W. R. Berkley Corporation — Q1 2023 Form 10-Q
Business context and reporting period
W. R. Berkley is a global property and casualty insurance holding company, reporting Insurance and Reinsurance & Monoline Excess segments. This unaudited filing covers the three months ended March 31, 2023, compared with the same quarter of 2022; balance-sheet figures are compared with December 31, 2022.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Total revenues | $2.895 billion | $2.915 billion |
| Net premiums written | $2.575 billion | $2.413 billion |
| Net premiums earned | $2.491 billion | $2.249 billion |
| Net investment income | $223 million | $174 million |
| Net investment gains | $23 million | $366 million |
| Net income to common stockholders | $294 million | $591 million |
| Diluted EPS | $1.06 | $2.12 |
| Operating cash flow | $445 million | $478 million |
| Cash and cash equivalents | $1.242 billion | $1.449 billion at Dec. 31, 2022 |
| Total debt carrying value | $2.837 billion | $2.837 billion at Dec. 31, 2022 |
| Total equity | $6.966 billion | $6.768 billion at Dec. 31, 2022 |
Net premiums written grew 7% year over year and earned premiums grew 11%. The consolidated loss ratio was 61.8%, expense ratio 28.8%, and GAAP combined ratio 90.6%, versus 59.5%, 28.3%, and 87.8%, respectively, a year earlier. A combined ratio below 100% indicates underwriting profit. The Insurance segment’s combined ratio was 91.5%; Reinsurance & Monoline Excess was 84.0%.
Net income fell by $297 million. The primary driver was the comparison with Q1 2022, which included a substantial gain on the London property sale and higher equity-security gains. Net investment income rose 29%, mainly reflecting higher interest rates and a larger fixed-maturity portfolio. Losses and loss expenses increased to $1.539 billion from $1.339 billion.
Material changes versus the prior comparable period
- Average renewal premium rates for insurance and facultative reinsurance rose 7.2% after exposure adjustments, or 8.3% excluding workers’ compensation. About 79% of premiums expiring in 2023 were renewed, versus 82% in 2022.
- Catastrophe losses, net of reinsurance, were $48 million versus $29 million. Prior-year reserve development was adverse by $24 million, compared with $1 million favorable in Q1 2022. Excluding catastrophe losses and prior-year development, the consolidated loss ratio increased 0.6 percentage points to 58.9%.
- Operating cash flow decreased, primarily due to increased claim payments, partly offset by higher premium receipts. Investing activities used $359 million; financing activities used $296 million, including $159 million in dividends and $135 million for share repurchases.
- Available-for-sale fixed maturities had $917 million of gross unrealized losses at quarter-end, down from $1.123 billion at year-end 2022. Accumulated other comprehensive loss improved to $1.079 billion from $1.265 billion.
Outlook, commentary, risks and unusual items
The filing provides no specific numerical earnings or revenue guidance. Management says recent rate increases will be earned over coming quarters and maintained a shortened fixed-maturity portfolio duration of 2.4 years to limit mark-to-market sensitivity and retain flexibility as interest rates change.
Reserve estimates remain a key uncertainty. Q1 adverse prior-year development was driven chiefly by 2022 property-catastrophe claims, including U.S. winter storms, and by large casualty losses in older accident years. Management cited social inflation as a factor in large-loss frequency. Favorable experience in certain 2022 casualty lines partly offset adverse development. Net recognized COVID-19-related losses were approximately $344 million cumulatively; the company notes that the ultimate impact remains uncertain.
Other material risks include inflation and changing interest rates, catastrophe and climate-related losses, reserve-estimation uncertainty, investment and credit-market volatility, reinsurer collectability, foreign-currency and political exposure, and cyber and regulatory risks. Fixed-maturity unrealized losses were attributed primarily to market and sector factors; management said substantially all securities in unrealized loss positions were investment grade and expected to meet contractual payments. Ordinary-course litigation is generally reflected in reserves; the company expects ultimate liability not to be material to financial condition, but adverse outcomes could materially affect a particular period.
The London real-estate sale in Q1 2022 was an unusual comparator: it generated a reported $251 million net gain after transaction expenses and foreign-currency effects. In Q1 2023, the company repurchased 2.04 million shares for $135 million and paid regular and special dividends totaling $0.60 per share. No borrowings were outstanding under its $300 million revolving credit facility at March 31, 2023.
Important facts for investors to verify
- Whether premium growth and renewal pricing continue to offset higher loss costs and underwriting expenses.
- Further development of casualty and catastrophe reserves, especially older liability years and claims affected by social inflation.
- Investment-income durability and the effects of interest rates, credit conditions, and alternative-investment results on earnings and portfolio values.
- Liquidity and capital trends, including claim payments, dividends, share repurchases, and the company’s debt obligations.
- Potential changes in COVID-19-related claims, litigation, and other disclosed contingencies.