W. R. Berkley Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; comparative figures are for 2022. W. R. Berkley is a property-and-casualty insurance holding company with Insurance and Reinsurance & Monoline Excess segments.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net premiums written | $2.812bn | $2.586bn | $5.386bn | $4.999bn |
| Net premiums earned | $2.553bn | $2.357bn | $5.044bn | $4.606bn |
| Total revenues | $2.996bn | $2.513bn | $5.891bn | $5.428bn |
| Net income to common stockholders | $356.3m | $179.3m | $650.4m | $770.0m |
| Diluted EPS | $1.30 | $0.64 | $2.36 | $2.76 |
| Net investment income | $245.2m | $171.6m | $468.6m | $345.1m |
| Operating cash flow | Not separately provided | Not separately provided | $1.154bn | $1.006bn |
Q2 revenue rose about 19% and net income nearly doubled year over year, reflecting higher investment income and a swing from investment losses to gains. For the first half, revenue rose about 9%, but net income fell about 16%, primarily because 2022 included a large London property-sale gain and 2023 had greater foreign-currency losses and lower underwriting income. First-half underwriting results remained profitable: the consolidated GAAP combined ratio was 90.1%, versus 88.2% in 2022; below 100% indicates an underwriting profit.
Underwriting, balance sheet and liquidity
- First-half consolidated loss and expense ratios were 61.6% and 28.5%, respectively, compared with 60.2% and 28.0% in 2022. The Insurance combined ratio worsened to 91.3% from 88.2%; Reinsurance & Monoline Excess improved to 81.3% from 88.6%.
- At June 30, 2023, total assets were $35.31bn, total liabilities $28.40bn, and total equity $6.91bn. Cash and cash equivalents were $1.82bn; total investments were $23.09bn.
- Loss reserves were $17.92bn gross and $14.97bn net of reinsurance, up from $17.01bn and $14.25bn, respectively, at year-end 2022. Unearned premiums were $5.70bn.
- Senior notes and other debt were $1.83bn and subordinated debentures $1.01bn. Total debt carrying value was $2.84bn; no borrowings were outstanding under the $300m revolving credit facility. Debt represented 29% of total capitalization, versus 30% at year-end.
- First-half operating cash flow was $1.15bn; investing activities used $161m and financing activities used $616m. Cash increased $374m to $1.82bn. Management said approximately 80% of the investment portfolio was in cash, cash equivalents and marketable fixed maturities.
- Common equity was $6.9bn, or $26.74 per outstanding share. The company repurchased 7.10m shares for $427.6m in the first half and declared quarterly and special dividends in Q1, followed by a $0.11-per-share Q2 dividend.
Material changes, outlook and risks
- Gross premiums written increased 8% in the first half; average renewal rates rose 7.1% after adjusting for exposure changes (8.2% excluding workers’ compensation). Management reported that about 80% of premiums expiring in 2023 were renewed.
- Net investment income increased 36% in the first half, mainly on higher yields and a larger fixed-maturity portfolio. Management expects investment income to rise as fixed maturities are reinvested at current higher rates; this is not a quantified earnings forecast.
- First-half net prior-year reserve development was adverse by $21m, compared with favorable development of $3m in 2022. Adverse experience included 2022 catastrophe claims and older casualty years; management cited larger-than-expected losses and social inflation. Q2 development itself was favorable by $3m. Reserve estimates remain inherently uncertain, particularly for long-tail and assumed reinsurance claims.
- Notable investment items included an $88m pretax gain on the June sale of the Breckenridge insurance-services division and a $51m real-estate impairment in Q2. First-half 2023 net investment gains were $82m versus $195m in 2022, which included the London property-sale gain. Q2 investment results also benefited from equity-security valuation changes.
- Investment risks include interest-rate, credit, foreign-currency and alternative-investment volatility. Fixed maturities had $1.03bn of gross unrealized losses at June 30; management said substantially all loss-position securities were investment grade and attributed losses primarily to market and sector factors. Credit-loss allowances increased, including for certain financial-services and real-estate exposures.
- Other disclosed uncertainties include catastrophe and climate-related losses, inflation, litigation and social inflation, COVID-19 claim effects, reinsurance recoverability, market conditions, and legal or regulatory changes. Ordinary-course litigation is considered in reserves; the company expects ultimate liability not to be material to financial condition, though adverse outcomes could materially affect a particular period. No material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- Whether rate increases and renewal retention continue to support premium growth and underwriting profitability, especially as the Insurance loss ratio increased.
- Subsequent development of the $14.97bn net loss reserve balance, including older casualty years, social inflation and catastrophe claims.
- Repeatability of earnings excluding the Breckenridge sale gain, real-estate impairment, equity-market movements and the prior-year London disposal gain.
- Investment portfolio credit quality, unrealized losses, alternative-investment results and the expected benefit from reinvesting at higher yields.
- Capital deployment and liquidity after share repurchases and dividends, alongside debt maturities and exposure to reinsurance recoverables.