W. R. Berkley Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; balance sheet compared with December 31, 2021. Amounts below are rounded and in U.S. dollars.
Business context and performance
W. R. Berkley is a property-and-casualty insurance holding company with Insurance and Reinsurance & Monoline Excess segments, as well as non-insurance businesses. Its results are driven mainly by underwriting and investment performance.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net premiums written | $2.586B | $2.212B | $4.999B | $4.262B |
| Net premiums earned | $2.357B | $1.972B | $4.606B | $3.822B |
| Total revenues | $2.513B | $2.296B | $5.428B | $4.453B |
| Net investment income | $172M | $168M | $345M | $327M |
| Net investment gains (losses) | $(172)M | $24M | $195M | $59M |
| Net income to common stockholders | $179M | $237M | $770M | $467M |
| Diluted EPS | $0.64 | $0.85 | $2.76 | $1.66 |
| GAAP combined ratio | 88.6% | 89.7% | 88.2% | 89.9% |
The combined ratio below 100% indicates an underwriting profit, excluding investment income. For the first half, consolidated loss and expense ratios were 60.2% and 28.0%, respectively. Gross written premiums grew 15% in both the quarter and first half; management cited premium-rate and exposure growth and increased retention of business. Average renewal rates for insurance and facultative reinsurance rose 5.8% in Q2 and 6.4% for the first half, adjusted for exposure changes.
Material changes and financial position
- Quarterly earnings declined: Q2 net income fell $58M year over year, primarily because investment results swung from a $24M gain to a $172M loss, including $132M of unrealized equity-security losses. Improved underwriting, foreign-currency gains, and lower interest expense partly offset the decline.
- First-half earnings increased: Net income rose $303M. The main contributors included stronger underwriting and the $251M after-cost, after-currency gain from selling the London real estate investment; improved investment income and foreign-currency gains also contributed.
- Assets, equity, and debt: At June 30, total assets were $32.7B and total equity was $6.5B. Stockholders’ equity was $6.5B; accumulated other comprehensive loss widened to $1.03B, largely reflecting investment market-value declines. Senior notes and other debt were $1.83B and subordinated debentures $1.01B. Total capitalization was $9.4B, with debt comprising 30%, down from 33% at year-end.
- Liquidity and cash flow: Cash and cash equivalents were $1.32B, versus $1.57B at year-end. First-half operating cash flow was $1.01B, up from $696M. Investing activities used $790M and financing activities used $451M. Management said approximately 77% of the investment portfolio was in cash, cash equivalents, and marketable fixed maturities.
- Portfolio valuation: Fixed-maturity securities had $840M of gross unrealized losses at June 30, compared with $124M at year-end. The company attributed most declines to market and sector factors, said substantially all securities in loss positions were investment grade, and reported none delinquent or in covenant default. The credit-loss allowance on fixed maturities was $33M.
Management commentary, outlook, and risks
- Management expects investment income to increase as interest rates rise and said it maintained a short-duration fixed-maturity portfolio (2.4 years) to limit mark-to-market sensitivity and retain flexibility. The filing gives no specific earnings or revenue guidance.
- Recognized COVID-19-related losses, net of reinsurance, totaled about $303M through June 30, including $292M reported and $11M IBNR; current-accident-year COVID-19 losses in the first half were about $3M. Management emphasized uncertainty around ultimate claims and the potential for renewed impacts from variants or expanded coverage interpretations.
- First-half net prior-year development was favorable by about $3M. Favorable experience in 2020–2021 accident years was partly offset by adverse development in older years; management cited larger-than-expected claims and social inflation in certain liability lines.
- Key disclosed exposures include reserve-estimation uncertainty, inflation and claim severity, catastrophe and climate-related losses, investment-market and interest-rate volatility, credit and reinsurance recoverability, foreign-currency and political risks, and cyber risks. The filing reports no material change to previously disclosed risk factors. Ordinary-course litigation is not expected to be material to financial condition, though adverse outcomes could affect results in a particular period.
- Other notable items: the company acquired an 80% interest in a textiles business for $51M in March; fair values remain preliminary. It repaid $427M of debt at maturity during the first half, had no borrowings on its new $300M revolving facility, and declared regular and special cash dividends. A 3-for-2 stock split was effected in March; reported per-share amounts reflect the split.
Important facts for investors to verify
- Whether premium growth and rate increases continue to support underwriting profitability as earned premiums catch up with recent pricing.
- Whether the large fixed-maturity unrealized losses remain market-driven and whether portfolio values recover; monitor credit allowances and interest-rate exposure.
- Reserve adequacy, especially long-tail casualty and assumed-reinsurance claims, social-inflation trends, and the remaining uncertainty in COVID-19 losses.
- How much first-half earnings depended on the one-time London property sale and other investment and currency gains, versus recurring underwriting and investment income.
- Cash-flow resilience, debt maturities and repayment capacity, reinsurance recoverables, and the acquired textiles business’s final purchase-accounting valuation and performance.