W. R. Berkley Corporation (WRB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for joining us, and welcome to the W.R. Berkley Corporation's Second Quarter 2026 Earnings Call. [Operator Instructions] The speakers' remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words, including, without limitation, believes, expect, or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will, in fact, be achieved. Please refer to our annual report on Form 10-K for the year ended December 31, 2025, and other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. W. R. Berkley Corporation is not under any obligation and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. I would like to turn the call over to Mr. Rob Berkley. Please go ahead, sir.

Thank you very much. And let me echo your welcome to all participants. Thank you for finding time in your schedule to join us today. So I'm joined on this end of the phone by Rich Baio, and we're going to follow our typical agenda, where momentarily, Rich is going to walk us through some highlights from the quarter. I will then follow with a few of my own observations and then the 2 of us will be available to answer any questions that participants may have. Before I do hand it over to Rich, I'd like to take a moment on behalf of my colleagues, my family, and myself to express our gratitude for the very kind outreach and support we have received on the heels of the loss of our founder, Bill Berkley. His extraordinary contributions to society, our industry, and our company cannot be overstated. His spirit, values, and priorities remain foundational to who we are and how we operate as a team. One of his great achievements while leading this company was the institutionalization of the business and making clear that this business is a team sport, not an individual one. While his vision and character remain central to our foundation, the performance and success of this company continues to be a reflection of the hard work and commitment of thousands of people that make up this team. Thank you again to all of those who have been so supportive during this difficult moment. Rich, if you would, please?

Of course. Thank you, Rob. Good evening, everyone. Operating earnings per diluted share grew 21% to $1.27 or $497 million, resulting in an annualized return on beginning of year equity of 20.5%. The company's second-best quarterly pretax underwriting income was $318 million, and record quarterly pretax net investment income of $419 million contributed to the excellent second quarter results. We continue to generate meaningful excess capital as evidenced by total capital return to shareholders of $334 million through regular and special dividends as well as share repurchases. While there's no predetermined amount of capital to be returned each quarter, this amount is consistent with what we did in the first quarter. Underwriting performance yielded a current accident year combined ratio excluding catastrophe losses of 88.1% and a calendar year combined ratio of 90%. Cat losses in the current accident year decreased $37 million to $62 million in the second quarter of 2026 or 2 loss ratio points compared with 3.2 loss ratio points in the prior year's quarter. The current accident year loss ratio, excluding cats of 59.6% compared with 59.9% in the prior year. The overall expense ratio was flat quarter-over-quarter at 28.5% and remains below our previously shared expectations, that being comfortably below 30%, but increasing modestly over 2025 barring material changes in the marketplace. Drilling down by segment, Insurance reported growth in gross premiums written of 5.4% to a record $3.8 billion and net premiums written increased 3.7%, also to a record $3.1 billion. The current accident year loss ratio, excluding cats is 61% comparable with the first quarter this year. Expense ratio of 28.3% was flat over the prior year, bringing our current accident year combined ratio excluding cats to 89.3%. The Reinsurance & Monoline Excess segment continued to experience heightened competition in both property and casualty lines, which resulted in a decrease in net premiums written to $306 million. Having said that, the underlying performance of the business benefited in the quarter from lower cat and noncat property losses giving rise to a current accident year combined ratio, excluding cats of 78.7%. Turning to investments. Net invested assets have grown to $34.2 billion. Strong operating cash flows have contributed to the growth despite the significant capital return to investors. Over the prior 12 months, we've returned capital of more than $1.3 billion or approximately 14% to stockholders' equity and nearly 70% in the first half of 2026 earnings. Strong second quarter operating cash flow was $800 million and will continue to contribute to the growth in net investment income. Income from the core portfolio grew 13% over the prior year to $371 million, and investment funds performed well, growing 5.6% to $28.8 million. The credit quality of our portfolio remains very strong at AA- with the duration on our fixed maturity portfolio, including cash and cash equivalents increasing in the second quarter to 3.2 years, which remains below the average life of our insurance reserves. The effective tax rate of 21.4% was below our normalized run rate of 23%, plus or minus due to the mix of earnings from foreign operations taxed at higher marginal tax rates as well as the nonrecurring utilization of certain tax credits. Stockholders' equity increased to a record of more than $9.8 billion and capital returned to shareholders comprised regular and special dividends of $223 million as well as share repurchases of approximately $111 million. Rob, with that, I'll turn it back to you.

Okay. Rich, thank you very much. A couple of quick additional comments for me. And then again, we'll be pleased to open it up for questions. Maybe starting on the more macro side with regards to market conditions. Clearly, it is ever more a fragmented market as far as market conditions by product line. And that puts that much more emphasis and value around the combination of expertise and discipline, key ingredients for cycle management regardless where you -- any product may be in the cycle. Let me start by flagging a few areas where we're seeing some headwinds, and then we will pivot to where we're enjoying tailwinds and get into that a bit more, I guess, taking the approach of vegetables before dessert. Long story short, I guess a little reminiscent of past comments from us. We continue to have great concern around much of the MGU model and how it's participating in the marketplace. We have always had questions around delegated authority and the lack of alignment of interests. That having been said, it just seems like this is just mushrooming and ultimately is going to end in tears for some market participants that are not having the appropriate control over the capital and how it is being managed. From our perspective, the greatest stupidity can be found most easily in the property arena. Shared and layered, as we've been talking about for some number of quarters is particularly concerning, and we're seeing that water falling through to other parts of the property market. With that having been said, the casualty market, by and large, is offering greater discipline, though there are a few isolated pockets within casualty that give us reason for pause. Two that I'll call out, in particular, would be habitational as well as liquor. Quite frankly, examples of where we're seeing business where rates are being cut by 20%, 30%, and we kind of look at it from a distance and say, "You could have had it if you cut it 10%." As my father used to suggest, this is the type of behavior that turns long-tail lines into short-tail lines, but we will see how that unfolds. Continuing on some of the challenging areas. As Rich referenced, reinsurance is particularly concerning. From our perspective, yes, property is eroding rapidly, but casualty never enjoyed the bounce that property got. So you can see in our numbers, as Rich alluded to, actually we are shrinking more quickly on the casualty side than we are on the property side. Turning to some of the more encouraging areas. I would tell you the broader casualty market overall, with a few exceptions that I referenced, remains attractive. We continue to find ways to put capital to work that we believe will generate very attractive returns. In addition to the broader casualty market, I would tell you there are a few pockets within the short-tail lines that we also find attractive as we flagged in the past couple of quarters. Two of those that I'll call out are one would be within the A&H space, and the other one would be private client personal lines, which, again, on both those fronts, we continue to get great traction. Rich walked us through, again, a bit on the results. I'll just echo a few quick comments on that front specifically. The top line growth clearly is being driven by what we're able to achieve on the insurance front with the growth coming in at mid-single digits. Just to be clear, much of that is being driven, obviously, by the margins that we find attractive and also while we're still -- there is a contribution, I should say, coming from rate increases. So the rate increase for the quarter was -- ex comp was 3.8%. And now before anyone overreacts, I would remind you, this is exactly what we said we were going to be doing when we talked last quarter. And I believe the quarter before that, where we see that there is attractive margin in the business, and our priority is to increase count or exposure and where we will keep our foot on the rate pedal, but we may not be pressing down on it as hard. So this is in line very much with our expectations and quite frankly, is keeping with our historic approach to cycle management and trying to maximize the opportunity and again, grow where the margin is that's the approach, that's the game plan, and that's what we're executing on. On the loss ratio front, I guess, the only thing I would add is a moment like we just went through, we certainly benefit from somewhat of a relatively benign cat quarter given the time of year. That having been said, for us as an organization, you really see us stand out when it comes to cat when there's serious or significant activity, that is when our approach to managing volatility comes into sharper focus. Moving over to the expense ratio. Rich, obviously, covered this in some detail. I would just offer a couple of additional comments. One being, and I was surprised that Rich didn't throw this caveat in because being the good CPA, he's usually trying to manage expectations nobody more than me. But we do believe that we'll be able to keep the expense ratio at 30% or better. That having been said, we are making significant investments in the organization as we have in the past, and we continue to lean into it harder and harder. Certainly, on the tech front, the data front, and maybe to give a few specific examples very much on the AI front. AI is an interesting topic. There has been a moment of remarkable activity in the broader economy and certainly we're seeing it in the industry. And there have been moments in time where we've seen people talking about AI, and it's almost as if they felt like I need to do something because I need to do something because I can't not do anything. We are big believers in doing something, but we're not going to just participate within AI for the purpose of the headline. We are clearly looking to make investments. We are looking to create value, and we expect to generate returns on those investments. In addition to that, we have a recognition as to what our strengths are and what our limits are. And we are certainly not in a position that we are going to go out and try and create our own large language model. For our purposes, the notion that we are going to try and recreate what the likes of an Anthropic or OpenAI or anyone else and spend tens of billions of dollars. That is not our strength. What is our strength is to take the tools that are out there and then layer on our own approach on top of that. What is our strength is to use our 60 different laboratories, each one of our businesses to be experimenting with tools and then to coalesce around the best solutions and leverage those. So 2 examples amongst many, but 2 that I thought we would call out in this conversation. One would be on the underwriting side and the other one would be related to claims. On the underwriting side, we focused very much on underwriting workbenches and the idea of how we digitalize activity right from intake straight through to quote. Early returns on that front where we've begun to utilize it, is that we are getting 20-plus percent uplift in efficiency, and we're reasonably confident that there's significant additional juice to squeeze out of that. So plenty of upside from there. And the second area would be claims, which is our efforts to try and use AI and other tools to move in the direction of straight-through processing where it is appropriate, where it makes sense. Ultimately, if you have a look at our claims profile, if you will, approximately 50% of our claims settled for $5,000 or less. And there are lots of examples where we are showing up to a situation with a sledgehammer when a flyswatter is really what is required. So using some of this technology, where appropriate, we are able to deliver a better solution for claimants in a more timely way. So more to come on both of those fronts, but we are making good progress and we are, quite frankly, as an organization, very excited about our ability to reallocate people's time in other directions and utilize the technology to drive these improvements. A couple of quick soundbites really just echoing some of what Rich said on the investment stuff. Long story short, we're in a pretty good place, and it's pretty clear -- we have a pretty clear sight to an even better spot. Rich mentioned the strength of the cash flow at $800 million in the quarter. Just as a point of reference, which you would have seen in the release, that's up from $700 million in the corresponding period. That kind of growth is really driving how you're seeing the investment portfolio to continue to increase in scale. That, combined with the reality of a new money rate that is well above our book -- domestic book yield of 4.8%. So if you say the domestic book yield is 4.8%. And you think about a new money rate that certainly comfortably starts with a 5% that gives you a lot of upside from here. So we look forward to being able to continue to deliver on that. And obviously, the duration piece Rich flagged that is 3.2 years. And just as a reminder, we are -- the average life of our reserves, or how long we hold on to the money is 3.9 years. So we have a fair amount of room to take that duration out if and when we believe it is appropriate. There is no doubt that in certain product lines, as I mentioned earlier, there are clouds building. Those that are weighted towards certain lines such as property, it is going to get tougher before it gets easier. I think we're going through a period of time where Mother Nature is lulling the property market into a false sense of comfort. And this will go on perhaps for some period of time. And then once again, the industry will learn the hard way. Fortunately for us, as an organization, if you look at the parts of the market that we participate in. Those parts of the market are not getting cloudy. In fact, there's still plenty of sunshine, and we continue to lean into those opportunities whether it be much of the casualty market or some of the shorter-tail lines that I called out earlier. So with that, Kristin, we'll open it up for questions. And Rich and I will do our best to address any topics people would like to discuss.

[Operator Instructions].

So that's one question with how many parts, Kristin?

You have one question and one follow-up.

Okay.

Here, your first question comes from the line of Elyse Greenspan from Wells Fargo.

Before I get into my questions, I just wanted to express my sympathies to you and just everyone at Berkley on the passing of Bill, I'm sure he'll be missed, right, by everyone on the buy and sell side. So I want to extend my sympathies there. And then I get -- getting into my first question, going to the premium growth and pricing conversation that you hit on in your prepared remarks, you have spoken about top line growth improving as rate slows. So like as you think about, just think out from here, not only in the back half of this year, but for '27 as well. Do you expect an incremental slowdown in rate? And then how are you expecting insurance growth when you think about what happens to pricing from here?

So it's, in some ways, easier to predict longer -- farther out than it is because I think directionally, we know where a lot of things are going, but it's not necessarily clear how quickly that will unfold. Based on what we're seeing and early returns in July, we're reasonably encouraged as far as the top line. The month isn't done. And nobody knows exactly what tomorrow will bring. But from our perspective, we have many pockets where we're very, very pleased with the margin that we believe is available. And as a result of that, if the situation warrants it, we feel as though we have considerable room in the rate to adjust. We are not going to do that prematurely. Ultimately, our goal is to try and optimize between rate and growth. So long story short, do I think that things are going to fall off considerably from here? No. And do I think things can improve from here? I think it is certainly possible.

And then my follow-up is, I guess, triangulating some of that pricing commentary to just the underlying loss ratio, right? I mean, if you guys are taking the insurance pricing down, would you expect to start to see more compression on the underlying loss ratio? Or are there other things, mix or whatever it might be that would kind of offset compression from the level of earned rate going down?

Well, obviously, there's several components to that. At least one of them would be business mix and how that unfolds and how that gets weighted over time. In addition to that, as we get more comfortable with the margin that we believe is in the business that could have implications for how we think about what the loss ratios are that we need to book the business to. Said differently, the rate we charge and the loss ratio, as you point out, they're not exclusive of one another, and we may feel as though there was more room in the pick than we recognized.

Your next question comes from the line of Rob Cox from Goldman Sachs.

I just wanted to ask you maybe on other liability and commercial auto, a couple areas where I think just looking at what you disclosed on pricing, maybe you're not growing exposure quite as much. Obviously, we don't know your pricing by product. But can you just talk about if there's more growth in those 2 lines? Or if you are shrinking exposure, why you don't think it's a good time to grow there?

So as far as the other liability goes, we continue to find opportunity to grow. But as you point out, there is a rate component there. As far as the auto goes, we are taking much more rate than this first blush would suggest. In fact, and the exposure is coming down considerably. That having been said, the auto line, we're lumping together Berkley One, along with the commercial auto piece and that we continue to see opportunity. So that's offsetting it a little bit. But long story short, the auto -- commercial auto line, the rate is up a lot, and the exposure is coming down pretty quickly.

Okay. That's helpful. And then I just wanted to ask you on competition that you're seeing from admitted markets on E&S products, has there been any sort of change there throughout this year?

We were seeing it incrementally more. But as I suggested earlier, the big thorn in the side of the marketplace tends to be these people running around with the pen for someone else, and they get paid based on the policy they write as opposed to the underwriting results they achieve. And so that's really the challenge. As far as the standard market coming in, yes, incrementally. Could that become more of an issue over time? Certainly possible.

Your next question comes from the line of Michael Zaremski from BMO Capital Markets.

Just wanted to start off by echoing Elyse's comments about my sympathies regarding Bill's passing. He'll obviously be missed, but also remembered.

Thank you, Michael.

Yes, of course. My first question, regarding the deceleration in pricing power, I wouldn't say it's surprising given the data points we've seen in the industry's profitability level. But would you say it's also coming with maybe a better view of loss cost trend as well? I know that Travelers alluded to slightly different views, every company is different on loss cost trends. That could maybe rationalize some of the kind of the decel the industry is experiencing.

Yes. Obviously, I'm not in a position to comment on travelers. That's a better question for Alan than me. As far as what we are seeing is, we have a pretty clear view as to how much margin is in the business, and there are some places where the returns are exceptional. And to the extent the choice is backing off on the rate incrementally and having more of that exceptional business, then that's a trade that my colleagues are willing to make and has our support. In addition to that, that will certainly in some situations perhaps invite an examination of the loss picks that we've been carrying for the past couple of years and a further examination as to whether there's more room in those than perhaps had been recognized at the time that they were originally booked. But as far as trend goes, that would be one component of a variety of components that go into the analysis as I know you appreciate.

Understood. And just regarding kind of the still constructive view on top line growth. Does some of that underpinning, I think you alluded to it, come from what you discussed in previous quarters about new means of distribution with certain new partners that are -- where you could be accessing different types of risk that have the same business classification and what we see, but just coming from different actual underlying risks?

So the short answer is yes. And as we do reference and we've spoken about in the past, as far -- we are very committed to our traditional distribution at the same time in the end. Our view is that the client or the insured is queen or king, and we need to meet them wherever they and however they wish to be met. So we are fully committed to traditional distribution. At the same time, we're not going to ignore the shift in behaviors of customers as well. And specifically to your question, does that contribute to this? Yes, it does contribute to this today, and we expect in all likelihood, it will contribute more tomorrow.

Got it. And just as a follow-up then. No -- still, we heard that expense ratio guidance. So if those distribution methods came with a slightly different expense ratio, obviously, maybe a different loss ratio, no, still not impactful enough to call out any expense ratio changes, right?

Not at the moment. Rich's head was going up and down. So clearly that was the right answer as far as he's concerned.

Your first -- your next question comes from the line of Andrew Kligerman from TD Cowen.

Unfortunately, I had some technical difficulties for the first 10 minutes. So hopefully, I'm not covering old ground. But the first question is prior year development by accident year. Could you share a little color on the liability lines and how that played out in the quarter?

I do not have that here. I don't think Rich got into those details, but if you wouldn't mind just circling back up with Karen or Rich afterwards, and they'll give you whatever it is that were -- that has been sensitized by a herd of attorneys.

100%. It sounds like there wasn't much going on if you're not calling anything out. So you mentioned the...

No, pretty benign.

Yes. So you mentioned 3.8% rate ex comp. Did that include exposure as well, or was it just purely rate? And with that, could you elaborate a little bit on how property played out and how casualty played out? And what's the loss cost underneath that...

Sure. So long story short, and I know that there are different organizations throw around different metrics, and we have a very -- a variety of different metrics. But the one that I was referring to and that we are sort of laser locked in on is rate. So from our perspective, what it's all about is how much are you charging -- how much more are you charging relative to a unit of exposure. So if we think about a trucking account as an example, if the trucking account has 10 trucks and the rate goes up 5%, that means you're getting 5% more per power unit. If the trucking account ends up adding another 10 trucks, but the rate -- the premium only goes up 5%, that's not a very good answer. So long story short, what we focus on is how much more are you getting per unit of exposure, irrelevant as to how many more units you actually are covering. That is something we watch, but that's not what we obsess about. Pure rate per unit of exposure is what I was referring to and what we are focused on because ultimately, that's what drives or impacts margins. As far as how we think about trend per product lines, that's something that we, generally speaking, are just not sharing with the world.

Okay. And how about loss cost underlying the 3.8%, how did that move?

So again, a loss cost trend is not something that we publish by product line or for that matter in general.

Your next question comes from the line of Josh Shanker from Bank of America.

And at the risk of repeating, there's no reason not to repeat. I mean, Bill Berkley was a giant and he always made time for me, which was -- I'm grateful for, and I appreciate everything that he accomplished and the organization he built. So congratulations to you on what he's done and his memory will be always cherished.

Thank you, Josh.

One thing that I was curious, I noticed that basically, over each of the last few quarters, the duration, maybe it's a question for Richard, has moved up by about 1/10 in a year, and it's been going on for a couple of years now. I realize the duration of the portfolio was exceptionally short but a lot of market prognosticators are thinking that we're in a higher for longer cycle. And maybe that's not what Berkley thinks or maybe just there's so much gap between the asset liabilities that you feel you need to narrow it. Can you talk a little bit about...

Yes, we don't -- it's not that we -- it's a conscious decision. We do not feel obliged to narrow it. It is based on how we think about where we are, how we think about interest rates and where they're going to be going. And as you pointed out, we were at one point, very, very short. We are still short and we're comfortable incrementally nudging that out. We are not racing to push it out, but we are comfortable incrementally nudging that out and locking in the yield for a more extended period of time.

And with that, one thing that we -- if you look over, of course, a 50-year period, the amount you can earn on float has been an indicator of profits for the industry for a long period of time. It hasn't been for the recent past as interest rates have gone up, underwriting margins have improved. And I know that you talked about MGU markets and whatnot. And -- but is there a potential to be willing to compromise on underwriting margin, not necessarily at Berkley but the industry in general because there's so much opportunity to earn attractive returns on float, or is that relationship growing for foreseeable future?

I think it is going to be impacted by how high rates go, and how long they stay up there. Do I think today that we're drifting into a cash flow underwriting environment? I don't see that happening in the short term or today. If rates keep ticking up for long enough, then certainly, that could potentially invite that thinking. As far as the MGUs go, while there are some that are responsible operators, generally speaking, as we've been reasonably outspoken about, I think it's inherently in many cases, a flawed model. And do I think people are just throwing around the pen and putting it in people's hands and not caring what the underwriting results are because they're looking at the cash flow? No, I think that it's a more fundamental error than that, that it's just irresponsible management of capital.

Your next question comes from the line of David Motemaden from Evercore ISI.

Rob, I also want to extend my sympathies to you, your family, and also the entire Berkley team on Bill's passing. He, obviously, will be very missed. So on to my question, just on the rate front, the 3.8% that you disclosed. I'm just wondering if we're right to assume, I guess, the main areas where you guys are taking the foot off the gas and have talked about that previously. Is that really more on the short-tail lines, or is that dynamic happening at all on the casualty side as well?