Release Date: July 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- WR Berkley Corp (WRB, Financial) achieved a 20% annualized return on beginning of year equity on a net income basis and 22.4% on an operating earnings basis.
- Operating income increased by approximately 35% to $418 million, driven by strong underwriting and investment income.
- Net premiums written grew by 11.2% to a record $3.1 billion, marking the first time exceeding $3 billion in a quarter.
- Record pretax net investment income increased by almost 52% to $372 million, driven by fixed maturity securities and investment funds.
- The company returned $381 million in total capital to shareholders, including share repurchases and dividends, while stockholders' equity increased by 4.2% from the beginning of the year.
Negative Points
- The expense ratio increased by 40 basis points to 28.5%, primarily due to higher commissions from business mix.
- Catastrophe losses amounted to $90 million, contributing to a 3.2 loss ratio points, with heightened catastrophe events during the quarter.
- The effective tax rate was 23.7%, higher than the US statutory rate of 21%, due to foreign earnings taxed at greater rates.
- Social inflation continues to be a significant concern, particularly impacting auto liability and umbrella lines.
- Challenges in obtaining necessary rate filings from insurance departments are creating opportunities in specialty lines but also indicate regulatory resistance.
Q & A Highlights
Q: Could you provide more color on the breakdown between insurance and reinsurance reserves?
A: On the insurance segment, we developed favorably by $2.5 million. On the Reinsurance and Monoline Excess segment, we developed unfavorably by $1.5 million, netting to $1 million. (Richard Mark Baio, CFO)
Q: What was the contribution of Argentinian inflation-linked securities in the quarter, and what is expected for the next quarter?
A: In the second quarter, we reported $63 million on inflation linkers. For the next few quarters, depending on inflation, it could be between $20 million and $30 million. However, foreign currency losses offset the net investment income, resulting in a net income impact of about $13 million pretax. (Richard Mark Baio, CFO)
Q: What drove the 8.3% rate increase excluding workers' comp in the quarter?
A: The primary driver was auto liability, which saw significant rate increases. The auto line grew almost 16%, driven mainly by rate increases. (W. Robert Berkley, Jr., President, CEO & Director)
Q: Are there any notable reserve movements by product line?
A: We monitor reserves at a granular level across 50 different businesses. There are many pluses and minuses, but specifics will be detailed in the upcoming quarterly report. (W. Robert Berkley, Jr., President, CEO & Director)
Q: How are you addressing the challenges in commercial auto liability?
A: We are focused on the claims environment and ensuring we charge appropriate rates. We are also cautious about different legal venues that impact auto liability. (W. Robert Berkley, Jr., President, CEO & Director)
Q: What is your view on the investment in alternative markets given the current interest rate environment?
A: Given current interest rates, alternatives are not of great interest to us. We are pleased with the opportunities in the fixed income market and will continue to lean into that. (W. Robert Berkley, Jr., President, CEO & Director)
Q: How do you view the impact of the recent cyber issue on W. R. Berkley and the industry?
A: We do not see this being a material loss for us. It may serve as a reminder of the systemic exposure around technology. Our cyber exposure is less than a couple of percent of our net written premium. (W. Robert Berkley, Jr., President, CEO & Director)
Q: How comfortable are you with the 2024 commercial auto book and reserve adequacy from 2021 to 2023?
A: We feel reasonably comfortable with our picks and are actively monitoring the situation to ensure we charge appropriate rates. (W. Robert Berkley, Jr., President, CEO & Director)
Q: What drove the increase in the accident year loss ratio excluding cats in the Insurance segment?
A: The primary drivers were incremental adjustments in auto liability and umbrella lines to ensure we stay on top of trends. (W. Robert Berkley, Jr., President, CEO & Director)
Q: How do you view the impact of social inflation on different liability lines?
A: Social inflation affects all liability lines, but auto liability has the biggest impact. We do not see this trend spilling over into general liability. (W. Robert Berkley, Jr., President, CEO & Director)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
