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8-K - 8-K - BERKLEY W R CORPwrb1231128k.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 FOURTH QUARTER RESULTS
Net Income Up 41%, Return on Equity 16.7%

Greenwich, CT, January 28, 2013 -- W. R. Berkley Corporation (NYSE: WRB) today reported net income for the fourth quarter of 2012 of $165 million, or $1.17 per share, compared with $117 million, or 82 cents per share, for the fourth quarter of 2011.

Summary Financial Data
(Amounts in thousands, except per share data)
 
Fourth Quarter
 
Full Year
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Gross premiums written
$
1,452,709

 
$
1,255,879

 
$
5,779,879

 
$
5,077,313

Net premiums written
1,228,135

 
1,090,511

 
4,898,539

 
4,357,368

 
 
 
 
 
 
 
 
Net income
165,489

 
117,027

 
510,592

 
391,211

Net income per diluted share
1.17

 
0.82

 
3.56

 
2.69

 
 
 
 
 
 
 
 
Operating income (1)
90,430

 
82,290

 
373,790

 
309,564

Operating income per diluted share
0.64

 
0.58

 
2.61

 
2.13


(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

Fourth quarter highlights included:
Return on equity of 16.7%.
Average rates on renewed policies increased 6.5%.
GAAP combined ratio was 98.1%.
Net premiums written increased 12.6%.
Net investment income up 30% to $152 million.
Special dividend of $1.00 per share of common stock paid in December 2012.

Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We are very pleased with the Company's fourth quarter performance. Our core underwriting results continued to improve as prices increased on renewal business for the third successive year and loss cost inflation continued at modest levels. The impact of Storm Sandy was mitigated by strategic reinsurance purchases, and our fourth quarter combined ratio was only slightly higher than the prior year.

"Our gross written premiums increased almost 16%. We continue to retain pricing power in most areas of the business, and our renewal retention remains satisfactory. We expect to have improved margins as higher prices are reflected in our earned premiums.

"As we have commented in the past, our investment income benefits from particular investment opportunities that produce better than market returns. We realized gains from both our private equity investments and our common stock portfolio, which contributed to our return on equity of just under 17% for the quarter. These types of investments are part of our normal strategy, and we expect additional realized gains to be achieved in the coming year.

"We paid a $1.00 per share special dividend in December, prior to the change in Federal tax laws. Together with our regular dividend, we distributed almost all of our fourth quarter earnings to our shareholders. We are increasingly optimistic about our ability to increase prices and deliver improving returns," Mr. Berkley concluded.





W. R. Berkley Corporation     Page3

Webcast Conference Call
The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on Tuesday, January 29, 2013, at 9:00 a.m. eastern time. The conference call will be webcast live on the Company's website at www.wrberkley.com. A replay of the webcast will be available on the Company's website approximately two hours after the end of the conference call.
About W. R. Berkley Corporation
Founded in 1967, W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates in 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 2013 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the impact of significant competition; 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 2013 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.


# # #




W. R. Berkley Corporation     Page4

Consolidated Financial Summary
(Amounts in thousands, except per share data)

 
 
Fourth Quarter
 
Full Year
 
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
 
Net premiums written
 
$
1,228,135

 
$
1,090,511

 
$
4,898,539

 
$
4,357,368

Change in unearned premiums
 
11,840

 
14,792

 
(225,023
)
 
(196,501
)
Net premiums earned
 
1,239,975

 
1,105,303

 
4,673,516

 
4,160,867

Net investment income
 
151,875

 
117,090

 
586,763

 
526,351

Insurance service fees
 
26,012

 
23,356

 
103,133

 
92,843

Net investment gains:
 
 
 
 
 
 
 
 
Net realized gains on investment sales
 
116,462

 
52,069

 
201,451

 
125,881

Change in valuation allowance, net of other-than-temporary impairments
 

 

 
9,014

 
(400
)
Net investment gains
 
116,462

 
52,069

 
210,465

 
125,481

Revenues from wholly-owned investees
 
73,917

 
72,735

 
247,113

 
248,678

  Other income
 
360

 
400

 
2,564

 
1,764

Total revenues
 
1,608,601

 
1,370,953

 
5,823,554

 
5,155,984

Expenses:
 
 
 
 
 
 
 
 
Losses and loss expenses
 
801,173

 
693,014

 
2,948,479

 
2,658,365

Other operating costs and expenses
 
467,599

 
429,590

 
1,799,623

 
1,626,526

Expenses from wholly-owned investees
 
74,784

 
71,436

 
247,222

 
245,495

Interest expense
 
32,552

 
28,195

 
126,302

 
112,512

Total expenses
 
1,376,108

 
1,222,235

 
5,121,626

 
4,642,898

Income before income taxes
 
232,493

 
148,718

 
701,928

 
513,086

Income tax expense
 
(66,994
)
 
(31,663
)
 
(191,285
)
 
(121,945
)
Net income before noncontrolling interests
 
165,499

 
117,055

 
510,643

 
391,141

Noncontrolling interests
 
(10
)
 
(28
)
 
(51
)
 
70

Net income to common stockholders
 
$
165,489

 
$
117,027

 
$
510,592

 
$
391,211

 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
Basic
 
$
1.22

 
$
0.85

 
$
3.72

 
$
2.80

Diluted
 
$
1.17

 
$
0.82

 
$
3.56

 
$
2.69

 
 
 
 
 
 
 
 
 
Average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
135,861

 
137,174

 
137,097

 
139,688

Diluted
 
141,654

 
143,016

 
143,315

 
145,672




W. R. Berkley Corporation     Page5

Operating Results by Segment
(Amounts in thousands, except ratios (1) (2))

 
Fourth Quarter
 
Full Year
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Specialty:
 
 
 
 
 
 
 
Gross premiums written
$
544,928

 
$
474,205

 
$
2,071,193

 
$
1,818,344

Net premiums written
452,131

 
408,425

 
1,747,687

 
1,554,516

Premiums earned
431,054

 
395,181

 
1,646,471

 
1,442,748

Pre-tax income
57,283

 
53,324

 
261,856

 
290,937

Loss ratio
65.4
%
 
63.8
%
 
62.8
%
 
59.4
%
Expense ratio
32.6
%
 
32.0
%
 
32.7
%
 
32.6
%
GAAP combined ratio
98.0
%
 
95.8
%
 
95.5
%
 
92.0
%
 
 
 
 
 
 
 
 
Regional:
 
 
 
 
 
 
 
Gross premiums written
$
292,360

 
$
268,138

 
$
1,218,602

 
$
1,149,362

Net premiums written
266,303

 
247,127

 
1,119,274

 
1,064,507

Premiums earned
281,145

 
270,552

 
1,090,217

 
1,065,975

Pre-tax income
43,000

 
33,299

 
122,211

 
30,529

Loss ratio
56.2
%
 
57.9
%
 
59.6
%
 
68.0
%
Expense ratio
36.2
%
 
35.6
%
 
36.5
%
 
36.1
%
GAAP combined ratio
92.4
%
 
93.5
%
 
96.1
%
 
104.1
%
 
 
 
 
 
 
 
 
Alternative Markets:
 
 
 
 
 
 
 
Gross premiums written
$
206,727

 
$
171,094

 
$
971,370

 
$
827,156

Net premiums written
146,855

 
121,980

 
702,922

 
619,097

Premiums earned
174,185

 
158,402

 
680,334

 
612,558

Pre-tax income
53,344

 
29,653

 
194,433

 
145,660

Loss ratio
68.5
%
 
73.3
%
 
71.4
%
 
72.3
%
Expense ratio
26.2
%
 
26.5
%
 
25.9
%
 
26.7
%
GAAP combined ratio
94.7
%
 
99.8
%
 
97.3
%
 
99.0
%
 
 
 
 
 
 
 
 
Reinsurance:
 
 
 
 
 
 
 
Gross premiums written
$
134,805

 
$
115,474

 
$
508,717

 
$
453,170

Net premiums written
127,891

 
110,805

 
477,252

 
430,329

Premiums earned
119,487

 
110,788

 
446,939

 
426,008

Pre-tax income
18,526

 
16,368

 
93,268

 
83,150

Loss ratio
68.1
%
 
63.4
%
 
60.5
%
 
61.6
%
Expense ratio
38.2
%
 
39.7
%
 
40.1
%
 
40.5
%
GAAP combined ratio
106.3
%
 
103.1
%
 
100.6
%
 
102.1
%
 
 
 
 
 
 
 
 
International:
 
 
 
 
 
 
 
Gross premiums written
$
273,889

 
$
226,968

 
$
1,009,997

 
$
829,281

Net premiums written
234,955

 
202,174

 
851,404

 
688,919

Premiums earned
234,104

 
170,380

 
809,555

 
613,578

Pre-tax income
11,376

 
11,613

 
62,061

 
39,033

Loss ratio
68.6
%
 
57.5
%
 
62.9
%
 
60.5
%
Expense ratio
34.8
%
 
41.1
%
 
37.2
%
 
40.2
%
GAAP combined ratio
103.4
%
 
98.6
%
 
100.1
%
 
100.7
%


W. R. Berkley Corporation     Page6

Operating Results by Segment (Continued)
(Amounts in thousands, except ratios (1)(2))

 
Fourth Quarter
 
Full Year
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Corporate and Eliminations:
 
 
 
 
 
 
 
Net investment gains
$
116,462

 
$
52,069

 
$
210,465

 
$
125,481

Interest expense
(32,552
)
 
(28,195
)
 
(126,302
)
 
(112,512
)
Other revenues and expenses (3)
(34,946
)
 
(19,413
)
 
(116,064
)
 
(89,192
)
Pre-tax income (loss)
48,964

 
4,461

 
(31,901
)
 
(76,223
)
 
 
 
 
 
 
 
 
Consolidated:
 
 
 
 
 
 
 
Gross premiums written
$
1,452,709

 
$
1,255,879

 
$
5,779,879

 
$
5,077,313

Net premiums written
1,228,135

 
1,090,511

 
4,898,539

 
4,357,368

Premiums earned
1,239,975

 
1,105,303

 
4,673,516

 
4,160,867

Pre-tax income
232,493

 
148,718

 
701,928

 
513,086

Loss ratio
64.6
%
 
62.7
%
 
63.1
%
 
63.9
%
Expense ratio
33.5
%
 
34.3
%
 
34.1
%
 
34.6
%
GAAP combined ratio
98.1
%
 
97.0
%
 
97.2
%
 
98.5
%

(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 attributable to Storm Sandy, net of reinsurance recoveries and reinstatement premiums, were $40 million in the fourth quarter of 2012. Total losses from catastrophes were as follows (in thousands):
    
 
Fourth Quarter
 
Full Year
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Specialty
$
6,560

 
$
1,702

 
$
18,213

 
$
17,316

Regional
624

 
(268
)
 
24,373

 
84,856

Alternative Markets
33

 
589

 
631

 
2,134

Reinsurance
19,811

 
6,294

 
20,691

 
23,973

International
13,786

 
6,232

 
16,290

 
25,086

Total
$
40,814

 
$
14,549

 
$
80,198

 
$
153,365

(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)

 
December 31, 2012
 
December 31, 2011
 
 
 
 
Net invested assets (1)
$
15,681,803

 
$
14,559,781

Total assets
20,155,896

 
18,403,873

Reserves for losses and loss expenses
9,751,086

 
9,337,134

Senior notes and other debt
1,871,535

 
1,500,503

Junior subordinated debentures
243,206

 
242,997

Common stockholders’ equity (2) (3) (4)
4,306,217

 
3,953,356

Common stock outstanding (3) (4)
136,018

 
137,520

Book value per share (4) (5)
31.66

 
28.75

Tangible book value per share (4) (5)
30.95

 
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 $518 million and $430 million as of December 31, 2012 and 2011, respectively. Unrealized currency translation losses were $37 million and $61 million as of December 31, 2012 and 2011, respectively.
(3)
During the fourth quarter of 2012, the Company repurchased 170,300 shares of its common stock at an average cost of $37.00 per share. During 2012, the Company repurchased 3.4 million shares of its common stock at an average cost of $37.24 per share and an aggregate cost of $128 million.
(4)
The Financial Accounting Standards Board has issued new 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 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)
 
Fourth Quarter
 
Full Year
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Reconciliation of operating income to net income:
 
 
 
 
 
 
 
Operating income (1)
$
90,430

 
$
82,290

 
$
373,790

 
$
309,564

Investment gains, net of tax
75,059

 
34,737

 
136,802

 
81,647

Net income
$
165,489

 
$
117,027

 
$
510,592

 
$
391,211

 
 
 
 
 
 
 
 
Return on equity (2)
16.7
%
 
12.8
%
 
12.9
%
 
10.7
%
 
 
 
 
 
 
 
 
Cash flow from operations
$
222,108

 
$
185,036

 
$
675,457

 
$
670,279

 
 
 
 
 
 
 
 
Other operating costs and expenses:
 
 
 
 
 
 
 
Underwriting expenses
$
415,126

 
$
378,644

 
$
1,592,746

 
$
1,438,129

Service expenses
20,990

 
19,467

 
84,986

 
75,231

Net foreign currency (gains) losses
(3,219
)
 
287

 
(6,092
)
 
(1,884
)
Other costs and expenses
34,702

 
31,192

 
127,983

 
115,050

Total
$
467,599

 
$
429,590

 
$
1,799,623

 
$
1,626,526



(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 common stockholders’ equity.


W. R. Berkley Corporation     Page9

Investment Portfolio
December 31, 2012
(Amounts in thousands)
 
 
Carrying
Value
 
Percent
of Total
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
United States government and government agencies
 
$
898,463

 
5.7
%
State and municipal:
 
 
 
 
Special revenue
 
2,243,455

 
14.3
%
Pre-refunded
 
917,207

 
5.8
%
State general obligation
 
888,498

 
5.7
%
Local general obligation
 
399,783

 
2.5
%
Corporate backed
 
384,766

 
2.5
%
Total state and municipal
 
4,833,709

 
30.8
%
Mortgage-backed securities:
 
 
 
 
Agency
 
1,110,385

 
7.1
%
Commercial
 
273,568

 
1.7
%
Residential - Prime
 
236,372

 
1.5
%
Residential - Alt A
 
128,136

 
0.8
%
Total mortgage-backed securities
 
1,748,461

 
11.1
%
Corporate:
 
 
 
 
Industrial
 
1,590,816

 
10.2
%
Financial
 
799,602

 
5.1
%
Asset-backed
 
596,428

 
3.8
%
Utilities
 
235,409

 
1.5
%
Other
 
129,461

 
0.8
%
Total corporate
 
3,351,716

 
21.4
%
Foreign
 
1,111,607

 
7.1
%
Total fixed maturity securities (1)
 
11,943,956

 
76.1
%
 
 
 
 
 
Equity securities available for sale:
 
 
 
 
Common stocks
 
282,066

 
1.8
%
Preferred stocks
 
93,956
 
0.6
%
Total equity securities available for sale
 
376,022

 
2.4
%
 
 
 
 
 
Cash and cash equivalents (2)
 
1,245,505

 
7.9
%
Investment funds (2)
 
778,547

 
5.0
%
Real estate
 
606,735

 
3.9
%
Loans receivable
 
401,961

 
2.6
%
Arbitrage trading account
 
329,077

 
2.1
%
Net invested assets
 
$
15,681,803

 
100.0
%
(1)Total fixed maturity securities had an average rating of AA- and an average duration of 3.4 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 $31 million.


W. R. Berkley Corporation     Page10

Foreign Fixed Maturity Securities
December 31, 2012
(Amounts in thousands)
 
 
Government
 
Corporate
 
Total
Australia
 
$
230,308

 
$
114,000

 
$
344,308

Canada
 
129,822

 
50,681

 
180,503

United Kingdom
 
142,036

 
33,668

 
175,704

Argentina
 
125,396

 
30,750

 
156,146

Germany
 
90,748

 

 
90,748

Brazil
 
51,752

 

 
51,752

Norway
 
38,625

 

 
38,625

Supranational (1)
 
37,013

 

 
37,013

Netherlands
 

 
14,427

 
14,427

Switzerland
 

 
11,403

 
11,403

Singapore
 
6,985

 

 
6,985

Uruguay
 
3,576

 

 
3,576

New Zealand
 
417

 

 
417

Total
 
$
856,678

 
$
254,929

 
$
1,111,607


(1)
Supranational represents investments in the North American Development Bank, European Investment Bank and Inter-American Development Bank.