Q3 2024 Earnings Summary
- • 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.*
- 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.
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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. -
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. -
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. -
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. -
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. -
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-. -
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. -
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.