long-term strategys22.q4cdn.com/.../2019/01/investor-primer1-3q18.pdf · 1q17 includes an increase...
TRANSCRIPT
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LONG-TERM STRATEGY
Superior Risk Adjusted Underwriting Results
• Decentralized operating units
• Specialized expertise
• Close to the customer
• Cycle management
• Exposure and volatility management
• Create new businesses with the right talent
Above Market Risk-Adjusted Investment Returns
• High-quality fixed income portfolio
• Duration management
• Individual asset class expertise
• Invest for capital gains as well as income
Prudent Capital Management
• Maintain optimal capital
• Optimize capital structure
• Allocate capital on a risk-adjusted basis
2
Superior Long-Term
Risk-Adjusted Return on Equity
and Shareholder Value Creation
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STRATEGY FOR OPTIMIZING RISK-ADJUSTED RETURN AND
LONG-TERM SHAREHOLDER VALUE CREATION
OPERATE WHERE KNOWLEDGE IS A COMPETITIVE ADVANTAGE
Primarily commercial lines: Recently introduced high-net-worth personal lines
Niche player with specialized market knowledge and presence
Emphasize industries and economies with strong margins
Expand selectively in attractive global markets
AVOID UNREWARDED VOLATILITY
Focus on products with low individual policy limits
Issue policies with defined aggregate limits
Avoid unfavorable (unpredictable) political or legal environments
3Long-term ROE target = 15%
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Decentralized structure allows us to react quickly to changing market conditions
Specialized knowledge is competitive advantage for independently-managed niche businesses
Business profile and a constant concern for unforeseen risks limit earnings volatility
Conservatively managed balance sheet limits volatility in shareholders’ equity
Meaningful employee ownership promotes long-term perspective
Strategic cycle management and critical capital management enable well-timed growth
Success in development of new businesses offers optimal value creation, notwithstanding cycles
4
UNIQUE ADVANTAGES AS DECENTRALIZED SPECIALIST UNDERWRITER
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TOP TIER RETURN TO SHAREHOLDERS
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
RETURN ON EQUITY
5
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
TOTAL SHAREHOLDER RETURN*
*Annual growth in stock price plus dividends
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W. R. BERKLEY CORPORATION OVERVIEW
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
NET PREMIUMS WRITTEN
6
$0
$100
$200
$300
$400
$500
$600
$700
NET INCOME
$ in millions $ in millions
-
Casualty67%
Property33%
Workers' Comp26%
Other Liability
32% Short-Tail Lines20%
Comm'l Auto11%
Prof. Liability
10%
REPORTING IN TWO SEGMENTS OF THE GLOBAL NON-LIFE MARKET
2017 REINSURANCE NET PREMIUMS WRITTEN$544 MILLION
2017 INSURANCE NET PREMIUMS WRITTEN$5.7 BILLION
7
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Berkley is comprised of individual operating units that serve distinct markets requiring specialized
knowledge of a particular territory, market segment, product or type of business
E&S Focused on customers with complex and diverse risks
REGIONALVariety of products distributed to regionally differentiated
customers
PRODUCTSPECIALTYSpecialized products for specific lines of insurance
INDUSTRY SPECIALTYOffers coverages tailored to industries with
unique exposures
REINSURANCEA full range of products
available globally
INTERNATIONALFocused range of products with local expertise in select
non-US markets
Admiral Insurance Acadia Berkley A&H American Mining Berkley Offshore Berkley Re America Berkley Canada
Berkley CustomBerkley Mid-
Atlantic
Berkley Cyber Risk
Solutions
Berkley
Agribusiness
Berkley Oil &
GasBerkley Re Asia Pacific Berkley Insurance Asia
Berkley AspireBerkley North
Pacific
Berkley Fire &
MarineBerkley Alliance
Berkley OneBerkley Re Solutions
Berkley Insurance
Australia
Nautilus Berkley SoutheastBerkley Global
Product Recall
Berkley Asset
Protection
Berkley Program
SpecialistsBerkley Re UK
Berkley International
Latinoamerica
Vela Continental Western BerkleyNet
Berkley
Entertainment &
Sports
Berkley Public
EntityW. R. Berkley Europe
Verus Union Standard Berkley ProBerkley
Environmental
Berkley RiskW/R/B Underwriting
Berkley Select Berkley FinSecureBerkley
Technology
Berkley Surety Berkley Healthcare Carolina Casualty
GeminiBerkley Human
Services
Key RiskBerkley Life
Sciences
Midwest EmployersBerkley Luxury
Group
Preferred Employers BerkleyMed
OPERATING THROUGH 53 INDEPENDENTLY MANAGED UNITS
8
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High Profitability
Increased CapitalNeeds a Return +New capacity =
Increased competition
PriceReductions
Low Profitability
Capacity Withdrawal
Reduced Competition
Price Increases
MANAGING THE INSURANCE CYCLE IS CRITICAL TO LONG-TERM SUCCESS
9
WRB: Write as much good business as possible
WRB: Be willing to sacrifice volume for profitability
WRB: Focus on
retention;
maintain
disciplined
underwriting
WRB: Slower
growth and
more selective
underwriting
WRB: Capitalize on
market dislocations
Create new
units/divisions to
position for market
turn
WRB: Accelerate
growth as price
adequacy returns
to various market
segments
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Note: Quarterly rate changes exclude Treaty Reinsurance
NPW growth in 2016 distorted by structured reinsurance treaties.
MANAGING THE INSURANCE CYCLE IS CRITICAL TO LONG-TERM SUCCESS
10
Q1:0
5
Q3:0
5
Q1:0
6
Q3:0
6
Q1:0
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Q3:0
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Q3:0
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Q1:1
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Yea
r-O
ver-
Yea
r %
Pri
ce C
han
ge
Yea
r-O
ver-
Yea
r %
Ch
ange
in N
PW
YOY Change NPW YOY Written Price Change YOY Earned Price Change
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9.6%
6.9%
10.9%
13.8%
16.2%
3.0%4.3%
11.4%
4.3%
1.1%2.4%
0.9%0.0%
1.7% 0.9%1.9%
0%2%4%6%8%
10%12%14%16%18%
6/30/1992HurricaneAndrew
12/31/1993NorthridgeEarthquake
6/30/2001Sept. 11Attacks
6/30/2005HurricaneKatrina
Financial Crisisas of
3/31/2009**
3/31/20112Q11 Storms
9/30/2012Storm Sandy
3Q2017Events***
Industry Event Loss/Surplus WRB Event Loss/Surplus
SIGNIFICANTLY LESS VOLATILITY FROM CASTSTROPHES
11
RATIO OF EVENT LOSS TO SURPLUS FOR LARGEST EVENTS SINCE 1992*
*** Ratio is for end-of-quarter surplus immediately prior to event.
*** Change in surplus from 12/31/2007 peak to date of maximum capital erosion at 3/31/09. Reflects losses offset by earnings.
*** Assumes $10B in losses from Hurricane Michael
Sources: PCS; Insurance Information Institute; A.M. Best; WRB
(Percent)
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12
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
. . . With predictably less impact from catastrophes
PC Industry Points of cat WRB Points of Cat
Sources: SNL, A.M. Best, WRB
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
20072008200920102011201220132014201520162017
Accident year loss ratios consistently outperform . . .
WRB PC Industry
LACK OF VOLATILITY DEMONSTRATED IN OUR RESULTS
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60.0
61.0
62.0
63.0
64.0
65.0
66.0
67.0
68.0
10 YearAverage
7 YearAverage
5 YearAverage
3 YearAverage
As of December 31, 2017
13
Reported Accident Year Loss Ratio Averages
LOW EXPOSURE PROFILE IS CLEARLY DEMONSTRATED IN ACTIVE PERIODS
Our outperformance appeared to have declined in the 5 year period ended 2017, as catastrophe activity
was benign from 2013 to 2015. However, a return to normalized catastrophe losses in 2016 and a record
level of catastrophe losses in 2017 demonstrated that the performance gap remains, a tribute to our
disciplined underwriting and risk management.
$-
$40
$80
$120
$160
$ Billions
U.S. Insured Cat Losses(2015 Dollars)
Sources: Property Claims Service/ISO; Insurance Information
Institute; Munich Re
Highly rated peers include ACGL, AFG, AGII, AWH, CAN, CB, CINF,
ENH, HIG, LIBERTY MUTUAL, MKL, NAV, RE RLI, THG, TRV,
XL, Y
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Investing for the Future – Start Ups
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-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
-$50,000
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
NUI ($000)NPW ($000)
Example of a Start UpBased on Actual Results
Net premiums written Net Underwriting Income
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Dual objective of preserving principal
& optimizing return
Managed for the long term; not trading
oriented
Most investments managed in house
Currently maintaining a defensive
position in fixed income markets
Shorter duration – 2.9 years
Maintain quality – AA-
Interest rate risk minimized by
matching assets/liabilities duration
within 1 year
CATEGORY
CARRYING
VALUE
($MM) % TOTAL
Fixed-maturity securities
U.S. government 487.0 2.6%
State and municipal 4,085.4 21.8%
Mortgage-backed securities 1,559.5 8.3%
Asset-backed securities 2,549.9 13.6%
Corporate bonds 4,065.2 21.7%
Foreign government 825.4 4.4%
Total fixed-maturity securities $ 13,572.4 72.4%
Equities 325.3 1.8%
Real estate 1,917.3 10.2%
Investment funds 1,250.4 6.7%
Cash and cash equivalents 876.9 4.7%
Arbitrage trading account 678.3 3.6%
Loans receivable 96.6 0.6%
Total $ 18,717.2 100.0%
ASSET ALLOCATION AT SEPTEMBER 30, 2018
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GROSS INVESTMENT INCOME
16
$0
$100
$200
$300
$400
$500
$600
$700
2012 2013 2014 2015 2016 2017 YTD9/30/2017
YTD9/30/2018
$ in millions
Fixed Maturity Non-Fixed Maturity
Average Annualized
Yield on Fixed Maturity 3.7% 3.5% 3.4% 3.2% 3.2% 3.4% 3.3% 3.6%
Total Average
Annualized yield 4.1% 3.7% 3.9% 3.3% 3.4% 3.3% 3.3% 3.8%
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NET REALIZED GAINS ON INVESTMENT SALES
17
9.6% 9.9%
11.1%
9.2% 9.3%
6.7%
10.1%
3.3%1.8%
3.8%
1.8%
4.0%
4.2%
2.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2012 2013 2014 2015 2016 2017 YTD 2018*
Operating ROE (Including OTTI) ROE From Realized Gains on Investment Sales
12.9%
15.0%
11.0%
13.3%
Realized gains have contributed an average of more than 3% to our ROE over the past several years
11.6%
10.9%
12.5%
*Total ROE and ROE from realized gains on investment sales are reduced by the inclusion of change in unrealized gains
on equity securities within net income in 2018 due to the adoption of ASU 2016-01 on January 1.
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-$20
-$10
$0
$10
$20
$30
$40
$50
$60
$70
$80
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
1Q
17
3Q
17
1Q
18
3Q
18
Quarterly Reserve Development
Reserve Development Favorable / (Unfavorable) % of Earned Premium
FORTY-SEVEN QUARTERS FAVORABLE RESERVE DEVELOPMENT
18
$ Millions
1Q17 Includes an increase to prior year reserves of $30 million, before tax, or $22 million after tax related to the Ogden rate change.
The Ogden rate is the discount rate used to calculate lump-sum bodily injury payouts in the U.K. and was recently reduced by the
U.K. Ministry of Justice from +2.5% to -0.75%.
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CAPITAL STRUCTURE & DEBT MATURITY PROFILE
21
Actively manage capital
Hybrids add permanence to capital
structure
Well-balanced debt maturity profile
9.17 million shares remain under share
repurchase authorization as of 9/30/18
Two $0.50 Special Dividends in 2018
Realized $336 million in gains in 2017 and
$421 million YTD through 9/30/2018
Significant off-balance sheet value in
various private equity and real estate
investments
September 30,
2018
December 31,
2017
($ millions)
Senior notes and other debt $ 1,791 $ 1,769
Subordinated debentures 907 728
Total debt 2,698 2,497
Common equity 5,479 5,411
Total capitalization $ 8,177 $ 7,909
Debt-to-capital ratio 33.0% 31.6%
$450
$300
$427
$250
$350 $350
$400
$185
$-
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
2019 2020 2022 2037 2044 2053 2056 2058
Debt Maturities
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GROWTH IN BOOK VALUE PER SHARE
20
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
BOOK VALUE PER SHARE PLUS CUMULATIVE DIVIDENDS AND SHARE REPURCHASE
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EXCESS CAPITAL RETURNED TO SHAREHOLDERS
21
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
Net Income Dividends & Share Repurchases
10.7% 64.5% 208.6% 59.3% 109.5% 51.2% 61.0% 43.8% 64.8% 55.9% 52.6% 43.0% 34.9% 35.8%
Dividends and shares repurchased as a percent of net income
SINCE 1/1/2006, WRB HAS RETURNED $4.0 BILLION (59% OF NET INCOME) TO SHAREHOLDERS THROUGH DIVIDENDS AND SHARE REPURCHASES OR 99% OF MARKET CAPITALIZATION AS
OF 12/31/2005
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$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
Regular Cash Dividends Special Dividends
GROWTH IN DIVIDENDS PER SHARE
22WRB HAS PAID CASH DIVIDENDS WITHOUT INTERRUPTION SINCE 1976
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W. R. BERKLEY CORPORATION’S PERFORMACE VS. THE S&P 500®
23
65,513%
Note: W. R. Berkley Corporation’s book value per share has been adjusted for stock dividends paid from 1975 to 1983. Stock dividends were 6% in each year from 1975 to 1978, 14% in 1979, and 7% in each year from 1980 to 1983. The Company has paid cash dividends each year since 1976
OVERALL GAIN IN BOOK VALUE PER SHARE WITH DIVIDENDS COMPOUNDED
1973-SEPTEMBER 30, 2018
-5,000%
5,000%
15,000%
25,000%
35,000%
45,000%
55,000%
65,000%1
97
3
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
WRB S&P 500
9,698%
Sep
tem
ber
30,
2018
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“Always do right. This will gratify some people,
and astonish the rest.” - Mark Twain -