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| 8-K - FOURTH QUARTER 2014 EARNINGS - BERKLEY W R CORP | wrb1231148k.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
AND FULL YEAR RESULTS
Fourth Quarter Net Income per Share of $0.83, Full Year Return on Equity of 15%
Greenwich, CT, February 3, 2015 -- W. R. Berkley Corporation (NYSE: WRB) today reported net income of $111 million for the fourth quarter of 2014 and $649 million for the full year.
Summary Financial Data
(Amounts in thousands, except per share data)
Fourth Quarter | Full Year | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Gross premiums written | $ | 1,705,814 | $ | 1,594,428 | $ | 7,062,838 | $ | 6,511,091 | ||||||||
Net premiums written | 1,455,909 | 1,357,684 | 5,996,947 | 5,500,173 | ||||||||||||
Net income | 110,711 | 130,379 | 648,884 | 499,925 | ||||||||||||
Net income per diluted share | 0.83 | 0.93 | 4.86 | 3.55 | ||||||||||||
Operating income (1) | 97,274 | 119,243 | 483,230 | 430,168 | ||||||||||||
Operating income per diluted share | 0.73 | 0.85 | 3.62 | 3.06 | ||||||||||||
Return on equity (2) | 10.2 | % | 12.1 | % | 15.0 | % | 11.6 | % | ||||||||
(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
Highlights for full year and the fourth quarter included:
• | Net premiums written grew 9.0% for the full year and 7.2% for the fourth quarter. |
• | GAAP combined ratio improved to 93.8% for the full year and 93.3% for the fourth quarter. |
• | Expense ratio improved to 33.0% for the full year and 32.5% for the fourth quarter. |
• | Net investment gains were $255 million for the full year and $21 million for the fourth quarter. |
• | Return on investment funds was 12.7% for the full year and -1.3% for the fourth quarter. |
• | Return on equity was 15.0% for the full year and 10.2% for the fourth quarter. |
• | The Company paid a $1.00 per share special dividend in December 2014. |
• | Book value per share increased 13.5% for the year, inclusive of the special dividend. |
Commenting on the Company's performance, William R. Berkley, chairman and chief executive
officer, said: "We were pleased to have achieved our targeted return on equity of 15% for the full year, as strong underwriting performance and expense management resulted in an improved combined ratio. While our core investment income remained under pressure, we were able to find investment opportunities which, in part, offset declining yields. Our investment funds earned 12.7% for 2014, although the fourth quarter was disappointing. The overall portfolio generated over $255 million of realized gains for the year. We expect both investment funds and realized gains to create substantial income going forward, despite their quarterly volatility.
"Our decentralized structure and long history of strategic cycle management have enabled us to create significant value for our shareholders by delivering superior returns over an extended period of time. As we move into 2015, our focus remains on growing the best performing areas of our business with improved underwriting results, overall investment returns, and capital management. We are optimistic that 2015 will be an excellent year," 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, February 3, 2015, at 5:00 p.m. eastern time. The conference call will be webcast live on the Company's website at http://www.wrberkley.com/investor-relations/events-and-presentations.aspx.
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 2015 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"); 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 2015 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)
Fourth Quarter | Full Year | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues: | ||||||||||||||||
Net premiums written | $ | 1,455,909 | $ | 1,357,684 | $ | 5,996,947 | $ | 5,500,173 | ||||||||
Change in unearned premiums | 46,448 | 25,357 | (252,529 | ) | (273,636 | ) | ||||||||||
Net premiums earned | 1,502,357 | 1,383,041 | 5,744,418 | 5,226,537 | ||||||||||||
Investment income | 114,220 | 138,991 | 600,885 | 544,291 | ||||||||||||
Insurance service fees | 35,473 | 27,004 | 117,443 | 107,513 | ||||||||||||
Net investment gains | 20,672 | 30,690 | 254,852 | 127,586 | ||||||||||||
Change in investment valuation allowance, net of other than temporary impairments | — | (6,042 | ) | — | (6,042 | ) | ||||||||||
Revenues from wholly-owned investees | 111,329 | 122,723 | 410,022 | 407,623 | ||||||||||||
Other income | 377 | 272 | 1,308 | 1,026 | ||||||||||||
Total revenues | 1,784,428 | 1,696,679 | 7,128,928 | 6,408,534 | ||||||||||||
Expenses: | ||||||||||||||||
Losses and loss expenses | 913,571 | 848,599 | 3,490,567 | 3,197,024 | ||||||||||||
Other operating costs and expenses | 563,837 | 520,698 | 2,157,456 | 2,000,684 | ||||||||||||
Expenses from wholly-owned investees | 109,712 | 115,146 | 400,535 | 388,761 | ||||||||||||
Interest expense | 34,604 | 30,510 | 128,174 | 123,177 | ||||||||||||
Total expenses | 1,621,724 | 1,514,953 | 6,176,732 | 5,709,646 | ||||||||||||
Income before income taxes | 162,704 | 181,726 | 952,196 | 698,888 | ||||||||||||
Income tax expense | (51,753 | ) | (46,338 | ) | (302,593 | ) | (193,587 | ) | ||||||||
Net income before noncontrolling interests | 110,951 | 135,388 | 649,603 | 505,301 | ||||||||||||
Noncontrolling interests | (240 | ) | (5,009 | ) | (719 | ) | (5,376 | ) | ||||||||
Net income to common stockholders | $ | 110,711 | $ | 130,379 | $ | 648,884 | $ | 499,925 | ||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.87 | $ | 0.97 | $ | 5.07 | $ | 3.69 | ||||||||
Diluted | $ | 0.83 | $ | 0.93 | $ | 4.86 | $ | 3.55 | ||||||||
Average shares outstanding: | ||||||||||||||||
Basic | 126,830 | 134,054 | 127,874 | 135,305 | ||||||||||||
Diluted | 132,879 | 139,665 | 133,652 | 140,743 | ||||||||||||
W. R. Berkley Corporation Page 5
Business Segment Operating Results
(Amounts in thousands, except ratios) (1)
Fourth Quarter | Full Year | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Insurance-Domestic: | ||||||||||||||||
Gross premiums written | $ | 1,295,927 | $ | 1,182,977 | $ | 5,383,679 | $ | 4,803,753 | ||||||||
Net premiums written | 1,084,784 | 985,958 | 4,517,587 | 3,994,387 | ||||||||||||
Premiums earned | 1,133,127 | 1,013,047 | 4,271,933 | 3,782,416 | ||||||||||||
Pre-tax income | 188,910 | 182,879 | 796,309 | 648,740 | ||||||||||||
Loss ratio | 60.2 | % | 60.5 | % | 60.2 | % | 61.3 | % | ||||||||
Expense ratio | 30.4 | % | 32.3 | % | 31.6 | % | 32.7 | % | ||||||||
GAAP combined ratio | 90.6 | % | 92.8 | % | 91.8 | % | 94.0 | % | ||||||||
Insurance-International: | ||||||||||||||||
Gross premiums written | $ | 236,632 | $ | 211,906 | $ | 984,271 | $ | 898,776 | ||||||||
Net premiums written | 208,051 | 183,544 | 828,076 | 756,185 | ||||||||||||
Premiums earned | 209,654 | 182,786 | 802,375 | 723,151 | ||||||||||||
Pre-tax income (loss) | (12,081 | ) | 5,828 | 29,779 | 56,922 | |||||||||||
Loss ratio | 68.2 | % | 61.4 | % | 62.8 | % | 59.4 | % | ||||||||
Expense ratio | 40.2 | % | 41.0 | % | 40.0 | % | 39.0 | % | ||||||||
GAAP combined ratio | 108.4 | % | 102.4 | % | 102.8 | % | 98.4 | % | ||||||||
Reinsurance-Global: | ||||||||||||||||
Gross premiums written | $ | 173,255 | $ | 199,545 | $ | 694,888 | $ | 808,562 | ||||||||
Net premiums written | 163,074 | 188,182 | 651,284 | 749,601 | ||||||||||||
Premiums earned | 159,576 | 187,208 | 670,110 | 720,970 | ||||||||||||
Pre-tax income | 28,732 | 23,173 | 115,677 | 110,425 | ||||||||||||
Loss ratio | 55.2 | % | 66.1 | % | 62.0 | % | 62.2 | % | ||||||||
Expense ratio | 37.3 | % | 34.1 | % | 34.0 | % | 34.8 | % | ||||||||
GAAP combined ratio | 92.5 | % | 100.2 | % | 96.0 | % | 97.0 | % | ||||||||
Corporate and Eliminations: | ||||||||||||||||
Net realized investment gains | $ | 20,672 | $ | 24,648 | $ | 254,852 | $ | 121,544 | ||||||||
Interest expense | (34,604 | ) | (30,510 | ) | (128,174 | ) | (123,177 | ) | ||||||||
Other revenues and expenses | (28,925 | ) | (24,292 | ) | (116,247 | ) | (115,566 | ) | ||||||||
Pre-tax gain (loss) | (42,857 | ) | (30,154 | ) | 10,431 | (117,199 | ) | |||||||||
Consolidated: | ||||||||||||||||
Gross premiums written | $ | 1,705,814 | $ | 1,594,428 | $ | 7,062,838 | $ | 6,511,091 | ||||||||
Net premiums written | 1,455,909 | 1,357,684 | 5,996,947 | 5,500,173 | ||||||||||||
Premiums earned | 1,502,357 | 1,383,041 | 5,744,418 | 5,226,537 | ||||||||||||
Pre-tax income | 162,704 | 181,726 | 952,196 | 698,888 | ||||||||||||
Loss ratio | 60.8 | % | 61.4 | % | 60.8 | % | 61.2 | % | ||||||||
Expense ratio | 32.5 | % | 33.7 | % | 33.0 | % | 33.9 | % | ||||||||
GAAP combined ratio | 93.3 | % | 95.1 | % | 93.8 | % | 95.1 | % | ||||||||
(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)
Fourth Quarter | Full Year | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Insurance-Domestic net premiums written: | ||||||||||||||||
Other liability | $ | 378,009 | $ | 348,817 | $ | 1,536,105 | $ | 1,373,653 | ||||||||
Workers' compensation | 263,844 | 245,164 | 1,193,493 | 1,041,118 | ||||||||||||
Short-tail lines (1) | 217,915 | 198,216 | 913,258 | 800,082 | ||||||||||||
Commercial automobile | 141,293 | 119,824 | 547,128 | 502,535 | ||||||||||||
Professional liability | 83,723 | 73,937 | 327,603 | 276,999 | ||||||||||||
Total | $ | 1,084,784 | $ | 985,958 | $ | 4,517,587 | $ | 3,994,387 | ||||||||
Losses from catastrophes: | ||||||||||||||||
Insurance-Domestic | $ | 6,392 | $ | 1,387 | $ | 64,937 | $ | 37,346 | ||||||||
Insurance-International | 11,495 | 4,557 | 20,062 | 11,438 | ||||||||||||
Reinsurance-Global | 528 | 7,102 | 2,076 | 16,214 | ||||||||||||
Total | $ | 18,415 | $ | 13,046 | $ | 87,075 | $ | 64,998 | ||||||||
Investment income (loss): | ||||||||||||||||
Core portfolio | $ | 117,867 | $ | 116,527 | $ | 469,300 | $ | 476,579 | ||||||||
Investment funds | (3,647 | ) | 22,464 | 131,585 | 67,712 | |||||||||||
Total | $ | 114,220 | $ | 138,991 | $ | 600,885 | $ | 544,291 | ||||||||
Other operating costs and expenses: | ||||||||||||||||
Underwriting expenses | $ | 488,920 | $ | 465,933 | $ | 1,896,528 | $ | 1,771,128 | ||||||||
Service expenses | 33,597 | 22,157 | 102,727 | 88,662 | ||||||||||||
Debt extinguishment costs | — | — | — | 6,709 | ||||||||||||
Net foreign currency (gain) loss | 991 | (3,732 | ) | (27 | ) | (10,120 | ) | |||||||||
Other costs and expenses | 40,329 | 36,340 | 158,228 | 144,305 | ||||||||||||
Total | $ | 563,837 | $ | 520,698 | $ | 2,157,456 | $ | 2,000,684 | ||||||||
Cash flow from operations before reinsurance commutation payments | $ | 116,811 | $ | 254,640 | $ | 762,597 | $ | 881,335 | ||||||||
Cash flow from operations | $ | 78,297 | $ | 193,103 | $ | 724,083 | $ | 819,798 | ||||||||
Reconciliation of operating and net income: | ||||||||||||||||
Operating income (2) | $ | 97,274 | $ | 119,243 | $ | 483,230 | $ | 430,168 | ||||||||
After-tax investment gains | 13,437 | 11,136 | 165,654 | 74,118 | ||||||||||||
After-tax debt extinguishment costs | — | — | — | (4,361 | ) | |||||||||||
Net income | $ | 110,711 | $ | 130,379 | $ | 648,884 | $ | 499,925 | ||||||||
(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) 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)
December 31, 2014 | December 31, 2013 | |||||||
Net invested assets (1) | $ | 16,508,087 | $ | 15,540,488 | ||||
Total assets | 21,716,691 | 20,551,796 | ||||||
Reserves for losses and loss expenses | 10,369,701 | 10,080,941 | ||||||
Senior notes and other debt | 2,115,527 | 1,692,442 | ||||||
Subordinated debentures | 340,060 | 339,800 | ||||||
Common stockholders’ equity (2) | 4,589,945 | 4,336,035 | ||||||
Common stock outstanding (3) | 126,749 | 132,233 | ||||||
Book value per share (4) | 36.21 | 32.79 | ||||||
Tangible book value per share (4) | 34.72 | 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 $306 million and $257 million as of December 31, 2014 and December 31, 2013, respectively. Unrealized currency translation losses were $123 million and $61 million as of December 31, 2014 and December 31, 2013, respectively. |
(3) | During the fourth quarter of 2014, the Company repurchased 169,465 shares of its common stock for $8.6 million. During the full year 2014, the Company repurchased 5,816,468 shares of its common stock for $238.9 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
December 31, 2014
(Amounts in thousands)
Carrying Value | Percent of Total | ||||||
Fixed maturity securities: | |||||||
United States government and government agencies | $ | 803,388 | 4.9 | % | |||
State and municipal: | |||||||
Special revenue | 2,395,424 | 14.5 | % | ||||
State general obligation | 741,429 | 4.5 | % | ||||
Pre-refunded | 541,183 | 3.3 | % | ||||
Corporate backed | 431,355 | 2.6 | % | ||||
Local general obligation | 326,506 | 2.0 | % | ||||
Total state and municipal | 4,435,897 | 26.9 | % | ||||
Mortgage-backed securities: | |||||||
Agency | 1,019,165 | 6.2 | % | ||||
Residential - Prime | 151,367 | 0.9 | % | ||||
Commercial | 76,037 | 0.5 | % | ||||
Residential — Alt A | 72,345 | 0.4 | % | ||||
Total mortgage-backed securities | 1,318,914 | 8.0 | % | ||||
Corporate: | |||||||
Asset-backed | 2,025,927 | 12.3 | % | ||||
Industrial | 1,718,799 | 10.4 | % | ||||
Financial | 1,176,206 | 7.1 | % | ||||
Utilities | 196,542 | 1.2 | % | ||||
Other | 87,661 | 0.5 | % | ||||
Total corporate | 5,205,135 | 31.5 | % | ||||
Foreign government | 941,826 | 5.7 | % | ||||
Total fixed maturity securities (1) | 12,705,160 | 77.0 | % | ||||
Equity securities available for sale: | |||||||
Common stocks | 76,346 | 0.5 | % | ||||
Preferred stocks | 94,645 | 0.5 | % | ||||
Total equity securities available for sale | 170,991 | 1.0 | % | ||||
Investment funds (2) | 1,207,960 | 7.3 | % | ||||
Cash and cash equivalents (3) | 919,704 | 5.6 | % | ||||
Real estate | 731,612 | 4.4 | % | ||||
Arbitrage trading account | 450,648 | 2.7 | % | ||||
Loans receivable | 322,012 | 2.0 | % | ||||
Net invested assets | $ | 16,508,087 | 100.0 | % | |||
(1) | Total fixed maturity securities had an average rating of AA- and an average duration of 3.2 years. |
(2) | Investment funds are net of related liabilities of $3.4 million. |
(3) | Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases. |
W. R. Berkley Corporation Page 9
Foreign Government Fixed Maturity Securities
December 31, 2014
(Amounts in thousands)
Carrying Value | |||||
Australia | $ | 234,645 | |||
United Kingdom | 204,160 | ||||
Canada | 155,368 | ||||
Argentina | 129,572 | ||||
Brazil | 57,925 | ||||
Germany | 57,599 | ||||
Supranational (1) | 48,710 | ||||
Norway | 43,784 | ||||
Singapore | 6,507 | ||||
Uruguay | 3,556 | ||||
Total | $ | 941,826 | |||
(1) | Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development. |