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| 8-K - 8-K - BERKLEY W R CORP | wrb630148k.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 SECOND QUARTER RESULTS
Net Income per Share Increased 65%, Return on Equity 16.6%
Greenwich, CT, July 28, 2014 -- W. R. Berkley Corporation (NYSE: WRB) today reported net income for the second quarter of 2014 of $180 million, or $1.35 per share.
Summary Financial Data
(Amounts in thousands, except per share data)
Second Quarter | Six Months | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Gross premiums written | $ | 1,772,401 | $ | 1,617,936 | $ | 3,577,668 | $ | 3,249,557 | ||||||||
Net premiums written | 1,489,776 | 1,341,898 | 3,015,656 | 2,718,864 | ||||||||||||
Net income | 179,961 | 115,957 | 349,634 | 232,572 | ||||||||||||
Net income per diluted share | 1.35 | 0.82 | 2.60 | 1.65 | ||||||||||||
Operating income (1) | 109,002 | 98,830 | 244,385 | 202,465 | ||||||||||||
Operating income per diluted share | 0.82 | 0.70 | 1.82 | 1.43 | ||||||||||||
Return on equity (2) | 16.6 | % | 10.8 | % | 16.1 | % | 10.8 | % | ||||||||
(1) | Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains and after-tax debt extinguishment costs. |
(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
Second quarter highlights included:
• | Net premiums written grew 11%. |
• | Return on equity was 16.6%. |
• | GAAP combined ratio improved to 94.4%. |
• | Net investment gains were $109 million. |
• | Book value per share increased 5.5% to $36.20. |
Commenting on the Company's performance, William R. Berkley, chairman and chief executive
officer, said: "We were very pleased with our second quarter results. Weather-related losses are typically higher in the second quarter than in other quarters for our Company, and this year such losses were about average. We were able to grow our top line by about 11%. Price increases for our domestic insurance businesses were approximately 4%; thus, for the twelfth quarter in a row, prices increased at a rate in excess of loss costs. We believe that in such an environment our goal should be to grow selectively where the margins are most attractive. We continue to focus on reducing our expense ratio, which declined by six tenths of a point in the quarter.
"We have maintained the quality of our fixed-income portfolio, while at the same time investing an increasing portion of new funds into alternative investments with the goal of generating capital gains. As a result, we have sacrificed some ordinary investment income to achieve the level of capital gains currently flowing into our income statement. Our investment returns from our fixed-income portfolio declined slightly, reflecting both the current interest rate environment and the shortening of our portfolio duration, while other parts of our investment activities have generated attractive returns over the recent period. The sale of a property from our real-estate portfolio resulted in a substantial gain this quarter. We also continue to achieve gains from our common stock and private equity investments.
"We are optimistic that the combination of our operating results and investment gains will allow us to achieve our targeted returns," 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 Tuesday, July 29, 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 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)
Second Quarter | Six Months | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Revenues: | |||||||||||||||||
Net premiums written | $ | 1,489,776 | $ | 1,341,898 | $ | 3,015,656 | $ | 2,718,864 | |||||||||
Change in unearned premiums | (72,131 | ) | (59,383 | ) | (234,399 | ) | (204,230 | ) | |||||||||
Net premiums earned | 1,417,645 | 1,282,515 | 2,781,257 | 2,514,634 | |||||||||||||
Investment income | 138,729 | 143,737 | 307,440 | 279,666 | |||||||||||||
Insurance service fees | 26,922 | 27,652 | 55,625 | 54,388 | |||||||||||||
Net investment gains | 109,168 | 33,058 | 161,922 | 53,027 | |||||||||||||
Revenues from wholly-owned investees | 104,285 | 83,775 | 197,125 | 175,510 | |||||||||||||
Other income | 240 | 225 | 526 | 506 | |||||||||||||
Total revenues | 1,796,989 | 1,570,962 | 3,503,895 | 3,077,731 | |||||||||||||
Expenses: | |||||||||||||||||
Losses and loss expenses | 867,778 | 805,470 | 1,689,873 | 1,550,149 | |||||||||||||
Other operating costs and expenses | 534,150 | 494,286 | 1,049,316 | 975,890 | |||||||||||||
Expenses from wholly-owned investees | 101,296 | 81,293 | 193,026 | 170,445 | |||||||||||||
Interest expense | 30,311 | 31,207 | 60,641 | 62,318 | |||||||||||||
Total expenses | 1,533,535 | 1,412,256 | 2,992,856 | 2,758,802 | |||||||||||||
Income before income taxes | 263,454 | 158,706 | 511,039 | 318,929 | |||||||||||||
Income tax expense | (83,277 | ) | (43,579 | ) | (161,178 | ) | (87,204 | ) | |||||||||
Net income before noncontrolling interests | 180,177 | 115,127 | 349,861 | 231,725 | |||||||||||||
Noncontrolling interests | (216 | ) | 830 | (227 | ) | 847 | |||||||||||
Net income to common stockholders | $ | 179,961 | $ | 115,957 | $ | 349,634 | $ | 232,572 | |||||||||
Net income per share: | |||||||||||||||||
Basic | $ | 1.41 | $ | 0.85 | $ | 2.72 | $ | 1.71 | |||||||||
Diluted | $ | 1.35 | $ | 0.82 | $ | 2.60 | $ | 1.65 | |||||||||
Average shares outstanding: | |||||||||||||||||
Basic | 127,668 | 135,894 | 128,765 | 135,959 | |||||||||||||
Diluted | 133,304 | 141,274 | 134,323 | 141,257 | |||||||||||||
W. R. Berkley Corporation Page 5
Business Segment Operating Results
(Amounts in thousands, except ratios) (1)
Second Quarter | Six Months | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Insurance-Domestic: | ||||||||||||||||
Gross premiums written | $ | 1,351,624 | $ | 1,186,186 | $ | 2,694,566 | $ | 2,365,908 | ||||||||
Net premiums written | 1,123,843 | 967,784 | 2,250,224 | 1,953,964 | ||||||||||||
Premiums earned | 1,041,745 | 925,997 | 2,045,252 | 1,810,375 | ||||||||||||
Pre-tax income | 176,855 | 152,334 | 379,040 | 293,684 | ||||||||||||
Loss ratio | 60.9 | % | 62.9 | % | 60.4 | % | 62.7 | % | ||||||||
Expense ratio | 32.3 | % | 32.5 | % | 32.4 | % | 32.8 | % | ||||||||
GAAP combined ratio | 93.2 | % | 95.4 | % | 92.8 | % | 95.5 | % | ||||||||
Insurance-International: | ||||||||||||||||
Gross premiums written | $ | 265,200 | $ | 241,738 | $ | 542,386 | $ | 493,313 | ||||||||
Net premiums written | 222,622 | 201,445 | 448,443 | 406,580 | ||||||||||||
Premiums earned | 201,868 | 180,192 | 387,192 | 351,311 | ||||||||||||
Pre-tax income | 11,510 | 12,583 | 29,257 | 34,965 | ||||||||||||
Loss ratio | 60.7 | % | 61.0 | % | 60.0 | % | 58.5 | % | ||||||||
Expense ratio | 38.8 | % | 38.9 | % | 39.4 | % | 38.4 | % | ||||||||
GAAP combined ratio | 99.5 | % | 99.9 | % | 99.4 | % | 96.9 | % | ||||||||
Reinsurance-Global: | ||||||||||||||||
Gross premiums written | $ | 155,577 | $ | 190,012 | $ | 340,716 | $ | 390,336 | ||||||||
Net premiums written | 143,311 | 172,669 | 316,989 | 358,320 | ||||||||||||
Premiums earned | 174,032 | 176,326 | 348,813 | 352,948 | ||||||||||||
Pre-tax income | 25,866 | 24,752 | 57,940 | 62,693 | ||||||||||||
Loss ratio | 63.4 | % | 63.9 | % | 64.0 | % | 59.4 | % | ||||||||
Expense ratio | 31.9 | % | 35.1 | % | 32.4 | % | 35.7 | % | ||||||||
GAAP combined ratio | 95.3 | % | 99.0 | % | 96.4 | % | 95.1 | % | ||||||||
Corporate and Eliminations: | ||||||||||||||||
Net realized investment gains | $ | 109,168 | $ | 33,058 | $ | 161,922 | $ | 53,027 | ||||||||
Interest expense | (30,311 | ) | (31,207 | ) | (60,641 | ) | (62,318 | ) | ||||||||
Other revenues and expenses | (29,634 | ) | (32,814 | ) | (56,479 | ) | (63,122 | ) | ||||||||
Pre-tax gain (loss) | 49,223 | (30,963 | ) | 44,802 | (72,413 | ) | ||||||||||
Consolidated: | ||||||||||||||||
Gross premiums written | $ | 1,772,401 | $ | 1,617,936 | $ | 3,577,668 | $ | 3,249,557 | ||||||||
Net premiums written | 1,489,776 | 1,341,898 | 3,015,656 | 2,718,864 | ||||||||||||
Premiums earned | 1,417,645 | 1,282,515 | 2,781,257 | 2,514,634 | ||||||||||||
Pre-tax income | 263,454 | 158,706 | 511,039 | 318,929 | ||||||||||||
Loss ratio | 61.2 | % | 62.8 | % | 60.8 | % | 61.6 | % | ||||||||
Expense ratio | 33.2 | % | 33.8 | % | 33.4 | % | 34.0 | % | ||||||||
GAAP combined ratio | 94.4 | % | 96.6 | % | 94.2 | % | 95.6 | % | ||||||||
(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)
Second Quarter | Six Months | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Insurance-Domestic net premiums written: | ||||||||||||||||
Other liability | $ | 400,289 | $ | 348,110 | $ | 771,720 | $ | 671,666 | ||||||||
Workers' compensation | 283,995 | 225,888 | 630,865 | 524,065 | ||||||||||||
Short-tail lines (1) | 235,972 | 206,357 | 443,081 | 386,156 | ||||||||||||
Commercial automobile | 129,282 | 121,063 | 263,808 | 244,649 | ||||||||||||
Professional liability | 74,305 | 66,366 | 140,750 | 127,428 | ||||||||||||
Total | $ | 1,123,843 | $ | 967,784 | $ | 2,250,224 | $ | 1,953,964 | ||||||||
Losses from catastrophes: | ||||||||||||||||
Insurance-Domestic | $ | 38,370 | $ | 26,696 | $ | 51,111 | $ | 30,356 | ||||||||
Insurance-International | 272 | 3,171 | 1,403 | 3,404 | ||||||||||||
Reinsurance-Global | 1,148 | 4,293 | 1,246 | 5,413 | ||||||||||||
Total | $ | 39,790 | $ | 34,160 | $ | 53,760 | $ | 39,173 | ||||||||
Investment income: | ||||||||||||||||
Core portfolio (2) | $ | 109,431 | $ | 116,171 | $ | 218,824 | $ | 237,383 | ||||||||
Investment funds | 22,356 | 22,576 | 76,155 | 33,510 | ||||||||||||
Arbitrage trading account | 6,942 | 4,990 | 12,461 | 8,773 | ||||||||||||
Total | $ | 138,729 | $ | 143,737 | $ | 307,440 | $ | 279,666 | ||||||||
Other operating costs and expenses: | ||||||||||||||||
Underwriting expenses | $ | 470,296 | $ | 433,271 | $ | 928,434 | $ | 855,484 | ||||||||
Service expenses | 23,607 | 23,136 | 45,864 | 45,441 | ||||||||||||
Debt extinguishment costs | — | 6,709 | — | 6,709 | ||||||||||||
Net foreign currency (gain) loss | 1,993 | (6,718 | ) | 1,659 | (4,771 | ) | ||||||||||
Other costs and expenses | 38,254 | 37,888 | 73,359 | 73,027 | ||||||||||||
Total | $ | 534,150 | $ | 494,286 | $ | 1,049,316 | $ | 975,890 | ||||||||
Cash flow from operations | $ | 111,459 | $ | 198,820 | $ | 254,623 | $ | 313,932 | ||||||||
Reconciliation of operating and net income: | ||||||||||||||||
Operating income (3) | $ | 109,002 | $ | 98,830 | $ | 244,385 | $ | 202,465 | ||||||||
After-tax investment gains | 70,959 | 21,488 | 105,249 | 34,468 | ||||||||||||
After-tax debt extinguishment costs | — | (4,361 | ) | — | (4,361 | ) | ||||||||||
Net income | $ | 179,961 | $ | 115,957 | $ | 349,634 | $ | 232,572 | ||||||||
(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 and after-tax debt extinguishment costs. Management believes that excluding net investment gains and after-tax debt extinguishment costs 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)
June 30, 2014 | December 31, 2013 | |||||||
Net invested assets (1) | $ | 16,017,443 | $ | 15,540,488 | ||||
Total assets | 21,167,194 | 20,551,796 | ||||||
Reserves for losses and loss expenses | 10,256,219 | 10,080,941 | ||||||
Senior notes and other debt | 1,697,037 | 1,692,442 | ||||||
Junior subordinated debentures | 339,930 | 339,800 | ||||||
Common stockholders’ equity (2) | 4,619,713 | 4,336,035 | ||||||
Common stock outstanding (3) | 127,613 | 132,233 | ||||||
Book value per share (4) | 36.20 | 32.79 | ||||||
Tangible book value per share (4) | 35.18 | 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 $378 million and $257 million as of June 30, 2014 and December 31, 2013, respectively. Unrealized currency translation losses were $40 million and $61 million as of June 30, 2014 and December 31, 2013, respectively. |
(3) | During the second quarter of 2014, the Company repurchased 100,514 shares of its common stock for $4.6 million. During the first six months of 2014, the Company repurchased 4,908,701 shares of its common stock for $198 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
June 30, 2014
(Amounts in thousands)
Carrying Value | Percent of Total | ||||||
Fixed maturity securities: | |||||||
United States government and government agencies | $ | 867,127 | 5.4 | % | |||
State and municipal: | |||||||
Special revenue | 2,219,350 | 13.9 | % | ||||
State general obligation | 715,219 | 4.5 | % | ||||
Pre-refunded | 604,868 | 3.8 | % | ||||
Corporate backed | 443,660 | 2.8 | % | ||||
Local general obligation | 308,599 | 1.9 | % | ||||
Total state and municipal | 4,291,696 | 26.9 | % | ||||
Mortgage-backed securities: | |||||||
Agency | 1,005,318 | 6.3 | % | ||||
Residential - Prime | 163,031 | 1.0 | % | ||||
Residential — Alt A | 82,798 | 0.5 | % | ||||
Commercial | 80,387 | 0.5 | % | ||||
Total mortgage-backed securities | 1,331,534 | 8.3 | % | ||||
Corporate: | |||||||
Asset-backed | 1,608,080 | 10.0 | % | ||||
Industrial | 1,564,582 | 9.8 | % | ||||
Financial | 1,164,931 | 7.3 | % | ||||
Utilities | 194,196 | 1.2 | % | ||||
Other | 97,533 | 0.6 | % | ||||
Total corporate | 4,629,322 | 28.9 | % | ||||
Foreign government | 968,376 | 6.0 | % | ||||
Total fixed maturity securities (1) | 12,088,055 | 75.5 | % | ||||
Equity securities available for sale: | |||||||
Preferred stocks | 153,532 | 1.0 | % | ||||
Common stocks | 103,527 | 0.6 | % | ||||
Total equity securities available for sale | 257,059 | 1.6 | % | ||||
Investment funds (3) | 979,450 | 6.1 | % | ||||
Arbitrage trading account | 732,279 | 4.6 | % | ||||
Real estate | 530,239 | 3.3 | % | ||||
Cash and cash equivalents (2) | 774,670 | 4.8 | % | ||||
Loans receivable | 655,691 | 4.1 | % | ||||
Net invested assets | $ | 16,017,443 | 100.0 | % | |||
(1) | Total fixed maturity securities had an average rating of AA- and an average duration of 3.1 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 $5 million. |
W. R. Berkley Corporation Page 9
Foreign Government Fixed Maturity Securities
June 30, 2014
(Amounts in thousands)
Carrying Value | |||||
Australia | $ | 258,187 | |||
United Kingdom | 188,303 | ||||
Canada | 171,353 | ||||
Argentina | 114,038 | ||||
Brazil | 68,431 | ||||
Germany | 66,485 | ||||
Norway | 52,320 | ||||
Supranational (1) | 39,105 | ||||
Singapore | 6,768 | ||||
Uruguay | 3,386 | ||||
Total | $ | 968,376 | |||
(1) | Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development. |