W. R. Berkley Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with 2020. W. R. Berkley is a global property-casualty insurance holding company operating through Insurance and Reinsurance & Monoline Excess segments, with a decentralized portfolio of specialized businesses.
Key financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $9.46 billion | $8.10 billion | +17% |
| Net premiums written | $8.86 billion | $7.26 billion | +22% |
| Net premiums earned | $8.11 billion | $6.93 billion | +17% |
| Income before tax | $1.28 billion | $705 million | +82% |
| Net income to common stockholders | $1.02 billion | $531 million | +93% |
| Diluted earnings per share | $5.48 | $2.81 | +95% |
| Operating cash flow | $2.18 billion | $1.62 billion | +35% |
- Underwriting: Consolidated combined ratio improved to 89.6% from 94.9%; a ratio below 100% indicates underwriting profit. Loss ratio declined to 61.1% from 64.5%, and expense ratio to 28.5% from 30.4%.
- Segments: Insurance reported $1.22 billion of pretax income versus $668 million, with an 89.4% combined ratio versus 95.2%. Reinsurance & Monoline Excess reported $271 million versus $206 million, with a 90.7% combined ratio versus 93.1%.
- Investment results: Net investment income rose 15% to $672 million, mainly reflecting higher investment-fund income; fixed-maturity yield fell to 2.2% from 2.7%. Net investment gains were $91 million versus $103 million. Unrealized investment losses recognized in other comprehensive income were $255 million before tax, versus gains of $165 million in 2020.
- Liquidity and capital: Year-end cash and cash equivalents were $1.57 billion, down from $2.37 billion; total assets were $32.09 billion. Common stockholders’ equity was $6.65 billion. Debt carrying value was $3.27 billion; debt represented 33% of total capitalization, versus 30% in 2020. Approximately 76.6% of the investment portfolio was in cash, cash equivalents and marketable fixed-maturity securities.
Material changes and unusual items
- Gross premiums written increased 21% to $10.70 billion. Average renewal rates for insurance and facultative reinsurance rose 9.1%, or 10.4% excluding workers’ compensation. Net premiums earned growth outpaced underwriting expense growth.
- Net catastrophe losses were $202 million in 2021, including COVID-19-related losses, compared with $340 million in 2020. Prior-year reserve development was modestly favorable overall at $7 million, versus $16 million favorable in 2020; Insurance development was favorable by $20 million, while Reinsurance & Monoline Excess was unfavorable by $13 million.
- COVID-19-related losses recognized through year-end were approximately $274 million net of reinsurance, including $239 million reported and $35 million IBNR. The 2021 current-accident-year component was approximately $58 million. Management notes significant uncertainty in ultimate pandemic claims and the possibility that reduced claims frequency may recede as activity normalizes.
- Management cited adverse development in certain older liability years, including professional liability and assumed reinsurance, associated in part with large claims and social inflation. Gross loss reserves were $15.39 billion, up from $13.78 billion.
- Debt actions included issuing $1.05 billion of senior notes and subordinated debentures and redeeming $400 million of subordinated debentures. The company recorded $12 million of debt-extinguishment costs. A London property sale announced February 23, 2022, for £718 million was expected to close March 7, 2022; management estimated a pretax gain exceeding $300 million in Q1 2022, subject to adjustments.
Outlook, risks and other disclosures
The filing provides no specific numerical earnings or premium guidance. Management said regular quarterly cash dividends were expected to continue, subject to availability. Key uncertainties include reserve adequacy and claims inflation, catastrophe and climate-related losses, COVID-19 claims and coverage disputes, competitive pricing and market cycles, reinsurance availability and counterparty credit, interest rates and investment-market volatility, and cybersecurity and regulatory requirements. Insurance-subsidiary dividends to the parent are regulated; approximately $966 million could be paid in 2022 without regulatory approval. The company reported an unqualified audit opinion and effective internal control over financial reporting.
Important facts for investors to verify
- Whether COVID-19 reserves and reinsurance recoveries develop as estimated, particularly the $35 million IBNR component and potential coverage disputes.
- Whether large-loss and social-inflation trends cause further adverse development in older liability and assumed-reinsurance years.
- Whether premium growth and improved combined ratios are sustainable as renewal pricing, claims costs and exposure mix change.
- Actual closing proceeds and realized gain from the London property sale, and the effect on future investment income and capital allocation.
- Debt repayment and refinancing needs, subsidiary dividend capacity, and the sustainability of regular and special shareholder distributions.
- Investment-fund performance and portfolio sensitivity to changing interest rates, credit conditions and market values.