W. R. Berkley Corporation (WRB) Earnings

Management highlights

- Overall Q2 2026 Performance * Operating earnings per diluted share grew 21% to $1.27, totaling $497 million, with an annualized return on beginning-of-year equity of 20.5% * Pre-tax underwriting income reached $318 million (the company's second-best quarterly result), and pre-tax net investment income hit a record $419 million * $334 million in total capital was returned to shareholders via regular/special dividends and share repurchases, consistent with Q1 2026 levels * Calendar year combined ratio was 90%, current accident year combined ratio excluding catastrophe losses was 88.1%, and catastrophe losses were $62 million, a $37 million decrease year-over-year - Market Condition & Cycle Outlook * The market is increasingly fragmented by product line, putting greater emphasis on underwriting expertise and pricing discipline for cycle management * Attractive opportunities exist in broad casualty (excluding problematic pockets), A&H, and private client personal lines, where the company is actively deploying capital for growth * The current softening dynamic differs from past cycles: product lines are decoupled across different cycle stages (rather than moving in lockstep), while the core driver of fear/greed remains consistent - AI & Technology Investments * The company is investing in AI to drive operational efficiency, focused on leveraging existing third-party large language models rather than building proprietary models from scratch * Early AI deployments on digital underwriting workbenches (from intake to quoting) have delivered a 20+% efficiency uplift with further upside expected * AI is being deployed for straight-through processing of small claims (50% of the company's claims settle for $5,000 or less), improving speed of service for claimants and freeing up staff time for higher-value work - Capital & Investment Strategy * Q2 operating cash flow reached $800 million (up from $700 million year-over-year), supporting continued growth of the investment portfolio * New money rates are comfortably above 5%, higher than the 4.8% domestic book yield, creating ongoing upside for net investment income * Portfolio duration was incrementally increased to 3.2 years, which still remains below the 3.9-year average life of insurance reserves, leaving room for further gradual extension if appropriate

Guidance

- The company reaffirms it will maintain the full-year expense ratio at 30% or better, even with ongoing investments in technology, data, and AI - Management expects steady top-line insurance growth, with room for further incremental rate slowdown as the company prioritizes growing exposure and count in lines with attractive margins, in line with prior communicated strategy - No material change to long-term cycle expectations; management sees ongoing opportunities to generate attractive returns in targeted segments despite broader industry softening in property and select casualty lines

Segment performance

1. Insurance: Gross premiums written grew 5.4% to a record $3.8 billion, net premiums written increased 3.7% to a record $3.1 billion. The current accident year loss ratio excluding catastrophes was 61%, and the expense ratio was 28.3% flat year-over-year, resulting in a current accident year combined ratio excluding catastrophes of 89.3%. This segment contributed 91% of total net premiums written. 2. Reinsurance and Monoline Excess: Heightened competition across property and casualty lines led to a decrease in net premiums written to $306 million, equal to 9% of total net premiums written. Lower catastrophe and non-catastrophe property losses drove a strong current accident year combined ratio excluding catastrophes of 78.7%. 3. Investments: Net invested assets grew to $34.2 billion. Core portfolio income increased 13% year-over-year to $371 million, and investment funds income grew 5.6% to $28.8 million. The fixed maturity portfolio (including cash/cash equivalents) has a credit quality of AA- and duration of 3.2 years.

Risks & headwinds

- Uncontrolled growth of the MGU (Managing General Underwriter) delegated authority model, with misaligned incentives between capital owners and underwriting operators, is creating excessive risk-taking that will lead to poor outcomes for some market participants, particularly in shared/layered property business - Pricing is eroding rapidly in property reinsurance, and casualty reinsurance never saw the pricing strength that property experienced, leading the company to shrink its exposure to casualty reinsurance more quickly than property - Isolated pockets of casualty (specifically habitational and liquor liability) are seeing excessive pricing cuts of 20-30%, with irresponsible risk-taking that will likely lead to future losses - Competition from admitted markets for E&S business is increasing incrementally, putting additional margin pressure on the sector - Current low catastrophe activity is lulling the broader property market into a false sense of security, which will likely result in industry losses when catastrophe activity returns to normal levels

Analyst Q&A

• Q: With the current trend of slowing rate increases, do you expect further incremental rate slowdown through the second half of 2026 and 2027, and how will that impact insurance segment growth? /

  A: Management notes directionally they know where market trends are going, but timing remains unclear. Early July data shows encouraging top-line momentum. The company has room to adjust rates further in attractive margin segments, and the goal is to optimize the tradeoff between rate and growth. Management does not expect significant drops in growth, and further improvement is possible. There is no material change to strategy, which prioritizes growth in lines where margins are attractive.

• Q: Why are you not growing exposure as much in other liability and commercial auto, and do you expect more growth ahead? /

  A: For other liability, the company still finds opportunities to grow, but growth is shaped by rate conditions. For commercial auto, the company is taking substantial rate increases while exposure is falling quickly. The Berkley 1 segment offsets some of this exposure decline, and the company still sees opportunity in parts of the commercial auto line.

• Q: The company has been gradually increasing portfolio duration over recent years. Is this a conscious strategy, and do you expect the traditional relationship between attractive float returns and underwriting to hold? /

  A: The gradual increase in duration is a conscious decision. The company was very short duration previously, and is comfortable incrementally extending duration to lock in higher longer-term yields, with no obligation to close the full gap between asset and liability duration. A shift to cash flow underwriting is not visible today, but could emerge if rates stay elevated for a long enough period. The MGU model is already engaging in irresponsible capital management driven by misaligned incentives, separate from float return dynamics.

• Q: Is the deceleration in rate increases partially driven by a better view of loss cost trends, and does new distribution contribute to projected top-line growth? /

  A: The company has a clear view of available margins across lines, and is willing to incrementally lower rates to gain more business that still offers exceptional returns. This approach sometimes involves reviewing previously booked loss reserves to see if more margin exists than originally estimated, with loss cost trend as one component of analysis. New distribution channels and access to new risk pools do contribute to current top-line growth, and are expected to contribute more going forward, as the company meets insureds wherever they prefer to do business while maintaining its long-standing commitment to traditional distribution. New distribution has not had a material impact on the expense ratio to date.

• Q: Is the current cycle's softening different from past soft cycles, and how will that impact cycle duration? /

  A: Core drivers of the cycle (human emotion of fear and greed) remain the same as past cycles, but the current cycle is different because product lines are now decoupled across different cycle stages, rather than moving in lockstep. Cycle duration depends on how quickly losses and capital destruction come into focus to drive renewed discipline. Management notes California workers' compensation is already showing early catalysts for a pricing turn, as current industry loss ratios are unsustainable.