W. R. Berkley Corporation — Q3 2023 Form 10-Q
Business context and period: W. R. Berkley is a property and casualty insurance holding company with Insurance and Reinsurance & Monoline Excess segments, plus corporate and non-insurance businesses. This unaudited filing covers the three and nine months ended September 30, 2023; comparisons are with the same 2022 periods. Dollar amounts below are in millions unless stated otherwise.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenue | $3,030.6 | $2,724.4 | $8,921.6 | $8,152.7 |
| Net income to common stockholders | $333.6 | $228.9 | $984.0 | $998.8 |
| Diluted EPS | $1.23 | $0.82 | $3.59 | $3.57 |
| Net premiums written | $2,848.5 | $2,577.3 | $8,234.8 | $7,576.2 |
| Net premiums earned | $2,641.9 | $2,442.0 | $7,686.1 | $7,048.2 |
| Net investment income | $270.9 | $202.8 | $739.5 | $547.9 |
| Operating cash flow | — | $2,231.2 | $1,773.3 |
- Q3 net income rose about 46%, supported by higher investment income, stronger underwriting results and lower investment losses. Nine-month net income was slightly lower year over year, largely reflecting lower investment gains and foreign currency gains, partly offset by increased investment income and underwriting income.
- Consolidated GAAP combined ratio was 90.2% in Q3 versus 92.1% a year earlier; for the first nine months it was 90.1% versus 89.6%. Ratios below 100% indicate underwriting profit.
- For the nine months, the Insurance segment’s combined ratio increased to 91.2% from 89.2%; Reinsurance & Monoline Excess improved to 82.4% from 92.1%. Consolidated loss ratio was 61.7% versus 61.6%, and expense ratio was 28.4% versus 28.0%.
- At September 30, total assets were $36.1 billion, total liabilities $29.2 billion, and total equity $6.9 billion. Balance-sheet cash and cash equivalents were $1.65 billion. Total investments were $24.1 billion.
- Debt carrying value was $2.84 billion ($2.87 billion face amount). The company reported no borrowings under its $300 million revolving credit facility. Total capitalization was $9.8 billion; debt represented 29% of capital.
Material changes and notable items
- Gross premiums written increased 8% for the first nine months and 9% in Q3. Average renewal premium rates for insurance and facultative reinsurance increased 7.2% in 2023 when adjusted for exposure changes. Management reported that recent rate increases will continue to earn through future quarters.
- Nine-month net investment income rose 35%, primarily from higher yields and a larger fixed-maturity portfolio. Management said it expects investment income to increase as fixed maturities are reinvested at current higher rates; this is not formal earnings guidance.
- Nine-month net investment gains were $39 million, down from $127 million. 2023 included an $88 million pretax gain on the June sale of Breckenridge IS’s property and casualty insurance services division and $72 million of real estate impairments. 2022 included a $251 million after-adjustment gain on a London real estate sale.
- Net adverse prior-year reserve development was $20 million for the first nine months, compared with $37 million in 2022. 2023 development included adverse property-catastrophe and older casualty-year experience, partly offset by favorable development, notably in excess workers’ compensation and some more recent casualty years. Management cited larger-than-expected casualty claims and social inflation as concerns.
- Catastrophe losses, net of reinsurance, were $163 million for the first nine months, versus $181 million. The loss ratio excluding catastrophe losses and prior-year development increased to 59.4% from 58.5%.
- Operating cash flow improved year over year, primarily due to increased premium receipts, partly offset by higher claim payments. About 80% of the investment portfolio was in cash, cash equivalents and marketable fixed-maturity securities. The fixed-maturity portfolio duration, including cash equivalents, was 2.4 years.
- The company repurchased 7.15 million shares for $430.5 million during the first nine months. It declared $1.32 per share in dividends for the period, including two $0.50-per-share special dividends.
Risks, contingencies and outlook
- Loss reserves require estimates of claim frequency, severity, inflation and development patterns; actual outcomes may differ. Net loss reserves were $15.3 billion, including $9.2 billion of IBNR. Management disclosed that a 1% change in both frequency and severity for 2022 claims could affect its loss estimate by about $116 million; larger changes could have substantially greater effects.
- Management identified social inflation, large casualty losses, catastrophe activity, climate-related risks, inflation, interest-rate and credit-market volatility, foreign currency exposure, reinsurance recoverability, and the uncertain ultimate impact of COVID-19 as risks. Recognized COVID-19-related losses net of reinsurance totaled about $354 million at September 30, 2023; the filing says the ultimate impact remains uncertain.
- Fixed-maturity securities had $1.17 billion of gross unrealized losses at quarter-end. Management attributed losses primarily to temporary market and sector factors, said substantially all securities in unrealized loss positions were investment grade except certain foreign-government securities, and reported none delinquent or in default under financial covenants.
- Investment-fund commitments not yet funded were $353 million. The company also expects to fund further development of a Washington, D.C. mixed-use project using a combination of its funds and external financing.
- Ordinary-course insurance and reinsurance disputes, litigation and arbitration are considered in reserves. Management expects ultimate liability not to be material to financial condition, while acknowledging that adverse outcomes could materially affect results in a particular period. No material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- Whether casualty loss trends, social inflation and catastrophe claims produce further adverse reserve development, particularly in older accident years.
- Whether premium-rate increases and business growth remain sufficient to offset claims-cost inflation and higher underwriting expenses.
- How rising rates, credit conditions and unrealized fixed-maturity losses affect investment income, portfolio values and capital.
- Whether real estate impairments, alternative-investment returns and the Washington, D.C. project require further charges or funding.
- Whether cash generation, reinsurance recoverables and capital deployment—including repurchases and special dividends—remain consistent with liquidity needs.