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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
COMMISSION FILE NUMBER 0-7849
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W.R. BERKLEY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-1867895
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
165 MASON STREET, P.O. BOX 2518, GREENWICH, CT 06836-2518
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 629-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.20 per share
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market of voting stock held by non-affiliates of the registrant
based on the closing price of such stock on the Nasdaq National Market as of
March 3, 2000: $327,382,427.
Number of shares of common stock, $.20 par value, outstanding as of March
3, 2000: 25,616,578.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1999 Annual Report to Stockholders for the year
ended December 31, 1999 are incorporated herein by reference in Part II, and
portions of the registrant's definitive proxy statement, which will be filed
with the Securities and Exchange Commission within 120 days after December 31,
1999, are incorporated herein by reference in Part III.
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W. R. BERKLEY CORPORATION
ANNUAL REPORT ON FORM 10-K
December 31, 1999
Page
SAFE HARBOR STATEMENT 3
PART I
ITEM 1. BUSINESS 4
ITEM 2. PROPERTIES 22
ITEM 3. LEGAL PROCEEDINGS 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 23
ITEM 6. SELECTED FINANCIAL DATA FOR THE FIVE YEARS
ENDED DECEMBER 31, 1999 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 25
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 26
ITEM 11. EXECUTIVE COMPENSATION 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K 29
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SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Any
forward-looking statements contained herein, including those related to the
Company's performance for the year 2000, are based upon the Company's historical
performance and on current plans, estimates and expectations. They are subject
to various risks and uncertainties, including but not limited to, the impact of
competition, product demand and pricing, claims development, catastrophe and
storm losses, investment results, legislative and regulatory developments and
other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission. These risks could cause the Company's actual
results for the 2000 fiscal year and beyond to differ materially from those
expressed in any forward-looking statement made by or on behalf of the Company.
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.
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PART I
ITEM 1. BUSINESS
General Description of the Company's Business
W. R. Berkley Corporation (the "Company"), a Delaware corporation, is
an insurance holding company which, through its subsidiaries, presently operates
in all segments of the property casualty insurance business: regional property
casualty insurance; reinsurance; specialty lines of insurance (including excess
and surplus lines and commercial transportation); alternative markets (including
the management of alternative insurance market mechanisms); and international.
The Company was founded on the concept that a group of autonomous regional and
specialty insurance entities could compete effectively in selected markets
within a very large industry. Decentralized control allows each subsidiary or
regional group to respond to local or specialty market conditions while
capitalizing on the effectiveness of centralized investment and reinsurance
management and actuarial, financial and legal staff support.
The Company's regional insurance operations are conducted primarily in
the New England, Mid Atlantic, Midwest and Southern regions of the United
States. Reinsurance, specialty insurance and alternative markets operations are
conducted nationwide. Presently, international operations are conducted
primarily in Argentina and the Philippines.
Net premiums written, as reported on a generally accepted accounting
principles ("GAAP") basis, by the Company's five major insurance industry
segments for the five years ended December 31, 1999 were as follows:
Year Ended December 31,
--------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Amounts in thousands)
Net premiums written:
Regional insurance operations $ 649,849 $ 641,316 $ 618,768 $ 517,515 $ 460,732
Reinsurance operations 309,181 269,634 206,652 218,200 196,299
Specialty insurance operations 260,380 254,003 219,272 214,738 171,520
Alternative markets operations 122,137 106,195 90,870 76,876 25,998
International operations 86,172 75,106 42,079 25,182 5,872
------------ ------------ ------------ ------------ ----------
Total $ 1,427,719 $ 1,346,254 $ 1,177,641 $ 1,052,511 $ 860,421
============ ============ ============ ============ ==========
Percentage of net premiums written:
Regional insurance operations 45.5% 47.6% 52.6% 49.2% 53.6%
Reinsurance operations 21.7 20.0 17.5 20.7 22.8
Specialty insurance operations 18.2 18.9 18.6 20.4 19.9
Alternative markets operations 8.6 7.9 7.7 7.3 3.0
International operations 6.0 5.6 3.6 2.4 .7
------------ ------------ ------------ ------------ ----------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
============ ============ ============ ============ ==========
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The following sections briefly describe the Company's insurance
segments and subsidiaries. The statutory information contained herein is derived
from that reported to state regulatory authorities in accordance with statutory
accounting practices ("SAP"). The descriptions contain each significant
insurance subsidiary's rating by A.M. Best and Company, Inc. ("A.M. Best"). A.M.
Best's ratings are based upon factors of concern to policyholders, insurance
agents and brokers and are not directed toward the protection of investors. A.M.
Best states: "Best's Ratings reflect [its] opinion as to the relative financial
strength and performance of each insurer in comparison with others, based on
[its] analysis of the information provided to [it]. These ratings are not a
warranty of an insurer's current or future ability to meet its contractual
obligations." A.M. Best reviews its ratings on a periodic basis, and ratings of
the Company's subsidiaries are therefore subject to change.
REGIONAL INSURANCE OPERATIONS
The Company's regional property casualty subsidiaries write standard commercial
and personal lines insurance for such risks as automobiles, homes and
businesses. The Company's regional insurance operations have historically been
conducted through ten principal operating subsidiaries. In 1999, the Company
restructured the management and back-office operations of these ten companies
into four geographic units based on markets served. As part of the
restructuring, certain back office functions and operating redundancies were
minimized or eliminated.
The regional groups, and the primary regional company for each group,
are as follows:
- New England - Acadia Insurance Company
- Mid Atlantic - Firemen's Insurance Company of Washington, D.C.
- Midwest - Continental Western Insurance Company
- Southern Tier - Union Standard Insurance Company
Berkley Regional Insurance Company ("BRIC"), an intermediate holding
company, owns all of the capital stock of the regional insurance companies and
reinsures varying portions of the business written by the regional operations.
BRIC is currently rated A by A.M. Best. This is a group rating which applies
to each of the regional insurance companies and certain other subsidiaries as
noted herein.
NEW ENGLAND REGIONAL INSURANCE GROUP
Acadia Insurance Company ("Acadia") writes multiple line property and
casualty coverages principally in the States of Maine, New Hampshire, Vermont
and Massachusetts and sells its personal and commercial coverages through
independent agencies. Acadia's net premiums written for the year ended December
31, 1999 were $133,168,000. Acadia utilizes its subsidiary, Cadillac Mountain
Insurance Company, as a companion writer.
MID ATLANTIC REGIONAL INSURANCE GROUP
The Mid Atlantic regional insurance group consists of Firemen's
Insurance Company of Washington, D.C. ("Firemen's), Berkley Insurance Company of
the Carolinas ("BICC"), Chesapeake Bay Property and Casualty Insurance Company
("Chesapeake") and The Presque Isle Insurance Division of Firemen's. Firemen's
is the lead company in the Mid Atlantic group and manages the affairs of the
group from its headquarters in Richmond, Virginia. Firemen's, Chesapeake and
BICC sell their policies primarily through agents in the District of Columbia
and the States of Maryland, North Carolina, Pennsylvania and Virginia.
Firemen's Insurance Company of Washington, D.C. writes homeowners,
other personal lines and commercial risks in the District of Columbia and in the
States of Maryland, North Carolina and Virginia. In March 1995, Firemen's
established The Presque Isle Insurance Division in order to expand its
operations into the Commonwealth of Pennsylvania. Firemen's net premiums written
for the year ended December 31, 1999 were $60,231,000.
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Berkley Insurance Company of the Carolinas writes personal and
commercial lines in North Carolina and is expanding to surrounding states. Its
net premiums written for the year ended December 31, 1999 were $33,805,000.
Chesapeake Bay Property and Casualty Insurance Company writes personal
and commercial lines in the State of Virginia. Chesapeake's net premiums written
for the year ended December 31, 1999 were $28,573,000.
MIDWEST REGIONAL INSURANCE GROUP
The Midwest regional insurance group consists of Continental Western
Insurance Company ("Continental Western"), American West Insurance Company
("American West"), Tri-State Insurance Company of Minnesota ("Tri-State") and
Union Insurance Company ("Union"). Continental Western is the lead company in
the group and manages group affairs from its office in Urbandale, Iowa.
Continental Western, Tri-State and Union obtain their business primarily in the
smaller communities of the Midwest through independent insurance agencies, which
represent them on a non-exclusive basis and are compensated on a commission
basis. The following are brief descriptions of the companies in the Midwest
regional group:
Continental Western Insurance Company writes a diverse commercial lines
book of business as well as personal lines principally in the States of Iowa,
Nebraska, Kansas, Illinois, Missouri, Wisconsin and Montana. Continental
Western's net premiums written for the year ended December 31, 1999 were
$167,395,000.
American West Insurance Company's business consists primarily of
personal lines in the States of Minnesota, Montana, Wisconsin and South Dakota.
American West's net premiums written for the year ended December 31, 1999 were
$8,871,000.
Tri-State Insurance Company of Minnesota writes commercial lines
(specializing in grain elevator coverages), as well as personal lines, primarily
in the States of Minnesota, Iowa, North and South Dakota, Nebraska, Wisconsin
and Illinois. Tri-State's net premiums written for the year ended December 31,
1999 were $52,782,000.
Union Insurance Company's business consists of personal lines as well
as commercial lines insurance concentrated in the States of Nebraska, Kansas,
Colorado and South Dakota. Union's net premiums written for the year ended
December 31, 1999 were $56,468,000.
SOUTHERN TIER REGIONAL INSURANCE GROUP
The Southern Tier regional insurance group consists of Union Standard
Insurance Company ("Union Standard") and Great River Insurance Company ("Great
River"). Union Standard is the lead company in the group and manages group
affairs from its office in Irving, Texas. Union Standard and Great River obtain
their business primarily in the smaller communities of the Southwest through
independent insurance agencies, which represent them on a non-exclusive basis
and are compensated on a commission basis. The following are brief descriptions
of the companies in the Southern Tier regional group:
Union Standard Insurance Company writes personal lines and commercial
lines of insurance for small businesses in the States of Texas, Oklahoma,
Arkansas, Colorado and Arizona. Union Standard's net premiums written for the
year ended December 31, 1999 were $69,715,000.
Great River Insurance Company writes personal and commercial lines in
Mississippi, Tennessee, Alabama and Louisiana and is expanding to surrounding
states. Great River's net premiums written for the year ended December 31, 1999
were $38,841,000.
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Regional Operations: Business
The following table sets forth the percentages of direct premiums
written, by line, by the Company's regional insurance operations:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Commercial Multi-Peril 21.9% 20.7% 20.5% 20.8% 21.5%
Workers' Compensation 17.8 18.6 19.3 20.1 20.8
Automobile:
Personal 14.3 14.8 15.2 16.4 17.4
Commercial 21.7 20.8 19.6 17.4 15.6
General Liability 7.0 6.9 6.8 6.5 6.1
Homeowners 5.8 6.3 7.1 7.9 8.7
Fire and Allied Lines 4.5 4.7 5.0 4.7 4.6
Inland Marine 3.6 3.4 2.0 2.8 2.6
Other 3.4 3.8 4.5 3.4 2.7
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
The following table sets forth the percentages of direct premiums
written, by state, by the Company's regional insurance operations:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Maine 8.2% 9.4% 10.2% 10.8% 10.8%
Iowa 7.2 7.5 7.7 8.4 9.4
Nebraska 7.1 7.0 7.5 8.2 9.1
Texas 6.3 6.3 6.8 7.5 8.0
New Hampshire 6.0 5.8 5.8 6.0 6.0
Pennsylvania 5.4 5.0 4.8 2.2 --
Minnesota 5.0 5.4 5.3 5.4 5.6
North Carolina 4.8 4.8 4.2 1.5 0.1
Kansas 4.3 4.5 4.6 4.8 4.9
Mississippi 3.9 5.0 5.7 6.1 5.5
Virginia 3.7 4.1 4.2 3.7 2.9
Colorado 3.7 3.5 3.5 3.8 4.1
Massachusetts 3.6 2.2 0.2 0.1 --
Missouri 3.5 3.4 3.6 3.6 3.8
South Dakota 3.5 3.7 4.2 5.4 6.8
Vermont 3.0 3.0 3.2 3.1 2.4
Wisconsin 2.5 2.5 2.6 2.9 3.6
Illinois 2.4 2.6 2.8 3.1 3.5
Arkansas 1.7 1.7 1.8 1.8 2.1
Tennessee 1.6 1.3 1.0 0.4 --
South Carolina 1.4 1.5 1.0 --
Oklahoma 1.3 1.3 1.3 1.3 1.4
Idaho 1.2 1.4 1.1 0.6 0.2
Montana 1.1 1.2 1.3 1.4 1.4
North Dakota 0.9 1.0 1.2 1.6 2.6
Ohio 0.8 0.6 0.5 0.5 0.1
Arizona 0.7 -- -- -- --
Maryland 0.7 0.6 0.7 0.7 0.7
Oregon 0.7 0.6 0.6 0.5 0.3
Other 3.8 3.1 2.6 4.6 4.7
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
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REINSURANCE OPERATIONS
The Company's reinsurance operations consist of six operating units,
which specialize in underwriting property, casualty and surety reinsurance on
both a treaty and a facultative basis. The Company's reinsurance operations are
conducted by Signet Star Holdings, Inc. through its subsidiary Signet Star
Reinsurance Company ("Signet Star"). For financial segment reporting purposes,
the results of the alternative market division of Signet Star are included in
the Company's alternative markets segment. Signet Star is rated A by A.M. Best.
The Property Casualty Treaty Division is the largest business unit in
terms of personnel and premiums written. This division of Signet Star is
committed exclusively to the broker market segment of the treaty reinsurance
industry. It functions as a traditional reinsurer in specialty and standard
reinsurance lines. This unit is de-emphasizing commodity lines of business,
which are experiencing intense competition brought on, in part, by excess
capacity.
Facultative ReSources, Inc. ("Fac Re"), an underwriting manager,
specializes in individual certificate and program facultative business. Fac Re's
highly experienced underwriters seek to offset the underwriting and pricing
cycles in the underlying insurance business by developing risk management
solutions and through superior risk selection. Fac Re develops its business
through brokers and on a direct basis where the client does not choose to use an
intermediary.
The Fidelity and Surety Division ("F&S") operates as a lead reinsurer
in a niche market of the property casualty industry where its highly specialized
knowledge and expertise are essential to meet the needs of fidelity and surety
primary writers. Business is marketed principally through brokers as well as
directly to clients not served by intermediaries.
Gemini Insurance Company is an excess and surplus line insurance
company which commenced business in 1997 to provide Signet Star with primary
issuing carrier capability and thereby generate "reverse flow" business. Under
the reverse flow concept, a reinsurer writes primary business through a
subsidiary or affiliated carrier that is then ceded back to the reinsurer. It
operates as an authorized insurance company in the State of Delaware and will
operate nationwide, as necessary legal and regulatory requirements are met, as
an approved excess and surplus line carrier. Gemini is rated A by A.M. Best.
StarNet Insurance Company ("StarNet") was acquired by Signet Star in
1998 to write reverse flow business on an admitted basis. Signet Star will seek
to license StarNet broadly to serve as an adjunct to Gemini to write primary
business on an admitted basis nationwide. StarNet is rated A by A.M. Best.
The Latin American and Caribbean Division was established in 1996 to
write business exclusively in Latin America and the Caribbean. In January 2000,
Signet Star decided to withdraw from this market place, with no new business
being written after February 1, 2000. The Division's net premiums written for
the year ended December 31, 1999 were $21,088,000.
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Reinsurance Operations: Business
The following table sets forth the percentages of gross premiums
written, by line, by the Company's reinsurance operations:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Treaty:
Casualty and other 46.0% 39.7% 38.7% 45.1% 46.6%
Property and related lines 15.1 19.1 16.1 23.3 26.8
Professional and specialty 10.1 8.4 5.5 4.7 4.8
---- ---- ---- ---- ----
Total Treaty 71.2 67.2 60.3 73.1 78.2
Facultative: 14.9 14.8 15.4 11.7 14.2
Fidelity and Surety 7.7 6.8 10.5 9.5 7.6
Latin American and Caribbean 6.2 11.2 13.8 5.7 --
----- ---- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
The following table sets forth the percentage of gross premiums
written, by property versus casualty business, by the Company's reinsurance
operations:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Property 20.6% 31.4% 32.7 35.2% 33.4%
Casualty 79.4% 68.6% 67.3 64.8 66.6
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
====== ===== ===== ===== =====
SPECIALTY INSURANCE OPERATIONS
The Company's specialty lines of insurance consist primarily of excess
and surplus lines ("E & S"), commercial transportation, professional liability,
directors and officers liability and surety.
Admiral Insurance Company ("Admiral") specializes in E & S general
liability coverages, including products liability and professional liability.
Admiral insures risks requiring specialized treatment not available in the
conventional market, with coverage designed to meet the specific needs of the
insured. Business is received from wholesale brokers via retail agents, whose
clients are the insureds. E & S carriers operate on a non-admitted basis in the
states where they write business. They are generally free from rate regulation
and policy form requirements. Admiral's business is obtained on a nationwide
basis from approximately 190 non-exclusive brokers, who are compensated on a
commission basis. Admiral also writes directors and officers liability insurance
through operations conducted by Monitor Liability Managers, Inc., an
underwriting manager established by the Company. Admiral is rated A++ by A.M.
Best. Admiral's net premiums written for the year ended December 31, 1999 were
$103,738,000.
In 1999, Admiral purchased FICO Insurance Company from Firemen's and
changed its name to Admiral Indemnity Insurance Company ("Admiral Indemnity").
As an admitted company, Admiral Indemnity will compete for certain risks that
might be subject to the commercial lines deregulation enactments (see
"Regulation") as well as other risks which prefer an admitted carrier. Admiral
Indemnity will also continue to write commercial business consisting primarily
of multiple dwelling and restaurant coverages principally in the State of New
York through operations conducted by Clermont Specialty Managers, Ltd., an
underwriting manager which is owned by the Company. Admiral Indemnity is rated A
by A.M. Best (BRIC group rating). Admiral Indemnity's net premiums written for
the year ended December 31, 1999 were $13,320,000.
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Carolina Casualty Insurance Company ("Carolina") writes liability,
physical damage and cargo insurance for the transportation industry,
concentrating on long-haul trucking companies. Public transportation insurance
for such risks as charter buses and school buses also makes up a substantial
part of Carolina's book of business. Carolina's business is obtained nationwide
from approximately 120 agents and brokers who are compensated on a commission
basis. Carolina also writes surety bonds through operations conducted by Monitor
Surety Managers, Inc., an underwriting manager established by the Company. In
December 1998, Carolina began writing directors and officers liability insurance
through operations conducted by Monitor Liability Managers, Inc., an
underwriting manager established by the Company. Carolina is rated A by A.M.
Best. Carolina's net premiums written for the year ended December 31, 1999 were
$82,673,000.
Nautilus Insurance Company ("Nautilus") insures E & S risks which
involve a lower degree of expected severity than those covered by Admiral.
Nautilus obtains its business nationwide from approximately 135 non-exclusive
general agents, some of which also provide business to Admiral. A substantial
portion of Nautilus' business is written on a binding authority basis, subject
to certain contractual limitations. Nautilus is rated A by A.M. Best. Nautilus'
net premiums written for the year ended December 31, 1999 were $60,649,000.
Great Divide Insurance Company ("Great Divide"), a subsidiary of Nautilus also
rated A by A.M. Best, writes transportation risks, as well as other specialty
lines, on an admitted basis.
Specialty Operations: Business
The following table sets forth the percentages of gross premiums
written, by line, by the Company's specialty insurance operations:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
General Liability 30.5% 28.2% 34.1% 35.3% 37.6%
Automobile Liability 18.3 19.0 17.7 20.9 27.5
Professional Liability 16.5 16.9 14.7 12.1 7.0
Directors and Officers Liability 6.6 7.7 8.1 10.0 9.0
Fire and Allied Lines 7.7 7.1 7.5 7.1 4.9
Automobile Physical Damage 6.4 6.1 4.9 5.3 6.8
Medical Malpractice 6.0 6.1 4.0 3.3 2.3
Inland Marine 1.9 1.8 1.5 1.6 2.1
Commercial Multi-Peril 3.3 3.1 3.0 1.0 0.7
Surety 2.1 2.0 1.9 1.3 0.8
Workers' Compensation 0.6 1.9 2.5 1.7 0.7
Other 0.1 0.1 0.1 0.4 0.6
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
ALTERNATIVE MARKETS
The Company's alternative markets operations specialize in insuring,
reinsuring and administering self-insurance programs and other alternative risk
transfer mechanisms for public entities, private employers and associations.
Typical clients are those who are driven by various factors to seek less costly
and more efficient techniques to manage their exposure to claims. The Company's
alternative markets segment consists of both excess and primary workers'
compensation insurance; insurance services operations which manage alternative
market mechanisms; and reinsurance of alternative risk business.
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WORKERS' COMPENSATION INSURANCE
Midwest Employers Casualty Company ("Midwest Employers") markets and
underwrites excess workers' compensation ("EWC") insurance and related risk
management services, including a full range of consulting services. EWC
insurance is marketed primarily to employers and employer groups which have
elected and have qualified or been approved by state regulatory authorities to
self-insure their workers' compensation programs. EWC insurance provides
coverage to a self-insured employer once the employer's losses exceed the
employer's retention amount. Midwest Employers offers a complete line of EWC
products, including specific and aggregate EWC insurance policies and surety
bonds. Midwest Employers is rated A- by A.M.Best. Midwest Employers net premiums
written for the year ended December 31, 1999 were $41,287,000.
Preferred Employers Insurance Company ("Preferred Employers") was
established in 1998 to insure workers' compensation risks in California,
focusing on the small employer market. Preferred Employers is rated A by A.M.
Best (BRIC group rating). Preferred Employers net premiums written for the year
ended December 31, 1999 were $4,073,000.
Key Risk Insurance Company (Key Risk), a North Carolina insurance
company, was organized in 1998 to target the business of funds or other entities
moving out of self-insurance. Key Risk has an A.M. Best rating of A (BRIC group
rating). Its net premiums written for the year ended December 31, 1999 were
$28,103,000.
INSURANCE SERVICES OPERATIONS
The alternative markets insurance service operations are conducted by
Berkley Risk Administrators Company, LLC. This business offer a variety of
products, which include underwriting and claims administration and management of
alternative insurance market mechanisms. In addition, the insurance services
operations provide agency and brokerage services to both affiliated and
unaffiliated entities.
Berkley Risk Administrators Company, LLC ("BRAC") offers a full range
of alternative solutions customized to meet risk financing needs for various
structures, such as assigned risk plans, captive insurance companies, retention
pools, risk retention groups, self-funded plans and specialty insurance company
programs. Program management services include property casualty and workers'
compensation third-party administration, claims adjustment and management,
employee benefit consulting, employee benefit third-party administration,
financial accounting, insurance and reinsurance risk transfer, loss control and
safety consulting, management information systems, regulatory compliance and
relations, risk management consulting, assigned risk plan management,
statistical analysis, underwriting, rating and policy issuance and managed care.
Through its 42 offices in 18 states, BRAC serves a national customer base that
includes businesses, governments, educational institutions, tribal nations,
non-profit entities and insurers.
REINSURANCE
Signet Star - Alternative Markets Division specializes in providing
custom designed reinsurance products and services to alternative markets ("ARM")
clients, such as captive insurance companies, risk retention groups, public
entity insurance trusts and governmental pools. ARM clients are generally
self-insured vehicles which provide insurance buyers with a mechanism for
assuming part of their own risk, managing their exposures, modifying their loss
costs and, ultimately, participating in the underwriting results. Signet Star
has been an active reinsurer of ARM clients for over ten years and is considered
to be one of the leading broker market reinsurers of ARM business. The
Alternative Markets operation is expanding its efforts in single-parent captives
by leveraging its resources and its relationships with affiliates and
establishing strategic alliances with nonaffiliated captive managers. Its net
premiums written for the year ended December 31, 1999 were $49,048,000.
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Alternative Markets Operations: Business
The following table sets forth the percentages of revenues, by major
source of business, of the alternative markets operations:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Workers' Compensation Insurance 49.9% 48.8% 52.7% 56.9% 28.4%
Insurance Service Operations 27.6 29.6 29.3 29.4 49.5
Reinsurance 22.5 21.6 18.0 13.7 22.1
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
INTERNATIONAL OPERATIONS
In 1995, the Company and Northwestern Mutual Life International, Inc.
("NML"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance
Company, entered into a joint venture to form Berkley International LLC
("Berkley International"), a limited liability company. The Company agreed to
contribute up to $65 million to Berkley International in exchange for a 65%
membership interest and NML agreed to contribute up to $35 million to Berkley
International in exchange for a 35% membership interest.
Berkley International owns 99.9% of Berkley International Argentina
S.A. ("Berkley S.A."), an Argentine holding company. It also owns 59% of
Philippine Insurance Holdings, Inc., a Philippine holding company, as well as
67% of Family First, Inc., a direct sales and marketing operation. Berkley S.A.
offers property casualty insurance and life insurance in Argentina. Philippine
Insurance Holdings, Inc. provides endowment policies to fund educational and
retirement needs and diversified life products in the Philippines.
International Operations: Business
The following table set forth the percentages of gross premiums for the
Company's international operations:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Property and Casualty 72.3% 85.5% 96.3% 100.0 100.0%
Life 16.5 10.9 3.7 -- --
---- ---- ----- ----- -----
Total Argentina 88.8 96.4 100.0 100.0 100.0
Philippines 11.2 3.6 -- -- --
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
12
13
Results by Industry Segment
Summary financial information about the Company's operating segments is
presented on a GAAP basis in the following table (all amounts include realized
capital gains and losses):
Year Ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Amounts in thousands)
Regional Insurance Operations
Total revenues $ 702,129 $ 682,519 $ 635,142 $ 529,479 $ 467,009
Income (loss) before income taxes (97,362) (24,524) 47,624 35,169 38,171
Reinsurance Operations
Total revenues 341,940 297,144 242,086 244,066 221,241
Income before income taxes 14,091 33,858 42,193 32,756 19,661
Specialty Insurance Operations
Total revenues 309,068 311,955 284,321 247,131 212,484
Income before income taxes 39,261 85,889 68,088 52,113 37,640
Alternative Markets Operations
Total revenues 222,276 205,935 184,733 172,027 103,656
Income before income taxes 24,919 36,501 34,733 32,278 10,254
International Operations
Total revenues 93,878 80,287 45,360 26,435 7,313
Income (loss) before income taxes 3,535 (7,017) (3,566) (1,283) (259)
13
14
The combined ratio represents a measure of underwriting profitability,
excluding investment income. A number in excess of 100 indicates an underwriting
loss; a number below 100 indicates an underwriting profit. Summary information
for the Company's insurance companies and the insurance industry is presented in
the following table (1):
Year Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Regional Insurance Operations
Loss ratio 84.7% 76.0% 66.6% 66.8% 65.1%
Expense ratio 36.1 35.8 34.0 34.1 34.1
Policyholders' dividend ratio .7 .9 .5 .6 .9
----- ----- ----- ----- -----
Combined ratio 121.5% 112.7% 101.1% 101.5% 100.1%
===== ===== ===== ===== =====
Reinsurance Operations
Loss ratio 76.0% 74.3% 69.2% 73.3% 78.1%
Expense ratio 33.2 31.5 32.1 30.1 26.4
----- ----- ----- ----- -----
Combined ratio 109.2% 105.8% 101.3% 103.4% 104.5%
===== ===== ===== ===== =====
Specialty Insurance Operations
Loss ratio 66.0% 61.8% 61.9% 68.4% 77.9%
Expense ratio 32.9 31.7 33.3 30.9 28.2
Policyholders' dividend ratio .2 .3 .5 .3 .3
----- ----- ----- ----- -----
Combined ratio 99.1% 93.8% 95.7% 99.6% 106.4%
===== ===== ===== ===== =====
Alternative Markets Operations
Loss ratio 67.4% 63.7% 73.1% 74.8% 72.3%
Expense ratio 37.3 36.0 35.8 34.9 31.9
----- ----- ----- ----- -----
Combined ratio 104.7% 99.7% 108.9% 109.7% 104.2%
===== ===== ===== ===== =====
International Operations
Loss ratio 53.3% 59.7% 59.8% 49.7% 50.0%
Expense ratio 46.4 48.5 54.6 49.9 58.3
----- ----- ----- ----- -----
Combined ratio 99.7% 108.2% 114.4% 99.6% 108.3%
===== ===== ===== ===== =====
Combined Insurance Operations
Loss ratio 76.5% 71.2% 66.4% 68.7% 70.7%
Expense ratio 35.4 34.9 34.4 33.1 31.3
Policyholders' dividend ratio .3 .5 .4 .4 .5
----- ----- ----- ----- -----
Combined ratio 112.2% 106.6% 101.2% 102.2% 102.5%
===== ===== ===== ===== =====
Combined Insurance Operations
Premiums to surplus ratio (2) 1.6 1.4 1.2 1.2 1.0
===== ===== ===== ===== =====
Industry Ratios
Combined ratio 107.5% (3) 105.0%(4) 101.6%(4) 107.0%(4) 107.2%(5)
Premiums to surplus ratio .9% (3) .8%(5) .9%(5) 1.0%(5) 1.2%(5)
(1) Based on U.S. statutory accounting practices.
(2) Based on the Company's consolidated net premiums written to statutory
surplus.
(3) Estimated by A.M. Best.
(4) Source: A.M. Best Aggregates & Averages, for stock companies.
(5) Source: A.M. Best Aggregates & Averages, for total industry.
14
15
Investments
Investment results before income tax effects were as follows:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Amounts in thousands)
Average investments, at cost $3,045,391 $2,996,707 $2,873,730 $2,538,806 $2,081,547
========== ========== ========== ========== ==========
Investment income,
before expenses $ 198,556 $ 206,065 $ 205,812 $ 171,047 $ 143,527
========== ========== ========== ========== ==========
Percent earned on
average investments 6.5% 6.9% 7.2% 6.7% 6.9%
========== ========== ========== ========== ==========
Realized gains (losses) $ (6,064) $ 25,400 $ 13,186 $ 7,437 $ 10,357
========== ========== ========== ========== ==========
Change in unrealized investment
gains (losses) (1) $ (173,084) $ 22,147 $ 66,306 $ (22,409) $ 142,475
========== ========== ========== ========== ==========
(1) The change in unrealized investment gains (losses) represents the
difference between fair value and cost of investments at the beginning
and end of the calendar year, including investments carried at cost.
The percentages of the fixed maturity portfolio categorized by
contractual maturity, based on fair value, on the dates indicated, are set forth
below. Actual maturities may differ from contractual maturities because certain
issuers have the right to call or prepay obligations.
December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
1 year or less 3.0% 1.7% 4.4% 3.1% 4.2%
Over 1 year through 5 years 16.4 16.0 26.4 20.7 17.9
Over 5 years through 10 years 26.0 24.4 19.1 25.0 29.4
Over 10 years 34.6 37.2 29.2 27.1 26.2
Mortgage-backed securities 20.0 20.7 20.9 24.1 22.3
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Loss and Loss Adjustment Expense Reserves
In the property casualty industry, it is not unusual for significant
periods of time to elapse between the occurrence of an insured loss, the report
of the loss to the insurer and the insurer's payment of that loss. To recognize
liabilities for unpaid losses, insurers establish reserves, which is a balance
sheet account representing estimates of future amounts needed to pay claims and
related expenses with respect to insured events which have occurred. The
Company's loss reserves reflect current estimates of the ultimate cost of
closing outstanding claims; other than its excess workers' compensation ("EWC")
business, as discussed below, the Company does not discount its reserves to
estimated present value for financial reporting purposes.
15
16
In general, when a claim is reported, claims personnel establish a
"case reserve" for the estimated amount of the ultimate payment. The estimate
represents an informed judgment based on general reserving practices and
reflects the experience and knowledge of the claims personnel regarding the
nature and value of the specific type of claim. Reserves are also established on
an aggregate basis which provide for losses incurred but not yet reported to the
insurer, potential inadequacy of case reserves, the estimated expenses of
settling claims, including legal and other fees and general expenses of
administering the claims adjustment process ("LAE"), and a provision for
potentially uncollectible reinsurance. Each insurance subsidiary's net retention
for each line of insurance is taken into consideration in computation of
ultimate losses.
In examining reserve adequacy, several factors are considered,
including historical data, legal developments, changes in social attitudes and
economic conditions, including the effects of inflation. The actuarial process
relies on the basic assumption that past experience, adjusted judgmentally for
the effects of current developments and anticipated trends, is an appropriate
basis for predicting future events. Reserve amounts are necessarily based on
management's informed estimates and judgments using data currently available. As
additional experience and other data become available and are reviewed, these
estimates and judgments are revised. This may result in increases or decreases
to reserves for insured events of prior years. The reserving process implicitly
recognizes the impact of inflation and other factors affecting loss costs by
taking into account changes in historical claim patterns and perceived trends.
There is no precise method to evaluate the impact of any specific factor on the
adequacy of reserves, because the ultimate cost of closing claims is influenced
by numerous factors.
While the methods for establishing the reserves are well tested over
time, some of the major assumptions about anticipated loss emergence patterns
are subject to fluctuation. In particular, high levels of jury verdicts against
insurers, as well as judicial decisions which "re-formulate" policies to expand
coverage to include previously unforeseen theories of liability, e.g., those
regarding pollution and other environmental exposures, have produced
unanticipated claims and increased the difficulty of estimating the loss and
loss adjustment expense reserves provided by the Company.
Due to the nature of EWC business and the long period of time over
which losses are paid in this line of business, the Company discounts its
liabilities for EWC losses and loss expenses. Discounting liabilities for losses
and loss expenses gives recognition to the time value of money set aside to pay
claims in the future and is intended to appropriately match losses and loss
expenses to income earned on investment securities supporting the liabilities.
The expected losses and loss expense payout pattern subject to discounting was
derived from loss payout experience and is supplemented with data compiled by
insurance companies writing workers' compensation on an excess-of-loss basis.
The expected payout pattern has a very long duration because it reflects the
nature of losses which generally penetrate self-insured retention limits
contained in EWC policies. The Company has limited the expected payout duration
to 30 years in order to introduce an additional level of conservatism into the
discounting process. These liabilities have been discounted using "risk-free"
discount rates determined by reference to the U.S. Treasury yield curve weighted
for EWC premium volume to reflect the seasonality of the anticipated duration of
losses associated with such coverages. The average discount rate for accident
years 1999, 1998, 1997, 1996 and 1995 and prior was approximately 5.90% 5.90%,
5.98%, 5.90% and 5.80%, respectively. The aggregate net discount, after
reflecting the effects of ceded reinsurance, is $186,981,000, $186,964,000,
$189,600,000 and $172,415,000 at December 31, 1999, 1998, 1997 and 1996,
respectively.
To date, known pollution and environmental claims at the Company's
insurance company subsidiaries have not had a material impact on the Company's
operations. Environmental claims have not materially impacted the Company
because these subsidiaries generally did not insure the larger industrial
companies which are subject to significant environmental exposures.
16
17
The Company's net reserves for losses and loss adjustment expenses
relating to pollution and environmental claims were $30,944,000 and $33,391,000
at December 31, 1999 and 1998, respectively. The Company's gross reserves for
losses and loss adjustment expenses relating to pollution and environmental
claims were $65,966,000 and $69,283,000 at December 31, 1999 and 1998,
respectively. Net incurred losses and loss expenses for reported pollution and
environmental claims were approximately $1,371,000, $2,227,000 and $79,000 in
1999, 1998 and 1997, respectively. Net paid losses and loss expenses were
approximately $3,819,000, $2,614,000 and $2,175,000 in 1999, 1998 and 1997,
respectively. The estimation of these liabilities is subject to significantly
greater than normal variation and uncertainty because it is difficult to make a
reasonable actuarial estimate of these liabilities due to the absence of a
generally accepted actuarial methodology for these exposures and the potential
affect of significant unresolved legal matters, including coverage issues as
well as the cost of litigating the legal issues. Additionally, the determination
of ultimate damages and the final allocation of such damages to financially
responsible parties are highly uncertain.
The table below provides a reconciliation of the beginning and ending
reserve balances, on a gross of reinsurance basis (dollars in thousands)(1):
1999 1998 1997
---- ---- ----
Net reserves at beginning of year $ 1,583,304 $ 1,433,011 $ 1,333,122
----------- ----------- -----------
Net reserves of acquired companies -- 2,189 4,984
Net provision for losses and loss expenses:
Claims occurring during the current year (2) 1,032,089 944,887 747,977
Increase (decrease) in estimates for
claims occurring in prior years 28,351 (42,929) (21,313)
Amortization of discount 10,473 9,111 7,760
----------- ----------- -----------
1,070,913 911,069 734,424
----------- ----------- -----------
Net payments for claims
Current year 433,942 397,787 315,370
Prior years 496,410 365,178 324,149
----------- ----------- -----------
930,352 762,965 639,519
----------- ----------- -----------
Net reserves at end of year 1,723,865 1,583,304 1,433,011
Ceded reserves at end of year 617,025 537,219 476,677
----------- ----------- -----------
Gross reserves at end of year $ 2,340,890 $ 2,120,523 $ 1,909,688
=========== =========== ===========
A reconciliation, as of December 31, 1999, between the reserves reported
in the accompanying consolidated financial statements which have been prepared
in accordance with GAAP and those reported on a SAP basis is as follows (in
thousands):
Net reserves reported on a SAP basis $1,780,069
Additions (deductions) to statutory reserves:
Loss reserve discounting (3) (70,810)
Outstanding drafts reclassified as reserves 14,606
----------
Net reserves reported on a GAAP basis 1,723,865
Ceded reserves reclassified as assets 617,025
----------
Gross reserves reported on a GAAP basis $2,340,890
==========
(1) The balance sheet includes $20,348,000 and $6,043,000 as of December 31,
1999 and 1998, respectively, relating to reserves for life insurance
which are not included in the table above, and the statement of
operations includes $14,913,000 and $3,693,000 for the year ended
December 31, 1999 and 1998, respectively, relating to policyholder
benefits incurred on life insurance which are not included in the above
table.
(2) Claims occurring during the current year is net of discount of
$22,923,754, $20,354,000 and $29,783,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
(3) For statutory purposes, Midwest Employers uses a discount rate of 3% as
permitted by the Department of Insurance of the State of Ohio. For GAAP
purposes, Midwest Employers uses a discount rate based on the U. S.
Treasury yield curve weighted for the expected payout period, as
described above.
17
18
The following table presents the development of net reserves for 1989
through 1999. The top line of the table shows the estimated reserves for unpaid
losses and loss expenses recorded at the balance sheet date for each of the
indicated years. This represents the estimated amount of losses and loss
expenses for claims arising in all prior years that are unpaid at the balance
sheet date, including losses that had been incurred but not yet reported to the
Company. The upper portion of the table shows the re-estimated amount of the
previously recorded reserves based on experience as of the end of each
succeeding year. The estimate changes as more information becomes known about
the frequency and severity of claims for individual years.
The "cumulative redundancy (deficiency)" represents the aggregate
change in the estimates over all prior years. For example, the 1989 reserves
have developed a $84 million redundancy over ten years. That amount has been
reflected in income over the ten years. The impact on the results of operations
of the past three years of changes in reserve estimates is shown in the
reconciliation tables above.
It should be noted that the table presents a "run off" of balance sheet
reserves, rather than accident or policy year loss development. Therefore, each
amount in the table includes the effects of changes in reserves for all prior
years. For example, assume a claim that occurred in 1989 is reserved for $2,000
as of December 31, 1989. Assuming this claim was settled for $2,300 in 1999, the
$300 deficiency would appear as a deficiency in each year from 1989 through
1998.
18
19
Year Ended December 31,
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Amounts in millions)
Discounted net reserves for
losses and loss expenses $ 611 $ 643 $ 680 $ 710 $ 783 $ 895 $ 1,209 $ 1,333 $ 1,433 $ 1,583 $ 1,724
Reserve discounting -- -- -- -- -- -- 152 172 190 187 187
Undiscounted net reserve
for loss and loss
expenses 611 643 680 710 783 895 1,361 1,505
Net Re-estimated as of:
One year later 605 635 676 704 776 885 1,346 1,481 1,580 1,798
Two years later 599 632 659 694 775 872 1,305 1,406 1,566
Three years later 596 620 650 665 744 833 1,236 1,356
Four years later 587 612 637 655 708 789 1,195
Five years later 581 603 631 630 672 764
Six years later 585 588 609 600 649
Seven years later 574 569 585 579
Eight years later 557 550 568
Nine years later 541 534
Ten years later 527
Cumulative redundancy
(deficiency) undiscounted 84 109 112 131 134 131 166 149 57 (28)
===== ===== ===== ===== ======= ======= ======= ======= ======= =======
Cumulative amount of
net liability paid
through:
One year later $ 158 $ 139 $ 160 $ 169 $ 186 $ 221 $ 265 $ 332 $ 365 496
Two years later 234 235 264 275 221 355 434 523 574
Three years later 294 304 332 306 291 445 550 635
Four years later 334 345 346 344 334 501 616
Five years later 358 377 371 362 363 528
Six years later 380 395 384 375 373
Seven years later 392 402 394 376
Eight years later 396 409 392
Nine years later 400 405
Ten years later 394
Discounted net Reserves 783 895 1,209 1,333 1,433 1,583 1,724
Ceded Reserves 1,233 1,176 451 450 477 537 617
------- ------- ------- ------ ------- ------- -------
Discounted gross Reserves 2,016 2,071 1,660 1,783 1,910 2,121 2,341
Reserve discounting -- -- 192 216 241 248 250
------- ------- ------- ------ ------- ------- -------
Gross reserve $ 2,016 $ 2,071 1,852 1,999 2,151 2,369 2,591
======= ======= ======= ======= ======= ======= =======
Gross Re-estimated as of
One year later 2,010 2,043 1,827 1,965 2,132 2,390
Two years later 1,966 2,026 1,789 1,959 2,096
Three years later 1,955 1,983 1,754 1,909
Four years later 1,913 1,951 1,733
Five years later 1,855 1,928
Six years later 1,815
Gross cumulative redundancy
(deficiency) undiscounted $ 201 $ 143 $ 119 $ 90 $ 55 $ (21)
======= ======= ======= ======= ======= =======
19
20
Regulation
The Company's insurance subsidiaries are subject to varying degrees of
regulation and supervision in the jurisdictions in which they do business, under
statutes which delegate regulatory, supervisory and administrative powers to
state insurance commissioners. This regulation relates to such matters as the
standards of solvency which must be met and maintained; the licensing of
insurers and their agents; the nature of and limitations on investments;
deposits of securities for the benefit of policyholders; approval of policy
forms and premium rates; periodic examination of the affairs of insurance
companies; annual and other reports required to be filed on the financial
condition of insurers or for other purposes; establishment and maintenance of
reserves for unearned premiums and losses; and requirements regarding numerous
other matters. The Company's property casualty subsidiaries, other than E & S
and reinsurance subsidiaries, must file all rates for personal and commercial
insurance with the insurance department of each state in which they operate. The
Company's E & S and reinsurance subsidiaries generally operate free of rate and
form regulation.
In addition to regulatory supervision of its insurance subsidiaries,
the Company is subject to state statutes governing insurance holding company
systems. Typically, such statutes require the Company periodically to file
information with the state insurance commissioner, including information
concerning its capital structure, ownership, financial condition and general
business operations. Under the terms of applicable state statutes, any person or
entity desiring to purchase more than a specified percentage (commonly 10%) of
the Company's outstanding voting securities would be required to obtain
regulatory approval of the purchase. Under Florida law, which is applicable to
the Company due to its ownership of Carolina, a Florida domiciled insurer, the
acquisition of more than 5% of the Company's capital stock must receive
regulatory approval. Further, state insurance statutes typically place
limitations on the amount of dividends or other distributions payable by
insurance companies in order to protect their solvency. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
During the past several years, various regulatory and legislative
bodies adopted or proposed new laws or regulations to deal with the cyclical
nature of the insurance industry, catastrophic events and their effects on
shortage of capacity and pricing. These regulations, which have not had a
material impact on the Company's operations, include (i) the creation of "market
assistance plans" under which insurers are induced to provide certain coverages,
(ii) restrictions on the ability of insurers to cancel certain policies in
mid-term, (iii) advance notice requirements or limitations imposed for certain
policy non-renewals and (iv) limitations upon or decreases in rates permitted to
be charged. The passage of Proposition 103 in the State of California did not
have a material adverse impact on the Company's operations because the Company's
subsidiaries operated in that State primarily on a non-admitted basis. The
non-admitted market in California, however, has been subjected to increased
levels of regulation. Admiral and Nautilus, both of which derive significant
premiums from California, may be adversely impacted by increased regulation
which causes business to remain in the admitted market. Additionally, a number
of states have adopted and others are considering adopting forms of commercial
lines deregulation laws which, depending upon factors such as the relatively
high amount of premium or revenue of an insured, would permit an insurer to
provide insurance without being subject to rate and/or form filing requirements.
Various state and federal organizations, including Congressional
committees and the National Association of Insurance Commissioners ("NAIC"),
have been conducting reviews into various aspects of the insurance business. The
NAIC has adopted risk based capital ("RBC") requirements that require insurance
companies to calculate and report information under a risk-based formula which
measures statutory capital and surplus needs based on a regulatory definition of
risk in a company's mix of products and its balance sheet. The implementation of
RBC did not affect the operations of the Company's insurance subsidiaries since
all of its subsidiaries have a RBC amount above the authorized control level
RBC, as defined by the NAIC. The NAIC recently completed a process intended to
codify statutory accounting practices for certain insurance enterprises. As a
result of this process, the NAIC will issue a revised statutory accounting
practices and procedures manual, which will be effective January 1, 2001. The
Company has not yet determined the impact that this change will have on the
statutory capital and surplus of its insurance subsidiaries. The NAIC is
considering model laws on commercial lines deregulation. Federal legislation is
being considered which would either abolish or limit the current exemption of
the insurance industry from portions of the antitrust laws, impose direct
federal oversight or federal solvency standards. No assurance can be given that
future legislative or regulatory changes resulting from such activity will not
adversely affect the Company's insurance subsidiaries.
20
21
The Gramm-Leach-Bliley Act, or Financial Services Modernization Act of
1999 (the "Act"), was enacted in 1999, significantly affecting the financial
services industry, including insurance companies, banks and securities firms.
The Act modifies federal law to permit the creation of financial holding
companies ("FHCs"), which, as regulated by the Act, can maintain cross-holdings
in insurance companies, banks and securities firms to an extent not previously
allowed. The Act also permits or facilitates certain types of combinations or
affiliations for FHCs. The Act establishes a functional regulatory scheme under
which state insurance departments will maintain primary regulation over
insurance activities, subject to provisions for certain federal preemptions.
Important provisions of the Act involve requirements for adoption of
(i) multi-state agents' licensing reforms and uniformity requirements and (ii)
privacy protections, giving the states the ability to enact these laws in the
first instance or be preempted. The NAIC is considering adoption of a model law
on privacy. It has also adopted a model law on agents' licensing which has been
enacted or is currently being considered by various state legislatures. It is
not anticipated that the insurance regulatory aspects of the Act will have a
material effect on the operations of the Company.
The Company's insurance subsidiaries are also subject to assessment by
state guaranty funds when an insurer in that jurisdiction has been judicially
declared insolvent and insufficient funds are available from the liquidated
company to pay policyholders and claimants. The protection afforded under a
state's guaranty fund to policyholders of the insolvent insurer varies from
state to state. Generally, all licensed property casualty insurers are
considered to be members of the fund, and assessments are based upon their pro
rata share of direct written premiums. The NAIC Model Post-Assessment Guaranty
Fund Act, which many states have adopted, limits assessments to an insurer to 2%
of its subject premium and permits recoupment of assessments through rate
setting. Likewise, several states (or underwriting organizations of which the
Company's insurance subsidiaries are required to be members) have limited
assessment authority with regard to deficits in certain lines of business. To
date, assessments have not had a material adverse impact on operations.
The Company receives funds from its insurance subsidiaries in the form
of dividends and fees for certain management services. Annual dividends in
excess of maximum amounts prescribed by state statutes ("extraordinary
dividends") may not be paid without the approval of the insurance commissioner
of the state in which an insurance subsidiary is domiciled.
Competition
The property casualty insurance and reinsurance business is
competitive, with over 2,000 insurance companies transacting business in the
United States. The Company competes directly with a large number of these
companies. The Company's strategy in this highly fragmented industry is to seek
specialized areas or geographic regions where its insurance subsidiaries can
gain a competitive advantage by responding quickly to changing market
conditions. Each of the Company's subsidiaries establishes its own pricing
practices. Such practices are based upon a Company-wide philosophy to price
products with the general intent of making an underwriting profit. Competition
in the industry generally changes with profitability.
The regional property casualty subsidiaries compete with mutual and
other regional stock companies as well as national carriers. Direct writers of
property casualty insurance compete with the regional subsidiaries by writing
insurance through their salaried employees, generally at a lower cost than
through independent agents such as those used by the Company. Also, certain
personal lines have become more competitive due to Internet-based competition.
Signet Star's competition comes from domestic and foreign reinsurers,
many of which have greater financial resources than Signet Star and which place
their business either on a direct basis or through the broker market.
The E & S area is a highly specialized segment of the insurance
industry. Admiral and Nautilus compete with other E & S carriers, some of which
are larger and have greater resources than Admiral and Nautilus. Under certain
market conditions, standard carriers may compete for the types of business
written by Admiral and Nautilus. With the implementation of commercial lines
deregulation (see "Regulation") in several states and with many other states in
the process of considering or adopting such laws, competition for "E & S type
risks" might increase significantly. Such standard carriers would under such
deregulation be free to compete with more liberal rate and form requirements. In
addition, there are regional and
21
22
specialty carriers competing with Admiral and Nautilus when they underwrite
business in their regions or specialties.
Carolina and Great Divide's competition comes mainly from other
specialty transportation insurers, regional carriers and large national
multi-line companies. Each of Admiral Indemnity, Preferred and Key Risk
Insurance compete with local regional companies as well as national carriers.
Midwest Employers' competition comes from insurance and reinsurance
companies, some of which have greater financial resources than Midwest
Employers. Most of theses carriers write specific EWC coverage, do not offer
aggregate EWC coverage and tend to focus on risks larger than those targeted by
Midwest Employers. In addition, Midwest Employers competes with other specialty
EWC insurers.
The Insurance Services Operations face competition from several large
nationally known service organizations as well as local competitors. The
International Operations compete with native insurance operations both large and
small, which may be related to government entities, as well as with branch or
local subsidiaries of multi-national companies.
Employees
As of March 3, 2000, the Company employed 4,181 persons. Of this
number, the Company's subsidiaries employed 4,131 persons, of whom 2,690 were
executive and administrative personnel and 1,441 were clerical personnel. The
Company employed the remaining 50 persons in its parent company and investment
operations, of whom 36 were executive and administrative personnel and 14 were
clerical personnel.
Other information about the Company's business
The Company maintains an ongoing interest in acquiring additional
companies and developing new insurance entities, products and packages as
opportunities arise. In addition, the insurance subsidiaries develop new
coverages or lines of business to meet the needs of insureds.
Seasonal weather variations affect the severity and frequency of losses
sustained by the insurance and reinsurance subsidiaries. Although the effect on
the Company's business of such natural catastrophes as tornadoes, hurricanes,
hailstorms and earthquakes is mitigated by reinsurance, they nevertheless can
have a significant impact on the results of any one or more reporting periods.
The Company has no customer which accounts for 10 percent or more of
its consolidated revenues.
Compliance by the Company and its subsidiaries with federal, state and
local provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to protection of the
environment has not had a material effect upon the capital expenditures,
earnings or competitive position of the Company.
ITEM 2. PROPERTIES
The Company and its subsidiaries own or lease office buildings or office space
suitable to conduct their operations. Such owned property is as follows:
Location Company Size (sq. ft.)
-------- ------- --------------
Cherry Hill, New Jersey Admiral 42,000
Lincoln, Nebraska Union 43,000
Lincoln, Nebraska Continental Western 20,000
Luverne, Minnesota Tri-State 33,000
Meridian, Mississippi Great River 30,000
Scottsdale, Arizona Nautilus 34,000
Urbandale, Iowa Continental Western 80,000
Westbrook, Maine Acadia 54,000
In addition, the Company and its subsidiaries lease office facilities
in various other cities under leases with varying terms and expiration dates.
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ITEM 3. LEGAL PROCEEDINGS
Claims under insurance policies written by the Company's insurance
subsidiaries are investigated and settled either by claims adjusters employed by
them, by their independent agents or by independent adjusters. Generally, the
insurance subsidiary employs a staff of claims adjusters at its home office and
at some regional offices. Some independent agents may have the authority to
settle small claims. Independent claims adjusting firms are used to assist in
handling various claims in areas where insurance volume does not warrant the
maintenance of a staff adjuster. If a claim or loss cannot be settled and
results in litigation, the subsidiary generally retains outside counsel.
At present, neither the Company nor any of its subsidiaries is engaged
in any litigation known to the Company which is expected to have a material
adverse effect upon the Company's business. As is common with property casualty
insurance companies, the Company's subsidiaries are regularly engaged in the
defense of claims arising out of the conduct of the insurance business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1999 to a vote
of holders of the Company's Common Stock.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "BKLY". The following table sets forth the high and low sale
prices for the indicated periods, all as reported on such market.
Common
Price Range Dividends Paid
----------- --------------
High Low Per Share
---- --- ---------
1999:
Fourth Quarter $ 23 3/4 $ 19 13/16 $ .13 cash
Third Quarter 27 15/16 21 5/8 $ .13 cash
Second Quarter 29 1/8 24 3/8 $ .13 cash
First Quarter 36 1/4 23 3/4 $ .12 cash
1998:
Fourth Quarter $ 35 3/4 $ 27 1/2 $ .12 cash
Third Quarter 40 15/16 29 13/16 $ .12 cash
Second Quarter 49 40 1/16 $ .12 cash
First Quarter 47 3/8 41 $ .11 cash
The closing price of the Common Stock on March 3, 2000, as reported on
the Nasdaq National Market, was $15 3/8 per share. The approximate number of
record holders of the Common Stock on March 3, 2000 was 724.
On May 11, 1999 the Company issued 250 shares of its Common Stock to
each of its nine directors (2,250 share in the aggregate). The shares were
issued as payment of a portion of annual directors' fees pursuant to the
Company's 1997 Directors Stock Plan. The shares were not registered under the
Securities Act of 1933 in reliance on the exemption provided in Section 4(2)
thereof for transactions not involving a public offering.
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ITEM 6. SELECTED FINANCIAL DATA FOR THE FIVE YEARS ENDED DECEMBER 31, 1999
Year Ended December 31,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Amounts in thousands, except per share data)
Net premiums written $ 1,427,719 $ 1,346,254 $ 1,177,641 $ 1,052,511 $ 860,421
Net premiums earned 1,414,384 1,278,399 1,111,747 981,221 803,336
Net investment income 190,316 202,420 199,588 164,490 137,332
Management fees and commissions 72,344 70,727 71,456 69,246 68,457
Realized investment gains (losses) (6,064) 25,400 13,186 7,437 10,357
Total revenues 1,673,668 1,582,517 1,400,310 1,225,166 1,021,943
Interest expense 50,801 48,819 48,869 31,963 28,209
Income (loss) before Federal and foreign
income taxes (79,248) 62,781 129,241 115,049 82,747
Federal and foreign income tax (expense)
benefit 45,766 (5,465) (30,668) (25,102) (17,554)
Income (loss) before minority interest (33,482) 57,316 98,573 89,947 65,193
Net income (loss) before preferred
dividends (34,048) 58,760 99,047 90,263 60,882
Preferred dividends (497) (7,548) (7,828) (13,909) (11,062)
Cumulative effect of change in accounting
principle (net of taxes) (3,250) -- -- -- --
Extraordinary gain (loss) 735 (5,017) -- -- --
Net income (loss) attributable to
common stockholders (37,060) 46,195 91,219 76,354 49,820
Data per common share:
Basic:
Net income (loss) before change in
accounting and extraordinary item (1.35) 1.82 3.09 2.56 1.91
Net income (loss) (1.44) 1.64 3.09 2.56 1.91
Diluted:
Net income (loss) before change in (1.34) 1.76 3.02 2.53 1.90
accounting and extraordinary income
Net income (loss) (1.43) 1.59 3.02 2.53 1.90
Stockholders' equity 23.10 28.80 28.72 25.13 23.59
Cash dividends declared $ .52 $ .48 $ .42 $ .35 $ .32
Weighted average shares
outstanding:
Basic 25,823 28,194 29,503 29,792 26,121
Diluted 25,927 29,115 30,185 30,130 26,262
Investments (1) $ 2,975,929 $ 3,233,458 $ 3,106,900 $ 2,991,606 $ 2,588,346
Total assets 4,784,791 4,983,431 4,544,318 4,136,973 3,618,684
Reserves for losses
and loss expenses 2,361,238 2,126,566 1,909,688 1,782,703 1,660,020
Long-term debt 394,792 394,444 390,415 390,104 319,287
Company-obligated mandatorily
redeemable capital securities
of a subsidiary trust holding
solely 8.197% junior subordinated
debentures 198,126 207,988 207,944 207,901 --
Stockholders' equity 591,778 861,281 947,292 879,732 929,815
(1) Including trading account receivable from brokers and clearing
organizations and trading account securities sold but not yet purchased.
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(2)ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to the information under the caption
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained on pages 18 through 25 of the
registrant's 1999 Annual Report to Stockholders, which information
is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the information under "Market Risk" under the
caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained on pages 22 and 23
of the registrant's 1999 Annual Report to Stockholders, which
information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the registrant are
contained on pages 26 through 42 of registrant's 1999 Annual Report
to Stockholders and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is provided as to the directors and executive
officers of the Company as of March 3, 2000:
Name Age Position
---- --- --------
William R. Berkley 54 Chairman of the Board and President
Eugene G. Ballard 47 Senior Vice President - Chief Financial Officer and Treasurer
Robert P. Cole 49 Senior Vice President - Regional Operations
Cornelius T. Finnegan, III 55 Senior Vice President - General Counsel and Secretary
E. LeRoy Heer 61 Senior Vice President - Chief Corporate Actuary
H. Raymond Lankford, Jr. 57 Senior Vice President - Alternative Markets Operations
Ira S. Lederman 46 Senior Vice President - Assistant General Counsel and
Assistant Secretary
James G. Shiel 40 Senior Vice President - Investments
Edward A. Thomas 51 Senior Vice President - Specialty Operations
Donald J. Veldkamp 61 Senior Vice President - Technology and Distribution Systems
Paul J. Hancock 38 Vice President - Actuary
Edward F. Linekin 36 Vice President - Investments
Clement P. Patafio 35 Vice President - Corporate Controller
Joseph M. Pennachio 52 Vice President - Human Resources
Scott A. Siegel 41 Vice President - Taxes
George G. Daly 59 Director
Robert B. Hodes 74 Director
Henry Kaufman 72 Director
Richard G. Merrill 69 Director
Jack H. Nusbaum 59 Director
Mark L. Shapiro 55 Director
Martin Stone 71 Director
As permitted by Delaware law, the Board of Directors of the Company is
divided into three classes, the classes being divided as equally as possible and
each class having a term of three years. Directors generally serve until their
respective successors are elected at the annual meeting of stockholders which
ends their term. None of the Company's directors has any family relationship
with any other director or executive officer. Each year the term of office of
one class expires. In May 1999, the term of a class consisting of three
directors expired. Richard G. Merrill, Jack H. Nusbaum and Mark L. Shapiro were
elected as directors to hold office for a term of three years until the Annual
Meeting of Stockholders in 2002 and until their successors are duly elected and
qualify. As a result of the resignation of John D. Vollaro as a director
effective March 1, 2000, the Board presently has one vacancy in the class of
directors with a term expiring in 2001.
William R. Berkley has been Chairman of the Board and Chief Executive
Officer of the Company since its formation in 1967. He also currently serves as
President, a position which he has held since March 1, 2000 and has held at
various times from 1967 to 1995. He also serves as Chairman of the Board or
Director of a number of public and private companies. These include Associated
Community Corp., a bank holding company that owns all of the issued and
outstanding capital stock of The Greenwich Bank & Trust Company, a Connecticut
chartered bank; Westport National Bank, a national bank; Pioneer companies,
Inc., a chemical manufacturing and marketing company; Strategic Distribution,
Inc., an industrial products distribution and services company; and Interlaken
Capital, Inc., a private investment firm with interests in various businesses.
His current term as a director expires in 2000.
Eugene G. Ballard has been Senior Vice President - Chief Financial
Officer and Treasurer of the Company since June 1, 1999. Before joining the
Company, Mr. Ballard was Executive Vice President and Chief Financial Officer of
GRE Insurance Group, New York, New York since 1995.
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Robert P. Cole has been Senior Vice President since January 1998. Prior
thereto, he was Vice President since October 1996. Before joining the Company,
Mr. Cole was, since 1992, a senior Officer of Christania General Insurance Corp.
of N.Y., which was purchased by Folksamerica Reinsurance Company in 1996, and
prior to that was associated with reinsurers for twenty years.
Cornelius T. Finnegan, III has been Senior Vice President - General
Counsel and Secretary since February 1, 1999. Before joining the Company, Mr.
Finnegan was a partner at the New York law firm of Willkie Farr & Gallagher for
more than the last five years.
E. LeRoy Heer has been Senior Vice President - Chief Corporate Actuary
since January 1991. Prior thereto, he had been Vice President - Corporate
Actuary since May 1978.
H. Raymond Lankford, Jr. has been Senior Vice President - Alternative
Markets Operations since May 1996. Prior thereto, he was President of All
American Agency Facilities, Inc., a subsidiary of the Company, from October
1991, having joined All American in 1990. He has been in the insurance business
in various capacities for more than 30 years.
Ira S. Lederman has been Senior Vice President since January 1997.
Additionally, he has been General Counsel of Berkley International since January
1998. He is also Assistant General Counsel, a position he has held since July
1989, and Assistant Secretary since May 1986. Previously, he was Vice President
from May 1986 until January 1997. Prior thereto, he was Insurance Counsel of the
Company since May 1986 and Associate Counsel from April 1983.
James G. Shiel has been Senior Vice President - Investments of the
Company since January 1997. Prior thereto, he was Vice President - Investments
of the Company since January 1992. Since February 1994, he has been President of
Berkley Dean & Company, Inc., a subsidiary of the Company, which he joined in
1987.
Edward A. Thomas has been Senior Vice President - Specialty Operations
of the Company since April 1991. Prior thereto, he was President of Signet
Reinsurance Company, a subsidiary of the Company, for more than five years.
Donald J. Veldkamp has been Senior Vice President, Technology and
Distribution Systems since January 1998. He most recently served as Chairman of
Union Insurance Company, a subsidiary of the Company, since July 1997. Prior to
that, he was President of Union Insurance Company from May 1990 to July 1997 and
President of Tri-State Insurance Company of Minnesota, also a subsidiary of the
Company, from February 1980 to May 1990.
Paul J. Hancock has been Vice President - Actuary since May 1998.
Previously, he was Assistant Vice President - Actuary since June 1997. Prior
thereto, he was employed since July 1991 by Signet Star Reinsurance Company, a
subsidiary of the Company, serving as Vice President and Corporate Actuarial
Manager from August 1996 to June 1997 and Assistant Vice President from October
1995 to August 1996. Signet Star Reinsurance Company (formerly known as North
Star Reinsurance Company) was purchased by the Company in July 1993.
Edward F. Linekin has been Vice President - Investments since May 1998.
Mr. Linekin has been an employee of the Company since April 1995. He has been a
Vice President of the Company's investment subsidiary, Berkley Dean & Company,
Inc., since April 1995. Prior thereto, he was Assistant Portfolio Manager -
Senior Investment Officer of Home Insurance Company from April 1993.
Clement P. Patafio has been Vice President - Corporate Controller since
January 1997. Prior thereto, he was Assistant Vice President - Corporate
Controller since July 1994 and Assistant Controller since May 1993. Before
joining the Company, Mr. Patafio was with KPMG LLP from 1986 to 1993.
Joseph M. Pennachio has been Vice President - Human Resources of the
Company since May 1999. Prior thereto, he was Assistant Vice President - Human
Resources of the Company since April 1986. Before joining the Company, Mr.
Pennachio was with AMF Incorporated from 1975 to 1986, where he held a variety
of managerial positions in the benefits area.
Scott A. Siegel has been Vice President - Taxes since January 1997.
Prior thereto, he was Director of Taxes since September 1991. Before joining the
Company, Mr. Siegel was with KPMG LLP from 1981 to 1991.
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George G. Daly has been a director of the Company since 1998. Dr. Daly
is Dean of Stern School of Business, and Dean Richard R. West Professor of
Business, New York University for more than the past five years. In addition to
his academic career, Dr. Daly served as Chief Economist at the U.S. Office of
Energy Research and Development in 1974. Mr. Daly's term as a director expires
in 2000.
Robert B. Hodes has been a director of the Company since 1970. Mr.
Hodes is Counsel to the New York law firm of Willkie Farr & Gallagher, where
prior thereto he had been a partner for more than five years. He is also a
director of Globalstar Telecommunications, Limited; K&F Industries, Inc.; Loral
Space & Communications, Ltd.; Mueller Industries, Inc.; and Restructured Capital
Holdings, Ltd. Mr. Hodes' current term as a director expires in 2000.
Henry Kaufman has been a director of the Company since 1994. Dr.
Kaufman is President of Henry Kaufman & Company, Inc., an investment, economic
and financial consulting company since its establishment in 1988. Dr. Kaufman
serves as Chairman of the Board of Overseers, Stern School of Business of New
York University; Chairman of the Board of Trustees, Institute of International
Education; Member of the Board of Directors, Federal Home Loan Mortgage
Corporation; Member of the Board of Directors, Lehman Brothers Holdings Inc.;
Member of the Board of Directors, The Statute of Liberty-Ellis Island
Foundation, Inc.; Member of the Board of Trustees, New York University; Member
of the Board of Trustees, The Animal Medical Center; Treasurer (and former
trustee), The Economic Club of New York; Member of the International Capital
Markets Advisory Committee of the Federal Reserve Bank of New York; Member of
the Board of Trustees, Whitney Museum of American Art; Member of the Advisory
Committee to the Investment Committee, International Monetary Fund Staff
Retirement Plan; and Member of the Board of Governors, Tel-Aviv University. Dr.
Kaufman's current term as a director expires in 2001.
Richard G. Merrill has been a director of the Company since 1994. Mr.
Merrill was Executive Vice President of Prudential Insurance Company of America
from August 1987 to March 1991 when he retired. Prior thereto, Mr. Merrill
served as Chairman and President of Prudential Asset Management Company since
1985. Mr. Merrill is a director of Sysco Corporation. Mr. Merrill's current term
as a director expires in 2002.
Jack H. Nusbaum has been a director of the Company since 1967. Mr.
Nusbaum is the Chairman of the New York law firm of Willkie Farr & Gallagher
where he has been a partner for more than the last five years. He is a director
of Neuberger Berman Inc., Pioneer Companies, Inc., Prime Hospitality Corp.,
Strategic Distribution, Inc. and The Topps Company, Inc. Mr. Nusbaum's current
term as a director expires in 2002.
Mark L. Shapiro has been a director of the Company since 1974. Since
September 1998, Mr. Shapiro has been a private investor. From July 1997 through
August 1998, Mr. Shapiro was a Senior Consultant to the Export-Import Bank of
the United States. Previously, he was a Managing Director in the investment
banking firm of Schroder & Co. Inc. for more than the past five years. Mr.
Shapiro's current term as a director expires in 2002.
Martin Stone has been a director of the Company since 1990. Mr. Stone
is Chairman of Professional Sports, Inc. (the Tucson Sidewinders AAA baseball
team) and Chairman of Adirondack Corporation, all for more than the past five
years. Mr. Stone is also a director of Canyon Ranch, Inc. and a member of the
Advisory Board of Yosemite National Park. Mr. Stone's current term as a director
expires in 2001.
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ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the registrant's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1999, and which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners
Reference is made to the registrant's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1999, and which is incorporated herein by reference.
(b) Security ownership of management
Reference is made to the registrant's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1999, and which is incorporated herein by reference.
(c) Changes in control
Reference is made to the registrant's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1999, and which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the registrant's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1999, and which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Financial Statements
The Management's Discussion and Analysis of Financial Condition and
Results of Operations, and the Company's financial statements, together with the
report thereon of KPMG LLP, appearing on pages 18 through 42 of the Company's
1999 Annual Report to Stockholders, are incorporated by reference in this Annual
Report on Form 10-K. With the exception of the aforementioned information, the
1999 Annual Report to Stockholders is not deemed to be filed as part of this
report. The schedules to the financial statements listed below should be read in
conjunction with the financial statements in such 1999 Annual Report to
Stockholders. Financial statement schedules not included in this Annual Report
on Form 10-K have been omitted because they are not applicable or required
information is shown in the financial statements or notes thereto.
Index to Financial Statement Schedules Page
Independent Auditors' Report on Schedules and Consent 35
Schedule II - Condensed Financial Information of Registrant 36
Schedule III - Supplementary Insurance Information 40
Schedule IV - Reinsurance 41
Schedule VI - Supplementary Information concerning
Property & Casualty Insurance Operations 42
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(b) Reports on Form 8-K
During the quarter ended December 31, 1999, the registrant filed the
following Reports on Form 8-K:
Report dated October 22, 1999 with respect to a press release relating
to earnings of the Company for the third quarter of 1999 (under Item 5
of Form 8-K).
(c) Exhibits
The exhibits filed as part of this report are listed on pages 33 and 34
hereof.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
W. R. BERKLEY CORPORATION
By /s/ William R. Berkley
----------------------------------------------
William R. Berkley, Chairman of the Board and
President
March 24, 2000
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32
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William R. Berkley Chairman of the Board and March 24, 2000
- ----------------------------------------- President
William R. Berkley
Principal executive officer
/s/ George G. Daly Director March 24, 2000
- -----------------------------------------
George G. Daly
/s/ Robert B. Hodes Director March 24, 2000
- -----------------------------------------
Robert B. Hodes
/s/ Henry Kaufman Director March 24, 2000
- -----------------------------------------
Henry Kaufman
/s/ Richard G. Merrill Director March 24, 2000
- -----------------------------------------
Richard G. Merrill
/s/ Jack H. Nusbaum Director March 24, 2000
- -----------------------------------------
Jack H. Nusbaum
/s/ Mark L. Shapiro Director March 24, 2000
- -----------------------------------------
Mark L. Shapiro
/s/ Martin Stone Director March 24, 2000
- -----------------------------------------
Martin Stone
/s/ Eugene G. Ballard Senior Vice President, March 24, 2000
- ----------------------------------------- Chief Financial Officer and
Eugene G. Ballard Treasurer
Principal financial officer
/s/ Clement P. Patafio Vice President, March 24, 2000
- ----------------------------------------- Corporate Controller
Clement P. Patafio
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ITEM 14. (c) EXHIBITS
Number
(2.1) Agreement and Plan of Merger between the Company, Berkley Newco Corp.
and MECC, Inc. (incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K (File No. 0-7849) filed with the
Commission on September 28, 1995).
(2.2) Agreement and Plan of Restructuring, dated July 20, 1995, by and
among the Company, Signet Star Holdings, Inc., Signet Star
Reinsurance Company, Signet Reinsurance Company and General Re
Corporation (incorporated by reference to Exhibit 2.2 of the
Company's Current Report on Form 8-K (File No. 0-7849) filed with the
Commission on September 28, 1995).
(3.1) Restated Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K
(File No. 0-7849) filed with the Commission on March 30, 1994).
(3.2) Amendment, dated May 12, 1998, to the Company's Restated Certificate
of Incorporation, as amended (incorporated by reference to Exhibit
3.2 of the Company's Annual Report on Form 10-K (File No. 0-7849)
filed with the Commission on March 23, 1999).
(3.3) Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock (incorporated by reference to Exhibit
3.1 of the Company's Quarterly Report on Form 10-Q (File No. 0-7849)
filed with the Commission on August 11, 1999).
(3.4) Amended and Restated By-Laws (incorporated by reference to Exhibit
3(ii) of the Company's Current Report on Form 8-K (File No. 0-7849)
filed with the Commission on May 11, 1999).
(4) The instruments defining the rights of holders of the long-term debt
securities of the Company are omitted pursuant to Section
(b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company agrees to
furnish supplementally copies of these instruments to the Commission
upon request.
(10.1) Credit Agreement dated as of December 10, 1999 among the Company,
Bank of America, National Association, as Administrative Agent, and
the other financial institutions party thereto (filed herewith).
(10.2) Rights Agreement, dated as of May 11, 1999, between the Company and
ChaseMellon Shareholder Services, LLC, as Rights Agent (incorporated
by reference to Exhibit 99.1 of the Company's Current Report on Form
8-K (File No. 0-7849) filed with the Commission on May 11, 1999).
(10.3) The Company's 1982 Stock Option Plan (incorporated by reference to
Exhibit 10.1 of the Company's Registration Statement on Form S-1
(File No. 2-98396) filed with the Commission on June 14, 1985).
(10.4) First Amended and Restated W. R. Berkley Corporation 1992 Stock
Option Plan (incorporated by reference to Exhibit 10.2 of the
Company's Annual Report on Form 10-K (File No. 0-7849) filed with the
Commission on March 23, 1999).
(10.5) The Company's lease dated June 3, 1983 with the Ahneman, Devaul and
Devaul Partnership, incorporated by reference to Exhibit 10.3 of the
Company's Registration Statement on Form S-1 (File No. 2-98396) filed
with the Commission on June 14, 1985.
(10.6) W.R. Berkley Corporation Deferred Compensation Plan for Officers as
amended January 1, 1991 (incorporated by reference to Exhibit 10.4 of
the Company's Annual Report on Form 10-K (File No. 0-7849) filed with
the Commission on March 26, 1996).
(10.7) W. R. Berkley Corporation Deferred Compensation Plan for Directors as
adopted March 7, 1996 (incorporated by reference to Exhibit 10.5 of
the Company's Annual Report on Form 10-K (File No. 0-7849) filed with
the Commission on March 26, 1996).
(10.8) W. R. Berkley Corporation Annual Incentive Compensation Plan
(incorporated by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K (File No. 0-7849) filed with the Commission on
March 27, 1998).
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34
(10.9) W. R. Berkley Corporation Long Term Incentive Plan (incorporated by
reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K
(File No. 0-7849) filed with the Commission on March 27, 1998).
(10.10) 1997 Directors Stock Plan, as Amended and Restated as of May 11, 1999
(incorporated by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q (File No. 0-7849) filed with the Commission on
August 11, 1999).
(10.11) Letter agreement between the Company and its Senior Vice
President-General Counsel (incorporated by reference to Exhibit 10.1
of the Company's Quarterly Report on Form 10-Q (File No. 0-7849)
filed with the Commission on August 11, 1999).
(10.12) Separation Agreement dated January 24, 2000 between John D. Vollaro
and the Company (filed herewith).
(13) 1999 Annual Report to Stockholders of W.R. Berkley Corporation (only
those portions of such Annual Report that are incorporated by
reference in this Report on Form 10-K are deemed filed) (filed
herewith).
(21) Following is a list of the Company's significant subsidiaries.
Subsidiaries of subsidiaries are indented and the parent of each such
corporation owns 100% of the outstanding voting securities of such
corporation except as noted below.
Jurisdiction of Percentage
Incorporation owned
------------- -----
All American Agency Facilities, Inc. Delaware 100%
Berkley Regional Insurance Company: Missouri 100%
Acadia Insurance Company: Maine 100%
Chesapeake Bay Property and Casualty
Insurance Company Maine 100%
Berkley Insurance Company of the Carolinas North Carolina 100%
Continental Western Insurance Company Iowa 100%
Firemen's Insurance Company of Washington, D.C.: Maryland 100%
Great River Insurance Company Mississippi 100%
Tri-State Insurance Company of Minnesota: Minnesota 100%
American West Insurance Company North Dakota 100%
Union Insurance Company Nebraska 100%
Union Standard Insurance Company Oklahoma 100%
Berkley International, LLC New York 65%
Carolina Casualty Insurance Company Florida 100%
Clermont Specialty Managers, Ltd. New Jersey 100%
J/I Holding Corporation: Delaware 100%
Admiral Insurance Company: Delaware 100%
Admiral Indemnity Insurance Company Delaware 100%
Berkley Risk Services, LLC. Minnesota 100%
Nautilus Insurance Company: Arizona 100%
Great Divide Insurance Company North Dakota 100%
Key Risk Management Services, Inc. North Carolina 100%
Key Risk Insurance Company North Carolina 100%
MECC, Inc.: Delaware 100%
Midwest Employers Casualty Company: Ohio 100%
Preferred Employers Insurance Company California 100%
Riverport Insurance Company of California California 100%
Monitor Liability Managers, Inc. Delaware 100%
Monitor Surety Managers, Inc. Delaware 100%
Queen's Island Insurance Company, Ltd. Bermuda 100%
Signet Star Holdings, Inc.: Delaware 100%
Signet Star Reinsurance Company Delaware 100%
Facultative ReSources, Inc. Connecticut 100%
Gemini Insurance Company Delaware 100%
Starnet Insurance Company Delaware 100%
(23) See Independent Auditors' report on schedules and consent.
(27) Financial Data Schedule.
34
35
INDEPENDENT AUDITORS' REPORT ON SCHEDULES AND CONSENT
Board of Directors and Stockholders
W. R. Berkley Corporation
The audits referred to in our report dated February 24, 2000, included the
related financial statement schedules as of December 31, 1999 and 1998
incorporated by reference in the Form 10-K, and for each of the years in the
three-year period ended December 31, 1999. These financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company has
changed its method of accounting for insurance-related assessments in 1999.
We consent to the use of our reports incorporated by reference in the
Registration Statements, (No. 33-95552) and (No. 333-00459) on Form S-3 and (No.
33-7488), (No. 33-88640), (No. 333-33935) and (No. 33-55726) on Form S-8 of W.
R. Berkley Corporation.
KPMG LLP
New York, New York
March 24, 2000
35
36
Schedule II
W. R. Berkley Corporation
Condensed Financial Information of Registrant
Balance Sheets (Parent Company)
(Amounts in thousands)
December 31,
------------
1999 1998
---- ----
Assets
Cash (including invested cash) $ 22,081 $ 137,422
Fixed maturity securities:
Held to maturity, at cost
(fair value $5,523 and $5,563) 5,523 5,563
Available for sale at fair value (cost $714 and $898) 705 894
Equity securities, at fair value:
Available for sale (cost $698 and $698) 1,110 755
Trading account (cost $773 and $698) 773 698
Investments in subsidiaries 1,091,312 1,353,201
Due from subsidiaries 52,124 54,753
Current Federal income taxes receivable 9,911 11,620
Deferred Federal income taxes 82,896 --
Real estate, furniture & equipment at cost, less accumulated
depreciation 18,962 19,514
Other assets 4,654 5,571
----------- -----------
$ 1,290,051 $ 1,589,991
=========== ===========
Liabilities, Debt and Stockholders' Equity
Liabilities:
Due to subsidiaries (principally deferred income taxes) $ 86,680 $ 77,951
Short-term debt 35,000 55,500
Deferred Federal income taxes -- 7,198
Other liabilities 27,468 29,421
----------- -----------
149,148 170,070
----------- -----------
Long-term debt 350,999 350,651
Subsidiary trust junior subordinated debt 198,126 207,988
Stockholders' equity:
Preferred stock -- 65
Common stock 7,281 7,281
Additional paid-in capital 331,640 429,612
Retained earnings (including accumulated
undistributed net income of
subsidiaries of $386,470 and $517,649
in 1999 and 1998, respectively) 551,401 601,908
Accumulated other comprehensive income (loss) (44,500) 54,672
Treasury stock, at cost (254,044) (232,256)
----------- -----------
591,778 861,282
----------- -----------
$ 1,290,051 $ 1,589,991
=========== ===========
See note to condensed financial statements.
36
37
Schedule II, Continued
W. R. Berkley Corporation
Condensed Financial Information of Registrant, Continued
Statements of Operations (Parent Company)
(Amounts in thousands)
Years ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Management fees and investment income from affiliates, including dividends of
$96,817, $65,836 and $33,911 for 1999,
1998 and 1997, respectively $ 102,963 $ 72,812 $ 40,058
Realized investment gains (losses) 321 -- 2,739
Other income 3,975 10,506 10,972
--------- --------- ---------
Total revenues 107,259 83,318 53,769
Expenses, other than interest expense 20,978 22,201 23,801
Restructuring charge 1,502 -- --
Interest expense 49,207 47,571 47,645
--------- --------- ---------
Income (loss) before Federal
income taxes 35,572 13,546 (17,677)
--------- --------- ---------
Federal income taxes:
Federal income taxes provided by
Subsidiaries on a separate return
Basis 8,474 44,370 54,884
Federal income tax benefit (provision) on a
Consolidated return basis 48,958 (5,115) (30,849)
--------- --------- ---------
Net benefit 57,432 39,255 24,035
--------- --------- ---------
Income (loss) before undistributed equity
in net income of subsidiaries 93,004 52,801 6,358
Equity in undistributed net income (loss)
of subsidiaries (130,232) 6,835 93,210
--------- --------- ---------
Income (loss) before preferred dividends (37,228) 59,636 99,568
Preferred dividends (567) (8,424) (8,349)
--------- --------- ---------
Net income (loss) before extraordinary gain (loss) 37,795 51,212 91,219
Extraordinary gain (loss) 735 (5,017) --
--------- --------- ---------
Net income (loss) attributable to
common stockholders $ (37,060) $ 46,195 $ 91,219
========= ========= =========
See note to condensed financial statements.
37
38
Schedule II, Continued
W. R. Berkley Corporation
Condensed Financial Information of Registrant, Continued
Statement of Cash Flows (Parent Company)
(Amounts in thousands)
Years ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income (loss) before preferred dividends and
extraordinary items $ (37,298) $ 59,636 $ 99,568
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Equity in undistributed net
income of subsidiaries 130,232 (6,835) (93,210)
Tax payments received from subsidiaries 24,105 63,199 45,999
Federal income taxes provided by subsidiaries
on a separate return basis (8,473) (44,370) (54,884)
Change in Federal income taxes (35,018) (29,342) (1,409)
Realized investment losses (321) -- (2,739)
Other, net 3,274 (1,790) 4,114
--------- --------- ---------
Net cash provided by operating activities
before trading account sales (purchases) 76,501 40,498 (2,561)
Trading account sales (purchases), net (75) (79) 32,712
--------- --------- ---------
Net cash provided by
operating activities 76,426 40,419 30,151
--------- --------- ---------
Cash flow used in investing activities:
Proceeds from sales, excluding trading account:
Fixed maturity securities available for sale 23,973 3,167 19,954
Equity securities -- -- 1,432
Proceeds from maturities and prepayments of
fixed maturity securities 222 112,643 --
Cost of purchases, excluding trading account:
Fixed maturity securities (23,648) -- (9,305)
Equity securities -- -- (2,098)
Cost of companies acquired -- -- (7,238)
Proceeds from sale of membership interest
to subsidiaries 33,566 -- --
Investments in and advances to
subsidiaries, net (77,362) (5,775) (14,986)
Net additions to real estate, furniture &
equipment (357) 201 444
Other, net -- -- 5,539
--------- --------- ---------
Net cash used in investing activities (43,606) 110,236 (6,258)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of long-term debt -- 39,882 --
Net proceeds from issuance of short-term debt (20,500) 55,500 --
Purchase of treasury shares (4,895) (59,240) --
Cash dividends to common stockholders (13,888) (13,518) (11,695)
Cash dividends to preferred shareholders (2,001) (7,356) (8,717)
Purchase of preferred stock (98,092) -- (41,523)
Retirement of long-term debt (9,171) (49,104) --
Other, net 386 2,585 755
--------- --------- ---------
Net cash provided by financing activities (148,161) (31,251) (61,180)
--------- --------- ---------
Net increase in cash and invested cash (115,341) 119,404 (37,287)
Cash and invested cash at beginning of year 137,422 18,018 55,305
--------- --------- ---------
Cash and invested cash at end of year $ 22,081 $ 137,422 $ 18,018
========= ========= =========
See note to condensed financial statements.
38
39
Schedule II, Continued
W. R. Berkley Corporation
Condensed Financial Information of Registrant, Continued
December 31, 1999, 1998 and 1997
Note to Condensed Financial Statements (Parent Company)
The accompanying condensed financial statements should be read in
conjunction with the notes to consolidated financial statements included
elsewhere herein. Reclassifications have been made in the 1998 and 1997
financial statements as originally reported to conform them to the presentation
of the 1999 financial statements.
The Company files a consolidated federal tax return with the results of
its domestic insurance subsidiaries included on a statutory basis. Under present
Company policy, Federal income taxes payable by (or refundable to) subsidiary
companies on a separate-return basis are paid to (or refunded by) W. R. Berkley
Corporation, and the Company pays the tax due on a consolidated return basis.
Included in invested cash at December 31, 1998 is $114,520,667 placed
in a trust to service the remaining outstanding shares of the Series A Preferred
Stock. The Company redeemed the Series A Preferred Stock on January 25, 1999.
39
40
Schedule III
W. R. Berkley Corporation and Subsidiaries
Supplementary Insurance Information
December 31, 1999, 1998 and 1997
(Amounts in thousands)
Reserve for
Deferred policy losses and Net
acquisition loss Unearned Premiums investment
cost expenses premiums earned income
---------- ---------- ---------- ---------- ----------
December 31, 1999
Regional $ 84,046 $ 635,115 $ 338,237 $ 650,131 $ 52,639
Reinsurance 34,911 500,808 119,376 297,650 47,288
Specialty 37,298 722,689 178,357 256,156 50,231
Alternative markets 7,510 442,133 34,846 123,504 36,355
International 18,583 60,493 19,010 86,943 6,469
Corporate and adjustments -- -- -- -- (2,666)
---------- ---------- ---------- ---------- ----------
Total $ 182,348 $2,361,238 $ 689,826 $1,414,384 $ 190,316
========== ========== ========== ========== ==========
December 31, 1998
Regional $ 83,613 $ 495,164 $ 337,414 $ 622,280 $ 53,942
Reinsurance 29,906 435,920 102,566 246,277 47,643
Specialty 37,148 745,790 167,648 235,055 59,345
Alternative markets 7,531 399,560 37,061 101,755 34,667
International 10,696 50,132 20,172 73,032 5,469
Corporate and adjustments -- -- -- -- 1,354
---------- ---------- ---------- ---------- ----------
Total $ 168,894 $2,126,566 $ 664,861 $1,278,399 $ 202,420
========== ========== ========== ========== ==========
December 31, 1997
Regional $ 79,726 $ 396,648 $ 315,978 $ 575,911 $ 51,920
Reinsurance 22,620 389,285 77,159 195,825 45,520
Specialty 29,949 751,068 147,443 213,794 60,162
Alternative markets 7,618 344,302 31,018 86,229 34,390
International 5,824 28,385 17,786 39,988 3,623
Corporate and adjustments -- -- -- -- 3,973
---------- ---------- ---------- ---------- ----------
Total $ 145,737 $1,909,688 $ 589,384 $1,111,747 $ 199,588
========== ========== ========== ========== ==========
Amortization of
Loss and deferred policy Other operating
Loss acquisition cost and Net premiums
expenses costs expenses written
---------- ---------- ---------- ----------
December 31, 1999
Regional $ 554,394 $ 204,961 $ 33,261 $ 649,849
Reinsurance 226,229 92,503 6,790 309,181
Specialty 174,251 77,950 17,606 260,380
Alternative markets 82,757 36,063 78,476 122,137
International 48,195 32,812 8,526 86,172
Corporate and adjustments -- -- 15,836 --
---------- ---------- ---------- ----------
Total $1,085,826 $ 444,289 $ 160,495 $1,427,719
========== ========== ========== ==========
December 31, 1998
Regional $ 476,920 $ 196,391 $ 33,732 $ 641,316
Reinsurance 183,020 62,855 15,084 269,634
Specialty 145,624 75,968 4,474 254,003
Alternative markets 65,634 30,903 72,897 106,195
International 43,564 28,495 15,244 75,106
Corporate and adjustments -- -- 20,112 --
---------- ---------- ---------- ----------
Total $ 914,762 $ 394,612 $ 161,543 $1,346,254
========== ========== ========== ==========
December 31, 1997
Regional $ 385,285 $ 168,474 $ 33,759 $ 618,768
Reinsurance 135,530 58,200 3,836 206,652
Specialty 134,313 73,056 8,865 219,272
Alternative markets 55,386 26,002 69,044 90,870
International 23,910 12,139 12,874 42,079
Corporate and adjustments -- -- 21,527 --
---------- ---------- ---------- ----------
Total $ 734,424 $ 337,871 $ 149,905 $1,177,641
========== ========== ========== ==========
40
41
Schedule IV
W. R. Berkley Corporation and Subsidiaries
Reinsurance
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands)
Assumed Percentage
Ceded from of amount
Direct to other other Net assumed to
amount companies companies amount net
---------- ---------- ---------- ---------- -------
Premiums written:
Year ended December 31, 1999:
Regional insurance $ 755,752 $ 109,981 $ 4,078 $ 649,849 .6%
Reinsurance 9,094 29,703 329,790 309,181 106.7%
Specialty insurance 376,111 126,068 10,337 260,380 4.0%
Alternative markets 69,671 20,333 72,799 122,137 59.6%
International 107,257 21,085 -- 86,172 --
---------- ---------- ---------- ---------- -------
Total $1,317,885 $ 307,170 $ 417,004 $1,427,719 29.2%
========== ========== ========== ========== =======
Year ended December 31, 1998:
Regional insurance $ 744,560 $ 108,741 $ 5,497 $ 641,316 .9%
Reinsurance 1,240 27,544 295,938 269,634 109.8%
Specialty insurance 364,564 120,111 9,550 254,003 3.8%
Alternative markets 62,942 15,078 58,331 106,195 54.9%
International 95,870 20,764 -- 75,106 --
---------- ---------- ---------- ---------- -------
Total $1,269,176 $ 292,238 $ 369,316 $1,346,254 27.4%
========== ========== ========== ========== =======
Year ended December 31, 1997:
Regional insurance $ 691,431 $ 82,598 $ 9,935 $ 618,768 1.6%
Reinsurance -- 17,059 223,711 206,652 108.3%
Specialty insurance 329,266 118,868 8,874 219,272 4.0%
Alternative markets 56,759 7,384 41,495 90,870 45.7%
International 56,924 14,845 -- 42,079 --
---------- ---------- ---------- ---------- -------
Total $1,134,380 $ 240,754 $ 284,015 $1,177,641 24.1%
========== ========== ========== ========== =======
41
42
Schedule VI
W. R. Berkley Corporation and Subsidiaries
Supplementary Information Concerning Property-Casualty Insurance Operations
December 31, 1999, 1998 and 1997
(Amounts in thousands)
1999 1998 1997
---- ---- ----
Deferred policy acquisition costs $ 182,348 $ 168,894 $ 145,737
Reserves for losses and loss expenses 2,361,238 2,126,566 1,909,688
Unearned premium 689,826 664,861 589,384
Premiums earned 1,414,384 1,278,399 1,111,747
Net investment income 190,316 202,420 199,588
Losses and loss expenses incurred:
Current Year 1,032,089 944,887 747,977
Prior Years 28,351 (42,929) (21,313)
Amortization of discount 10,473 9,111 7,760
Amortization of deferred policy
acquisition costs 444,289 394,612 337,871
Paid losses and loss expenses 930,352 762,965 639,519
Net premiums written 1,427,719 1,346,254 1,177,641
42