W. R. Berkley(WRB) - 2024 Q3 - Quarterly Report

Part I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for the nine months ended September 30, 2024, including balance sheets, income statements, and cash flows, with detailed notes on accounting policies and financial items Financial Statements Overview The core unaudited financial statements show strong year-over-year growth, with net income attributable to common stockholders rising to $1.18 billion and total assets growing to $40.36 billion, supported by $2.87 billion net cash inflow from operating activities Key Financial Metrics | Financial Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net Premiums Written | $9.04 billion | $8.23 billion | | Total Revenues | $9.97 billion | $8.92 billion | | Income Before Income Taxes | $1.54 billion | $1.25 billion | | Net Income to Common Stockholders | $1.18 billion | $984.02 million | | Diluted EPS | $2.92 | $2.39 | Consolidated Balance Sheet Highlights | Balance Sheet Item | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Investments | $27.83 billion | $25.28 billion | | Total Assets | $40.36 billion | $37.11 billion | | Total Liabilities | $31.92 billion | $29.64 billion | | Total Stockholders' Equity | $8.43 billion | $7.46 billion | Consolidated Cash Flow Summary | Cash Flow Item (Nine Months Ended Sep 30) | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $2.87 billion | $2.23 billion | | Net Cash Used in Investing Activities | ($2.10 billion) | ($1.40 billion) | | Net Cash Used in Financing Activities | ($561.94 million) | ($638.86 million) | | Net Change in Cash & Cash Equivalents | $210.04 million | $196.73 million | Notes to Financial Statements - Investments The company's investment portfolio totaled $27.83 billion as of September 30, 2024, primarily comprising fixed maturity securities, with net investment income significantly increasing to $1.02 billion due to higher income from fixed maturity securities Investment Portfolio Composition | Investment Type | Carrying Value (Sep 30, 2024) | Carrying Value (Dec 31, 2023) | | :--- | :--- | :--- | | Fixed Maturity Securities | $22.66 billion | $20.18 billion | | Investment Funds | $1.61 billion | $1.62 billion | | Real Estate | $1.30 billion | $1.25 billion | | Equity Securities | $1.05 billion | $1.09 billion | | Arbitrage Trading Account | $820.93 million | $938.05 million | Net Investment Income Breakdown | Net Investment Income (Nine Months Ended Sep 30) | 2024 | 2023 | | :--- | :--- | :--- | | Fixed Maturity Securities, Cash, Loans | $954.66 million | $653.20 million | | Arbitrage Trading Account | $52.56 million | $53.17 million | | Equity Securities | $35.92 million | $41.71 million | | Total Net Investment Income | $1.02 billion | $739.49 million | - As of September 30, 2024, fixed maturity securities with a fair value of $9.5 billion were in an unrealized loss position of $588 million[52][54] Notes to Financial Statements - Reserves and Reinsurance Gross reserves for losses and loss expenses increased to $20.16 billion as of September 30, 2024, with the company recognizing $3 million in net favorable prior year development for the first nine months of 2024 Loss Reserve Reconciliation | Loss Reserve Reconciliation (Nine Months Ended Sep 30) | 2024 | 2023 | | :--- | :--- | :--- | | Net Reserves at Beginning of Period | $15.66 billion | $14.25 billion | | Increase in Estimates for Prior Year Claims | $15.28 million | $27.19 million | | Net Payments for Claims | ($3.96 billion) | ($3.66 billion) | | Net Reserves at End of Period | $16.99 billion | $15.29 billion | | Gross Reserves at End of Period | $20.16 billion | $18.27 billion | - For the nine months ended September 30, 2024, net favorable prior year development was $3 million, including $5 million of favorable development in the Reinsurance & Monoline Excess segment, partially offset by $2 million of adverse development in the Insurance segment[77][78][80] - As of September 30, 2024, the company had recognized approximately $382 million in losses for COVID-19-related claims, net of reinsurance, including $379 million of reported losses and $3 million of IBNR[76] Notes to Financial Statements - Business Segments The company operates in two main segments, Insurance and Reinsurance & Monoline Excess, which generated $7.45 billion and $1.09 billion in net premiums earned, respectively, for the nine months ended September 30, 2024 Business Segment Performance | Segment Performance (Nine Months Ended Sep 30, 2024) | Insurance | Reinsurance & Monoline Excess | | :--- | :--- | :--- | | Net Premiums Earned | $7.45 billion | $1.09 billion | | Pre-Tax Income | $1.44 billion | $357.30 million | | Identifiable Assets (as of Sep 30, 2024) | $32.69 billion | $5.84 billion | Net Premiums Earned by Line of Business | Net Premiums Earned by Line (Nine Months Ended Sep 30, 2024) | Amount | | :--- | :--- | | Insurance - Other liability | $3.00 billion | | Insurance - Short-tail lines | $1.61 billion | | Insurance - Auto | $1.09 billion | | Reinsurance & Monoline Excess - Casualty | $585.21 million | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides an overview of the business, critical accounting estimates, and a detailed analysis of financial results for the three and nine months ended September 30, 2024, highlighting strong premium growth, higher net investment income, and increased catastrophe losses Overview and Critical Accounting Estimates Management discusses the company's decentralized business model and highlights critical accounting estimates, particularly the subjective and complex methodologies for establishing loss reserves, including actuarial methods, key assumptions, and sensitivities - The company operates a decentralized structure in two segments: Insurance and Reinsurance & Monoline Excess, allowing flexibility to respond to local market conditions while centralizing key functions like capital and investment management[114] - Loss reserves are a critical estimate based on actuarial methods and qualitative factors, with key assumptions including expected loss ratios, loss cost inflation, and loss emergence patterns, making the process inherently uncertain, especially for long-tail lines of business[123][128][130] Loss Estimate Sensitivity Analysis | Sensitivity of 2024 Loss Estimate to Changes in Frequency/Severity | 1% Severity Change | 5% Severity Change | 10% Severity Change | | :--- | :--- | :--- | :--- | | 1% Frequency Change | $126.87 million | $381.86 million | $700.61 million | | 5% Frequency Change | $381.86 million | $646.96 million | $978.33 million | | 10% Frequency Change | $700.61 million | $978.33 million | $1.33 billion | Results of Operations - Nine Months Ended Sep 30, 2024 For the first nine months of 2024, net income increased 19.9% to $1.18 billion, driven by a 10% increase in net premiums written and a 37% rise in net investment income, while the consolidated GAAP combined ratio remained stable at 90.3% Key Performance Indicators | Metric (Nine Months Ended Sep 30) | 2024 | 2023 | | :--- | :--- | :--- | | Net Income to Common Stockholders | $1.18 billion | $984.02 million | | Net Income per Diluted Share | $2.92 | $2.39 | | Consolidated GAAP Combined Ratio | 90.3% | 90.1% | - Net investment income rose 37% to $1.016 billion, driven by higher interest rates and a larger portfolio, including a significant, non-recurring $183 million from Argentine inflation-linked securities[179] - Catastrophe losses increased to $218 million from $163 million in the prior year period, driven by a higher frequency of severe events[183] Results of Operations - Three Months Ended Sep 30, 2024 For Q3 2024, net income grew 9.6% to $365.63 million, with net premiums written increasing 7% to $3.1 billion and net investment income rising 20% to $324 million, though the consolidated GAAP combined ratio increased slightly to 90.9% due to higher catastrophe losses Key Performance Indicators | Metric (Three Months Ended Sep 30) | 2024 | 2023 | | :--- | :--- | :--- | | Net Income to Common Stockholders | $365.63 million | $333.59 million | | Net Income per Diluted Share | $0.91 | $0.82 | | Consolidated GAAP Combined Ratio | 90.9% | 90.2% | - Average renewal rates for insurance and facultative reinsurance increased by 7.2% in Q3 2024[196] - Catastrophe losses in Q3 were $98 million, up from $62 million in Q3 2023, mainly due to four hurricanes, with Helene having the largest impact[203] Investments, Liquidity and Capital Resources The company's total investment portfolio was $29.7 billion as of September 30, 2024, with 76.3% in fixed maturity securities, maintaining a short average duration of 2.4 years to manage interest rate risk, and strong liquidity with $2.87 billion cash flow from operations Investment Portfolio Composition | Investment Type | Carrying Value (Sep 30, 2024) | Percent of Total | | :--- | :--- | :--- | | Fixed Maturity Securities | $22.66 billion | 76.3% | | Equity Securities | $1.05 billion | 3.5% | | Investment Funds | $1.61 billion | 5.4% | | Real Estate | $1.30 billion | 4.4% | | Cash and Cash Equivalents | $1.86 billion | 6.3% | - The average duration of the fixed maturity portfolio, including cash, was maintained at 2.4 years, positioning the company to react to changes in the interest rate environment[213] - The company repurchased 4.5 million shares of its common stock for $236 million during the first nine months of 2024[219] - Total capitalization was $11.3 billion at September 30, 2024, with a debt-to-capital ratio of 25%[220] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company's primary market risks relate to credit quality, interest rates, and foreign currency fluctuations, with interest rate risk managed by maintaining a short portfolio duration of 2.4 years - The company's primary market risks are related to credit quality, interest rates, and foreign currency fluctuations[216][222] - Interest rate risk is managed by maintaining an appropriate relationship between the duration of the investment portfolio and liabilities, with the effective duration of the fixed maturity portfolio being 2.4 years as of September 30, 2024[216] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2024, with no material changes to internal control over financial reporting identified during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[223] - There were no changes in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[224] Part II — OTHER INFORMATION Item 1. Legal Proceedings While the company is subject to various disputes and litigation in the ordinary course of business, management does not expect the ultimate liability to be material, and a specific lawsuit to recover over $90 million from reinsurers is expected to have a positive resolution - The company is subject to ordinary course litigation and disputes, which are not expected to be material to its financial condition[96][225] - A subsidiary filed a lawsuit against certain reinsurers to recover over $90 million for losses paid under event cancellation policies, with the company believing its claims are meritorious and expecting a positive resolution[97] Item 1A. Risk Factors The company states that there have been no material changes from the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - There have been no material changes from the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K[226] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on the company's share repurchase activity during the third quarter of 2024, specifically the repurchase of 238,620 shares in July 2024 at an average price of $52.30 per share Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2024 | 238,620 | $52.30 | | August 2024 | — | — | | September 2024 | — | — | Item 5. Other Information The company reports that none of its directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the third quarter of 2024 - No director or officer trading plans (Rule 10b5-1 or other) were adopted, modified, or terminated during the quarter ended September 30, 2024[228] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Form of 2024 Performance-Based Restricted Stock Unit Agreement and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act - The exhibits filed with this report include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as the form of the 2024 Performance-Based Restricted Stock Unit Agreement[229]