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| 8-K - FORM 8-K SECOND QUARTER 2015 EARNINGS RELEASE - BERKLEY W R CORP | wrb630158k.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 of $123 Million, Return on Equity 10.7%
Greenwich, CT, July 27, 2015 -- W. R. Berkley Corporation (NYSE: WRB) today reported net income for the second quarter of 2015 of $123 million, or $.95 per share.
Summary Financial Data
(Amounts in thousands, except per share data)
Second Quarter | Six Months | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Gross premiums written | $ | 1,811,398 | $ | 1,772,401 | $ | 3,663,203 | $ | 3,577,668 | ||||||||
Net premiums written | 1,543,925 | 1,489,776 | 3,119,327 | 3,015,656 | ||||||||||||
Net income | 123,035 | 179,961 | 241,342 | 349,634 | ||||||||||||
Net income per diluted share | 0.95 | 1.35 | 1.84 | 2.60 | ||||||||||||
Operating income (1) | 105,124 | 109,002 | 211,052 | 244,385 | ||||||||||||
Operating income per diluted share | 0.81 | 0.82 | 1.61 | 1.82 | ||||||||||||
Return on equity (2) | 10.7 | % | 16.6 | % | 10.5 | % | 16.1 | % | ||||||||
(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
Second quarter highlights included:
• | Repurchased 2.6 million shares of our common stock for $127 million. |
• | GAAP combined ratio was 94.2%. |
• | Insurance-Domestic net premiums written grew 7%. |
• | Return on equity was 10.7% after-tax and 15.5% pre-tax. |
Commenting on the Company's performance, William R. Berkley, chairman and chief executive
officer, said: "We were pleased with our second quarter results. While the environment is becoming more competitive, we continue to emphasize those parts of our business that offer the best profit potential while simultaneously pursuing new business opportunities.
"In the insurance business, risk is a constant concern. For that reason, we choose cautiously in selecting our reserving assumptions to guard against potential inflation. We also maintain the duration of our investment portfolio shorter than the duration of our liabilities in anticipation of the risk of rising interest rates.
"We believe that the nature and availability of capital within our industry is changing. Our objective is to optimize risk-adjusted return; thus, managing our balance sheet requires a constant examination of our capital structure. As owners, our management team is committed to maximizing long-term shareholder value creation.
"We are well positioned with a strong track record of capitalizing upon opportunities in the market as they arise. We continue to target a return of 15% or better over the long run," 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 Monday, July 27, 2015 at 5:00 p.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 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, including real estate, merger arbitrage, energy related 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)
Second Quarter | Six Months | ||||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||||
Revenues: | |||||||||||||||||
Net premiums written | $ | 1,543,925 | $ | 1,489,776 | $ | 3,119,327 | $ | 3,015,656 | |||||||||
Change in unearned premiums | (50,884 | ) | (72,131 | ) | (154,273 | ) | (234,399 | ) | |||||||||
Net premiums earned | 1,493,041 | 1,417,645 | 2,965,054 | 2,781,257 | |||||||||||||
Investment income | 127,583 | 138,729 | 251,822 | 307,440 | |||||||||||||
Insurance service fees | 35,942 | 26,922 | 72,460 | 55,625 | |||||||||||||
Net investment gains | 27,557 | 109,168 | 46,601 | 161,922 | |||||||||||||
Revenues from wholly-owned investees | 105,596 | 104,285 | 198,202 | 197,125 | |||||||||||||
Other income | 46 | 240 | 305 | 526 | |||||||||||||
Total revenues | 1,789,765 | 1,796,989 | 3,534,444 | 3,503,895 | |||||||||||||
Expenses: | |||||||||||||||||
Losses and loss expenses | 906,235 | 867,778 | 1,806,943 | 1,689,873 | |||||||||||||
Other operating costs and expenses | 573,582 | 534,150 | 1,124,628 | 1,049,316 | |||||||||||||
Expenses from wholly-owned investees | 98,730 | 101,296 | 188,400 | 193,026 | |||||||||||||
Interest expense | 33,031 | 30,311 | 67,569 | 60,641 | |||||||||||||
Total expenses | 1,611,578 | 1,533,535 | 3,187,540 | 2,992,856 | |||||||||||||
Income before income taxes | 178,187 | 263,454 | 346,904 | 511,039 | |||||||||||||
Income tax expense | (55,138 | ) | (83,277 | ) | (105,411 | ) | (161,178 | ) | |||||||||
Net income before noncontrolling interests | 123,049 | 180,177 | 241,493 | 349,861 | |||||||||||||
Noncontrolling interests | (14 | ) | (216 | ) | (151 | ) | (227 | ) | |||||||||
Net income to common stockholders | $ | 123,035 | $ | 179,961 | $ | 241,342 | $ | 349,634 | |||||||||
Net income per share: | |||||||||||||||||
Basic | $ | 0.99 | $ | 1.41 | $ | 1.93 | $ | 2.72 | |||||||||
Diluted | $ | 0.95 | $ | 1.35 | $ | 1.84 | $ | 2.60 | |||||||||
Average shares outstanding: | |||||||||||||||||
Basic | 123,781 | 127,668 | 124,869 | 128,765 | |||||||||||||
Diluted | 129,988 | 133,304 | 131,228 | 134,323 | |||||||||||||
W. R. Berkley Corporation Page 5
Business Segment Operating Results
(Amounts in thousands, except ratios) (1)
Second Quarter | Six Months | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Insurance-Domestic: | ||||||||||||||||
Gross premiums written | $ | 1,421,922 | $ | 1,351,624 | $ | 2,831,099 | $ | 2,694,566 | ||||||||
Net premiums written | 1,202,588 | 1,123,843 | 2,396,219 | 2,250,224 | ||||||||||||
Premiums earned | 1,159,653 | 1,041,745 | 2,277,195 | 2,045,252 | ||||||||||||
Pre-tax income | 175,953 | 176,855 | 342,819 | 379,040 | ||||||||||||
Loss ratio | 61.6 | % | 60.9 | % | 61.6 | % | 60.4 | % | ||||||||
Expense ratio | 31.5 | % | 32.3 | % | 31.4 | % | 32.4 | % | ||||||||
GAAP combined ratio | 93.1 | % | 93.2 | % | 93.0 | % | 92.8 | % | ||||||||
Insurance-International: | ||||||||||||||||
Gross premiums written | $ | 237,032 | $ | 265,200 | $ | 520,258 | $ | 542,386 | ||||||||
Net premiums written | 198,490 | 222,622 | 429,998 | 448,443 | ||||||||||||
Premiums earned | 191,729 | 201,868 | 385,463 | 387,192 | ||||||||||||
Pre-tax income | 7,517 | 11,510 | 28,820 | 29,257 | ||||||||||||
Loss ratio | 59.5 | % | 60.7 | % | 58.7 | % | 60.0 | % | ||||||||
Expense ratio | 41.6 | % | 38.8 | % | 40.3 | % | 39.4 | % | ||||||||
GAAP combined ratio | 101.1 | % | 99.5 | % | 99.0 | % | 99.4 | % | ||||||||
Reinsurance-Global: | ||||||||||||||||
Gross premiums written | $ | 152,444 | $ | 155,577 | $ | 311,846 | $ | 340,716 | ||||||||
Net premiums written | 142,847 | 143,311 | 293,110 | 316,989 | ||||||||||||
Premiums earned | 141,659 | 174,032 | 302,396 | 348,813 | ||||||||||||
Pre-tax income | 27,122 | 25,866 | 47,384 | 57,940 | ||||||||||||
Loss ratio | 54.9 | % | 63.4 | % | 58.8 | % | 64.0 | % | ||||||||
Expense ratio | 38.7 | % | 31.9 | % | 37.1 | % | 32.4 | % | ||||||||
GAAP combined ratio | 93.6 | % | 95.3 | % | 95.9 | % | 96.4 | % | ||||||||
Corporate and Eliminations: | ||||||||||||||||
Net realized investment gains | $ | 27,557 | $ | 109,168 | $ | 46,601 | $ | 161,922 | ||||||||
Interest expense | (33,031 | ) | (30,311 | ) | (67,569 | ) | (60,641 | ) | ||||||||
Other revenues and expenses | (26,931 | ) | (29,634 | ) | (51,151 | ) | (56,479 | ) | ||||||||
Pre-tax gain (loss) | (32,405 | ) | 49,223 | (72,119 | ) | 44,802 | ||||||||||
Consolidated: | ||||||||||||||||
Gross premiums written | $ | 1,811,398 | $ | 1,772,401 | $ | 3,663,203 | $ | 3,577,668 | ||||||||
Net premiums written | 1,543,925 | 1,489,776 | 3,119,327 | 3,015,656 | ||||||||||||
Premiums earned | 1,493,041 | 1,417,645 | 2,965,054 | 2,781,257 | ||||||||||||
Pre-tax income | 178,187 | 263,454 | 346,904 | 511,039 | ||||||||||||
Loss ratio | 60.7 | % | 61.2 | % | 60.9 | % | 60.8 | % | ||||||||
Expense ratio | 33.5 | % | 33.2 | % | 33.1 | % | 33.4 | % | ||||||||
GAAP combined ratio | 94.2 | % | 94.4 | % | 94.0 | % | 94.2 | % | ||||||||
(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 | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Insurance-Domestic net premiums written: | ||||||||||||||||
Other liability | $ | 405,763 | $ | 400,289 | $ | 795,257 | $ | 771,720 | ||||||||
Workers' compensation | 326,104 | 283,995 | 681,438 | 630,865 | ||||||||||||
Short-tail lines (1) | 240,914 | 235,972 | 463,375 | 443,081 | ||||||||||||
Commercial automobile | 133,971 | 129,282 | 273,151 | 263,808 | ||||||||||||
Professional liability | 95,836 | 74,305 | 182,998 | 140,750 | ||||||||||||
Total | $ | 1,202,588 | $ | 1,123,843 | $ | 2,396,219 | $ | 2,250,224 | ||||||||
Losses from catastrophes: | ||||||||||||||||
Insurance-Domestic | $ | 22,297 | $ | 38,370 | $ | 36,591 | $ | 51,111 | ||||||||
Insurance-International | 393 | 272 | 561 | 1,403 | ||||||||||||
Reinsurance-Global | 1,797 | 1,148 | 1,797 | 1,246 | ||||||||||||
Total | $ | 24,487 | $ | 39,790 | $ | 38,949 | $ | 53,760 | ||||||||
Investment income (loss): | ||||||||||||||||
Core portfolio (2) | $ | 105,849 | $ | 109,431 | $ | 215,048 | $ | 218,824 | ||||||||
Investment funds | 21,851 | 22,356 | 27,912 | 76,155 | ||||||||||||
Arbitrage trading account | (117 | ) | 6,942 | 8,862 | 12,461 | |||||||||||
Total | $ | 127,583 | $ | 138,729 | $ | 251,822 | $ | 307,440 | ||||||||
Other operating costs and expenses: | ||||||||||||||||
Underwriting expenses | $ | 500,234 | $ | 470,296 | $ | 982,294 | $ | 928,434 | ||||||||
Service expenses | 32,374 | 23,607 | 63,458 | 45,864 | ||||||||||||
Net foreign currency loss | 3,076 | 1,993 | 2,509 | 1,659 | ||||||||||||
Other costs and expenses | 37,898 | 38,254 | 76,367 | 73,359 | ||||||||||||
Total | $ | 573,582 | $ | 534,150 | $ | 1,124,628 | $ | 1,049,316 | ||||||||
Cash flow from operations | $ | 271,871 | $ | 111,459 | $ | 332,883 | $ | 254,623 | ||||||||
Reconciliation of operating and net income: | ||||||||||||||||
Operating income (3) | $ | 105,124 | $ | 109,002 | $ | 211,052 | $ | 244,385 | ||||||||
After-tax investment gains | 17,911 | 70,959 | 30,290 | 105,249 | ||||||||||||
Net income | $ | 123,035 | $ | 179,961 | $ | 241,342 | $ | 349,634 | ||||||||
(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)
June 30, 2015 | December 31, 2014 | |||||||
Net invested assets (1) | $ | 16,184,039 | $ | 16,508,087 | ||||
Total assets | 21,689,809 | 21,716,691 | ||||||
Reserves for losses and loss expenses | 10,622,374 | 10,369,701 | ||||||
Senior notes and other debt | 1,843,865 | 2,115,527 | ||||||
Subordinated debentures | 340,190 | 340,060 | ||||||
Common stockholders’ equity (2) | 4,502,187 | 4,589,945 | ||||||
Common stock outstanding (3) | 122,482 | 126,749 | ||||||
Book value per share (4) | 36.76 | 36.21 | ||||||
Tangible book value per share (4) | 35.22 | 34.72 | ||||||
(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 $223 million and $306 million as of June 30, 2015 and December 31, 2014, respectively. Unrealized currency translation losses were $137 million and $123 million as of June 30, 2015 and December 31, 2014, respectively. |
(3) | During the second quarter of 2015, the Company repurchased 2,565,422 shares of its common stock for $127 million. During the first six months of 2015, the Company repurchased 4,395,912 shares of its common stock for $218 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, 2015
(Amounts in thousands)
Carrying Value | Percent of Total | ||||||
Fixed maturity securities: | |||||||
United States government and government agencies | $ | 715,367 | 4.4 | % | |||
State and municipal: | |||||||
Special revenue | 2,450,825 | 15.1 | % | ||||
State general obligation | 691,871 | 4.3 | % | ||||
Pre-refunded | 473,708 | 2.9 | % | ||||
Corporate backed | 432,424 | 2.7 | % | ||||
Local general obligation | 325,089 | 2.0 | % | ||||
Total state and municipal | 4,373,917 | 27.0 | % | ||||
Mortgage-backed securities: | |||||||
Agency | 918,826 | 5.7 | % | ||||
Residential - Prime | 138,329 | 0.9 | % | ||||
Commercial | 69,338 | 0.4 | % | ||||
Residential - Alt A | 64,031 | 0.4 | % | ||||
Total mortgage-backed securities | 1,190,524 | 7.4 | % | ||||
Corporate: | |||||||
Industrial | 1,866,845 | 11.5 | % | ||||
Asset-backed | 1,652,155 | 10.2 | % | ||||
Financial | 1,323,007 | 8.2 | % | ||||
Utilities | 190,482 | 1.2 | % | ||||
Other | 116,363 | 0.7 | % | ||||
Total corporate | 5,148,852 | 31.8 | % | ||||
Foreign government | 967,150 | 6.0 | % | ||||
Total fixed maturity securities (1) | 12,395,810 | 76.6 | % | ||||
Equity securities available for sale: | |||||||
Preferred stocks | 94,322 | 0.6 | % | ||||
Common stocks | 59,191 | 0.4 | % | ||||
Total equity securities available for sale | 153,513 | 1.0 | % | ||||
Investment funds (3) | 1,122,171 | 6.9 | % | ||||
Arbitrage trading account | 830,212 | 5.1 | % | ||||
Real estate | 820,257 | 5.1 | % | ||||
Cash and cash equivalents (2) | 602,665 | 3.7 | % | ||||
Loans receivable | 259,411 | 1.6 | % | ||||
Net invested assets | $ | 16,184,039 | 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 include an investment in publicly traded common stock of HealthEquity, Inc. (HQY), which is carried on the equity method of accounting. At June 30, 2015, the investment in HQY had a carrying value of $45 million and a fair value of $457 million. |
Investment funds are reported net of related liabilities of $2 million.
W. R. Berkley Corporation Page 9
Foreign Government Fixed Maturity Securities
June 30, 2015
(Amounts in thousands)
Carrying Value | |||||
Australia | $ | 244,374 | |||
United Kingdom | 188,127 | ||||
Canada | 162,441 | ||||
Argentina | 160,430 | ||||
Germany | 59,330 | ||||
Brazil | 54,477 | ||||
Supranational (1) | 48,312 | ||||
Norway | 32,770 | ||||
Colombia | 6,830 | ||||
Singapore | 6,316 | ||||
Uruguay | 3,743 | ||||
Total | $ | 967,150 | |||
(1) | Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development. |