreign government

 

1,029,879

 

 

4.6

%

Total fixed maturity securities (1)

 

15,400,118

 

 

69.5

%

Equity securities available for sale:

 

 

 

 

Common stocks

 

392,163

 

 

1.8

%

Preferred stocks

 

229,466

 

 

1.0

%

Total equity securities available for sale

 

621,629

 

 

2.8

%

Cash and cash equivalents (2)

 

2,123,154

 

 

9.6

%

Real estate

 

1,961,212

 

 

8.9

%

Investment funds (3)

 

1,358,205

 

 

6.1

%

Arbitrage trading account

 

614,721

 

 

2.8

%

Loans receivable

 

76,896

 

 

0.3

%

Net invested assets

 

$

22,155,935

 

 

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 $0.8 million.