BERKLEY W R CORP - FORM 8-K - EX-99.1 - EARNINGS PRESS RELEASE MARCH 31, 2014 - April 22, 2014

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8-K - FORM 8-K FIRST QUARTER 2014 EARNINGS RELEASE - BERKLEY W R CORPwrb331148k.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 FIRST QUARTER RESULTS
Net Income per Share Increased 51%, Net Premiums Written Increased 11%

Greenwich, CT, April 22, 2014 -- W. R. Berkley Corporation (NYSE: WRB) today reported net income for the first quarter of 2014 of $170 million, or $1.25 per share.

Summary Financial Data
(Amounts in thousands, except per share data)
 
 
First Quarter
 
 
 
2014
 
2013
 
 
 
 
 
 
 
Gross premiums written
 
$
1,805,267

 
$
1,631,621

 
Net premiums written
 
1,525,880

 
1,376,966

 
 
 
 
 
 
 
Net income
 
169,673

 
116,615

 
Net income per diluted share
 
1.25

 
0.83

 
 
 
 
 
 
 
Operating income (1)
 
135,383

 
103,635

 
Operating income per diluted share
 
1.00

 
0.74

 
 
 
 
 
 
 
Return on equity (2)
 
15.7
%
 
10.8
%
 

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

(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:
•
Written premium grew 11%.
•
Return on equity was 15.7%.
•
Combined ratio improved to 93.9%.
•
The Company repurchased 4.8 million shares of its common stock.
•
Book value per share increased 4.6% to $34.30.

Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We had an excellent first quarter. Underwriting results showed substantial improvement as almost every area of the domestic business produced improved margins. We expect these improvements to be maintained over the balance of the year as the efforts to improve pricing and control costs are reflected in our financial statements.

"Investment income grew substantially and realized gains added to our profitability. We benefited significantly from improved investment returns from various partnership interests. We expect our gains to continue, although they may vary from quarter to quarter.

"Price increases are still obtainable in most lines of business. Customers value service and reliability and realize insurance is about getting claims paid in a prompt and fair manner. With our after-tax return at our target level of 15% for the quarter, we are optimistic that the balance of the year will prove rewarding," Mr. Berkley concluded.

Webcast Conference Call
The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on Wednesday, April 23, 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.
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 2014 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the impact of significant competition, including new alternative entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, real estate, merger arbitrage and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response to it, on our results and financial condition; foreign currency and political risks relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Act of 2002, as amended ("TRIA"), and the potential expiration of TRIA; the ability of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or data security; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These risks and uncertainties could cause our actual results for the year 2014 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.


# # #



W. R. Berkley Corporation     Page 4

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

 
 
First Quarter
 
 
 
2014
 
2013
 
Revenues:
 
 
 
 
 
Net premiums written
 
$
1,525,880

 
$
1,376,966

 
Change in unearned premiums
 
(162,268
)
 
(144,847
)
 
Net premiums earned
 
1,363,612

 
1,232,119

 
Investment income
 
168,711

 
135,929

 
Insurance service fees
 
28,703

 
26,736

 
  Net investment gains
 
52,754

 
19,969

 
Revenues from wholly-owned investees
 
92,840

 
91,735

 
Other income
 
286

 
281

 
Total revenues
 
1,706,906

 
1,506,769

 
Expenses:
 
 
 
 
 
Losses and loss expenses
 
822,095

 
744,679

 
Other operating costs and expenses
 
515,166

 
481,604

 
Expenses from wholly-owned investees
 
91,730

 
89,152

 
Interest expense
 
30,330

 
31,111

 
Total expenses
 
1,459,321

 
1,346,546

 
Income before income taxes
 
247,585

 
160,223

 
Income tax expense
 
(77,901
)
 
(43,625
)
 
Net income before noncontrolling interests
 
169,684

 
116,598

 
Noncontrolling interests
 
(11
)
 
17

 
Net income to common stockholders
 
$
169,673

 
$
116,615

 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
Basic
 
$
1.31

 
$
0.86

 
Diluted
 
$
1.25

 
$
0.83

 
 
 
 
 
 
 
Average shares outstanding:
 
 
 
 
 
Basic
 
129,873

 
136,025

 
Diluted
 
135,429

 
141,223

 


W. R. Berkley Corporation     Page 5

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

 
 
First Quarter
 
 
2014
 
2013
Insurance-Domestic:
 
 
 
 
Gross premiums written
 
$
1,342,942

 
$
1,179,722

Net premiums written
 
1,126,381

 
986,180

Premiums earned
 
1,003,507

 
884,378

Pre-tax income
 
202,185

 
141,350

Loss ratio
 
59.7
%
 
62.4
%
Expense ratio
 
32.5
%
 
33.1
%
GAAP combined ratio
 
92.2
%
 
95.5
%
 
 
 
 
 
Insurance-International:
 
 
 
 
Gross premiums written
 
$
277,186

 
$
251,575

Net premiums written
 
225,821

 
205,135

Premiums earned
 
185,324

 
171,119

Pre-tax income
 
17,747

 
22,382

Loss ratio
 
59.2
%
 
55.8
%
Expense ratio
 
40.1
%
 
38.0
%
GAAP combined ratio
 
99.3
%
 
93.8
%
 
 
 
 
 
Reinsurance-Global:
 
 
 
 
Gross premiums written
 
$
185,139

 
$
200,324

Net premiums written
 
173,678

 
185,651

Premiums earned
 
174,781

 
176,622

Pre-tax income
 
32,074

 
37,941

Loss ratio
 
64.6
%
 
55.0
%
Expense ratio
 
32.8
%
 
36.3
%
GAAP combined ratio
 
97.4
%
 
91.3
%
 
 
 
 
 
Corporate and Eliminations:
 
 
 
 
  Net realized investment gains
 
$
52,754

 
$
19,969

  Interest expense
 
(30,330
)
 
(31,111
)
  Other revenues and expenses
 
(26,845
)
 
(30,308
)
  Pre-tax loss
 
(4,421
)
 
(41,450
)
 
 
 
 
 
Consolidated:
 
 
 
 
  Gross premiums written
 
$
1,805,267

 
$
1,631,621

  Net premiums written
 
1,525,880

 
1,376,966

  Premiums earned
 
1,363,612

 
1,232,119

  Pre-tax income
 
247,585

 
160,223

  Loss ratio
 
60.3
%
 
60.4
%
  Expense ratio
 
33.6
%
 
34.3
%
  GAAP combined ratio
 
93.9
%
 
94.7
%


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





W. R. Berkley Corporation     Page 6

Supplemental Information
(Amounts in thousands)    
 
 
First Quarter
 
 
2014
 
2013
Insurance-Domestic net premiums written:
 
 
 
 
  Other liability
 
$
371,431

 
$
323,556

  Workers' compensation
 
346,870

 
298,177

  Short-tail lines (1)
 
207,109

 
179,799

  Commercial automobile
 
134,526

 
123,586

  Professional liability
 
66,445

 
61,062

  Total
 
$
1,126,381

 
$
986,180

 
 
 
 
 
Losses from catastrophes:
 
 
 
 
  Insurance-Domestic
 
$
12,741

 
$
3,660

  Insurance-International
 
1,131

 
233

  Reinsurance-Global
 
98

 
1,120

  Total

$
13,970


$
5,013

 
 
 
 
 
Investment income:
 
 
 
 
  Core portfolio (2)
 
$
109,393

 
$
121,212

  Investment funds
 
53,799

 
10,934

  Arbitrage trading account
 
5,519

 
3,783

  Total
 
$
168,711

 
$
135,929

 
 
 
 
 
Other operating costs and expenses:
 
  
 
 
  Underwriting expenses
 
$
458,138

 
$
422,213

  Service expenses
 
22,257

 
22,305

  Net foreign currency (gain) loss
 
(334
)
 
1,947

  Other costs and expenses
 
35,105

 
35,139

  Total
 
$
515,166

 
$
481,604

 
 
 
 
 
Cash flow from operations
 
$
143,164

 
$
115,112

 
 
 
 
 
Reconciliation of operating and net income:
 
 
 
 
  Operating income (3)
 
$
135,383

 
$
103,635

After-tax investment gains, net of noncontrolling interest
 
34,290

 
12,980

  Net income
 
$
169,673

 
$
116,615


(1) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.
(2) Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable.
(3) Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains. Management believes that excluding net investment gains 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, 2014
 
December 31, 2013
 
 
 
 
 
Net invested assets (1)
 
$
15,657,718

 
$
15,540,488

Total assets
 
20,704,267

 
20,551,796

Reserves for losses and loss expenses
 
10,214,994

 
10,080,941

Senior notes and other debt
 
1,692,690

 
1,692,442

Junior subordinated debentures
 
339,865

 
339,800

Common stockholders’ equity (2)
 
4,375,944

 
4,336,035

Common stock outstanding (3)
 
127,580

 
132,233

Book value per share (4)
 
34.30

 
32.79

Tangible book value per share (4)
 
33.22

 
31.74


(1)
Net invested assets include investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases, net of related liabilities.
(2)
After-tax unrealized investment gains were $329 million and $257 million as of March 31, 2014 and December 31, 2013, respectively. Unrealized currency translation losses were $65 million and $61 million as of March 31, 2014 and December 31, 2013, respectively.
(3)
During the first quarter of 2014, the Company repurchased 4,808,187 shares of its common stock for $193 million.
(4)
Book value per share is total common stockholders’ equity divided by the number of common shares outstanding. Tangible book value per share is total common stockholders’ equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding.


W. R. Berkley Corporation     Page 8

Investment Portfolio
March 31, 2014
(Amounts in thousands)
 
 
Carrying
Value
 
Percent
of Total
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
United States government and government agencies
 
$
930,856

 
6.0
%
State and municipal:
 
 
 
 
Special revenue
 
2,205,161

 
14.1
%
State general obligation
 
758,433

 
4.9
%
Pre-refunded
 
616,099

 
3.9
%
Corporate backed
 
445,329

 
2.8
%
Local general obligation
 
301,939

 
1.9
%
Total state and municipal
 
4,326,961

 
27.6
%
Mortgage-backed securities:
 
 
 
 
Agency
 
1,044,438

 
6.7
%
Residential - Prime
 
171,188

 
1.1
%
Residential — Alt A
 
88,401

 
0.6
%
Commercial
 
71,290

 
0.4
%
Total mortgage-backed securities
 
1,375,317

 
8.8
%
Corporate:
 
 
 
 
Industrial
 
1,601,868

 
10.2
%
Asset-backed
 
1,384,512

 
8.9
%
Financial
 
1,157,545

 
7.4
%
Utilities
 
191,396

 
1.2
%
Other
 
106,875

 
0.7
%
Total corporate
 
4,442,196

 
28.4
%
Foreign government
 
911,147

 
5.8
%
Total fixed maturity securities (1)
 
11,986,477

 
76.6
%
Equity securities available for sale:
 
 
 
 
Common stocks
 
164,062

 
1.0
%
Preferred stocks
 
158,711

 
1.0
%
Total equity securities available for sale
 
322,773

 
2.0
%
Investment funds (3)
 
948,427

 
6.1
%
Real estate
 
752,376

 
4.8
%
Arbitrage trading account
 
681,077

 
4.3
%
Cash and cash equivalents (2)
 
593,422

 
3.8
%
Loans receivable
 
373,166

 
2.4
%
Net invested assets
 
$
15,657,718

 
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.
(3)
Investment funds are net of related liabilities of $8 million.

W. R. Berkley Corporation     Page 9

Foreign Government Fixed Maturity Securities
March 31, 2014
(Amounts in thousands)

 
 
Carrying Value
 
 
 
 
 
Australia
 
$
251,245

 
United Kingdom
 
171,317

 
Canada
 
161,559

 
Argentina
 
106,242

 
Brazil
 
63,319

 
Germany
 
55,584

 
Norway
 
53,584

 
Supranational (1)
 
38,403

 
Singapore
 
6,739

 
Uruguay
 
3,155

 
Total
 
$
911,147

 

(1)
Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development.

BERKLEY W R CORP Reports