BERKLEY W R CORP - FORM 8-K - EX-99.1 - PRESS RELEASE - April 23, 2013

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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 FIRST QUARTER RESULTS
Earnings per Share of 83 Cents, Net Premiums Written up 14.4%

Greenwich, CT, April 23, 2013 -- W. R. Berkley Corporation (NYSE: WRB) today reported net income for the first quarter of 2013 of $117 million, or 83 cents per share, compared with $135 million, or 94 cents per share, for the first quarter of 2012.

Summary Financial Data
(Amounts in thousands, except per share data)
 
 
First Quarter
 
 
 
2013
 
2012
 
 
 
 
 
 
 
Gross premiums written
 
$
1,631,621

 
$
1,401,526

 
Net premiums written
 
1,376,966

 
1,203,526

 
 
 
 
 
 
 
Net income
 
116,615

 
135,318

 
Net income per diluted share
 
0.83

 
0.94

 
 
 
 
 
 
 
Operating income (1)
 
103,635

 
104,236

 
Operating income per diluted share
 
0.74

 
0.73

 
 
 
 
 
 
 
Return on equity (2)
 
10.8
%
 
13.7
%
 

(1)
Operating income is a non-GAAP financial measure defined by the Company as net income excluding net investment gains and losses.

(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     Page 2

First quarter highlights included:
•
Average rates on renewed policies increased 7.3%.
•
Net premiums written increased 14.4%.
•
GAAP combined ratio was 94.7%.
•
Return on equity of 10.8%.

Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We had a good quarter, setting the foundation for an excellent year. Our business is showing continued signs of improvement, and we are well positioned to take advantage of the positive rate environment.

"The benefits of our improved pricing are slowly being reflected in our financial results. We see new opportunities created by the current underwriting environment as prices continue to increase faster than loss costs. Our management team recognizes that to achieve adequate returns in the current low interest rate environment, increased underwriting margins are required. We believe this is attainable.

"The core fixed income investment portfolio continues to perform well, with investment yields that remain above current market rates. Short-term fears of inflation seem to have abated, making us less eager to further reduce the duration of our portfolio. We continue to search the range of investment offerings for yield as well as capital gains, but we will not sacrifice quality nor do we intend to extend duration.

"We are optimistic that our business will continue to improve, and 2013 will be an excellent year,'" Mr. Berkley concluded.
    
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 Wednesday, April 24, 2013 at 8:30 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.
Commencing with the first quarter of 2013, the Company will report its results in three segments – Insurance-Domestic (formerly, Specialty, Regional and Alternative Markets), Insurance-International and Reinsurance-Global. Reclassifications have been made to the Company’s 2012 financial information to conform with this presentation. Please see the Company’s website at www.wrberkley.com for supplementary investor information regarding these changes to its business segments.
About W. R. Berkley Corporation
Founded in 1967, W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates in three segments of the property casualty business: insurance-domestic, insurance-international and reinsurance-global.




W. R. Berkley Corporation     Page 3



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


# # #



W. R. Berkley Corporation     Page 4

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

 
 
First Quarter
 
 
 
2013
 
2012
 
Revenues:
 
 
 
 
 
Net premiums written
 
$
1,376,966

 
$
1,203,526

 
Change in unearned premiums
 
(144,847
)
 
(103,875
)
 
Net premiums earned
 
1,232,119

 
1,099,651

 
Investment income
 
135,929

 
157,619

 
Insurance service fees
 
26,736

 
23,877

 
  Net investment gains
 
19,969

 
43,477

 
Change in investment valuation allowance, net of other than temporary impairments
 
—

 
4,014

 
Revenues from wholly-owned investees
 
91,735

 
49,675

 
Other income
 
281

 
392

 
Total revenues
 
1,506,769

 
1,378,705

 
Expenses:
 
 
 
 
 
Losses and loss expenses
 
744,679

 
679,472

 
Other operating costs and expenses
 
481,604

 
431,779

 
Expenses from wholly-owned investees
 
89,152

 
51,330

 
Interest expense
 
31,111

 
28,821

 
Total expenses
 
1,346,546

 
1,191,402

 
Income before income taxes
 
160,223

 
187,303

 
Income tax expense
 
(43,625
)
 
(52,071
)
 
Net income before noncontrolling interests
 
116,598

 
135,232

 
Noncontrolling interests
 
17

 
86

 
Net income to common stockholders
 
$
116,615

 
$
135,318

 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
Basic
 
$
0.86

 
$
0.98

 
Diluted
 
$
0.83

 
$
0.94

 
 
 
 
 
 
 
Average shares outstanding:
 
 
 
 
 
Basic
 
136,025

 
137,814

 
Diluted
 
141,223

 
143,411

 


W. R. Berkley Corporation     Page 5

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

 
 
First Quarter
 
 
2013
 
2012
Insurance-Domestic:
 
 
 
 
Gross premiums written
 
$
1,179,722

 
$
1,038,434

Net premiums written
 
986,180

 
882,943

Premiums earned
 
884,378

 
810,069

Pre-tax income
 
141,350

 
147,735

Loss ratio
 
62.4
%
 
62.9
%
Expense ratio
 
33.1
%
 
33.2
%
GAAP combined ratio
 
95.5
%
 
96.1
%
 
 
 
 
 
Insurance-International:
 
 
 
 
Gross premiums written
 
$
251,575

 
$
200,504

Net premiums written
 
205,135

 
167,994

Premiums earned
 
171,119

 
143,885

Pre-tax income
 
22,382

 
15,699

Loss ratio
 
55.8
%
 
57.3
%
Expense ratio
 
38.0
%
 
40.3
%
GAAP combined ratio
 
93.8
%
 
97.6
%
 
 
 
 
 
Reinsurance-Global:
 
 
 
 
Gross premiums written
 
$
200,324

 
$
162,588

Net premiums written
 
185,651

 
152,589

Premiums earned
 
176,622

 
145,697

Pre-tax income
 
37,941

 
31,638

Loss ratio
 
55.0
%
 
60.2
%
Expense ratio
 
36.3
%
 
37.6
%
GAAP combined ratio
 
91.3
%
 
97.8
%
 
 
 
 
 
Corporate and Eliminations:
 
 
 
 
  Net realized investment gains
 
$
19,969

 
$
47,791

  Interest expense
 
(31,111
)
 
(28,821
)
  Other revenues and expenses
 
(30,308
)
 
(26,439
)
  Pre-tax loss
 
(41,450
)
 
(7,769
)
 
 
 
 
 
Consolidated:
 
 
 
 
  Gross premiums written
 
$
1,631,621

 
$
1,401,526

  Net premiums written
 
1,376,966

 
1,203,526

  Premiums earned
 
1,232,119

 
1,099,651

  Pre-tax income
 
160,223

 
187,303

  Loss ratio
 
60.4
%
 
61.8
%
  Expense ratio
 
34.3
%
 
34.7
%
  GAAP combined ratio
 
94.7
%
 
96.5
%

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

(2) Loss ratio is losses and loss expenses incurred expressed as a percentage of premiums earned. Expense ratio is underwriting expenses expressed as a percentage of premiums earned. GAAP combined ratio is the sum of the loss ratio and the expense ratio.

W. R. Berkley Corporation     Page 6

Supplemental Information
(Amounts in thousands, except ratios)
    
 
 
First Quarter
 
 
 
2013
 
2012
 
Insurance-Domestic net premiums written by line:
 
 
 
 
 
  Workers' compensation
 
$
298,177

 
$
244,441

 
  Other liability
 
323,556

 
292,059

 
  Short-tail lines (1)
 
179,799

 
169,129

 
  Commercial automobile
 
123,586

 
120,811

 
  Professional liability
 
61,062

 
56,503

 
  Total
 
$
986,180

 
$
882,943

 
 
 
 
 
 
 
Losses from catastrophes:
 
 
 
 
 
  Insurance-Domestic
 
$
3,660

 
4,378

 
  Insurance-International
 
233

 
—

 
  Reinsurance-Global
 
1,120

 
28

 
  Total

$
5,013


4,406

 
 
 
 
 
 
 
Investment income:
 
 
 
 
 
  Core portfolio (2)
 
$
121,212

 
$
123,515

 
  Investment funds
 
10,934

 
27,623

 
  Arbitrage trading account
 
3,783

 
6,481

 
  Total
 
$
135,929

 
$
157,619

 
 
 
 
 
 
 
Other operating costs and expenses:
 
  
 
 
 
  Underwriting expenses
 
$
422,213

 
$
382,023

 
  Service expenses
 
22,305

 
19,592

 
  Net foreign currency losses (gains)
 
1,947

 
(1,434
)
 
  Other costs and expenses
 
35,139

 
31,598

 
  Total
 
$
481,604

 
$
431,779

 
 
 
 
 
 
 
Cash flow from operations
 
$
75,070

 
$
73,762

 
 
 
 
 
 
 
Reconciliation of operating income to net income:
 
 
 
 
 
  Operating income (3)
 
$
103,635

 
$
104,236

 
  After-tax investment gains
 
12,980

 
31,082

 
  Net income
 
$
116,615

 
$
135,318

 

(1) Short-tail lines includes commercial multi-peril (non-liability), inland and ocean marine, accident and health, fidelity and surety, boiler and machinery and other lines.

(2) Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable.

(3) Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net realized investment gains (losses). Management believes that excluding net realized investment gains (losses), which are often discretionary and frequently relate to economic factors, provides a useful indicator of trends in the Company’s underlying operations.


W. R. Berkley Corporation     Page 7

Selected Balance Sheet Information
(Amounts in thousands, except per share data)

 
 
March 31, 2013
 
December 31, 2012
 
 
 
 
 
Net invested assets (1)
 
$
15,438,868

 
$
15,681,803

Total assets
 
20,120,634

 
20,155,896

Reserves for losses and loss expenses
 
9,809,843

 
9,751,086

Senior notes and other debt
 
1,693,279

 
1,871,535

Junior subordinated debentures
 
243,258

 
243,206

Common stockholders’ equity (2)
 
4,378,541

 
4,306,217

Common stock outstanding
 
136,028

 
136,018

Book value per share (3)
 
32.19

 
31.66

Tangible book value per share (3)
 
31.18

 
30.95


(1)
Net invested assets include investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases, net of related liabilities.
(2)
After-tax unrealized investment gains were $525 million and $518 million as of March 31, 2013 and December 31, 2012, respectively. Unrealized currency translation losses were $83 million and $37 million as of March 31, 2013 and December 31, 2012, respectively.
(3)
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     Page 8

Investment Portfolio
March 31, 2013
(Amounts in thousands)
 
 
Carrying
Value
 
Percent
of Total
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
United States government and government agencies
 
$
875,712

 
5.7
%
State and municipal:
 
 
 
 
Special revenue
 
2,018,194

 
13.1
%
State general obligation
 
859,481

 
5.6
%
Pre-refunded
 
853,418

 
5.5
%
Local general obligation
 
374,158

 
2.4
%
Corporate backed
 
370,490

 
2.4
%
Total state and municipal
 
4,475,741

 
29.0
%
Mortgage-backed securities:
 
 
 
 
Agency
 
1,057,039

 
6.8
%
Residential — Prime
 
209,938

 
1.4
%
Commercial
 
209,366

 
1.4
%
Residential — Alt A
 
99,751

 
0.6
%
Total mortgage-backed securities
 
1,576,094

 
10.2
%
Corporate:
 
 
 
 
Industrial
 
1,548,214

 
10.0
%
Financial
 
859,566

 
5.6
%
Asset-backed
 
822,825

 
5.3
%
Utilities
 
219,618

 
1.4
%
Other
 
125,853

 
0.8
%
Total corporate
 
3,576,076

 
23.1
%
Foreign
 
1,161,494

 
7.5
%
Total fixed maturity securities (1)
 
11,665,117

 
75.5
%
Equity securities available for sale:
 
 
 
 
Common stocks
 
295,031

 
1.9
%
Preferred stocks
 
104,355

 
0.7
%
Total equity securities available for sale
 
399,386

 
2.6
%
Cash and cash equivalents (2)
 
862,129

 
5.6
%
Investment funds (3)
 
765,703

 
5.0
%
Arbitrage trading account
 
701,223

 
4.5
%
Real estate
 
588,777

 
3.8
%
Loans receivable
 
456,533

 
3.0
%
Net invested assets
 
$
15,438,868

 
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.
(3)
Investment funds are net of related liabilities of $28 million.

W. R. Berkley Corporation     Page 9

Foreign Fixed Maturity Securities
March 31, 2013
(Amounts in thousands)

 
 
Government
 
Corporate
 
Total
Australia
 
$
243,737

 
$
139,062

 
$
382,799

Canada
 
136,247

 
49,419

 
185,666

United Kingdom
 
111,644

 
58,200

 
169,844

Argentina
 
133,466

 
29,511

 
162,977

Germany
 
72,055

 
—

 
72,055

Norway
 
64,936

 
—

 
64,936

Brazil
 
49,550

 
—

 
49,550

Supranational (1)
 
38,672

 
—

 
38,672

Netherlands
 
—

 
13,057

 
13,057

Switzerland
 
—

 
11,279

 
11,279

Singapore
 
6,840

 
—

 
6,840

Uruguay
 
3,400

 
—

 
3,400

New Zealand
 
419

 
—

 
419

Total
 
$
860,966

 
$
300,528

 
$
1,161,494


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


BERKLEY W R CORP Reports