W. R. Berkley Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. W. R. Berkley is a global property-and-casualty insurance holding company, with Insurance and Reinsurance & Monoline Excess segments. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $2,724 | $2,424 | $8,153 | $6,877 |
| Net income to common stockholders | $229 | $261 | $999 | $728 |
| Diluted EPS | $0.82 | $0.93 | $3.57 | $2.59 |
| Net premiums earned | $2,442 | $2,081 | $7,048 | $5,903 |
| Net investment income | $203 | $180 | $548 | $507 |
| Net investment gains (losses) | $(67) | $20 | $127 | $78 |
- Q3 revenue grew about 12%, but common-stockholder net income fell about 12%, primarily reflecting lower investment results, including equity-security market losses. Nine-month revenue grew about 19% and net income about 37%, aided by underwriting growth, foreign-currency gains and the London property sale.
- Consolidated GAAP combined ratio was 92.1% in Q3 versus 90.4% a year earlier; for the first nine months it was 89.6% versus 90.1%. Both indicate underwriting profit before investment income. Q3 loss ratio rose to 64.1% from 62.4%; the expense ratio was 28.0% in both periods.
- Net premiums written rose 11% in Q3 and 15% year to date. Renewal rates, adjusted for exposure changes, increased 6.1% in Q3 and 6.5% year to date (excluding workers’ compensation: 7.3% and 7.7%). The company said it retained more business; ceded premiums were 16% of gross written premiums versus 17% in 2021.
- Operating cash flow for the first nine months was $1,773, up from $1,524. Investing activities used $1,550 and financing activities used $635. Cash and equivalents were $1,131 at September 30, down from $1,569 at year-end 2021.
- Total assets were $33,077 and total equity $6,370 at September 30, compared with $32,048 and $6,668, respectively, at year-end. Accumulated other comprehensive loss widened to $1,386 from $282, largely due to unrealized investment losses.
- Debt carrying value, including senior and other debt and subordinated debentures, was $2,842; debt was 31% of total capitalization, down from 33% at year-end. The company repaid $427 of debt during the first nine months. Its $300 revolving credit facility had no borrowings outstanding as of the report date.
Material changes, outlook and risks
- Fixed-maturity securities had $1,218 of gross unrealized losses at September 30, versus $124 at December 31, 2021; the company attributed most losses to market and sector factors and said substantially all securities in loss positions were investment grade, except some foreign-government holdings. Nine-month other comprehensive loss was $1,104.
- Q3 catastrophe losses, net of reinsurance, were $94, primarily from Hurricane Ian. Nine-month catastrophe losses were $181. Net adverse prior-year reserve development was $39 in Q3 and $37 year to date; for the comparable 2021 periods, development was favorable by $2 in Q3 and $5 year to date.
- Management identified COVID-19 claim uncertainty and social inflation, including more large losses in certain older accident years, as reserve risks. Recognized COVID-19 losses net of reinsurance totaled approximately $348 through September 30; the filing says further pandemic effects remain uncertain.
- The March sale of a London office property generated a $251 pretax gain after transaction expenses and currency effects. The company also acquired an 80% interest in a textile business for $51.1; purchase accounting remained preliminary.
- Management expects investment income to increase as interest rates rise and said it maintains a short-duration fixed-maturity portfolio. The filing gives no specific earnings or premium-growth guidance. Key risks include claims inflation and reserve estimation, catastrophes and climate effects, market and interest-rate volatility, foreign currency, reinsurance collectability, and COVID-19 developments.
- Ordinary-course insurance and reinsurance disputes are considered in loss reserves. Management expects ultimate liability from legal matters not to be material to financial condition, but adverse outcomes could materially affect an individual reporting period. The company reported no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether subsequent claims emergence changes reserves, especially for COVID-19 claims, older casualty years and social-inflation-exposed lines.
- How catastrophe activity, including Hurricane Ian, affects subsequent loss ratios and reinsurance recoveries.
- Whether higher interest rates improve recurring investment income enough to offset market-value volatility and unrealized portfolio losses.
- Whether premium-rate increases and greater retention continue to support underwriting results without worsening loss experience or liquidity needs.
- The final valuation and performance of the acquired textile business, and the sustainability of gains and cash proceeds from the London property sale.