01—Abstract
Summary
Summary of the 10-K filed February 18, 2021. Cited figures are marked; the original filing is the authoritative source.
W.
R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States, operating in two segments: Insurance and Reinsurance & Monoline Excess. For 2020, net premiums written were $7.26 billiona, up from $6.86 billion in 2019, and gross premiums written rose 7% to $8.85 billion.
Net income to common stockholders was $530.7 millionb, or $2.81 per diluted share, compared with $681.9 million, or $3.52 per diluted share, in 2019. The filing attributes the $151 million decline mainly to COVID-19-related and other catastrophe losses, lower net investment income from reduced fixed maturity yields, and a higher tax expense from a change in the effective tax rate, which rose to 24.4% from 19.8%. Underwriting results were mixed.
The consolidated GAAP combined ratio worsened to 94.9% from 93.8%, driven by the Insurance segment, whose combined ratio rose to 95.2% from 93.5%, while the Reinsurance & Monoline Excess combined ratio improved to 93.1% from 96.5%. Catastrophe losses net of reinsurance were $340 millionc in 2020, including approximately $171 million of COVID-19-related losses, versus $90 million in 2019. Average renewal premium rates for insurance and facultative reinsurance increased 11.3% in 2020.
Net investment income fell 10% to $584 milliond, and the fixed maturity portfolio's effective duration was 2.4 years at year-end. The balance sheet remained solid, with total stockholders' equity of $6.3 billion and book value per share of $35.49 at December 31, 2020.
The company repurchased 6,363,301 shares for $346 million in 2020, paid $84 million in dividends, and issued $300 million of 4.125% subordinated debentures due 2061 in February 2021 after calling $110 million of 5.90% debentures. Cash flow from operations rose to $1.62 billion from $1.14 billion.
02—Key points
Key Highlights
- Net income to common stockholders fell to $530.7 million ($2.81 per diluted share) from $681.9 million ($3.52 per diluted share) in 2019.
- Net premiums written grew to $7.26 billion from $6.86 billion, and gross premiums written rose 7% to $8.85 billion.
- The consolidated GAAP combined ratio was 94.9% in 2020 versus 93.8% in 2019; the Insurance segment's ratio rose to 95.2% while Reinsurance & Monoline Excess improved to 93.1%.
- COVID-19-related losses of approximately $171 million (net of reinsurance) were recorded, and total catastrophe losses net of reinsurance reached $340 million versus $90 million in 2019.
- Average renewal premium rates for insurance and facultative reinsurance increased 11.3% in 2020, and 13.6% excluding workers' compensation.
- Net investment income declined 10% to $584 million, reflecting lower fixed maturity yields; the fixed maturity portfolio's average annualized yield was 2.7% versus 3.4%.
- Stockholders' equity reached $6.3 billion, with book value of $35.49 per share, and the company repurchased 6.36 million shares for $346 million in 2020.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 18, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $8.10B$7.90B | +2.5% |
| Interest Expense | $150.54M$153.41M | −1.9% |
| Net Income | $530.67M$681.94M | −22.2% |
| EPS (Basic) | $1.89$3.58 | −47.2% |
| EPS (Diluted) | $1.87$3.52 | −46.9% |
| Shares Outstanding (Basic) | 280K191K | +47.0% |
| Shares Outstanding (Diluted) | 283K194K | +46.3% |
05—Questions
Frequently Asked Questions
What drove the decline in W. R. Berkley's 2020 net income?
The filing attributes the $151 million decrease in net income mainly to an after-tax decrease of $47 million in net investment income, an after-tax decrease of $46 million in underwriting income from COVID-19-related and other catastrophe losses, and a $39 million increase in tax expense from a higher effective tax rate of 24.4% versus 19.8%. A $23 million decline in after-tax foreign currency gains also contributed.
How much did COVID-19 affect the company's results?
For 2020 the company recorded approximately $171 million of COVID-19-related losses net of reinsurance, plus reinstatement premiums of approximately $18 million. Of the losses, $161 million related to the Insurance segment and $10 million to Reinsurance & Monoline Excess. The filing also states that the pandemic may continue to affect results and that legislative and regulatory actions could increase losses.
How is the company's investment portfolio positioned?
At December 31, 2020, total investments were $20.85 billion, with fixed maturity securities of $14.16 billion, or 67.9% of total investments including cash. The fixed maturity portfolio had an effective duration of 2.4 years, down from 2.8 years, and approximately 79% of the portfolio was invested in cash, cash equivalents and marketable fixed maturity securities. Net investment gains were $103 million in 2020, including a $105 million gain from the sale of a New York City office complex.
What capital actions did the company take in 2020 and early 2021?
In 2020 the company repurchased 6,363,301 shares for $346 million and paid $84 million in dividends, at $0.11 per share in the first quarter and $0.12 per share in each of the remaining three quarters. It issued $170 million of 4.00% senior notes due 2050 and $250 million of 4.25% subordinated debentures due 2060 in September 2020, and in February 2021 issued $300 million of 4.125% subordinated debentures due 2061 after calling $110 million of 5.90% subordinated debentures for redemption.
What are the main risks to the company's reserves and earnings?
Net reserves for losses and loss expenses were $11.62 billion at December 31, 2020. The filing notes that reserves are estimates and may prove inadequate, that social inflation is raising professional liability losses, and that favorable workers' compensation development of $24 million in the Insurance segment partly offset unfavorable professional liability development. Catastrophe exposure, reinsurance availability, the U.K.'s exit from the EU, and the 2020 change in the Insurance segment's loss ratio to 64.9% are also highlighted as risks.
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