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    W R Berkley Corp (WRB)

    Business Description

    W. R. Berkley Corporation is an insurance holding company that operates globally, focusing on underwriting commercial insurance and providing reinsurance solutions . The company sells a variety of insurance products, including general liability, professional liability, and workers' compensation, through its two main segments: Insurance and Reinsurance & Monoline Excess . The Insurance segment is the primary revenue driver, while the Reinsurance & Monoline Excess segment offers facultative and treaty reinsurance services .

    1. Insurance - Underwrites commercial insurance, including excess and surplus lines, admitted lines, and specialty personal lines across the United States and internationally. Focuses on areas such as excess & surplus lines, industry specialty, product specialty, and regional markets, offering products like general liability, professional liability, and workers' compensation .
    2. Reinsurance & Monoline Excess - Provides facultative and treaty reinsurance, primarily in the United States and other regions like the Asia-Pacific and Europe. Includes businesses like Berkley Re America and Berkley Re Asia Pacific, offering property and casualty reinsurance solutions .

    Q3 2024 Summary

    Initial Price$52.99July 1, 2024
    Final Price$57.26October 1, 2024
    Price Change$4.27
    % Change+8.06%

    What went well

    • • W.R. Berkley expects to grow its business at an annual rate of 10% to 15%, driven by opportunities in the Excess and Surplus (E&S) market and rate increases that exceed loss trends, maintaining confidence in this growth outlook despite temporary headwinds.*
    • • The company has a surplus of capital and plans to return excess capital to shareholders through share buybacks and special dividends, while still maintaining a strong capital position.*
    • • W.R. Berkley is seeing improvement in underwriting margins, with deliberate efforts leading to better attritional loss ratios in property lines, and is capitalizing on increased pricing opportunities in excess casualty and umbrella lines.*

    What went wrong

    • Pressure on expense ratio due to new businesses: The company has moved some operating units from corporate expense to underwriting expense, which are currently dilutive to the expense ratio and are in early stages of scaling. This may continue to impact the expense ratio until these units become accretive.
    • Concerns about reserve adequacy in commercial auto liability: The company indicated that commercial auto liability is an area of focus due to some "noise" in the reserves, suggesting potential reserve challenges in this line of business.
    • Sustainability of loss ratio improvements is uncertain: Improvement in the accident year loss ratio ex-catastrophe was attributed mainly to favorable attritional loss ratios in property. The company acknowledged that it is unsure if this improvement is purely due to their efforts or if some luck was involved, indicating that sustainability of this improvement is uncertain.

    Q&A Summary

    1. Premium Growth Outlook
      Q: Do you still expect 10%-15% annual growth despite recent slowdown?
      A: Management continues to believe the business can grow between 10% and 15% annually, acknowledging that quarterly growth may vary. The recent slowdown in insurance premium growth to about 8% is due to a cautious stance on auto and related lines. Early indications in October suggest the market is adjusting, and the growth rate should normalize.

    2. Underwriting Margins and Loss Trends
      Q: Are rate increases sufficient to cover loss trends and improve margins?
      A: The company achieved an 8.4% rate increase ex-workers' comp, which comfortably exceeds their loss trend estimates. Management is focused on maintaining rate adequacy and believes this should ultimately benefit underwriting margins. They remain cautious due to uncertainties like social inflation, especially in liability lines.

    3. Catastrophe Impact
      Q: How have recent hurricanes affected results and market pricing?
      A: Approximately half of the catastrophe losses in the quarter were related to Hurricane Helena. The impact of Hurricane Milton is still uncertain, but management expects any losses to be within anticipated levels. It's too early to determine how these events will affect market pricing, but the industry is reassessing exposures and pricing adequacy.

    4. Capital Management
      Q: How do you plan to utilize excess capital and approach shareholder returns?
      A: The company has a comfortable surplus of capital and is generating capital more quickly than it can utilize. Management intends to opportunistically return excess capital to shareholders while maintaining a strong balance sheet.

    5. Reserve Adequacy
      Q: Can you provide insights on reserve adequacy, especially for recent years?
      A: Management is confident in their reserve approach, highlighting the strength of their IBNR relative to total reserves and case reserves. They regularly review reserves at a granular level and caution against broad industry generalizations.

    6. Investment Income and Yields
      Q: What is the new money yield on your investment portfolio?
      A: The new money yield on domestic fixed income investments is slightly over 5%, compared to the earlier 4.5%. The company maintains high credit quality with an average rating of AA-.

    7. Expense Ratio and New Businesses
      Q: How will new businesses impact the expense ratio and premium growth?
      A: Four new operating units contributed over $25 million in net written premium in the quarter. These businesses are in early stages and currently dilutive to the expense ratio but are expected to scale and become accretive over time.

    8. E&S Market and Lloyd's Business
      Q: How significant is the Lloyd's business within your E&S operations?
      A: A meaningful portion of non-admitted business is written through Lloyd's, with the vast majority being U.S.-centric and focused on smaller accounts. This aligns with the company's overall philosophy.

    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Insurance2,357.542,442.62,535.42,625.619,961.1522,653.02,797.72,826.91
    - Earned Premiums309.56306.3322.5--365.6361.8362.33
    - Investment Income5.2617.67.9--21.910.113.49
    - Other Income147.59130.5151.1--137.4144.4148.70
    Reinsurance & Monoline Excess361.61346.5378.7395.181,481.991418.8420.3419.37
    Corporate, Other, and Eliminations152.84148.2158.9192.81652.753159.2154.5162.18
    Net Investment Gains/Losses23.0158.7(42.4)-47.04225.8-58.5-8.09
    Total Revenue2,895.002,995.93,030.63,221.4412,142.9383,256.83,314.03,400.38
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Insurance--------
    - Foreign Operations106102124131463111117125
    Reinsurance & Monoline Excess--------
    Insurance-Domestic--------
    Insurance-International--------
    Reinsurance-Global--------
    Corporate, Other, and Eliminations--------
    Net Investment Gains--------
    Total Revenue2,8952,995.9143,030.643,221.3812,142.9383,256.83,3143,400.379
    KPIs - Metric (Unit)FY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    **Catastrophe Losses - Insurance Segment (Million USD)**-$48$46---$87$77
    **Catastrophe Losses - Reinsurance & Monoline Excess Segment (Million USD)**-$6$16---$3$21
    **Catastrophe Losses Net of Reinsurance Recoveries (Million USD)**$48$101$62$32.017-$31$90$98
    **Loss Ratio (%)**61.861.561.960.0-60.262.662.4
    **Expense Ratio (%)**28.828.128.328.4-28.628.528.5
    **GAAP Combined Ratio (%)**90.689.690.288.4-88.891.190.9
    **Average Renewal Rates (%)**7.27.27.27.1-6.77.37.2
    **Revenues from Non-Insurance Businesses (Million USD)**$124$113.9$137.116$160.283-$121$125.705$128.610
    **COVID-19 Related Claims Activity Losses (Million USD)**$0.043$352$354$384-$386$388$382
    **Average Duration of Fixed Maturity Portfolio (Years)**2.42.32.42.4-2.52.52.4
    **Loss Ratio Excluding Catastrophe Losses and Prior Year Reserve Development (%)**58.959.559.6--59.159.459.1
    **Insurance Service Fees (Million USD)**$32.857$25$23$25.194-$25$27.6$29

    Executive Team

    NamePositionStart DateShort Bio
    Richard M. BaioExecutive Vice President — Chief Financial OfficerFebruary 2019Richard M. Baio has served as Executive Vice President — Chief Financial Officer since February 2019. He joined the company as Vice President in May 2009 and has over 30 years of experience in the insurance and financial services industry .
    Lucille T. SgaglioneExecutive Vice PresidentDecember 2015Lucille T. Sgaglione has served as Executive Vice President since December 2015. She joined the company in 2010 as a Senior Vice President and has more than 30 years of senior leadership experience in the commercial property casualty insurance industry .
    James G. ShielExecutive Vice President — InvestmentsJune 2015James G. Shiel has served as Executive Vice President — Investments since June 2015. He joined the company in 1987 and has been President of Berkley Dean & Company, Inc., a subsidiary of the company, since February 1994 .
    Philip S. WeltExecutive Vice President — SecretaryJune 2020Philip S. Welt has served as Executive Vice President — Secretary since June 2020. He joined the company in 2004 as Vice President — Senior Counsel and is a certified public accountant with prior experience at Deloitte & Touche .

    Questions to Ask Management

    1. You mentioned taking action in the commercial auto line that slowed growth this quarter; can you elaborate on the specific challenges in commercial auto liability and the steps you're taking to address them?

    2. With the significant opportunities you see in the specialty and E&S markets amidst regulatory and political challenges, how is W.R. Berkley positioning itself to capitalize on this growth, and what risks do you anticipate in the non-admitted market?

    3. Given concerns from some analysts about the adequacy of reserves in recent accident years, especially in casualty lines, how confident are you in the strength of your reserves considering factors like social inflation and climate change?

    4. While you have a comfortable surplus of capital and plan to return excess to shareholders, how do you balance this with the need to invest in growth opportunities, particularly in new units that are currently dilutive to your expense ratio?

    5. With investment fund returns below historical levels and expectations of continued short-term underperformance, what adjustments are you making to your investment strategy to enhance returns, and what risks are involved with your current approach?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateN/A
    End Date/DurationN/A
    Total additional amountN/A
    Remaining authorization15,324,795 shares
    Details238,620 shares repurchased in July 2024 at an average price of $52.30 per share

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      • Growth Rate: Expected annual growth rate of 10% to 15% .
      • Expense Ratio: Anticipated to remain comfortably below 30% .
      • Effective Tax Rate: Expected to be 23.5% to 24% .
      • Investment Income: New money rate slightly over 5%, domestic book yield at 4.5% .
      • Investment Funds Returns: Expected around $10 million per quarter, with potential to return to $20 million per quarter .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      • Operating Income: Increase of approximately 35% to $418 million or $1.04 per share .
      • Net Premiums Written: Growth of 11.2% to $3.1 billion .
      • Expense Ratio: Increased by 40 basis points to 28.5%, expected to remain below 30% .
      • Net Investment Income: Increased almost 52% to $372 million, expected to grow quarter-over-quarter .
      • Effective Tax Rate: Expected to remain at 23.7% .
      • Capital Management: Total capital returned of $381 million .
      • Investment Portfolio: Credit quality at AA-, duration of 2.5 years .
      • Inflation-Linked Securities: Contribution of $20 million to $30 million anticipated .
      • Growth Rate: Expected 10% to 15% growth, with returns in the high teens to low 20s .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: N/A
    • Guidance: The documents do not contain specific guidance for Q1 2024.

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      • Expense Ratio: Expected to be below 30% .
      • Investment Portfolio: New money rate above 5%, duration at 2.4 years .
      • Casualty Market: Anticipated strengthening in 2024 .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Swiss Re, Munich Re, Berkshire Hathaway, Partner Re - Competitors in the reinsurance market with greater financial and/or marketing resources .
    • The Allstate Corporation, Arch Capital Group Ltd., Chubb Limited, Cincinnati Financial Corporation, The Hartford Financial Services Group, Inc., Loews Corporation (CNA), The Progressive Corporation, The Travelers Companies, Inc. - Part of the S&P 500® Property and Casualty Insurance Index .
    • Specialty insurers, regional carriers, large national multi-line companies, reinsurers, excess and surplus insurers, standard carriers, mutual and other regional stock companies, national carriers, direct writers of property casualty insurance - Competitors in the property casualty insurance and reinsurance businesses .
    • Domestic and foreign reinsurers - Competitors for reinsurance business .
    • Technology companies or other third parties - Potential competitors creating technology-enabled business models, processes, platforms, or alternate distribution channels .