W. R. Berkley's CEO Discusses Q4 2011 Results - Earnings Call Transcript

W. R. Berkley Corporation (

WRB

)

Q4 2011 Earnings Call

February 1, 2012 at 9:30 am ET

Executives

William R. Berkley

– Chairman and Chief Executive Officer

W. Robert Berkley, Jr. – President and Chief Operating Officer

Eugene G. Ballard – Senior Vice President and Chief Financial Officer

Analysts

Amit Kumar – Macquarie

Vincent DeAugustino – Stifel Nicolaus

Vinay Misquith – Evercore Partners Inc.

Gregory W. Locraft – Morgan Stanley

Michael Nannizzi – Goldman Sachs & Co

Doug Mewhirter – RBC Capital Markets

Joshua Shanker – Deutsche Bank

Jay A. Cohen – Bank of America/Merrill Lynch

Howard Flinker – Flinker and Company

Robert Farnam – KBW

Presentation

Operator

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Good day, and welcome to W. R. Berkley Corporation’s Fourth Quarter 2011 Earnings Conference Call. Today’s conference is being recorded. 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, expects 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, 2010 and our 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 now like to turn the call over to Mr. William R. Berkley. Please go ahead, sir.

William R. Berkley

Thank you very much. Welcome to our year end call. We were very pleased with our quarter and the direction of things. We think that our general expectations are being met and we’ll start with Rob talking about our operating results for the quarter. Rob, do you want to go ahead.

W. Robert Berkley, Jr.

Thank you. Good morning. For the industry, the fourth quarter seemed to follow the same pattern that it’s been experiencing for the past several quarters. Noteworthy catastrophe activity along with a continued deterioration amongst many of the casualty lines. While cat events such as the floods in Thailand would seem to be exceptional or perhaps unexpected. This view is questionable given the recent industry experience over the past 18 months.

Additionally, the eroding performance in several of the casualty lines should not be a surprise

to anyone. There is a reality when rates are continuously cut over an extended period of times and terms and conditions are loosened, eventually it will end in tear.

Having said this, it would seem as though with every passing day, the industry continues to further set itself up for classic hard market. The attention of carriers is being fourth to migrate away from reserve redundancies and redirected towards the need for additional rates and more disciplined with selection. In fact, there is growing evidence that some carriers not only have been aggressive in their underwriting, but also may have been overly optimistic in the reserving practices and may in fact be (inaudible).

Earlier in 2011, the spotlight was primarily on the need for rates in cat exposed properties and workers compensation. More recently, it would appear there is developing recognition that brought our actions required.

Shifting to organization, the group’s net written premium for the fourth quarter was $1.09 billion. This is an increase of 19% over the corresponding period in 2010. The breakdown of this growth is approximately six points associated with increased exposures of existing insurers including audit premiums 4.2 points of peer rate and the balance from the new business.

As in the past several quarters the company’s growth continued to come about primarily as a result of how we have positioned our operations at more recently. Marketplace dislocations as many carriers continued to adjust their behavior. While the impact of these circumstances are felt group wide they are most visible in the specialty and international segments. Additionally continued gradual improvements in the US economy is providing further assistance to our insurers which in turn we are benefiting from as well.

The group's price monitoring showed an improvement on average renewal rate of 4.2% in the quarter, and just shy of 5% in December. We anticipate this trend of building momentum of rate increase to continue well into 2012. Further on the topic of price monitoring, it's worth mentioning, our metrics do not fully focus on our renewal business, but also on new business.

Our data would suggest that the group is achieving slightly higher rates on new versus renewal business. This would be an example of one of the many metrics we have that provide comfort with the respect to the margin in the new business level.

The renewal retention ratio remains again at approximately 80% providing further confirmation that we are achieving rates without undermining the underwriting integrity of the book. The group’s loss ratio in the fourth quarter was 62.7%, which includes 1.3 points or $15 million of storm. Approximately $13 million of the $15 million is associated with the Thailand floods.

The company’s expense ratio in the quarter was 34.1%. This improvement is mainly due to the gradual growth of our earned premiums. We anticipate this trend continuing throughout 2012. The combined ratio for the quarter came in at 96.8 however, when one adjust for reserve development as well as catastrophic events the current accident year remains at approximately at 99.

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