W.R. Berkley Corporation, a commercial lines property/casualty insurance company, indicated in its Q4 and full year 2021 earnings call that while it is optimistic about 2022, it is exercising caution when it comes to workers’ compensation.
“We do have sensitivity to the workers’ comp line,” President and CEO Rob Berkley said on the call. “We think there still are opportunities there, but one needs to be very cautious.”
He said that the growth seen in that line is being driven by payroll growth across the board, and the company is making sure to “peel back a few layers” and understand what’s going on in the business from both a frequency and severity standpoint.
“I would tell you that there is no doubt that severity continues to pick up at a notable rate,” he said. “As far as frequency goes, I think that the industry needs to be very careful that they do not lose sight of what the consequences were of COVID and how that created a pinch point in the legal system.”
He added that although the pandemic may have contributed to a drop in frequency, he believes that is likely a temporary phenomenon. He also cited action by state rating bureaus as another reason the company is watching workers’ compensation closely.
“The action that state rating bureaus have been taking for what would be measured in years, I think, has been pretty heavy handed,” he said. “I think there are some people that may have lost sight of the one-time benefit around comp claims activity that occurred during COVID, perhaps, and we don’t think that people are paying an appropriate level of attention to a severity trend.”
He said that the company is seeing aggressiveness on pricing as well as raised commissions on the product line both among regional players and national carriers. While the company continues to like the line of business, according to Berkley, it is “watching very carefully” and pursuing exposures at rates that make sense.
“The severity trend is one that we have and continue to have our eye very focused on,” he said. “Clearly, the frequency trend continues to be a trend for the industry, but that severity trend is not one that should be, in our opinion, ignored.”
Richard Baio, executive vice president and chief financial officer, added that the underwriting side of the business saw strong growth in the fourth quarter through both rate and exposure that is expected to continue. Its operating income increased 64% over the prior year’s quarter to $284 million, or $1.53 per share on a full year basis. He said the key contributors are related to record underwriting results for the quarter and full year, as well as strong net investment income.
This momentum in the business continued throughout the year with growth and quarterly gross premiums written of 24.5% to almost $2.8 billion, bringing the company to $10.7 billion for the full year, Baio said. Similarly, net premiums written grew 26.6% quarter over quarter to about $2.3 billion and a full year of approximately $8.9 billion. Total net premiums written saw an average increase of almost 26%.
Baio added that despite heightened catastrophe activity, these losses did not materially impact the company’s earnings this year. W.R. Berkley reported cat losses of $49 million, or 2.2 loss ratio points, for 2021 compared with $42 million, or 2.3 loss ratio points, in the prior year. Of that, $12 million was attributed to COVID-19, or 0.6 loss ratio points of the 2.2 reported for the year.
Berkley said that moving forward, the company will continue to focus on specialty lines.
“Essentially, across the board, it’s all about specialty business these days,” he said. “We have the right people with the right expertise, whether it’s on the commercial lines side, admitted or non-admitted, whether it’s domestic or international, or certainly would not want to leave out our colleagues on the high net worth side. We are on firing on basically all cylinders.”
He added that the company plans to continue making meaningful investments in both talent and technology. Executive Chairman William R. Berkley said that although the company is more tightly controlled than it was 10 years ago, it has also grown more complex.
“We’re nimble,” he said. “We constantly are adjusting for changes we see in the future. And while we’re optimistic, we’re not naive. Everything we see leads us to believe that certainly 2022 will be an excellent year looking beyond the difficulties, but the signs are positive and the team is prepared.”