Part I — FINANCIAL INFORMATION Financial Statements Unaudited statements show total assets grew to $38.9 billion and H1 net income rose to $814.4 million, reflecting a 3-for-2 stock split Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | Total investments | $26,600,379 | $25,279,504 | | Cash and cash equivalents | $1,580,270 | $1,363,195 | | Total assets | $38,909,919 | $37,111,830 | | Reserves for losses and loss expenses | $19,567,190 | $18,739,652 | | Total liabilities | $31,122,868 | $29,642,593 | | Total stockholders' equity | $7,773,782 | $7,455,431 | Consolidated Income Statement Highlights (in thousands) | Account | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net premiums earned | $5,610,762 | $5,044,159 | | Net investment income | $691,967 | $468,551 | | Total revenues | $6,570,805 | $5,890,918 | | Income before income taxes | $1,061,744 | $833,256 | | Net income to common stockholders | $814,380 | $650,434 | | Diluted EPS | $2.01 | $1.58 | Consolidated Cash Flow Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash from operating activities | $1,627,565 | $1,154,069 | | Net cash used in investing activities | ($992,305) | ($161,191) | | Net cash used in financing activities | ($408,121) | ($616,010) | | Net change in cash and cash equivalents | $217,075 | $374,212 | - The company reclassified a program management business from the Insurance segment to the Reinsurance & Monoline Excess segment16 - All share and per-share amounts have been adjusted to reflect a 3-for-2 common stock split effective July 10, 202416 Note 6: Investments in Fixed Maturity Securities The fixed maturity securities portfolio grew to $21.08 billion, primarily in available-for-sale corporate and asset-backed bonds Fixed Maturity Securities Portfolio Composition (in thousands) | Security Type | Fair Value (June 30, 2024) | Fair Value (Dec 31, 2023) | | :--- | :--- | :--- | | U.S. government and agency | $1,822,376 | $1,716,731 | | State and municipal | $2,539,267 | $2,634,422 | | Mortgage-backed | $2,592,994 | $2,266,455 | | Asset-backed | $4,014,446 | $4,187,040 | | Corporate | $8,412,420 | $7,654,059 | | Foreign government | $1,657,609 | $1,666,229 | | Total Available for Sale | $21,039,112 | $20,124,936 | - The allowance for expected credit losses on available-for-sale securities decreased from $36.7 million to $21.8 million, mainly due to lower expected losses on Foreign Government and Corporate securities33 Note 16: Reserves for Loss and Loss Expenses Gross loss reserves increased to $19.57 billion, with a notable favorable prior year development of $2 million in H1 2024 Reconciliation of Net Loss Reserves (in thousands) | Description | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net reserves at beginning of period | $15,661,820 | $14,248,879 | | Claims occurring during current year | 3,411,888 | 3,064,046 | | Increase in estimates for prior years | 14,700 | 28,853 | | Net payments for claims | (2,589,205) | (2,394,736) | | Net reserves at end of period | $16,460,846 | $14,968,481 | - For H1 2024, the Insurance segment had $5 million of adverse prior year development, driven by commercial auto and other liability lines, which management attributes to social inflation77 - For H1 2024, the Reinsurance & Monoline Excess segment had $7 million of favorable prior year development, driven by excess workers' compensation77 - As of June 30, 2024, the company has recognized approximately $388 million in COVID-19-related losses, net of reinsurance77 Note 22: Business Segments The Insurance segment drove performance with a 12% YoY increase in net premiums earned to $4.88 billion for H1 2024 Segment Performance - Six Months Ended June 30 (in thousands) | Segment | Net Premiums Earned 2024 | Net Premiums Earned 2023 | Pre-Tax Income 2024 | Pre-Tax Income 2023 | | :--- | :--- | :--- | :--- | :--- | | Insurance | $4,883,338 | $4,358,110 | $968,202 | $738,977 | | Reinsurance & Monoline Excess | $727,424 | $686,049 | $252,074 | $206,704 | Net Premiums Earned by Line of Business - Six Months Ended June 30 (in thousands) | Line of Business (Insurance Segment) | 2024 | 2023 | | :--- | :--- | :--- | | Other liability | $1,969,247 | $1,744,456 | | Short-tail lines | $1,049,606 | $857,368 | | Auto | $715,593 | $601,694 | | Workers' compensation | $612,060 | $604,710 | | Professional liability | $536,832 | $549,882 | Management's Discussion and Analysis of Financial Condition and Results of Operations Growth in premiums and a 48% rise in net investment income drove strong H1 2024 results, though social inflation remains a key concern - The company operates a decentralized structure with two main segments: Insurance and Reinsurance & Monoline Excess101 - Critical accounting estimates involve significant judgment, particularly for reserves for losses and loss expenses, with social inflation impacting long-tail lines106112 Results of Operations for the Six Months Ended June 30, 2024 and 2023 Net income rose 25% to $814 million in H1 2024, driven by higher premiums and a 48% increase in net investment income Consolidated Performance - Six Months Ended June 30 | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Gross premiums written | $7,080,528 thousand | $6,386,091 thousand | | Net premiums written | $5,978,070 thousand | $5,386,339 thousand | | Net premiums earned | $5,610,762 thousand | $5,044,159 thousand | | Loss ratio | 61.4% | 61.6% | | Expense ratio | 28.6% | 28.5% | | GAAP combined ratio | 90.0% | 90.1% | - Net investment income for H1 2024 increased 48% to $692 million, primarily due to higher interest rates and income from Argentine inflation-linked securities148 - The consolidated loss ratio was 61.4% in H1 2024, including $120 million in catastrophe losses and $2 million in favorable prior year reserve development152 Results of Operations for the Three Months Ended June 30, 2024 and 2023 Q2 2024 net income grew to $372 million, propelled by a 52% surge in net investment income despite a higher combined ratio Consolidated Performance - Three Months Ended June 30 | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Gross premiums written | $3,717,772 thousand | $3,336,773 thousand | | Net premiums written | $3,126,779 thousand | $2,811,515 thousand | | Net premiums earned | $2,846,415 thousand | $2,552,727 thousand | | Loss ratio | 62.6% | 61.5% | | Expense ratio | 28.5% | 28.1% | | GAAP combined ratio | 91.1% | 89.6% | - Net investment income for Q2 2024 increased 52% to $372 million, largely due to higher interest rates and income from Argentine inflation-linked securities164 - The Q2 2024 loss ratio was 62.6%, up from 61.5% in Q2 2023, and included $90 million in catastrophe losses168 Investments The $28.0 billion investment portfolio is highly liquid and managed with a short duration of 2.5 years to mitigate interest rate risk - The investment strategy aims to maximize total return while managing interest rate risk by keeping the average portfolio duration (2.5 years) close to liability duration175178 Investment Portfolio Composition as of June 30, 2024 | Asset Class | Carrying Value ($ thousands) | Percent of Total | | :--- | :--- | :--- | | Fixed maturity securities | $21,082,676 | 75.2% | | Equity securities | $1,078,092 | 3.9% | | Investment funds | $1,589,119 | 5.7% | | Cash and cash equivalents | $1,411,140 | 5.0% | | Real estate | $1,279,306 | 4.6% | | Arbitrage trading account | $1,221,861 | 4.4% | | Loans receivable | $349,325 | 1.2% | | Total investments | $28,011,519 | 100.0% | Liquidity and Capital Resources Strong operating cash flow of $1.63 billion in H1 2024 supports a healthy liquidity position and a debt-to-capital ratio of 27% - Cash flow from operating activities increased to $1.628 billion in H1 2024 from $1.154 billion in H1 2023, primarily due to increased premium receipts180 - Total capitalization was $10.6 billion at June 30, 2024, with a debt-to-capital ratio of 27%182 - In H1 2024, the company repurchased 4,298,510 shares of common stock for $223.8 million181 Quantitative and Qualitative Disclosure About Market Risk Market risk is primarily managed by matching the duration of assets and liabilities and hedging foreign currency exposures - The company manages interest rate risk by maintaining an effective duration for its fixed maturity portfolio (2.5 years at June 30, 2024) that is appropriate for its liabilities178184 - Currency risk for international investments is managed by matching foreign currency assets and liabilities where considered appropriate178 Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures with no material changes in internal controls for Q2 2024 - The CEO and CFO have evaluated and confirmed the effectiveness of the company's disclosure controls and procedures as of June 30, 2024185 - No material changes were identified in the company's internal control over financial reporting during Q2 2024186 Part II — OTHER INFORMATION Legal Proceedings The company is engaged in routine litigation and is pursuing a $90 million recovery claim against reinsurers - A subsidiary filed a lawsuit on December 22, 2023, against reinsurers to recover in excess of $90 million for losses paid under event cancellation policies88 Risk Factors No material changes were reported to the risk factors disclosed in the 2023 Annual Report on Form 10-K - No material changes from the risk factors disclosed in the 2023 Form 10-K have been reported188 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 4.3 million shares for approximately $224 million during the second quarter of 2024 Share Repurchases in Q2 2024 | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | 1,631,967 | $51.85 | | May 2024 | 1,238,660 | $52.28 | | June 2024 | 1,427,883 | $52.10 | Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during Q2 2024 - No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2024190 Exhibits Filed exhibits include required CEO and CFO certifications under the Sarbanes-Oxley Act - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a)/15d-14(a) and Section 906 of the Sarbanes-Oxley Act191
W. R. Berkley(WRB) - 2024 Q2 - Quarterly Report