W. R. Berkley Corporation Reports Third Quarter Results

W. R. Berkley Corporation (NYSE:WRB) today reported net income for the third quarter of 2013 of $137 million, or 97 cents per share, compared with $101 million, or 71 cents per share, for the third quarter of 2012.

Summary Financial Data

(Amounts in thousands, except per share data)
  Third Quarter   Nine Months
2013   2012 2013   2012
 
Gross premiums written $ 1,667,106 $ 1,494,724 $ 4,916,663 $ 4,327,170
Net premiums written 1,423,625 1,275,887 4,142,489 3,670,404
 
Net income 136,974 100,947 369,546 345,103
Net income per diluted share 0.97 0.71 2.62 2.41
 
Operating income (1) 108,460 86,136 310,925 283,360
Operating income per diluted share 0.77 0.61 2.20 1.98
 
Return on equity (2) 12.7 % 10.2 % 11.4 % 11.6 %

(1) Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains and after-tax debt extinguishment costs.

(2) Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity.

Third quarter highlights included:
  • Net premiums written increased 12%.
  • Average rates on renewed policies increased 6.4%.
  • GAAP combined ratio was 93.9%.
  • Return on equity of 12.7%.

Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "The third quarter moved us forward in many ways. We continued to see our loss ratio improve and our return on equity increase. Cumulative pricing in our domestic insurance segment is up approximately 18% over the past three years. The Company's combined ratio should improve as these higher rates are fully reflected in earned premium. However, current prices on an inflation adjusted basis are still below the peak levels achieved in 2004.

"Given current interest rates, we are focusing on improving underwriting margins by continuing to increase our rates and reducing our expense ratio. Our non-fixed income portfolio continued to generate substantial gains, driven by our equity securities. We are optimistic that overall investment returns will improve over the next eighteen months.

"Some standard markets lacked the appropriate knowledge to understand the risks they were assuming in the specialty arena during the softer part of the market. Now a number of these overly aggressive competitors are starting to pay the price for their lack of underwriting discipline. Price alone will not solve their problems. This will create further opportunities.

"We expect continued improvement in our combined ratio over the coming year," Mr. Berkley concluded.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on Tuesday, October 22, 2013, at 10:30 am. eastern time. The conference call will be webcast live on the Company's website at www.wrberkley.com. A replay of the webcast will be available on the Company's website approximately two hours after the end of the conference call.

About W. R. Berkley Corporation

Founded in 1967, W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates in three segments of the property casualty business: Insurance-Domestic, Insurance-International and Reinsurance-Global.

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 2013 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 alternative 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, real estate, merger arbitrage and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; 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 to it, on our results and financial condition; foreign currency and political risks relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Act of 2002, as amended ("TRIA"), and the potential expiration of TRIA; the ability of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or data security; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These risks and uncertainties could cause our actual results for the year 2013 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

Consolidated Financial Summary

(Amounts in thousands, except per share data)
 
  Third Quarter   Nine Months
2013   2012 2013   2012
Revenues:
Net premiums written $ 1,423,625 $ 1,275,887 $ 4,142,489 $ 3,670,404
Change in unearned premiums (94,763 ) (89,354 ) (298,993 ) (236,863 )
Net premiums earned 1,328,862 1,186,533 3,843,496 3,433,541
Investment income 125,634 116,019 405,300 434,888
Insurance service fees 26,121 26,208 80,509 77,121
Net investment gains 43,869 17,226 96,896 84,989
Change in investment valuation allowance, net of other than temporary impairments 5,000 9,014
Revenues from wholly-owned investees 109,390 68,087 284,900 173,196
Other income 248   1,428   754   2,204  
Total revenues 1,634,124   1,420,501   4,711,855   4,214,953  
Expenses:
Losses and loss expenses 798,276 736,632 2,348,425 2,147,306
Other operating costs and expenses 504,096 451,487 1,479,986 1,332,024
Expenses from wholly-owned investees 103,170 66,177 273,615 172,438
Interest expense 30,349   32,512   92,667   93,750  
Total expenses 1,435,891   1,286,808   4,194,693   3,745,518  
Income before income taxes 198,233 133,693 517,162 469,435
Income tax expense (60,045 ) (32,685 ) (147,249 ) (124,291 )
Net income before noncontrolling interests 138,188 101,008 369,913 345,144
Noncontrolling interests (1,214 ) (61 ) (367 ) (41 )
Net income to common stockholders $ 136,974   $ 100,947   $ 369,546   $ 345,103  
 
Net income per share:
Basic $ 1.01 $ 0.74 $ 2.72 $ 2.51
Diluted $ 0.97 $ 0.71 $ 2.62 $ 2.41
 
Average shares outstanding:
Basic 135,268 136,553 135,726 137,512
Diluted 140,758 141,637 141,095 142,941

Business Segment Operating Results

(Amounts in thousands, except ratios) (1) (2)
 
  Third Quarter   Nine Months
2013   2012 2013   2012
Insurance-Domestic:
Gross premiums written $ 1,254,868 $ 1,127,578 $ 3,620,776 $ 3,217,150
Net premiums written 1,054,465 952,332 3,008,429 2,704,594
Premiums earned 958,994 873,835 2,769,369 2,530,638
Pre-tax income 172,177 132,498 465,861 424,873
Loss ratio 59.5 % 62.9 % 61.6 % 63.6 %
Expense ratio 33.0 % 31.8 % 32.9 % 32.6 %
GAAP combined ratio 92.5 % 94.7 % 94.5 % 96.2 %
 
Insurance-International:
Gross premiums written $ 193,557 $ 170,037 $ 686,870 $ 587,603
Net premiums written 166,061 140,444 572,641 483,414
Premiums earned 189,054 157,773 540,365 456,159
Pre-tax income 16,129 13,806 51,094 43,287
Loss ratio 59.4 % 57.8 % 58.8 % 57.8 %
Expense ratio 38.0 % 41.3 % 38.3 % 40.7 %
GAAP combined ratio 97.4 % 99.1 % 97.1 % 98.5 %
 
Reinsurance-Global:
Gross premiums written $ 218,681 $ 197,109 $ 609,017 $ 522,417
Net premiums written 203,099 183,111 561,419 482,396
Premiums earned 180,814 154,925 533,762 446,744
Pre-tax income 24,559 23,048 87,252 82,140
Loss ratio 63.7 % 61.9 % 60.9 % 61.3 %
Expense ratio 33.8 % 36.4 % 35.1 % 37.6 %
GAAP combined ratio 97.5 % 98.3 % 96.0 % 98.9 %
 
Corporate and Eliminations:
Net realized investment gains $ 43,869 $ 22,226 $ 96,896 $ 94,003
Interest expense (30,349 ) (32,512 ) (92,667 ) (93,750 )
Other revenues and expenses (28,152 ) (25,373 ) (91,274 ) (81,118 )
Pre-tax loss (14,632 ) (35,659 ) (87,045 ) (80,865 )
 
Consolidated:
Gross premiums written $ 1,667,106 $ 1,494,724 $ 4,916,663 $ 4,327,170
Net premiums written 1,423,625 1,275,887 4,142,489 3,670,404
Premiums earned 1,328,862 1,186,533 3,843,496 3,433,541
Pre-tax income 198,233 133,693 517,162 469,435
Loss ratio 60.1 % 62.1 % 61.1 % 62.5 %
Expense ratio 33.8 % 33.7 % 34.0 % 34.3 %
GAAP combined ratio 93.9 % 95.8 % 95.1 % 96.8 %

(1) Commencing with the first quarter of 2013, the Company reports its results in three segments – Insurance-Domestic (formerly, Specialty, Regional and Alternative Markets), Insurance-International and Reinsurance-Global. Reclassifications have been made to the Company’s 2012 financial information to conform with this presentation.

(2) 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)
 
  Third Quarter   Nine Months
2013   2012 2013   2012
Insurance-Domestic net premiums written:
Other liability $ 353,170 $ 298,862 $ 1,024,836 $ 867,251
Workers' compensation 271,889 241,044 795,954 711,850
Short-tail lines (1) 215,710 209,673 601,866 578,140
Commercial automobile 138,062 131,190 382,711 356,888
Professional liability 75,634   71,563   203,062   190,465  
Total $ 1,054,465   $ 952,332   $ 3,008,429   $ 2,704,594  
 
Losses from catastrophes:
Insurance-Domestic $ 5,603 $ 5,909 $ 35,959 $ 36,000
Insurance-International 3,477 735 6,881 789
Reinsurance-Global 3,699     2,109   9,112   2,595  
Total $ 12,779   $ 8,753   $ 51,952   $ 39,384  
 
Investment income:
Core portfolio (2) $ 108,404 $ 126,740 $ 345,787 $ 375,826
Investment funds 11,738 (13,118 ) 45,248 50,124
Arbitrage trading account 5,492   2,397   14,265   8,938  
Total $ 125,634   $ 116,019   $ 405,300   $ 434,888  
 
Other operating costs and expenses:
Underwriting expenses $ 449,711 $ 399,677 $ 1,305,195 $ 1,177,620
Service expenses 21,064 22,769 66,505 63,996
Debt extinguishment costs 6,709
Net foreign currency gains (1,617 ) (1,575 ) (6,388 ) (2,873 )
Other costs and expenses 34,938   30,616   107,965   93,281  
Total $ 504,096   $ 451,487   $ 1,479,986   $ 1,332,024  
 
Cash flow from operations $ 312,763 $ 140,938 $ 626,695 $ 453,349
 
Reconciliation of operating and net income:
Operating income (3) $ 108,460 $ 86,136 $ 310,925 $ 283,360
After-tax investment gains 28,514 14,811 62,982 61,743
After-tax debt extinguishment costs     (4,361 )  
Net income $ 136,974   $ 100,947   $ 369,546   $ 345,103  

(1) Short-tail lines includes commercial multi-peril (non-liability), inland and ocean 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 and after-tax debt extinguishment costs. Management believes that excluding net realized investment gains and debt extinguishment costs provides a useful indicator of trends in the Company’s underlying operations.

Selected Balance Sheet Information

(Amounts in thousands, except per share data)
 
  September 30, 2013   December 31, 2012
 
Net invested assets (1) $ 15,516,133 $ 15,681,803
Total assets 20,523,719 20,155,896
Reserves for losses and loss expenses 10,061,054 9,751,086
Senior notes and other debt 1,696,461 1,871,535
Junior subordinated debentures 339,772 243,206
Common stockholders’ equity (2) 4,367,074 4,306,217
Common stock outstanding (3) 135,138 136,018
Book value per share (4) 32.32 31.66
Tangible book value per share (4) 31.27 30.95

(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) After-tax unrealized investment gains were $290 million and $518 million as of September 30, 2013 and December 31, 2012, respectively. Unrealized currency translation losses were $62 million and $37 million as of September 30, 2013 and December 31, 2012, respectively.

(3) During the third quarter of 2013, the Company repurchased 194,838 shares of its common stock at an average cost of $41.10 per share and an aggregate cost of $8 million. During the first nine months of 2013, the Company repurchased 971,075 shares of its common stock at an average cost of $40.54 per share and an aggregate cost of $39 million.

(4) 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

September 30, 2013

(Amounts in thousands)
   
Carrying

Value
Percent

of Total
 
Fixed maturity securities:
United States government and government agencies $ 825,059 5.3 %
State and municipal:
Special revenue 2,029,400 13.1 %
State general obligation 768,735 5.0 %
Pre-refunded 634,447 4.1 %
Corporate backed 415,627 2.7 %
Local general obligation 337,910   2.2 %
Total state and municipal 4,186,119   27.1 %
Mortgage-backed securities:
Agency 1,086,626 7.0 %
Residential — Prime 205,382 1.3 %
Commercial 130,926 0.8 %
Residential — Alt A 99,101   0.6 %
Total mortgage-backed securities 1,522,035   9.7 %
Corporate:
Industrial 1,615,097 10.4 %
Asset-backed 1,055,299 6.8 %
Financial 908,449 5.9 %
Utilities 218,512 1.4 %
Other 108,113   0.7 %
Total corporate 3,905,470   25.2 %
Foreign 1,173,364   7.6 %
Total fixed maturity securities (1) 11,612,047   74.9 %
Equity securities available for sale:
Common stocks 238,542 1.5 %
Preferred stocks 100,365   0.6 %
Total equity securities available for sale 338,907   2.1 %
Cash and cash equivalents (2) 1,026,047 6.6 %
Investment funds (3) 859,702 5.5 %
Arbitrage trading account 619,881 4.0 %
Real estate 647,698 4.2 %
Loans receivable 411,851   2.7 %
Net invested assets $ 15,516,133   100.0 %

(1) Total fixed maturity securities had an average rating of AA- and an average duration of 3.2 years.

(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 $14 million.

 Foreign Fixed Maturity Securities

         September 30, 2013

         (Amounts in thousands)
 
  Government   Corporate   Total
Australia $ 253,731 $ 97,873 $ 351,604
Canada 141,852 63,875 205,727
United Kingdom 131,742 59,297 191,039
Argentina 114,041 57,981 172,022
Germany 66,081 66,081
Norway 61,674 61,674
Brazil 54,908 54,908
Supranational (1) 33,904 33,904
Netherlands 15,648 15,648
Switzerland 10,750 10,750
Singapore 6,847 6,847
Uruguay 3,160     3,160
Total $ 867,940   $ 305,424   $ 1,173,364

(1) Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development.

Copyright Business Wire 2010

More from Press Releases

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

21st Century Fox Scoops Up Local News Stations

21st Century Fox Scoops Up Local News Stations

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Three-Part FREE Webinar Series

Three-Part FREE Webinar Series

March 24 Full-Day Course Offering: Professional Approach to Trading SPX

March 24 Full-Day Course Offering: Professional Approach to Trading SPX