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| 8-K - 8-K - BERKLEY W R CORP | wrb930128k.htm |
NEWS RELEASE | ||||||
W. R. Berkley Corporation 475 Steamboat Road Greenwich, Connecticut 06830 (203) 629-3000 | ||||||
FOR IMMEDIATE RELEASE | CONTACT: | Karen A. Horvath | ||||
Vice President - External | ||||||
Financial Communications | ||||||
(203) 629-3000 | ||||||
W. R. BERKLEY CORPORATION REPORTS THIRD QUARTER RESULTS
Net Income Up 32%, Net Premiums Written Up 13.3%
Greenwich, CT, October 22, 2012 -- W. R. Berkley Corporation (NYSE: WRB) today reported net income for the third quarter of 2012 of $101 million, or 71 cents per share, compared with $76 million, or 53 cents per share, for the third quarter of 2011.
Summary Financial Data
(Amounts in thousands, except per share data)
Third Quarter | Nine Months | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Gross premiums written | $ | 1,494,724 | $ | 1,306,300 | $ | 4,327,170 | $ | 3,821,434 | |||||||
Net premiums written | 1,275,887 | 1,126,139 | 3,670,404 | 3,266,857 | |||||||||||
Net income | 100,947 | 76,410 | 345,103 | 274,184 | |||||||||||
Net income per diluted share | 0.71 | 0.53 | 2.41 | 1.87 | |||||||||||
Operating income (1) | 86,136 | 62,626 | 283,360 | 227,274 | |||||||||||
Operating income per diluted share | 0.61 | 0.43 | 1.98 | 1.55 | |||||||||||
(1) | Operating income is a non-GAAP financial measure defined by the Company as net income excluding net investment gains and losses. |
W. R. Berkley Corporation Page2
Third quarter highlights included:
• | Book value per share increased $1.13, representing a 15% increase on an annualized basis. |
• | Average rates on renewed policies increased 7.0%. |
• | GAAP combined ratio was 95.8%. |
• | Net premiums written increased 13.3%. |
• | The Company repurchased 2 million shares of its common stock at an average cost of $37.05 per share and an aggregate cost of $73 million. |
Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We were very pleased with our third quarter results. Significant rate increases were a part of our substantial growth in the quarter, and we continue to see positive trends in most lines of business.
"It is clear, as we enter the second year of significant rate increases, that the cyclical change is no longer hypothetical. Rate increases continue to be available for disciplined companies that recognize the need for adequate returns. The consequence of declining fixed income yields has increased the need for meaningful improvement in underwriting margin. We anticipate continued price increases over the next twelve months.
"Although our current yields were virtually unchanged from a year ago, investment returns still represent the most serious obstacle to achieving adequate returns. With ten-year treasury yields hovering around 2%, it is a challenge to maintain our current portfolio yield. Our shift in focus toward investing more for capital gains has rewarded us as we achieved significant income in the first three quarters and anticipate gains in excess of $75 million in the fourth quarter.
"We remain confident that we will be able to grow and raise prices for the foreseeable future. We continue to believe that we will be able to deliver outstanding returns to our shareholders," Mr. Berkley concluded.
W. R. Berkley Corporation Page3
Webcast Conference Call and Supplementary Information
The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on Tuesday October 23, 2012 at 8:30 a.m. eastern time. The conference call will be webcast live on the Company's website at www.wrberkley.com. A recording of the call will be available on the Company's website approximately two hours after the end of the conference call.
About W. R. Berkley Corporation
Founded in 1967, W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates in five segments of the property casualty insurance business: specialty insurance, regional property casualty insurance, alternative markets, reinsurance and international.
Forward Looking Information
This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2012 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the impact of significant competition; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, real estate, merger arbitrage and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response to it, on our results and financial condition; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Act of 2002, as amended; the ability of our reinsurers to pay reinsurance recoverables owed to us; foreign currency and political risks relating to our international operations; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; our ability to attract and retain key personnel and qualified employees; potential difficulties with technology and/or data security; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These risks and uncertainties could cause our actual results for the year 2012 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
# # #
W. R. Berkley Corporation Page4
Consolidated Financial Summary
(Amounts in thousands, except per share data)
Third Quarter | Nine Months | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenues: | ||||||||||||||||
Net premiums written | $ | 1,275,887 | $ | 1,126,139 | $ | 3,670,404 | $ | 3,266,857 | ||||||||
Change in unearned premiums | (89,354 | ) | (70,316 | ) | (236,863 | ) | (211,293 | ) | ||||||||
Net premiums earned | 1,186,533 | 1,055,823 | 3,433,541 | 3,055,564 | ||||||||||||
Net investment income | 116,019 | 114,063 | 434,888 | 409,261 | ||||||||||||
Insurance service fees | 26,208 | 22,279 | 77,121 | 69,487 | ||||||||||||
Net investment gains: | ||||||||||||||||
Net realized gains on investment sales | 17,226 | 21,238 | 84,989 | 73,812 | ||||||||||||
Change in valuation allowance, net of other-than-temporary impairments | 5,000 | — | 9,014 | (400 | ) | |||||||||||
Net investment gains | 22,226 | 21,238 | 94,003 | 73,412 | ||||||||||||
Revenues from wholly-owned investees | 68,087 | 65,922 | 173,196 | 175,943 | ||||||||||||
Other income | 1,428 | 406 | 2,204 | 1,364 | ||||||||||||
Total revenues | 1,420,501 | 1,279,731 | 4,214,953 | 3,785,031 | ||||||||||||
Expenses: | ||||||||||||||||
Losses and loss expenses | 736,632 | 683,980 | 2,147,306 | 1,965,351 | ||||||||||||
Other operating costs and expenses | 451,487 | 407,149 | 1,332,024 | 1,196,936 | ||||||||||||
Expenses from wholly-owned investees | 66,177 | 64,388 | 172,438 | 174,059 | ||||||||||||
Interest expense | 32,512 | 28,068 | 93,750 | 84,317 | ||||||||||||
Total expenses | 1,286,808 | 1,183,585 | 3,745,518 | 3,420,663 | ||||||||||||
Income before income taxes | 133,693 | 96,146 | 469,435 | 364,368 | ||||||||||||
Income tax expense | (32,685 | ) | (19,775 | ) | (124,291 | ) | (90,282 | ) | ||||||||
Net income before noncontrolling interests | 101,008 | 76,371 | 345,144 | 274,086 | ||||||||||||
Noncontrolling interests | (61 | ) | 39 | (41 | ) | 98 | ||||||||||
Net income to common stockholders | $ | 100,947 | $ | 76,410 | $ | 345,103 | $ | 274,184 | ||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.74 | $ | 0.55 | $ | 2.51 | $ | 1.95 | ||||||||
Diluted | $ | 0.71 | $ | 0.53 | $ | 2.41 | $ | 1.87 | ||||||||
Average shares outstanding: | ||||||||||||||||
Basic | 136,553 | 138,816 | 137,512 | 140,535 | ||||||||||||
Diluted | 141,637 | 144,538 | 142,941 | 146,553 | ||||||||||||
W. R. Berkley Corporation Page5
Operating Results by Segment
(Amounts in thousands, except ratios (1) (2))
Third Quarter | Nine Months | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Specialty: | |||||||||||||||
Gross premiums written | $ | 533,592 | $ | 454,560 | $ | 1,526,265 | $ | 1,344,139 | |||||||
Net premiums written | 452,000 | 382,541 | 1,295,556 | 1,146,091 | |||||||||||
Premiums earned | 420,165 | 367,417 | 1,215,417 | 1,047,567 | |||||||||||
Pre-tax income | 59,846 | 70,590 | 204,573 | 237,613 | |||||||||||
Loss ratio | 62.4 | % | 58.3 | % | 61.8 | % | 57.8 | % | |||||||
Expense ratio | 32.1 | % | 32.9 | % | 32.8 | % | 32.9 | % | |||||||
GAAP combined ratio | 94.5 | % | 91.2 | % | 94.6 | % | 90.7 | % | |||||||
Regional: | |||||||||||||||
Gross premiums written | $ | 321,659 | $ | 301,542 | $ | 926,242 | $ | 881,224 | |||||||
Net premiums written | 295,122 | 277,177 | 852,971 | 817,380 | |||||||||||
Premiums earned | 276,629 | 267,142 | 809,072 | 795,423 | |||||||||||
Pre-tax income (loss) | 33,219 | (11,163 | ) | 79,211 | (2,770 | ) | |||||||||
Loss ratio | 57.2 | % | 74.2 | % | 60.8 | % | 71.5 | % | |||||||
Expense ratio | 35.9 | % | 35.9 | % | 36.5 | % | 36.2 | % | |||||||
GAAP combined ratio | 93.1 | % | 110.1 | % | 97.3 | % | 107.7 | % | |||||||
Alternative Markets: | |||||||||||||||
Gross premiums written | $ | 272,327 | $ | 222,423 | $ | 764,643 | $ | 656,062 | |||||||
Net premiums written | 205,210 | 174,744 | 556,067 | 497,117 | |||||||||||
Premiums earned | 177,041 | 156,820 | 506,149 | 454,156 | |||||||||||
Pre-tax income | 39,433 | 32,984 | 141,089 | 116,007 | |||||||||||
Loss ratio | 72.9 | % | 70.9 | % | 72.4 | % | 71.9 | % | |||||||
Expense ratio | 24.8 | % | 26.7 | % | 25.8 | % | 26.8 | % | |||||||
GAAP combined ratio | 97.7 | % | 97.6 | % | 98.2 | % | 98.7 | % | |||||||
Reinsurance: | |||||||||||||||
Gross premiums written | $ | 132,247 | $ | 118,266 | $ | 373,912 | $ | 337,696 | |||||||
Net premiums written | 123,098 | 113,620 | 349,361 | 319,524 | |||||||||||
Premiums earned | 111,599 | 103,906 | 327,452 | 315,220 | |||||||||||
Pre-tax income | 21,118 | 16,109 | 74,742 | 66,782 | |||||||||||
Loss ratio | 58.1 | % | 61.5 | % | 57.8 | % | 60.9 | % | |||||||
Expense ratio | 40.0 | % | 40.9 | % | 40.8 | % | 40.7 | % | |||||||
GAAP combined ratio | 98.1 | % | 102.4 | % | 98.6 | % | 101.6 | % | |||||||
International: | |||||||||||||||
Gross premiums written | $ | 234,899 | $ | 209,509 | $ | 736,108 | $ | 602,313 | |||||||
Net premiums written | 200,457 | 178,057 | 616,449 | 486,745 | |||||||||||
Premiums earned | 201,099 | 160,538 | 575,451 | 443,198 | |||||||||||
Pre-tax income | 15,736 | 13,919 | 50,685 | 27,420 | |||||||||||
Loss ratio | 60.8 | % | 60.0 | % | 60.5 | % | 61.6 | % | |||||||
Expense ratio | 38.3 | % | 39.1 | % | 38.2 | % | 39.9 | % | |||||||
GAAP combined ratio | 99.1 | % | 99.1 | % | 98.7 | % | 101.5 | % | |||||||
W. R. Berkley Corporation Page6
Operating Results by Segment (Continued)
(Amounts in thousands, except ratios (1)(2))
Third Quarter | Nine Months | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Corporate and Eliminations: | |||||||||||||||
Net investment gains | $ | 22,226 | $ | 21,238 | $ | 94,003 | $ | 73,412 | |||||||
Interest expense | (32,512 | ) | (28,068 | ) | (93,750 | ) | (84,317 | ) | |||||||
Other revenues and expenses (3) | (25,373 | ) | (19,463 | ) | (81,118 | ) | (69,779 | ) | |||||||
Pre-tax loss | (35,659 | ) | (26,293 | ) | (80,865 | ) | (80,684 | ) | |||||||
Consolidated: | |||||||||||||||
Gross premiums written | $ | 1,494,724 | $ | 1,306,300 | $ | 4,327,170 | $ | 3,821,434 | |||||||
Net premiums written | 1,275,887 | 1,126,139 | 3,670,404 | 3,266,857 | |||||||||||
Premiums earned | 1,186,533 | 1,055,823 | 3,433,541 | 3,055,564 | |||||||||||
Pre-tax income | 133,693 | 96,146 | 469,435 | 364,368 | |||||||||||
Loss ratio | 62.1 | % | 64.8 | % | 62.5 | % | 64.3 | % | |||||||
Expense ratio | 33.7 | % | 34.5 | % | 34.3 | % | 34.7 | % | |||||||
GAAP combined ratio | 95.8 | % | 99.3 | % | 96.8 | % | 99.0 | % | |||||||
(1) | Loss ratio is losses and loss expenses incurred expressed as a percentage of premiums earned. Expense ratio is underwriting expenses expressed as a percentage of premiums earned. GAAP combined ratio is the sum of loss ratio and expense ratio. |
(2) | Losses from catastrophes were as follows (in thousands): |
Third Quarter | Nine Months | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Specialty | $ | 4,830 | $ | 6,403 | $ | 11,653 | $ | 15,614 | |||||||
Regional | 832 | 32,005 | 23,749 | 85,124 | |||||||||||
Alternative Markets | 247 | 1,161 | 598 | 1,545 | |||||||||||
Reinsurance | 394 | 6,383 | 880 | 17,679 | |||||||||||
International | 2,450 | 5,198 | 2,504 | 18,854 | |||||||||||
Total | $ | 8,753 | $ | 51,150 | $ | 39,384 | $ | 138,816 | |||||||
(3) | Other revenues and expenses include corporate investment income, expenses not allocated to the business segments and revenues and expenses from investments in wholly-owned, non-insurance subsidiaries that are consolidated for financial reporting purposes. |
W. R. Berkley Corporation Page7
Selected Balance Sheet Information
(Amounts in thousands, except per share data)
September 30, 2012 | December 31, 2011 | ||||||
Net invested assets (1) | $ | 15,593,589 | $ | 14,559,781 | |||
Total assets | 19,932,912 | 18,403,873 | |||||
Reserves for losses and loss expenses | 9,562,877 | 9,337,134 | |||||
Senior notes and other debt | 1,877,431 | 1,500,503 | |||||
Junior subordinated debentures | 243,154 | 242,997 | |||||
Common stockholders’ equity (2) (3) (4) | 4,324,401 | 3,953,356 | |||||
Common stock outstanding (3) (4) | 135,957 | 137,520 | |||||
Book value per share (4) (5) | 31.81 | 28.75 | |||||
Tangible book value per share (4) (5) | 31.09 | 28.04 | |||||
(1) | Net invested assets include investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases. |
(2) | After-tax unrealized investment gains were $557 million and $430 million as of September 30, 2012 and December 31, 2011, respectively. Unrealized currency translation losses were $37 million and $61 million as of September 30, 2012 and December 31, 2011, respectively. |
(3) | During 2012, the Company repurchased 3.3 million shares of its common stock at an average cost of $37.25 per share and an aggregate cost of $121 million. |
(4) | The Financial Accounting Standards Board recently issued guidance regarding the treatment of costs associated with acquiring or renewing insurance contracts. This guidance modifies the definition of the types of costs that can be capitalized and specifies that the costs must be directly related to the successful acquisition of a new or renewed insurance contract. We adopted this guidance effective January 1, 2012 and retrospectively adjusted our previously issued financial statements (including the applicable 2011 information contained herein). The effect of adopting this guidance retrospectively was to decrease deferred acquisition costs by $84 million, common stockholders' equity by $55 million and book value per share by 40 cents as of December 31, 2011. The new guidance also resulted in minor changes to other operating costs and expenses and expense ratios. |
(5) | Book value per share is total common stockholders’ equity divided by the number of common shares outstanding. Tangible book value per share is total common stockholders’ equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding. |
W. R. Berkley Corporation Page8
Supplemental Information
(Amounts in thousands)
Third Quarter | Nine Months | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Reconciliation of operating income to net income: | |||||||||||||||
Operating income (1) | $ | 86,136 | $ | 62,626 | $ | 283,360 | $ | 227,274 | |||||||
Investment gains, net of tax | 14,811 | 13,784 | 61,743 | 46,910 | |||||||||||
Net income | $ | 100,947 | $ | 76,410 | $ | 345,103 | $ | 274,184 | |||||||
Return on equity (2) | 10.2 | % | 8.4 | % | 11.6 | % | 10.0 | % | |||||||
Cash flow from operations | $ | 140,938 | $ | 268,851 | $ | 453,349 | $ | 485,243 | |||||||
Other operating costs and expenses: | |||||||||||||||
Underwriting expenses | $ | 399,677 | $ | 363,889 | $ | 1,177,620 | $ | 1,059,485 | |||||||
Service expenses | 22,769 | 18,873 | 63,996 | 55,764 | |||||||||||
Net foreign currency (gains) | (1,575 | ) | (2,700 | ) | (2,873 | ) | (2,171 | ) | |||||||
Other costs and expenses | 30,616 | 27,087 | 93,281 | 83,858 | |||||||||||
Total | $ | 451,487 | $ | 407,149 | $ | 1,332,024 | $ | 1,196,936 | |||||||
(1) | Operating income is a non-GAAP financial measure defined by the Company as net income excluding net investment gains and losses. Management believes that excluding net investment gains and losses, which are often discretionary and frequently relate to economic factors, provides a useful indicator of trends in the Company’s underlying operations. |
(2) | Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity. |
W. R. Berkley Corporation Page9
Investment Portfolio
September 30, 2012
(Amounts in thousands)
Carrying Value | Percent of Total | ||||||
Fixed maturity securities: | |||||||
United States government and government agencies | $ | 937,313 | 6.0 | % | |||
State and municipal: | |||||||
Special revenue | 2,198,657 | 14.1 | % | ||||
State general obligation | 890,990 | 5.7 | % | ||||
Local general obligation | 391,181 | 2.5 | % | ||||
Pre-refunded | 995,605 | 6.4 | % | ||||
Corporate backed | 430,658 | 2.8 | % | ||||
Total state and municipal | 4,907,091 | 31.5 | % | ||||
Mortgage-backed securities: | |||||||
Agency | 1,145,102 | 7.3 | % | ||||
Residential - Prime | 245,739 | 1.6 | % | ||||
Residential - Alt A | 154,538 | 1.0 | % | ||||
Commercial | 158,008 | 1.0 | % | ||||
Total mortgage-backed securities | 1,703,387 | 10.9 | % | ||||
Corporate: | |||||||
Industrial | 1,620,807 | 10.4 | % | ||||
Financial | 725,550 | 4.7 | % | ||||
Utilities | 219,452 | 1.4 | % | ||||
Asset-backed | 578,357 | 3.7 | % | ||||
Other | 109,983 | 0.7 | % | ||||
Total corporate | 3,254,149 | 20.9 | % | ||||
Foreign | 1,090,472 | 7.0 | % | ||||
Total fixed maturity securities (1) | 11,892,412 | 76.3 | % | ||||
Equity securities available for sale: | |||||||
Common stocks | 324,881 | 2.1 | % | ||||
Preferred stocks | 100,441 | 0.6 | % | ||||
Total equity securities available for sale | 425,322 | 2.7 | % | ||||
Cash and cash equivalents (2) | 1,344,765 | 8.6 | % | ||||
Investment funds (2) | 708,550 | 4.5 | % | ||||
Real estate | 433,686 | 2.8 | % | ||||
Arbitrage trading account | 417,446 | 2.7 | % | ||||
Loans receivable | 371,408 | 2.4 | % | ||||
Net invested assets | $ | 15,593,589 | 100.0 | % | |||
(1)Total fixed maturity securities had an average rating of AA- and an average duration of 3.3 years.
(2) | Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases. Investment funds are net of related liabilities of $39 million. |
W. R. Berkley Corporation Page10
Foreign Fixed Maturity Securities
September 30, 2012
(Amounts in thousands)
Government | Corporate | Total | ||||||||||
Australia | $ | 204,583 | $ | 113,990 | $ | 318,573 | ||||||
United Kingdom | 139,804 | 33,693 | 173,497 | |||||||||
Canada | 121,137 | 51,321 | 172,458 | |||||||||
Argentina | 124,833 | 24,559 | 149,392 | |||||||||
Germany | 94,056 | 27,461 | 121,517 | |||||||||
Brazil | 46,650 | — | 46,650 | |||||||||
Norway | 38,092 | — | 38,092 | |||||||||
Supranational (1) | 36,950 | — | 36,950 | |||||||||
Netherlands | — | 11,511 | 11,511 | |||||||||
Switzerland | — | 11,231 | 11,231 | |||||||||
Singapore | 6,990 | — | 6,990 | |||||||||
Uruguay | 3,187 | — | 3,187 | |||||||||
New Zealand | 424 | — | 424 | |||||||||
Total | $ | 816,706 | $ | 273,766 | $ | 1,090,472 | ||||||
(1) | Supranational represents investments in the North American Development Bank, European Investment Bank and Inter-American Development Bank. |