W. R. Berkley Corporation — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY 2022. Berkley is a global property-casualty insurance holding company operating through Insurance and Reinsurance & Monoline Excess segments.
Financial performance
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Total revenue | $12.14 billion | $11.17 billion | +9% |
| Net premiums written | $10.95 billion | $10.00 billion | +10% |
| Net premiums earned | $10.40 billion | $9.56 billion | +9% |
| Income before income taxes | $1.75 billion | $1.72 billion | +2% |
| Net income to common stockholders | $1.381 billion | $1.381 billion | Essentially flat |
| Diluted EPS | $5.05 | $4.94 | +2% |
| Operating cash flow | $2.93 billion | $2.57 billion | +14% |
- Underwriting: Consolidated combined ratio was 89.7%, versus 89.3% in 2022, indicating an underwriting profit in both years but slight margin deterioration. Insurance combined ratio rose to 90.7% from 89.2%; Reinsurance & Monoline Excess improved to 82.1% from 89.7%.
- Investment income: Net investment income increased 35% to $1.053 billion, chiefly reflecting higher rates and a larger fixed-maturity portfolio. Average annualized yield on fixed maturities was 4.4%, versus 2.9%.
- Investment gains and unusual items: Net investment gains declined to $47 million from $202 million. FY 2022 included a $251 million after-transaction-cost and currency-impact gain on a London real estate sale. FY 2023 included an $89 million pretax gain from selling the Breckenridge property-casualty insurance services division and a $72 million real estate impairment.
- Reserves and claims: Gross loss reserves were $18.74 billion at year-end, up from $17.01 billion; net reserves were $15.66 billion. Prior-year reserve development was $19 million unfavorable in 2023, compared with $36 million unfavorable in 2022. Net catastrophe losses were $195 million, versus $212 million.
- Balance sheet and liquidity: Total assets were $37.20 billion; common stockholders’ equity was $7.46 billion. Debt carrying value was $2.84 billion, and debt represented 28% of total capitalization, down from 30%. Cash and cash equivalents were $1.36 billion; management reported approximately 81% of the investment portfolio was in cash, cash equivalents and marketable fixed-maturity securities. The $300 million revolving credit facility was undrawn.
- Capital returns: The company paid $501 million in common dividends, including special dividends, and repurchased 8.71 million shares for $537 million during 2023.
Material changes and management commentary
- Gross premiums written grew 9%. Average renewal rates for insurance and facultative reinsurance rose 7.1% after adjusting for exposure changes; excluding workers’ compensation, rates rose 8.1%. Renewal rates and premiums varied by line, with professional liability premiums declining.
- Net income remained essentially unchanged despite higher underwriting income and investment income. These gains were largely offset by lower investment gains, higher foreign currency losses, increased corporate compensation costs and higher income tax expense.
- Management describes pricing conditions as generally improving in many lines, while noting weaker pricing in workers’ compensation and certain professional liability lines. The filing provides no specific 2024 earnings, revenue or premium guidance.
- The company reported that domestic insurance subsidiaries’ risk-based capital exceeded regulatory target levels. Its lead insurer’s statutory capital was 391% of its RBC authorized control level.
Risks, contingencies and other items
- Reserving risk: Reserve estimates are judgmental and especially uncertain for long-tail casualty, excess workers’ compensation and assumed reinsurance. Management identifies inflation, social inflation, claim severity and delayed reporting as important sensitivities. It estimates that a 1% change in both claim frequency and severity would change the estimate for 2023 claims by about $127 million; larger changes could have substantially greater effects.
- Catastrophe and climate exposure: Natural and man-made catastrophes can materially affect results; catastrophe losses cannot be reserved for before an event occurs. Climate change may make frequency and severity harder to model and price.
- COVID-19 and reinsurance recovery: Approximately $384 million of cumulative COVID-19 losses, net of reinsurance, were recognized at year-end 2023. A subsidiary sued certain reinsurers in December 2023 to recover more than $90 million for event-cancellation-related claims. Management expects a positive resolution but says an adverse outcome is possible and does not expect it to be material to the company’s financial condition.
- Reinsurance and credit: Amounts due from reinsurers totaled approximately $3.53 billion net of allowance. Reinsurance does not discharge the company’s primary obligations to policyholders; recoverability and timely payment remain risks.
- Investments: Fixed maturities had $811 million of gross unrealized losses at year-end, compared with $1.12 billion in 2022; management attributed substantially all such losses to market and sector factors and said the securities were not delinquent or in default. The portfolio remains exposed to interest-rate, credit, currency and alternative-investment volatility.
- Legal and regulatory: Ordinary-course disputes are reserved for, and management does not expect them to materially affect financial condition. Insurance-subsidiary dividends are regulated; approximately $1.2 billion could be paid without regulatory approval during 2024. Regulatory, cybersecurity, privacy, AI and international capital requirements may increase costs or constrain operations.
- Audit and controls: KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Reserve estimation was identified as a critical audit matter. The company reported no cybersecurity incident that materially affected, or was reasonably likely to materially affect, the business during the reporting period.
Important facts for investors to verify
- Whether pricing and underwriting margins keep pace with loss-cost inflation, social inflation and the deterioration in the Insurance segment’s combined ratio.
- Reserve development by accident year and line, especially older casualty years, commercial auto, assumed reinsurance and excess workers’ compensation.
- Actual collection and timing of the disputed reinsurance recoverables exceeding $90 million, alongside broader reinsurer credit exposure.
- Investment income sustainability as rates change, and the effect of unrealized losses, real estate impairments and alternative-investment performance.
- Whether dividends and repurchases remain supported by insurance-subsidiary cash generation, regulatory dividend capacity and capital needs.
- Potential catastrophe losses, regulatory changes and commitments to investment funds and real estate projects; the filing lists unfunded commitments of $339 million and $106 million, respectively.