W. R. Berkley (WRB) Q3 2026 earnings call transcript

Chris, thank you very much, and good afternoon to all. Welcome to our Q3 call. Thank you very much for your time. Thank you for your interest in the company. Along with me on this end of phone, you also have Rich Bay, our Chief Financial Officer, and we are going to follow our typical agenda where I'm going to offer a couple of very brief macro observations, and I'm going to hand it over to Rich to do the heavy lift, and he'll walk through highlights from the quarter, and I will trail behind him with a few more observations on our quarter, and then we'll be pleased to open it up for Q&A. So, before Rich runs with it, I think it goes without saying it was another strong quarter for us, but that's not really where I wanted to focus my comments at the moment.

We can get to that in a few minutes. I really wanted to spend a bit of time just taking a moment to acknowledge the pace of change, and we see a great deal of change certainly in the industry, but we are just seeing a great deal of change in society overall. The trajectory of that change is steep, the velocity is increasing, and before we get into the details of how the technologies that are driving this are being adopted by us, maybe more macro, it's something that we are looking at as to how society is evolving and the risks that we are potentially taking on, how they are changing. Fundamentally, our value proposition to society is helping it manage risk, and our value proposition to capital is, yes, accepting that risk from society but doing it in a controlled manner.

From our perspective, we are seeing a variety of the parts of the economy that face a great deal of risk evolving considerably. There has been a lot of discussion around autonomous vehicles, what does that mean for private passenger auto, what does that mean equally for commercial auto, and what will the consequences of that be? How will those risks remain within the auto space? How will they potentially be shifting over to products liability and other parts of liability? In addition to that, we can all see it coming, AI, and in particular its relationship with robotics. What will that mean for the workers' comp lines, and how will that unfold? These are the types of questions that we and presumably others are actively grappling with and trying to make sure that we are not just thinking about them for how we position ourselves going forward, but ensuring that we have the knowledge and the expertise to underwrite and accept these risks in a thoughtful and controlled manner.

In addition to that, technology obviously isn't just driving the broader economy, but it's even having an impact on the sleepy insurance industry and how we operate. Fortunately for us as an organization, my colleagues many, many years ago recognized the importance of data and how that role was going to become ever more greater. We have been on a data journey for many, many years at this stage, and fortunately for us we are reasonably well positioned. As we see many of the technology tools that are being brought to bear AI related in particular, data is the fuel that drives those engines.

When we think about some of these tools and how we are utilizing them, we are finding ways to apply them to a variety of activities within our organization as we have discussed in the past. At this stage, the advantages are primarily coming or rearing their head in a manner that is able to intake and respond in a more speedy manner than we could in the past. This certainly applies to the underwriting activities as well as the claims front. That, having been said, while we are making our way well up that mountain, the next mountain that is before us is not just the benefits of speed, but the insights that we will be enjoying or further insights that we will be enjoying as it relates to decision-making.

From our perspective, this, without a doubt, already is a competitive advantage and will continue to become an increasing competitive advantage for us. So maybe to put a little bit more data around that, some of the activity that we are doing on the intake side is allowing us to become more efficient to the tune of 20% plus, and we are also seeing opportunities on the claims front as we have flagged with some of you in the past. While we are a specialty writer and much of our claims activity is highly complicated, at the same time, more than 50% of our claims are settling for $5,000 or less, which would invite the idea that we should be able to have a lower and lower human touch when it comes to this.

So long story short, I understand that we are here to discuss the quarter. Rich is going to lead us through that part of the discussion momentarily, but given the world that is changing at an ever-increasing pace, I thought it was worth noting our efforts to make sure that we are appropriately keeping up with that and both how we engage with the marketplace, how we think about risk, and how we operate day to day.

So with that, Richard, if you would, please.

Of course, thanks, Rob. Appreciate it. Good evening, everyone. Our strong results in the third quarter were driven from both underwriting and investment performance, contributing to an annualized operating return on equity of 18.8% for the quarter, and over 20% year-to-date. Record third quarter underwriting profit of $296 million, combined with double-digit growth in the core investment portfolio, resulted in operating earnings of $456 million or $1.17 per share. Drilling down first into underwriting income, the current accident year loss ratio, excluding catastrophe losses, improved 40 basis points to 59.5%, along with the relatively flat expense ratio of 28.6%, brought our accident year combined ratio, ex-cats to 88.1%. Pre-tax current accident year-cat losses were $86 million or 2.7 loss ratio points.

Despite almost twice the number of storm events named by PCS, quarter over quarter, our cat losses only increased $7 million or 20 basis points. That brings our calendar year combined ratio to 90.8% in the current quarter. Both of our segments reported terrific underwriting results in the third quarter. The insurance segment's current accident year combined ratio, ex-cats of 88.3% improved one point over the prior year, representing growth in the pre-tax underwriting income of 10.6% to $238 million. The improvement was primarily attributable to changes in the mix between our 60 businesses and improved non-cat property losses. As it relates to premium to a third quarter record of $3.6 billion and 3.2% to a third quarter record of $2.9 billion, our reinsurance and monoline access segment reported a very strong current accident year combined ratio, ex-cats of 86.9%, resulting in pre-tax underwriting income of $58 million.

As the reinsurance market remains competitive, we've been steadfast in maintaining our underwriting discipline. Accordingly, you will take note that the segment's net premiums written declined 11.6% to $369 million, driven by casualty and to a lesser extent property.

Turning to investments, pre-tax net investment income increased to $384 million in the current quarter, driven by growth in the core portfolio was 12%. Income from fixed maturity securities increased 10.3% over the prior year's quarter, attributable to both higher domestic yields and a larger base of invested assets. Income from investment funds was $2 million and as shared during prior calls can be inconsistent quarter to quarter. On average, we expect each quarter to generate between $10 to $20 million and as seen year to date, we're above the high end of that range.

On the duration of invested assets, it has increased to 3.3 years at the end of the third quarter, with a very strong credit quality of double A minus remaining below the average life of our insurance reserves. And finally, as of September 30th, 2026, stockholder's equity was more than $9.6 billion, relatively flat to year end 2025, reflecting significant capital return to shareholders of $729 million a year to date and an increase in unrealized losses on investments of $800 million due to rising interest rates. We generally hold our fixed maturity securities until they mature and as such expect the unrealized loss on investments to reverse favorably into stockholders' equity.

Rob, with that, I'll turn it back to you.

Rich, thanks. Anthony, how are we on time? I don't like to use up all the time with me, babbling 5.15. Okay, good. So, just following on Richard's comments, a couple of observations. First off, the comment that people would have perhaps picked up in the release under the highlights as well, the rate popped back up a little bit to the 4%, also would offer the observation that the renewal retention ratio, it just doesn't move. It's sitting at 80%, so hopefully that gives people insight that the book is not churning, so to speak. A couple of other observations, and if people had a chance to flip through the release, you would have seen on page 7 going through a couple of the different product lines there.

The other liability, yeah, it's up just shy of 4%, people might say, oh, well, they're just churning it with the rate that would be not the right view. Actually, there's a bit of a shift that's going on there to smaller accounts. That's by design, no surprise. There tends to be a bit more competition with larger accounts. We like the margin in the smaller accounts, and we have the platform to be able to handle it efficiently.

Thortertail, we lump a lot in there, and that could be confusing it as well. Included in that is commercial property, which is down considerably. On the other hand, we're pleased with the continued growth that we're seeing in our private client business on the personal lines front, as well as our A&H business. On the auto front, again, you may be scratching your head, looking at the 5%. Please understand the exposure is coming off at this moment at a reasonable, healthy rate. So, speaking of the rate, increases that we're taking are a multiple of that with our determination and commitment to keep up with trend. Comp, the only thing I would call out there is we are pleased to see the bottoming out and incremental firming in California.

The rest of the nation is still trying to keep up, but they are lagging professional liability, as we talked a little bit about in the past. D&O is in the process of bottoming out. That having been said, there are several pockets within the professional space that we find very attractive, and no, I'm not going to go into the detail of where we find things attractive. Rich touched on the reinsurance front. I guess there's no point in crying any further over the spilt milk, but when the day is all done, as you have heard us talk about, for some number of quarters now, a dissatisfaction with market conditions within casualty reinsurance and property. Quite frankly, we are waiting with baited breath, not in a happy way to see what happens at 1-1, and what will follow, and that in all likelihood will prove to be a challenging time.

A little bit on the forward-looking front, so taking advantage of the safe harbor from as best as we can tell, we think the insurance business is going to be able to continue to grow all in along the unforeseen event at mid-single digits or better, and we think the reinsurance business is likely going to continue to shrink for the foreseeable at 10 percent rate, somewhere between 10 and 20 percent, and that's fine with us. That's just the realities of the business, and we accept that. Rich touched on the expense ratio. I would tell you that I think we sit in a pretty attractive place, the utilization of technology along with other disciplines that we are imploring.

I think are helping us manage that. I would tell you that given the amount of business that we produce through the wholesale channel and the acquisition costs associated with that, I think it speaks well to the work that my colleagues in particular have done to manage the expenses. On the underwriting front, from my perspective, it was basically right down the middle and exactly what we would have anticipated. I would tell you that if you looked out, at least through our lens, some of the shorter tail lines property in particular over the coming quarters and perhaps as we've discussed in the past, the liability lines tend to have more staying power, at least based on our historical experience.

Quickly shifting over to the investment portfolio. We did have a little bit of noise in the funds as perhaps people had taken note. Rich touched on that as well. Our expectation as he flagged a sort of 10 to 15 million a quarter, it was a little shy due to that. We can get into more detail if people want later on, but we expect it to return towards a more typical historic norm. I think the only other piece that is worth flagging, and we've talked about in the past as it relates to the investment portfolio, but I do want to pull it back to the center of the radar screens here, is the domestic fixed income portfolio, which is where the growth has been, and it continues to be as it relates to our overall portfolio.

The domestic portfolio sits just inside a 24 billion, which is correct, and today it has a book yield of about 4.7 or so percent. Our new money rate today is probably between 80 and 100 basis points above that. In addition to that, you would have taken note that the duration nudged out incrementally from 3 to the 3 to 3, but life of our lost reserves is just a hair inside of four years. We have lots of room and we will be thoughtfully taking advantage of that room to push out the duration and capture the yield environment. In addition to that, just as a data point, as far as how the portfolio rolls over, the portfolio every year roll shortens.

If you don't do anything, it's left through its own devices, and that's every year shortens by just shy of a year. So the point is that the combination of how we've managed duration, in addition to how the portfolio rolls over, we are particularly well positioned to capitalize on the rate environment that we see before us today, and we have every intention of continuing to do that.

So that's sort of the state of play. I think we can pause there. Richard, did you have anything else who wanted to flash? And we can open it up for Q&A, please.

So as you can appreciate, it's something that we are looking at very regularly and continuing to reflect and refine as we see appropriate. I would tell you that as far as trend goes with auto and auto related being perhaps the exception by and large of our product lines, we are seeing trends again early days starting to quiet down a little bit. So it would be premature to declare victory at this stage, but aside from the auto line, we are seeing signs that the steepness of that trajectory is perhaps abating somewhat or certainly not becoming ever more steep. So that's something, Rob, that we're taking into account to the extent that we are in a position to give you some math to put to that comment, not really at this stage, that having been said, we'll have to see how it unfolds.

As far as the specifics in the quarter, it was a combination of non-cat property on the risk front running well, thanks to the faultfulness of our colleagues and their discipline, and also we are gaining, as I just alluded to, in some of the more recent years, a bit of incremental comfort on some of the liability lines.

Well, I think that at 1-1 it's going to be very telling around the property front, so there's not a huge amount of visibility at this stage. We're going to have to see what comes of it. Certainly, we are hearing commentary that people are expecting rates using a very broad brush to be off between 10 and 20%. So, you know, that certainly takes a lot of the fun out of it for many people, that having been said for us as an organization, we buy more reinsurance than we sell, so we have a pretty good hedge on that front.

But we'll have to see how it unfolds. Thanks Rob. Thank you.

I missed the second part of that. I just wanted to know if anything related to your view about price. Sorry, I wanted to know if anything related to your view of price and growth, I guess, changed since last quarter.

No, the answer is that we look at it with a very, very fine comb, and from our perspective, we're looking at the rate need by product line, by territory, and as far as the rate moving around between two, two, and two, three, that certainly mixed and have a player enrolled in that. So, again, from our perspective, there are certain pockets that we find particularly attractive.

Generally speaking, we think it's going to prove to be a more challenging time for the reinsurance market, hence the comments that we offered earlier. We think that if you look at the commercial property market, that is going to get uglier before it gets prettier, and we think that much of the liability-related lines are going to prove to be the opportunity for the foreseeable. And when we put that all together, that's what led to how we were speculating around growth.

Yeah, it was primarily commercial auto, both in the primary as well as excess and how that can bubble up to excess and umbrella, but that was not the only culprit, but it was the majority of it.

And as far as the years go, I don't have that, but if you want to follow up with Karen or Rich, we can try and give you more insight.

No. Okay.

The answer is that, you know, we are not of the view that we just come up with a number, and it doesn't matter where the stock price is, and we just go out and buy stock. We operate like owners, and we have a view that every now and then you get somebody's algorithm that does something that doesn't make sense to us. And when that happens, we step in as we see opportunity, or we'll see someone offer a perspective on the company that for whatever the reason spreads like wildfire, and that creates an opportunity, and then we will look to buy. So, do we still have what I suggested in the past? A nine figure, or excuse me, a 10 figure number of excess capital?

Yes, we do. Do I expect that we will continue to be thoughtful in how we return it to the people that it belongs to without a doubt? I would suggest that it would be a mistake, in my opinion, for you to read too deeply into what went on in the quarter.

Sorry, I missed the part. I'm not sure I'm fully understanding the question.

The answer is similar to what I suggested earlier. The majority of what you were referring to came through as a result of our property risk book or a non-tatt exposed loss activity.

So, the short answer is no, it wouldn't have a consequential impact.

Let's go ahead. You want to add?

The other point I would just highlight, Tracy, is that when you look at the composition of our portfolio, we've got 60 operating units. Some of those operating units are growing and others are shrinking at the same time. So, the composition overall could shift from quarter to quarter. So, it's not inconceivable to see that the accident year loss ratio could move some number of tens of basis points from quarter to quarter as well.

So, that's right.

I think that, well, the reason why I stopped was because Rick started to yawn, but to make a long story short, I think that the advancements in robotics, which much of it is being driven off of AI, not all of it, but much of it, I think, undoubtedly is going to have an impact on the workforce. And I think that there are a lot of people that are viewing AI is just having an impact on aspects of the white collar labor force. And I would suggest to you that I think there's material impact potentially over time beyond that. Meaning that the workforce might decline a little bit.

I think that, ultimately, the labor force in this country and around the world is going to be a challenge as to how quickly we can retool people's skill sets. And there are certain jobs that are going to go away, not just because of AI in an office environment, but robotics can play an ever increasing role. And we've seen it through a certain extent in manufacturing. And I think that there is likely the potential for it to go beyond how we typically think of that. And there could be implications for the workers' compliance as an example, at least in some parts of the economy.

Well, I think what we're not liking is we've chatted about or commented on for probably not this quarter's maybe years of this stage as it relates to casualty reinsurance or the seating commissions. We just don't think it makes the economic sense. We think that other people are willing to rent their capital for a lower price than what we are prepared to rent our capital for.

And we think that there is more opportunity at this moment in time on the insurance front as it relates to other liability. Quite frankly, there's an opportunity for you to be less of a commodity in the insurance space than there is in particularly the treaty reinsurance space.

And it's pretty bright in other liability. The opportunity, we are grateful for what we have in front of us. And we think that there is an opportunity to continue to grow that business for the foreseeable.

Yes, that's rich being the measured CFL client and manager expectations.

At this stage, we are pleased with the rate that we're able to achieve by and large and how that will maintain or enhance margins. So we feel like we're in a pretty good place. What will that mean for tomorrow? I don't know. Will the reinsurance market continue to be very aggressive and create more competition in the insurance marketplace? Possibly, but I think it's probably pretty thin in my opinion to begin with. So look, the other reality is that different folks have taken different approaches to their investment portfolio and to what extent they're able to capitalize on a higher interest rate environment that varies by operation. When we look out at what people's durations are and give or take them in their mix of business, how that compares to where they can take duration, I think many of our peers are somewhat stuck.

They're not likely going to be taking it out much farther and it will be hard for them to reposition. So ultimately, I think that you should assume, in my opinion, will property maybe become a bit more choppy? Yes, I believe it will. Do I think much of the liability market is going to be pretty stable for us and there are some pockets where things could improve a bit here and there? Yes, I do. Do I think the big headline for us is learning with $24 billion that can get reinvested at 80 basis points to 100 basis points above where we currently are? Yeah, I think that that is a lot of leverage in our economic model to be had and also the comment that I made about how the portfolio turns over and how quickly we are able to take advantage of the higher rates, just with the existing portfolio, let alone the new cash flow.

So do I think everything is perfect? No, sir, I don't. Do I think we have more of a tailwind than a headwind? Yes, I believe we do and I think given our mix and have a business in position, that will likely be the case for a longer period of time than some of our peers that have a different mix and a position themselves for investment portfolio-wise in a different manner than we have.

So the MGA, MGAU thing, that is not a cornerstone of our distribution, though we do have some of that. Generally, I think what you are referring to is alternative distribution where we may not be going through traditional distribution. So we have some operations that are taking traditional wholesale products, taking a direct retail. We have some operations that are dealing directly with customer.

I think we may have also flagged our efforts around the area or the effort of embedded or point of sale, if you like, where we sell insurance along with another product that is the primary transaction that's occurring. If my recollection is correct, it was perhaps a comment that from our perspective, we are very committed and we are very dedicated to traditional distribution.

We are grateful for those partnerships and we will continue to support them. At the same time, we are conscious of the fact that in the end, the customer is Queen or King and that we as an organization have to be willing to meet them where and how they wish to be met. So we will continue to partner and work in a traditional manner, but as customers may look to be engaged in a different way, we feel it is our obligation to meet them where they want to be met and not turn our back on them.

Hey, good afternoon.

So long story short, we have a view that AI is a real exposure and our colleagues are running the various businesses, particularly on the front end, are actively grappling with that exposure and making sure that they are, understand it, be they are comfortable with it and see that they are getting paid appropriately for it. We have done a lot of work thanks to many colleagues and making sure that we have the appropriate warnings and we are not just taking whatever is being served up by the industry, we need to make sure that it makes sense for what we are doing through our lens. So do I think that there is a severe latency exposure? I think that we are on it and we are focused on making sure that that is not the case.

Ken, I promise you that there is nothing out there, Mike, absolutely not, but we are working very diligently to make sure the exposure, as I suggested earlier, is identified, understood, controlled and we're getting paid for it. And yes, we were one of the companies that people were bitching about that we had exclusionary language that we were applying when we feel as appropriate and quite frankly, we think that is our responsibility and some people may like it, some people may not, but ultimately that's part of our responsibility in managing capital.

Yeah, when our colleagues are, you know, forming views of how the next quarter quarters will unfold, there certainly is a component of that around rate and that can evolve over time, obviously, as we have more data, we're able to refine our view. But yes, we growth and rate are not one and the same, but they're not exclusive of one another in our book.

Thank you very much.

Is the stock worth anything less when we have an unrealized loss in the bond portfolio? Is that the question? We mean, we think about how to understand your question correctly. As Rich flagged in his comments, we're holding this stuff to maturity. It's super high quality. The average quality is a strong double A minus. And as you can see, the duration is quite short, to say the least. So when you look at our organization, our portfolio, and you think about from a valuation perspective, no, I do not think that it would be appropriate to discount the bonds per Rich's comments earlier or when you think about what does it mean for book value. That's how we think about it for all the reasons that we just referenced.

In fact, I think a different way to think about it is what is the opportunity for this organization to put more money to work at higher rates, push out the duration, lock those rates in, and what does that mean for the earnings power of the business? That's how I would suggest would be an alternative view.

There are things that we look at all the time. And Josh, as we shared with you in the past, from our perspective, we think that there are meaningful off balance sheet, if you like, gains or not fully reflected gains that could be had through some of our assets that we hold, that we carry at something less than what we believe market value is. So is that something we could do?

You can liquefy them when you want it to, I suppose. That's correct.

I think you might think about it, that given where interest rates are, and given what our reserves, there's a reasonable chance we will continue to nudge out that duration and capture. And I think the higher you see rates go, the more that opportunity could present itself.

Thank you, sir. Thank you very much, Josh.

Good afternoon.

Sure. It's really two-fold, Mark. And thank you for the question. First off, larger accounts as the market becomes incrementally more challenging or competitive. Larger accounts, more zeros, turning into eye candy, compromises people's discipline. We're a very disciplined shop to my colleagues' credit. So that's one reality. The other reality is because of the investments that have and continue to be made on the technology front, we are able to be more responsive than many of our peers in turning quotes around. And speed is a huge advantage in the small account space slash responsiveness in differentiating oneself.

Rich can give you more detail on it, but one of them had to do with a very large tax payment. So I guess that was taxes when you have to pay more. I guess that's supposed to be happy news, but it doesn't always feel like it when you send the money. And then there were a couple of other items, but Rich can unpack it. I would suggest that I would not read too deeply into it. There are a couple of one-time items, but a tax piece is the biggest. But give us a call and we can go through a chapter and verse if you like.

Yes, sir. Thank you.

I think one of the ways to think about it is that that contributes in our ability to be able to get to a lot more smaller counts. So we are able to touch, quote, more business more easily than we could in the past. The comment that I was making and perhaps I should have been more specific is our ability to take in submissions and quote them is up by that 20%. So we're getting that many more at that, if you will. And that is allowing us what historically, when we'd lose the large accounts, we would struggle to make up for it and then some. So that would be an example just on the front end of being able to leverage that technology.

And we have it in a couple of spots. And I think you'll see us push that out more and more across the organization. And we have a few different solutions that are able to do in this. So we're always trying to internally through different organizations, create a little bit of a sense, thanks.

The answer is an element in the equation, but it is not sort of blindly introduced. So we have lots of conversations around with people where, quite frankly, the loss ratio or the combined ratio could pick up to a level that maybe some might be able to justify given where interest rates are, but we're not willing to completely open that faucet up. So it's really a combination. Are we conscious of the contribution investment income to make? Absolutely. Does it play a role in how we think about loss ratio? Yes, it does. Does it drive it on its own? No. Because when the day is all done, when we write a piece of business, that piece of business is going to lock up capital for the life of that exposure.

And we need to be mindful of that as well.

Thank you, Brian. Have a good evening.

I think the efforts of many colleagues throughout the organization to have the foresight to invest in technology and the data that powers it for some number of years will not necessarily keep the expense ratio undoubtedly from ticking up, but it will help mitigate it from ticking up. So as our earned premium may begin to slow due to market conditions, the technology will allow us to maintain a level of efficiency that will contain that expense ratio from moving up as it perhaps would have in the past. It does not mean it will not not mean it won't move up. It certainly doesn't mean we won't be potentially making other investments that could move it up, but all things being equal, we are more well positioned to control it today and even more so tomorrow than we could yesterday.

So the short answer is I don't know. Change is a funny thing. It doesn't feel like much changes from day to day, but when you look over back over a two year, a three year, a five year, let alone a 10 year period, it's shocking how much things actually change. When you travel to other parts of the world, particularly parts of Asia, it's noteworthy as to have there are certain environments. There are fewer people and more robotic activity that's going on.

I would think that over time, we will see more of it here. How quickly that will come to be? I don't know, but do I think it is on the horizon and getting closer every day? Yes, I believe that's very likely. Are we seeing any specific examples impacting the business that we operate, not through the lens of the clients that we serve?

Sure. Thank you.

Good. How are you?

On the short-tail lines, we've quite frankly been pretty surprised over the past several years how there wasn't more of an impact on lost costs even during that period coming out of COVID where there was financial inflation. We just didn't see the pop. Additionally, it's been surprising to us that tariffs along the way did not play a greater role. Do I think that there could be a greater impact that is more visible tomorrow than today? Yes, that is certainly a possibility.

But quite frankly, with market conditions as they are, it's starting to look for commercial property. It's rapidly looking reasonably unattractive even without that happening.

I think that one needs to unpack those models and really look at where the capital is coming from, whose paper it is, who's in control, and really understand particularly some of the ability to force commutation. So I would encourage folks as they are while I appreciate the point and agree that there's more activity. I think one needs to unpack it and really lead the fine print and understand what type of risk transfer is going on and what type of security is associated with it.

Thank you. Have a good evening.

Okay. Well, thank you very much, everyone, for your time and your interest again in the company. From our perspective, it was a very solid quarter and equally, if not more interesting, that we think the business is particularly well positioned to continue to deliver outstanding returns. We will look forward to catching up with you all sometime in January. Thank you very much and have a good evening.