W.R. Berkley Corporation (NYSE:WRB) Q3 2020 Earnings Conference Call - Final Transcript

Oct 20, 2020 • 05:00 pm ET


W.R. Berkley Corporation (NYSE:WRB) Q3 2020 Earnings Conference Call - Final Transcript


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Richard M. Baio

making landfall and West Coast wildfires in the quarter, resulting in approximately $73 million or 4.2 loss ratio points impacting our underwriting results. This compares with last year's catastrophe losses of approximately $31 million or 1.9 loss ratio points.

The reported loss ratio was 63.7% in the current quarter compared with 62.1% in 2019. Prior year loss reserves developed favorably by $5 million or 0.3 loss ratio points in the current quarter. Accordingly, our current accident year loss ratio, excluding catastrophes was 59.8% compared with 60.4% a year ago. The improvement is driven by lower claims frequency and non-cat property losses as well as a change in business mix.

The expense ratio was 30%, reflecting a decrease of 1.5% compared with the year ago. The improvement in the expense ratio was attributable to the growth in net premiums earned of 4.3%, and the reduction in underwriting expenses of 1%. We've already talked about the contributors to the growth in top line, which will continue to earn through our income statement.

The lower underwriting expenses is primarily due to the reduction in travel and entertainment costs due to the global pandemic, which represents a little more than 50 basis points of favorable impact on the expense ratio. The accident year combined ratio, excluding catastrophes for the quarter was 89.8% compared with 91.9% for the prior year. Pre-tax underwriting income on a current accident year basis excluding catastrophes improved approximately 32.5% to $179 million.

On the investment front, net investment income for the quarter was approximately $143 million, primarily reflecting a decline in our fixed maturity portfolio offset by favorable market value movements in our arbitrage trading account. The decline in fixed maturity portfolio is due to a larger cash and cash equivalent position, which we discussed on our second quarter earnings call.

Cash and cash equivalents were more than $2.7 billion or approximately 13% of invested assets. And finally, income from investment funds in the quarter returned to a more normalized level. We believe the investment fund managers will be cautious to increase market values in their respective portfolios due to the potential market volatility and uncertainty surrounding the global pandemic.

Pre-tax net investment gains in the quarter of $39 million is primarily attributable to an increase in unrealized gains on equity securities and an improvement in the allowance for expected credit losses. Much of the reduction in this allowance was attributable to foreign government securities that were sold at a realized loss in the quarter, effectively creating and offsetting results.

Turning to the balance sheet. Fixed maturity investment portfolio maintained a high credit quality of AA- and reported additional growth in our after-tax unrealized gains from the second quarter. In addition, the US dollar weakened relative to several foreign currencies, resulting in an improvement in our currency translation adjustment, which is a component of stockholders' equity. Stockholders' equity was approximately $6 billion at the end of the quarter, reflecting an increase of approximately $200 million from the second quarter, after