Net Premiums Written Grew 16.9% to a Quarterly Record of
Summary Financial Data
(Amounts in thousands, except per share data)
Second Quarter
Six Months
2022
2021
2022
2021
Gross premiums written
$
3,052,401
$
2,661,236
$
5,912,237
$
5,145,948
Net premiums written
2,585,635
2,212,181
4,998,889
4,262,219
Net income to common stockholders
179,322
237,238
769,960
466,763
Net income per diluted share (2)
0.64
0.85
2.76
1.66
Operating income (1)
313,359
219,059
619,827
420,840
Operating income per diluted share (2)
1.12
0.78
2.22
1.50
Return on equity (3)
10.8
%
15.0
%
23.1
%
14.8
%
Operating return on equity (1) (3)
18.8
%
13.9
%
18.6
%
13.3
%
(1) Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains (losses) and related expenses.
(2) The 2021 per share amounts were restated for comparative purposes to reflect the 3-for-2 common stock split effected on
(3) Return on equity and operating return on equity represent net income and operating income, respectively, expressed on an annualized basis as a percentage of beginning of year common stockholders' equity.
Second quarter highlights included:
Record gross and net premiums written grew 14.7% and 16.9% to
Underwriting income increased 32.6% to
The current accident year combined ratio before catastrophe losses of 2.5 loss ratio points was 86.2%.
The reported combined ratio was 88.6%, including catastrophe losses of
Net investment income for the core portfolio grew 29.7%.
Total capital returned to shareholders was
Operating return on equity of 18.8%.
The Company commented:
The Company reported excellent results for the second quarter of 2022, principally due to strong underwriting income, with an 88.6% combined ratio and an 18.8% annualized operating return on beginning stockholders' equity. The short duration of our investment portfolio tempered the impact of rising interest rates on the value of the Company's fixed-maturity securities and consequently its book value.
Net premiums written grew by nearly 17% as market conditions remained favorable for most lines of business. The majority of our businesses expanded, particularly in the E&S and specialty markets. After several years of compounding rate, most of our businesses are achieving or exceeding our target return on equity, and we are placing greater emphasis on exposure growth. In addition, this growth has driven further improvement in our expense ratio.
Core net investment income grew nearly 30% due primarily to higher yields. Our investment funds, which are reported on a one-quarter lag, performed well despite challenging equity markets in the first quarter of 2022. We expect investment income will benefit further as interest rates continue to move higher.
The Company is performing exceptionally well. Our results demonstrate how our strategy and execution translate into consistently superior long-term risk-adjusted returns and value creation. Our talented team is well-prepared and our underwriting and investment portfolios remain well-positioned for the uncertainties and challenges of today's environment, including inflation. We continue to be optimistic about the remainder of 2022 and beyond.
Webcast Conference Call
The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on
About
Founded in 1967,
Forward Looking Information
This is a 'Safe Harbor' Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2022 and beyond, are based upon the Company's historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the impact of significant competition, including new entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts, including claims for cybersecurity-related risks; natural and man-made catastrophic losses, including as a result of terrorist activities; the ongoing COVID-19 pandemic; the impact of climate change, which may alter the frequency and increase the severity of catastrophe events; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response, on our results and financial condition; foreign currency and political risks (including those associated with the
Consolidated Financial Summary
(Amounts in thousands, except per share data)
Second Quarter
Six Months
2022
2021
2022
2021
Revenues:
Net premiums written
Change in unearned premiums
(228,477)
(240,557)
(392,645)
(440,639)
Net premiums earned
2,357,158
1,971,624
4,606,244
3,821,580
Net investment income
171,574
168,187
345,086
326,764
Net investment (losses) gains:
Net realized and unrealized (losses) gains on investments
(163,935)
20,461
205,947
72,219
Change in allowance for credit losses on investments
(7,620)
3,603
(11,237)
(13,316)
Net investment (losses) gains
(171,555)
24,064
194,710
58,903
Revenues from non-insurance businesses
128,421
109,122
226,197
196,552
Insurance service fees
26,393
22,256
54,344
48,064
Other Income
896
833
1,716
1,092
Total Revenues
2,512,887
2,296,086
5,428,297
4,452,955
Expenses:
Loss and loss expenses
1,435,817
1,203,647
2,775,069
2,325,238
Other operating costs and expenses
699,819
647,705
1,413,718
1,263,973
Expenses from non-insurance businesses
122,966
106,698
217,822
192,989
Interest expense
31,723
38,096
66,693
74,747
Total expenses
2,290,325
1,996,146
4,473,302
3,856,947
Income before income tax
222,562
299,940
954,995
596,008
Income tax expense
(43,095)
(62,262)
(182,499)
(126,614)
Net Income before noncontrolling interests
179,467
237,678
772,496
469,394
Noncontrolling interest
(145)
(440)
(2,536)
(2,631)
Net income to common stockholders
Net income per share (1):
Basic
Diluted
Average shares outstanding (1) (2):
Basic
276,815
277,733
276,794
277,763
Diluted
279,525
280,659
279,327
280,478
(1) The 2021 per share amounts were restated for comparative purposes to reflect the 3-for-2 common stock split effected on
(2) Basic shares outstanding consist of the weighted average number of common shares outstanding during the period (including shares held in a grantor trust). Diluted shares outstanding consist of the weighted average number of basic and common equivalent shares outstanding during the period.
Business Segment Operating Results
(Amounts in thousands, except ratios) (1)
Second Quarter
Six Months
2022
2021
2022
2021
Insurance:
Gross premiums written
Net premiums written
2,326,125
1,994,212
4,399,416
3,734,036
Net premiums earned
2,070,157
1,727,202
4,032,991
3,332,181
Pre-tax income
347,461
291,290
729,873
548,399
Loss ratio
61.0 %
61.4 %
60.3 %
61.3 %
Expense ratio
27.7 %
28.5 %
27.9 %
28.9 %
GAAP Combined ratio
88.7 %
89.9 %
88.2 %
90.2 %
Reinsurance & Monoline Excess:
Gross premiums written
Net premiums written
259,510
217,969
599,473
528,183
Net premiums earned
287,001
244,422
573,253
489,399
Pre-tax income
92,177
74,794
149,805
143,443
Loss ratio
60.4 %
58.2 %
60.2 %
57.4 %
Expense ratio
27.4 %
30.4 %
28.4 %
30.6 %
GAAP Combined ratio
87.8 %
88.6 %
88.6 %
88.0 %
Corporate and Eliminations:
Net investment (losses) gains
Interest expense
(31,723)
(38,096)
(66,693)
(74,747)
Other expenses
(13,798)
(52,112)
(52,700)
(79,990)
Pre-tax (loss) gain
(217,076)
(66,144)
75,317
(95,834)
Consolidated:
Gross premiums written
Net premiums written
2,585,635
2,212,181
4,998,889
4,262,219
Net premiums earned
2,357,158
1,971,624
4,606,244
3,821,580
Pre-tax income
222,562
299,940
954,995
596,008
Loss ratio
60.9 %
61.0 %
60.2 %
60.8 %
Expense ratio
27.7 %
28.7 %
28.0 %
29.1 %
GAAP Combined ratio
88.6 %
89.7 %
88.2 %
89.9 %
(1) Loss ratio is losses and loss expenses incurred expressed as a percentage of premiums earned. Expense ratio is underwriting expenses expressed as a percentage of premiums earned. GAAP combined ratio is the sum of the loss ratio and the expense ratio.
Supplemental Information
(Amounts in thousands)
Second Quarter
Six Months
2022
2021
2022
2021
Net premiums written:
Other liability
Short-tail lines (1)
484,849
391,778
878,767
716,830
Workers' compensation
330,721
315,638
634,141
602,362
Commercial automobile
335,451
279,204
614,978
527,771
Professional liability
296,984
280,208
563,343
485,657
2,326,125
1,994,212
4,399,416
3,734,036
Casualty reinsurance
189,983
156,216
388,138
331,081
Monoline excess
24,228
23,664
116,764
109,172
Property reinsurance
45,299
38,089
94,571
87,930
Total Reinsurance & Monoline Excess
259,510
217,969
599,473
528,183
Total
Current accident year losses from catastrophes (including COVID-19 related losses):
Insurance
Reinsurance & Monoline Excess
18,000
7,162
36,065
10,162
Total
Net Investment income:
Core portfolio (2)
Investment funds
33,861
61,311
85,874
100,246
Arbitrage trading account
4,126
3,915
13,313
22,989
Total
Net realized and unrealized (losses) gains on investments:
Net realized (losses) gains on investments
Change in unrealized losses on equity securities
(131,530)
(18,239)
(38,317)
(42,574)
Total
Other operating costs and expenses:
Policy acquisition and insurance operating expenses
Insurance service expenses
23,890
21,789
46,356
42,575
Net foreign currency gains
(39,827)
(1,125)
(43,995)
(6,719)
Debt extinguishment costs
-
7,903
-
11,520
Other costs and expenses
62,663
53,405
122,810
105,114
Total
Cash flow from operations
Reconciliation of net income to operating income:
Net income
Pre-tax investment losses (gains), net of related expenses
171,555
(23,271)
(190,056)
(56,573)
Income tax (benefit) expense
(37,518)
5,092
39,923
10,650
Operating income after-tax (3)
(1) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.
(2) Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable.
(3) Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains (losses). Net investment gains (losses) are computed net of related expenses, including performance-based compensatory costs associated with realized investment gains. Management believes this measurement provides a useful indicator of trends in the Company's underlying operations.
Selected Balance Sheet Information
(Amounts in thousands, except per share data)
Net invested assets (1)
Total assets
32,692,447
32,047,876
Reserves for losses and loss expenses
16,145,821
15,390,888
Senior notes and other debt
1,832,273
2,259,416
Subordinated debentures
1,008,011
1,007,652
Common stockholders' equity (2)
6,514,485
6,653,011
Common stock outstanding (3) (4)
265,273
265,171
Book value per share (4) (5)
24.56
25.09
Tangible book value per share (4) (5)
23.60
24.27
(1) Net invested assets include investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases, net of related liabilities.
(2) As ofJune 30, 2022 , reflected in common stockholders' equity are after-tax unrealized investment losses of$670 million and unrealized currency translation losses of$360 million . As ofDecember 31, 2021 , after-tax unrealized investment gains were$91 million and unrealized currency translation losses were$373 million .
(3) During the six months endedJune 30, 2022 , the Company did not repurchase any shares of its common stock. The number of shares of common stock outstanding excludes shares held in a grantor trust.
(4) The 2021 per share amounts were restated for comparative purposes to reflect the 3-for-2 common stock split effected onMarch 23, 2022 .
(5) Book value per share is total common stockholders' equity divided by the number of common shares outstanding. Tangible book value per share is total common stockholders' equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding.
Investment Portfolio
(Amounts in thousands, except percentages)
Carrying Value
Percent of Total
Fixed maturity securities:
3.1 %
State and municipal:
Special revenue
1,867,636
7.9 %
Local general obligation
416,940
1.8 %
State general obligation
414,939
1.7 %
Pre-refunded
203,899
0.9 %
Corporate backed
160,208
0.7 %
Total state and municipal
3,063,622
13.0 %
Mortgage-backed securities:
Agency
821,398
3.5 %
Commercial
405,597
1.7 %
Residential - Prime
250,052
1.1 %
Residential - Alt A
4,207
0.0 %
Total mortgage-backed securities
1,481,254
6.3 %
Asset-backed securities
4,292,488
18.2 %
Corporate:
Industrial
3,215,637
13.7 %
Financial
1,811,661
7.7 %
Utilities
422,101
1.8 %
Other
239,726
1.0 %
Total corporate
5,689,125
24.2 %
Foreign government
1,604,111
6.8 %
Total fixed maturity securities (1)
16,851,514
71.6 %
Equity securities available for sale:
Common stocks
932,672
4.0 %
Preferred stocks
222,654
0.9 %
Total equity securities available for sale
1,155,326
4.9 %
Investment funds (3)
1,701,478
7.2 %
Real estate
1,304,094
5.5 %
Cash and cash equivalents (2)
1,277,294
5.4 %
Arbitrage trading account
1,142,003
4.9 %
Loans receivable
113,483
0.5 %
Net invested assets
100.0 %
(1) Total fixed maturity securities had an average rating of AA- and an average duration of 2.4 years, including cash and cash equivalents.
(2) Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.
(3) Investment funds are net of related liabilities of
Vice President - External
(203) 629-3000
Source:
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