管理層發言
Ladies and gentlemen, thank you for joining us, and welcome to the W.R. Berkley Corporation Fourth Quarter and Full Year 2025 Earnings Call. This conference call is being recorded. The speaker's 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, 2024, 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. Rob Berkley. Please go ahead, sir.
Thank you, Kevin, and good afternoon everyone. I want to echo Kevin's welcome to our fourth quarter call and appreciate everyone taking the time to join us. On this call, you will also hear from Rich Baio and Bill Berkley. We will follow our usual format: I’ll share a few quick remarks before handing it over to Rich, who will cover some highlights from the quarter and the year. I will then share a few more thoughts before we open up for questions. Before we begin, I’d like to start with some words of gratitude. For those who have reviewed the release, and as you listen to Rich’s comments, you’ll see that 2025 marked another great year for the company. Such outcomes don’t happen by chance; they require hard work and dedication from our team. I want to express my heartfelt thanks and congratulations to approximately 7,600 individuals who contributed to this success for the benefit of our shareholders and all our stakeholders. A couple of macro observations may spark further discussion. First, it’s clear that the world is moving at an increasingly fast pace and becoming more complicated. It raises the question of whether our industry can keep up with this change. Historically, we haven’t embraced change well, and we face significant challenges ahead. One major factor driving this change is technology, particularly AI. There is considerable dialogue around the adoption of AI in our industry, focusing on how we can implement these tools operationally. However, we also need to explore what this means for us as underwriters concerning risk assessment, management, and pricing. Our organization is notably well-prepared for this shift, as we possess both the scale to operate at various levels and the agility to pivot quickly. Additionally, we benefit from having 60 different incubators that allow us to experiment and innovate. Another area of change is distribution. Customers are evolving, and their priorities are shifting. The dynamics between traditional distributors and carriers are also changing, as many traditional partners are now competitors. We are observing that customers are increasingly favoring a self-service model, and convenience is becoming more critical than price. Now, regarding the marketplace specifically, I’ll start with auto liability, which we have discussed for some time. It remains a significant challenge, and the anticipated improvements we considered earlier in 2025 turned out to be unfounded as the market continues to decline. We hope to find a bottom by the end of 2026. Additionally, we've noted that large account property, particularly in the Sheraton layered market, is quite competitive right now, with the Lloyd's market being particularly busy. On the topic of property reinsurance, for our main property catastrophe treaty, we experienced a risk-adjusted rate decrease of 19%, indicating substantial market challenges that are likely to increase competition. Early signs suggest that the competitiveness in the property cat market may be spilling over into the casualty market as some participants struggle with their premium targets in property and shift focus to casualty lines. We have seen challenges in D&O and A&E markets, but on a positive note, the casualty market, especially in the smaller segment and the excess and umbrella market, is providing opportunities for significant rate increases. E&S continues to show promise, and there is growth potential in the standard market as well. In the accident and health sector, medical stop-loss remains attractive. Our private client operation, Berkley One, is also seeing strong growth as a preferred alternative. Lastly, while the workers' compensation market is not doing well, there are nascent signs that participants in California are slowly recognizing the realities of the situation, which might be a positive shift. I apologize for going on longer than anticipated, but I wanted to cover these points. Now, Rich, please take it away.
Thanks, Rob. Good evening, everyone. The fourth quarter capped off an exceptional 2025 year with record quarterly operating earnings of $450 million, or $1.13 per share, which is a 9.5% increase from the previous year, and a 21.4% return on the beginning of year equity. Our net income of $450 million also led to a 21.4% return on beginning of year equity. The strong quarterly results were bolstered by record quarterly pretax underwriting income and robust net investment income from our core portfolio. Starting with our underwriting performance, the ongoing rate improvements, reduced catastrophe losses, and careful expense management resulted in record quarterly pretax underwriting income of $338 million, a 14.9% increase from last year. Current accident year catastrophe losses for the quarter dropped to $48 million, or 1.5 loss ratio points. The expense ratio improved to 28.2%, supported by record net premiums earned of $3.2 billion and operational efficiencies from investments in technology and business process outsourcing, along with a one-time benefit from commission-related accruals. We anticipate that our expense ratio will remain comfortably below 30% in 2026, unless there is a significant shift in the market. The current accident year loss ratio, excluding catastrophe losses for the quarter, was 59.7%, slightly better than the two previous sequential quarters. The variation from quarter to quarter is mostly due to the contributions from each operating unit, which are influenced by growth or contractions based on market conditions. Overall, the current accident year combined ratio excluding catastrophe losses is 87.9%, while the calendar year combined ratio stands at 89.4%. By segment, the current accident year loss ratio excluding catastrophe losses for insurance improved to 6.6% and remained fairly stable compared to the full year results for 2024 and 2025. The Reinsurance & Monoline Excess segment reported a loss ratio of 53.9%, resulting in a strong current accident year combined ratio excluding catastrophe losses of 83%. We generated strong operating cash flows of nearly $1 billion for the quarter and $3.6 billion for the full year, which supported the 11.4% growth in our invested assets, reaching a record level of $33.2 billion. The mix of investable assets, including cash and short-term assets along with the maturing fixed securities at yields below the new money rate, positions us well for future growth and investment income. This improvement is reflected in our investment income from the fixed maturity portfolio, which rose 13.3% quarter-over-quarter to $346 million. However, this growth was partially offset by investment fund losses of $32 million, resulting in an overall pretax net investment income of $338 million. The credit quality of our investment portfolio remains strong at AA- while the duration of our fixed maturity portfolio, including cash and cash equivalents, increased to 3 years. It was 2.6 years at the end of 2024 and has been trending upward throughout 2025, but it still remains shorter than the average life of our liabilities. The effective tax rate for the fourth quarter was 20.5%, benefiting from a lower rate related to foreign earnings and the use of foreign tax credits. We expect the effective annual tax rate to be around 23% for the full year of 2026. Regarding capital management, we returned $608 million of capital to investors in the fourth quarter, which included special and regular dividends of $412 million and share repurchases of $196 million. Earlier in the year, we returned an additional $363 million from dividends and share repurchases, totaling $971 million for the year. In addition to returning over 10% of stockholders' equity to investors, we grew stockholders' equity by 15.6%. We continue to manage our capital prudently, as evidenced by our historically low financial leverage ratio of 22.6%, with the next maturity due in 2037. In summary, 2025 was an outstanding year, with record gross and net premiums written at $15.1 billion and $12.7 billion, respectively. Underwriting income reached $1.2 billion, net investment income was $1.4 billion, operating income hit $1.7 billion, and net income totaled $1.8 billion. These record results led to a growth in book value per share, both before and after dividends and share repurchases, of 26.7% and 16.4%, respectively.
Thank you, Richie. That was challenging to follow. I want to share a few more insights before we move on to the Q&A. In terms of our top line, it's important to note that October and November were quite disappointing from a growth standpoint, appearing relatively flat. I don't have the exact figure for December right now as I left my notes at the office, but the net results and growth trends are closely aligned, with gross written premiums increasing by 7% in December. So, I would advise caution against concluding that the quarterly performance reflects a new norm. In fact, early indicators for January seem promising, although we have yet to reach the month's end. We've noticed trends that suggest our growth rate is just over 7%. Given observations from more recent periods, it seems we do not feel the same pressure to increase rates significantly. We will remain diligent and keep a close eye on our margins, which we do not want to erode; overall, we feel well-positioned and will monitor this closely. Regarding the expense ratio, as Rich mentioned, the current rate of 28.2% is quite manageable. However, we plan to make substantial investments, some of which we've already begun, particularly in technology and data initiatives like AI. These investments may come with a cost, but we believe they will yield substantial returns. It’s also worth mentioning that our organization is focused on delivering consistent results rather than volatile performance; we aim for steady, incremental success. We are pleased with our quarterly and annual performance, and the consistency of our results is what sets us apart. As Rich noted about the investment portfolio, we are on the verge of reaching a higher credit quality rating. Additionally, while we've extended our portfolio's duration, our average duration remains relatively stable. We're still able to invest effectively with upcoming maturities in sight. Overall, our business is performing exceptionally well, generating strong returns. After capital management, we have a significant surplus, and given the market environment, we are eager to deploy our capital wisely while continuing to seek ways to return excess capital to our shareholders. I’ll stop there, and Kevin, let’s open the floor to questions.
分析師問答
We would love to have an opportunity to invest our capital now, as we are generating it more quickly and will seek thoughtful ways to return the excess capital to our shareholders. I will pause there, and Kevin, if we could please open it up for questions.
I thought you mentioned one question and one follow-up, but we'll see. My first question is about premium growth. Rob, I appreciate the insights on October, November, and January. Given your view of the market and the growth you experienced in the quarter, you noted that there might be less need to push for the same level of pricing. How do you expect this to translate into premium growth, especially considering your outlook that 2026 could be better than the fourth quarter but potentially weaker than the full year 2025? How do you see all of this coming together?
I think it's likely that the insurance activities will primary and perhaps an excess. We'll likely do better than what the total number was in the fourth quarter. I think that the reinsurance marketplace, some version of history may be repeating itself. A little early to declare that, but it would seem like the table is being set.
And then I guess my second question is on the expense ratio. You guys guided to comfortably below 30% in '26. It sounds like '26, based on commentary, you described it like an investment year if saying that correctly, you can correct me if I'm wrong. So would you expect like the AI and the tech type investments, I guess, would be higher in '26 and then we start to see a return on those investments in '27? Or how are you thinking through the moving pieces there?
I believe that Rich and I indicated we will be making significant investments in 2026, and I anticipate this will continue into 2027. This area, which I touched on earlier, has a progression regarding how tools become available and how our organization is adopting them. It’s not a one-time event; it’s a continuous process. So, when will we start seeing the benefits? I hope to see some improvements by 2027, and I think it will grow from there. However, it's going to take time because it's a more complicated process than simply implementing a new tool.
I always appreciate hearing your market commentary. You sounded a bit more constructive on workers' comp. You were mentioning that while it's not rosy now, California is coming to grips. But if we zoom out of California, one of the large brokers had said at their Investor Day that medical inflation is rampant and it'll show up in rate. Are you seeing something similar? I mean can you also comment about the reduction in premiums just in 4Q, if that was largely exposure based?
Yes. So a couple of things there. First, regarding medical trends and their connection to severity, this is something we have been discussing for some time, especially in relation to auto liability. It's become clearer for many recently. From our view, we believe medical costs and overall claims activity in the workers' compensation space have been somewhat artificially suppressed due to how benefits and reimbursements are priced in many states. For our growth in the quarter, it was primarily based on exposure, as there were specific areas where we did not find opportunities at those rates.
Got it. And also, in your press release, you were talking about exceeding 15% ROE and maybe 15% not new, that's a longer-term goal throughout the cycle. And some estimates are well above that. How should we think about a nearer-term ROE given your comments about returning excess capital?
I think that we believe that the company is firing on all cylinders at the moment. And we got a lot of momentum, and that momentum is both on the underwriting side as well as the investment side. So I can't promise you that the return will be this or that. But I can tell you that this is the nature of the business, barring the unforeseen event, and now to a great extent, '26 is almost the results, again, barring the unforeseen event, they're kind of cooked, right, because of how the premium earn through and the way the investment portfolio unfolds. So again, I can't sit here and promise you what a return will be. But barring the unforeseen event, it's not that hard to connect the dots, so it should be another very good year. And with every passing day, we're setting the table for '27.
Sorry, guys. Can you guys hear me now?
Yes. Thank you.
Yes. Sorry about that. Just wanted to just go back just on the PYD. And so it looks like a little bit under $11 million in insurance of adverse offset by about $13 million of favorable in reinsurance. Could you just talk a little bit about what is driving the adverse on the insurance side, any different accident years, you would point to just sort of keeping in mind your comment, Rob, on maybe not seeing the same level of pressure to keep pushing on REIT. Just trying to understand that given what's going on, on the PYD side in the insurance business.
Yes. I don't have the precise answers right now, considering the total reserves of over 18 billion, so I didn't analyze the 11 million in depth. However, if you can wait, we will have Karen or Rich follow up with you tomorrow and provide all the details we can.
Sure. That was about 30 basis points impact on the expense ratio.
Thank you for just the detailed commentary there. Maybe just a follow-up on pricing and what you said about pricing trend in casualty. I understand that some lines are softening. But are there any lines of business right now where you feel within casualty or you feel the pricing trend is beginning to not make sense anymore? In other words, are there any lines of business where you feel like you might need to start cutting exposure as we go forward into 2026 and 2027?
Yes. I mean auto liability would be one where if you look at what our top line is and relative to our rate, we are clearly shrinking the business from an exposure perspective. So that would probably be a leading example.
Got it. And then in other businesses, you don't feel the other lines of business are as bad or as obvious. Is that a fair statement?
We certainly have some concerns and reservations about some of the professional lines that I alluded to earlier. And I think that also we don't do a lot of it. So it doesn't really move the needle for us in a huge way, but the large account property stuff, the Sheraton layered stuff, we're that's getting pretty tight. I think what is currently happening on the underwriting side involves improvements in our intake process. We are leveraging certain technologies that significantly boost our efficiency. This allows us to handle more business and prioritize effectively. In simpler terms, we are using people's time more efficiently.
So 2 questions here. First, Rob, I wanted to dive into your comment about maybe laying off rate a little bit, but keeping margins, I think, is what you also said. And I'm wondering if that implies you think that trend is starting to moderate some here. And then as we look into 2026, that maybe loss picks are kind of stable then if you don't want margin to deteriorate?
So my take on that is it's premature to reach any conclusions with confidence but some of the activity that we are seeing or lack of activity in some of the more recent years would suggest that we're in a comfortable place. I think as we've discussed in the past, Brian, a trend is a moving target. So I don't think it's that we take our foot off the pedal, but maybe the foot doesn't have to be stepping down on the pedal quite as hard selectively. We are looking to preserve our margins to the best of our ability as long as the market will allow us to. And right now, we think we can do that. To be in the insurance business, I think the reinsurance marketplace is probably going to become more challenged more quickly. No, the short answer is, I don't think we're going to necessarily be leaning into or acquiring. Generally speaking, I think as we've torqued you all in the past, we have a real caution around delegated authority. And quite frankly, the valuations of some of these businesses, we think have gotten to the point where oftentimes it's irrational. And there's a lot of private equity money still trying to figure out how they're going to make it all work. But in the meantime, we're pleased to continue to partner with traditional distribution. But I think the point is it's not lost on us that some of the traditional distribution is looking to have the pen or, in some ways, have a different relationship with capital. We're aware of that. We are responding to it. And it also means that we're thinking about distribution maybe a little bit in a way that we wouldn't have thought about it 5 years ago. I think the answer is all of the above. I mean, ultimately, we certainly are looking to have efficiency and savings. And how much of that we hold on to versus how much gets passed on to the customer in part depends on the marketplace and, quite frankly, competitors what they are doing and what kind of efficiencies they're capturing and what they're passing on to customer. So look, when the day is all done, I appreciate that a lot of the focus may be around pricing and margin. But I would suggest to you that a lot of these tools, it's not just about dollars saved it's also about value creation. And I think that, that's an additional way to consider these tools, how they will be incorporated and how they will attack the business that the three of us work for. I would tell you in the very, very small end of town as far as account size. You might see a standard market slip in there a little bit. But by and large, they are, for the most part, for the moment, staying within their swim lane. That having been said, national carriers in particular, but some of the regional carriers on the standard side, within their swim lane, they are being remarkably aggressive at this stage of the game. The answer is that we will have more clarity after reflecting on Q1 and assessing individual performances. It seems that many investors with significant capital feel pressure to deploy it effectively, especially when property catastrophe premiums are underwhelming. Consequently, they are exploring alternative strategies, with casualty and liability lines, including professional lines, appearing to be options. I believe investment income plays a role, but I'm unable to specify how it compares to other factors with confidence. However, it seems that competitiveness has increased and has affected casualty lines more than expected. Despite this, we rely on reinsurance, which has historically benefited us, and we will manage the situation as we always have. Our focus remains on profitability rather than merely writing business. I think that regulators tend to focus on a moment in time, and I think that they need to look at historical results, particularly given the volatility that exists in the homeowners line in particular. I think that as far as Berkley One goes, it's less high on a regulator's radar screen perhaps because, for the most part, regulators don't care about wealthy customers.
Can you hear me?
Yes, we can.
Great. Thanks, here. In insurance, I'm trying to connect the dots. It sounds like the slowdown opinions in October, November was more driven by increased competition. And I think you're so cautioning not to read too much into that. Is that because you see competition flattening out here? Or are you seeing greater appetite emerging for the company itself to go after more premiums?
We want to emphasize a couple of points. First, October and November are just two months, and while they stand out in the quarter, we advise caution in reading too much into them, especially considering the data for December and what we are observing in January. Additionally, we previously mentioned that there are specific areas of our portfolio and certain segments of the market where, based on the early results from the reserves, we believe it may be a more favorable situation than we initially thought.
Great. Can you hear me?
Yes, sir, we can.
Rob, I would like to address the premium question. Two years ago, your outlook indicated double-digit growth, and more recently, you mentioned expectations of 8% to 10% for this year. Could you share your broader thoughts on growth potential for 2026, considering the variations we observed between October, November, December, and January? What are your expectations for this year?
I'm thinking that I don't get rewarded for providing estimates and these kind of forward-looking statements. That having been said, from my perspective, as mentioned earlier, I think the insurance business, both excess and primary should have an opportunity to grow more than what you saw us do in the quarter. And as I suggested, I think the reinsurance business, while we remain optimistic, we are even more so disciplined, and we can't control the market. So we'll have to see how that unfolds, but that seems to be becoming more challenging more quickly.
Fair enough, Rob. And then maybe just drilling into detail as I look at the net written premium. It looked like short-tail lines grew a little more than the others. Could you share with us which areas of short tail that worked out well?
The big drivers there are A&H as well as our private client business, Berkley One. If you look at the Commercial Lines segment, particularly some aspects, it doesn't seem worthwhile at all. Yes, we try to bifurcate the fact, Andrew, that there's sort of a more complex, higher hazard as you alluded to versus the Main Street stuff. I think the other piece with this, there was not a huge amount, but there was a bit of a timing issue with this as well. Rich, you want to talk about that for a minute.
Sure. So we had a couple of our operations, if you will, that renewals had transpired at different time periods relative to the fourth quarter of this year so that was the other reason for the change from the decline, if you will, in the workers' comp space.
Kevin, thank you very much for your hospitality this evening. Thank you to all participants for your time and your interest in the company. Again, I think a solid quarter to say the least, yet another great year and the momentum continues for the most part, to be in our favor. So we look forward to catching up with you sometime in early April. And we wish you a good evening. Thank you again. Good night.
This concludes today's call. Thank you for attending. You may now disconnect.