News Column

W. R. Berkley Corporation Reports Second Quarter Results

July 28, 2014

Net Income per Share Increased 65%, Return on Equity 16.6%

GREENWICH, Conn.--(BUSINESS WIRE)-- W. R. Berkley Corporation (NYSE:WRB) today reported net income for the second quarter of 2014 of $180 million, or $1.35 per share.

         
Summary Financial Data
(Amounts in thousands, except per share data)
 
Second Quarter Six Months
2014     2013   2014     2013  
 
Gross premiums written $ 1,772,401 $ 1,617,936 $ 3,577,668 $ 3,249,557
Net premiums written 1,489,776 1,341,898 3,015,656 2,718,864
 
Net income 179,961 115,957 349,634 232,572
Net income per diluted share 1.35 0.82 2.60 1.65
 
Operating income (1) 109,002 98,830 244,385 202,465
Operating income per diluted share 0.82 0.70 1.82 1.43
 
Return on equity (2) 16.6 % 10.8 % 16.1 % 10.8 %
 
(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.
 


Second quarter highlights included:

  • Net premiums written grew 11%.
  • Return on equity was 16.6%.
  • GAAP combined ratio improved to 94.4%.
  • Net investment gains were $109 million.
  • Book value per share increased 5.5% to $36.20.

    Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We were very pleased with our second quarter results. Weather-related losses are typically higher in the second quarter than in other quarters for our Company, and this year such losses were about average. We were able to grow our top line by about 11%. Price increases for our domestic insurance businesses were approximately 4%; thus, for the twelfth quarter in a row, prices increased at a rate in excess of loss costs. We believe that in such an environment our goal should be to grow selectively where the margins are most attractive. We continue to focus on reducing our expense ratio, which declined by six tenths of a point in the quarter.

    "We have maintained the quality of our fixed-income portfolio, while at the same time investing an increasing portion of new funds into alternative investments with the goal of generating capital gains. As a result, we have sacrificed some ordinary investment income to achieve the level of capital gains currently flowing into our income statement. Our investment returns from our fixed-income portfolio declined slightly, reflecting both the current interest rate environment and the shortening of our portfolio duration, while other parts of our investment activities have generated attractive returns over the recent period. The sale of a property from our real-estate portfolio resulted in a substantial gain this quarter. We also continue to achieve gains from our common stock and private equity investments.

    "We are optimistic that the combination of our operating results and investment gains will allow us to achieve our targeted returns," 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, July 29, at 9:00 a.m. 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 2014 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 2014 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)
     
    Second Quarter Six Months
    2014     2013   2014     2013  
    Revenues:
    Net premiums written $ 1,489,776 $ 1,341,898 $ 3,015,656 $ 2,718,864
    Change in unearned premiums (72,131 ) (59,383 ) (234,399 ) (204,230 )
    Net premiums earned 1,417,645 1,282,515 2,781,257 2,514,634
    Investment income 138,729 143,737 307,440 279,666
    Insurance service fees 26,922 27,652 55,625 54,388
    Net investment gains 109,168 33,058 161,922 53,027
    Revenues from wholly-owned investees 104,285 83,775 197,125 175,510
    Other income 240   225   526   506  
    Total revenues 1,796,989   1,570,962   3,503,895   3,077,731  
    Expenses:
    Losses and loss expenses 867,778 805,470 1,689,873 1,550,149
    Other operating costs and expenses 534,150 494,286 1,049,316 975,890
    Expenses from wholly-owned investees 101,296 81,293 193,026 170,445
    Interest expense 30,311   31,207   60,641   62,318  
    Total expenses 1,533,535   1,412,256   2,992,856   2,758,802  
    Income before income taxes 263,454 158,706 511,039 318,929
    Income tax expense (83,277 ) (43,579 ) (161,178 ) (87,204 )
    Net income before noncontrolling interests 180,177 115,127 349,861 231,725
    Noncontrolling interests (216 ) 830   (227 ) 847  
    Net income to common stockholders $ 179,961   $ 115,957   $ 349,634   $ 232,572  
     
    Net income per share:
    Basic $ 1.41 $ 0.85 $ 2.72 $ 1.71
    Diluted $ 1.35 $ 0.82 $ 2.60 $ 1.65
     
    Average shares outstanding:
    Basic 127,668 135,894 128,765 135,959
    Diluted 133,304 141,274 134,323 141,257
     
             

    Business Segment Operating Results

    (Amounts in thousands, except ratios) (1)

     
    Second Quarter Six Months
    2014     2013   2014     2013  
    Insurance-Domestic:
    Gross premiums written $ 1,351,624 $ 1,186,186 $ 2,694,566 $ 2,365,908
    Net premiums written 1,123,843 967,784 2,250,224 1,953,964
    Premiums earned 1,041,745 925,997 2,045,252 1,810,375
    Pre-tax income 176,855 152,334 379,040 293,684
    Loss ratio 60.9 % 62.9 % 60.4 % 62.7 %
    Expense ratio 32.3 % 32.5 % 32.4 % 32.8 %
    GAAP combined ratio 93.2 % 95.4 % 92.8 % 95.5 %
     
    Insurance-International:
    Gross premiums written $ 265,200 $ 241,738 $ 542,386 $ 493,313
    Net premiums written 222,622 201,445 448,443 406,580
    Premiums earned 201,868 180,192 387,192 351,311
    Pre-tax income 11,510 12,583 29,257 34,965
    Loss ratio 60.7 % 61.0 % 60.0 % 58.5 %
    Expense ratio 38.8 % 38.9 % 39.4 % 38.4 %
    GAAP combined ratio 99.5 % 99.9 % 99.4 % 96.9 %
     
    Reinsurance-Global:
    Gross premiums written $ 155,577 $ 190,012 $ 340,716 $ 390,336
    Net premiums written 143,311 172,669 316,989 358,320
    Premiums earned 174,032 176,326 348,813 352,948
    Pre-tax income 25,866 24,752 57,940 62,693
    Loss ratio 63.4 % 63.9 % 64.0 % 59.4 %
    Expense ratio 31.9 % 35.1 % 32.4 % 35.7 %
    GAAP combined ratio 95.3 % 99.0 % 96.4 % 95.1 %
     
    Corporate and Eliminations:
    Net realized investment gains $ 109,168 $ 33,058 $ 161,922 $ 53,027
    Interest expense (30,311 ) (31,207 ) (60,641 ) (62,318 )
    Other revenues and expenses (29,634 ) (32,814 ) (56,479 ) (63,122 )
    Pre-tax gain (loss) 49,223 (30,963 ) 44,802 (72,413 )
     
    Consolidated:
    Gross premiums written $ 1,772,401 $ 1,617,936 $ 3,577,668 $ 3,249,557
    Net premiums written 1,489,776 1,341,898 3,015,656 2,718,864
    Premiums earned 1,417,645 1,282,515 2,781,257 2,514,634
    Pre-tax income 263,454 158,706 511,039 318,929
    Loss ratio 61.2 % 62.8 % 60.8 % 61.6 %
    Expense ratio 33.2 % 33.8 % 33.4 % 34.0 %
    GAAP combined ratio 94.4 % 96.6 % 94.2 % 95.6 %
     
    (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
    2014     2013   2014     2013  
    Insurance-Domestic net premiums written:    
    Other liability $ 400,289 $ 348,110 $ 771,720 $ 671,666
    Workers' compensation 283,995 225,888 630,865 524,065
    Short-tail lines (1) 235,972 206,357 443,081 386,156
    Commercial automobile 129,282 121,063 263,808 244,649
    Professional liability 74,305   66,366   140,750   127,428  
    Total $ 1,123,843   $ 967,784   $ 2,250,224   $ 1,953,964  
     
    Losses from catastrophes:
    Insurance-Domestic $ 38,370 $ 26,696 $ 51,111 $ 30,356
    Insurance-International 272 3,171 1,403 3,404
    Reinsurance-Global 1,148   4,293   1,246   5,413  
    Total $ 39,790   $ 34,160   $ 53,760   $ 39,173  
     
    Investment income:
    Core portfolio (2) $ 109,431 $ 116,171 $ 218,824 $ 237,383
    Investment funds 22,356 22,576 76,155 33,510
    Arbitrage trading account 6,942   4,990   12,461   8,773  
    Total $ 138,729   $ 143,737   $ 307,440   $ 279,666  
     
    Other operating costs and expenses:
    Underwriting expenses $ 470,296 $ 433,271 $ 928,434 $ 855,484
    Service expenses 23,607 23,136 45,864 45,441
    Debt extinguishment costs 6,709 6,709
    Net foreign currency (gain) loss 1,993 (6,718 ) 1,659 (4,771 )
    Other costs and expenses 38,254   37,888   73,359   73,027  
    Total $ 534,150   $ 494,286   $ 1,049,316   $ 975,890  
     
    Cash flow from operations $ 111,459 $ 198,820 $ 254,623 $ 313,932
     
    Reconciliation of operating and net income:
    Operating income (3) $ 109,002 $ 98,830 $ 244,385 $ 202,465
    After-tax investment gains 70,959 21,488 105,249 34,468
    After-tax debt extinguishment costs     (4,361 )       (4,361 )
    Net income $ 179,961   $ 115,957   $ 349,634   $ 232,572  
     
    (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 and after-tax debt extinguishment costs. Management believes that excluding net investment gains and after-tax 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)
     

    June 30,

    2014

    December 31,

    2013

     
    Net invested assets (1) $ 16,017,443 $ 15,540,488
    Total assets 21,167,194 20,551,796
    Reserves for losses and loss expenses 10,256,219 10,080,941
    Senior notes and other debt 1,697,037 1,692,442
    Junior subordinated debentures 339,930 339,800
    Common stockholders’ equity (2) 4,619,713 4,336,035
    Common stock outstanding (3) 127,613 132,233
    Book value per share (4) 36.20 32.79
    Tangible book value per share (4) 35.18 31.74
     
    (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 $378 million and $257 million as of June 30, 2014 and December 31, 2013, respectively. Unrealized currency translation losses were $40 million and $61 million as of June 30, 2014 and December 31, 2013, respectively.
     
    (3) During the second quarter of 2014, the Company repurchased 100,514 shares of its common stock for $4.6 million. During the first six months of 2014, the Company repurchased 4,908,701 shares of its common stock for $198 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
    June 30, 2014
    (Amounts in thousands)
     

    Carrying

    Value

    Percent

    of Total

     
    Fixed maturity securities:
    United States government and government agencies $ 867,127 5.4 %
    State and municipal:
    Special revenue 2,219,350 13.9 %
    State general obligation 715,219 4.5 %
    Pre-refunded 604,868 3.8 %
    Corporate backed 443,660 2.8 %
    Local general obligation 308,599   1.9 %
    Total state and municipal 4,291,696   26.9 %
    Mortgage-backed securities:
    Agency 1,005,318 6.3 %
    Residential - Prime 163,031 1.0 %
    Residential — Alt A 82,798 0.5 %
    Commercial 80,387   0.5 %
    Total mortgage-backed securities 1,331,534   8.3 %
    Corporate:
    Asset-backed 1,608,080 10.0 %
    Industrial 1,564,582 9.8 %
    Financial 1,164,931 7.3 %
    Utilities 194,196 1.2 %
    Other 97,533   0.6 %
    Total corporate 4,629,322   28.9 %
    Foreign government 968,376   6.0 %
    Total fixed maturity securities (1) 12,088,055   75.5 %
    Equity securities available for sale:
    Preferred stocks 153,532 1.0 %
    Common stocks 103,527   0.6 %
    Total equity securities available for sale 257,059   1.6 %
    Investment funds (3) 979,450 6.1 %
    Arbitrage trading account 732,279 4.6 %
    Real estate 530,239 3.3 %
    Cash and cash equivalents (2) 774,670 4.8 %
    Loans receivable 655,691   4.1 %
    Net invested assets $ 16,017,443   100.0 %
     
    (1)   Total fixed maturity securities had an average rating of AA- and an average duration of 3.1 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 $5 million.
     
         
    Foreign Government Fixed Maturity Securities
    June 30, 2014
    (Amounts in thousands)
     
    Carrying Value
     
    Australia $ 258,187
    United Kingdom 188,303
    Canada 171,353
    Argentina 114,038
    Brazil 68,431
    Germany 66,485
    Norway 52,320
    Supranational (1) 39,105
    Singapore 6,768
    Uruguay 3,386
    Total $ 968,376
     
    (1)   Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development.





    W. R. Berkley Corporation

    Karen A. Horvath, 203-629-3000

    Vice President - External Financial Communications


    Source: W. R. Berkley Corporation


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