W. R. Berkley Corporation (NYSE:WRB) today reported net income for the third quarter of 2014 of $189 million, or $1.42 per share.
Summary Financial Data
(Amounts in thousands, except per share data)
| Third Quarter | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Gross premiums written | $ | 1,779,356 | $ | 1,667,106 | $ | 5,357,024 | $ | 4,916,663 | ||||||||
| Net premiums written | 1,525,382 | 1,423,625 | 4,541,038 | 4,142,489 | ||||||||||||
| Net income | 188,539 | 136,974 | 538,173 | 369,546 | ||||||||||||
| Net income per diluted share | 1.42 | 0.97 | 4.02 | 2.62 | ||||||||||||
| Operating income (1) | 141,571 | 108,460 | 385,956 | 310,925 | ||||||||||||
| Operating income per diluted share | 1.06 | 0.77 | 2.88 | 2.20 | ||||||||||||
| Return on equity (2) | 17.4 | % | 12.7 | % | 16.5 | % | 11.4 | % | ||||||||
(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.
Third quarter highlights included:
- Net premiums written grew 7.1%.
- Return on equity was 17.4%.
- GAAP combined ratio improved to 93.5%.
- Net investment gains were $72 million.
- Book value per share was up 13.1% since December 31, 2013.
Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We are pleased with our third-quarter results. Our underwriting continued to perform well, while investment income and capital gains were especially strong as a result of our long-term investment strategy.
"Market conditions continued to vary by product and class of business and we are expanding our market position in places where we believe underwriting margins are more attractive. In other places, we chose not to grow. Underwriting results also benefited from our ongoing efforts to further reduce the expense ratio.
"The improvement in both investment income and capital gains was led by the performance of our investment funds, which as we have suggested, may vary quarter over quarter. Over the long term, we expect a moderate level of capital gains to continue.
"Overall, we were pleased with the 17.4% return on equity for the quarter and anticipate being able to exceed our target return for the full year. We continue to be positive as we look to the future," 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 Friday, October 24th, at 9:00 a.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.
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.
Consolidated Financial Summary (Amounts in thousands, except per share data) | ||||||||||||||||
| Third Quarter | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Revenues: | ||||||||||||||||
| Net premiums written | $ | 1,525,382 | $ | 1,423,625 | $ | 4,541,038 | $ | 4,142,489 | ||||||||
| Change in unearned premiums | (64,578 | ) | (94,763 | ) | (298,977 | ) | (298,993 | ) | ||||||||
| Net premiums earned | 1,460,804 | 1,328,862 | 4,242,061 | 3,843,496 | ||||||||||||
| Investment income | 179,225 | 125,634 | 486,665 | 405,300 | ||||||||||||
| Insurance service fees | 26,345 | 26,121 | 81,970 | 80,509 | ||||||||||||
| Net investment gains | 72,258 | 43,869 | 234,180 | 96,896 | ||||||||||||
| Revenues from wholly-owned investees | 101,568 | 109,390 | 298,693 | 284,900 | ||||||||||||
| Other income | 405 | 248 | 931 | 754 | ||||||||||||
| Total revenues | 1,840,605 | 1,634,124 | 5,344,500 | 4,711,855 | ||||||||||||
| Expenses: | ||||||||||||||||
| Losses and loss expenses | 887,123 | 798,276 | 2,576,996 | 2,348,425 | ||||||||||||
| Other operating costs and expenses | 544,303 | 504,096 | 1,593,619 | 1,479,986 | ||||||||||||
| Expenses from wholly-owned investees | 97,797 | 103,170 | 290,823 | 273,615 | ||||||||||||
| Interest expense | 32,929 | 30,349 | 93,570 | 92,667 | ||||||||||||
| Total expenses | 1,562,152 | 1,435,891 | 4,555,008 | 4,194,693 | ||||||||||||
| Income before income taxes | 278,453 | 198,233 | 789,492 | 517,162 | ||||||||||||
| Income tax expense | (89,662 | ) | (60,045 | ) | (250,840 | ) | (147,249 | ) | ||||||||
| Net income before noncontrolling interests | 188,791 | 138,188 | 538,652 | 369,913 | ||||||||||||
| Noncontrolling interests | (252 | ) | (1,214 | ) | (479 | ) | (367 | ) | ||||||||
| Net income to common stockholders | $ | 188,539 | $ | 136,974 | $ | 538,173 | $ | 369,546 | ||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | 1.48 | $ | 1.01 | $ | 4.20 | $ | 2.72 | ||||||||
| Diluted | $ | 1.42 | $ | 0.97 | $ | 4.02 | $ | 2.62 | ||||||||
| Average shares outstanding: | ||||||||||||||||
| Basic | 127,165 | 135,268 | 128,225 | 135,726 | ||||||||||||
| Diluted | 133,001 | 140,758 | 133,886 | 141,095 | ||||||||||||
Business Segment Operating Results (Amounts in thousands, except ratios) (1) | ||||||||||||||||
| Third Quarter | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Insurance-Domestic: | ||||||||||||||||
| Gross premiums written | $ | 1,393,186 | $ | 1,254,868 | $ | 4,087,752 | $ | 3,620,776 | ||||||||
| Net premiums written | 1,182,579 | 1,054,465 | 3,432,803 | 3,008,429 | ||||||||||||
| Premiums earned | 1,093,554 | 958,994 | 3,138,806 | 2,769,369 | ||||||||||||
| Pre-tax income | 228,359 | 172,177 | 607,399 | 465,861 | ||||||||||||
| Loss ratio | 59.8 | % | 59.5 | % | 60.2 | % | 61.6 | % | ||||||||
| Expense ratio | 31.1 | % | 33.0 | % | 32.0 | % | 32.9 | % | ||||||||
| GAAP combined ratio | 90.9 | % | 92.5 | % | 92.2 | % | 94.5 | % | ||||||||
| Insurance-International: | ||||||||||||||||
| Gross premiums written | $ | 205,253 | $ | 193,557 | $ | 747,639 | $ | 686,870 | ||||||||
| Net premiums written | 171,582 | 166,061 | 620,025 | 572,641 | ||||||||||||
| Premiums earned | 205,529 | 189,054 | 592,721 | 540,365 | ||||||||||||
| Pre-tax income | 12,603 | 16,129 | 41,860 | 51,094 | ||||||||||||
| Loss ratio | 62.7 | % | 59.4 | % | 60.9 | % | 58.8 | % | ||||||||
| Expense ratio | 40.7 | % | 38.0 | % | 39.9 | % | 38.3 | % | ||||||||
| GAAP combined ratio | 103.4 | % | 97.4 | % | 100.8 | % | 97.1 | % | ||||||||
| Reinsurance-Global: | ||||||||||||||||
| Gross premiums written | $ | 180,917 | $ | 218,681 | $ | 521,633 | $ | 609,017 | ||||||||
| Net premiums written | 171,221 | 203,099 | 488,210 | 561,419 | ||||||||||||
| Premiums earned | 161,721 | 180,814 | 510,534 | 533,762 | ||||||||||||
| Pre-tax income | 29,005 | 24,559 | 86,945 | 87,252 | ||||||||||||
| Loss ratio | 64.5 | % | 63.7 | % | 64.2 | % | 60.9 | % | ||||||||
| Expense ratio | 34.2 | % | 33.8 | % | 32.9 | % | 35.1 | % | ||||||||
| GAAP combined ratio | 98.7 | % | 97.5 | % | 97.1 | % | 96.0 | % | ||||||||
| Corporate and Eliminations: | ||||||||||||||||
| Net realized investment gains | $ | 72,258 | $ | 43,869 | $ | 234,180 | $ | 96,896 | ||||||||
| Interest expense | (32,929 | ) | (30,349 | ) | (93,570 | ) | (92,667 | ) | ||||||||
| Other revenues and expenses | (30,843 | ) | (28,152 | ) | (87,322 | ) | (91,274 | ) | ||||||||
| Pre-tax gain (loss) | 8,486 | (14,632 | ) | 53,288 | (87,045 | ) | ||||||||||
| Consolidated: | ||||||||||||||||
| Gross premiums written | $ | 1,779,356 | $ | 1,667,106 | $ | 5,357,024 | $ | 4,916,663 | ||||||||
| Net premiums written | 1,525,382 | 1,423,625 | 4,541,038 | 4,142,489 | ||||||||||||
| Premiums earned | 1,460,804 | 1,328,862 | 4,242,061 | 3,843,496 | ||||||||||||
| Pre-tax income | 278,453 | 198,233 | 789,492 | 517,162 | ||||||||||||
| Loss ratio | 60.7 | % | 60.1 | % | 60.7 | % | 61.1 | % | ||||||||
| Expense ratio | 32.8 | % | 33.8 | % | 33.2 | % | 34.0 | % | ||||||||
| GAAP combined ratio | 93.5 | % | 93.9 | % | 93.9 | % | 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.
Supplemental Information (Amounts in thousands) | ||||||||||||||||
| Third Quarter | Nine Months | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Insurance-Domestic net premiums written: | ||||||||||||||||
| Other liability | $ | 386,376 | $ | 353,170 | $ | 1,158,096 | $ | 1,024,836 | ||||||||
| Workers' compensation | 298,784 | 271,889 | 929,649 | 795,954 | ||||||||||||
| Short-tail lines (1) | 252,262 | 215,710 | 695,343 | 601,866 | ||||||||||||
| Commercial automobile | 142,027 | 138,062 | 405,835 | 382,711 | ||||||||||||
| Professional liability | 103,130 | 75,634 | 243,880 | 203,062 | ||||||||||||
| Total | $ | 1,182,579 | $ | 1,054,465 | $ | 3,432,803 | $ | 3,008,429 | ||||||||
| Losses from catastrophes: | ||||||||||||||||
| Insurance-Domestic | $ | 7,434 | $ | 5,603 | $ | 58,545 | $ | 35,959 | ||||||||
| Insurance-International | 7,164 | 3,477 | 8,567 | 6,881 | ||||||||||||
| Reinsurance-Global | 302 | 3,699 | 1,548 | 9,112 | ||||||||||||
| Total | $ | 14,900 | $ | 12,779 | $ | 68,660 | $ | 51,952 | ||||||||
| Investment income: | ||||||||||||||||
| Core portfolio (2) | $ | 120,101 | $ | 108,404 | $ | 338,925 | $ | 345,787 | ||||||||
| Investment funds | 59,077 | 11,738 | 135,232 | 45,248 | ||||||||||||
| Arbitrage trading account | 47 | 5,492 | 12,508 | 14,265 | ||||||||||||
| Total | $ | 179,225 | $ | 125,634 | $ | 486,665 | $ | 405,300 | ||||||||
| Other operating costs and expenses: | ||||||||||||||||
| Underwriting expenses | $ | 479,174 | $ | 449,711 | $ | 1,407,608 | $ | 1,305,195 | ||||||||
| Service expenses | 23,266 | 21,064 | 69,130 | 66,505 | ||||||||||||
| Debt extinguishment costs | — | — | — | 6,709 | ||||||||||||
| Net foreign currency gain | (2,677 | ) | (1,617 | ) | (1,018 | ) | (6,388 | ) | ||||||||
| Other costs and expenses | 44,540 | 34,938 | 117,899 | 107,965 | ||||||||||||
| Total | $ | 544,303 | $ | 504,096 | $ | 1,593,619 | $ | 1,479,986 | ||||||||
| Cash flow from operations | $ | 391,163 | $ | 312,763 | $ | 645,786 | $ | 626,695 | ||||||||
| Reconciliation of operating and net income: | ||||||||||||||||
| Operating income (3) | $ | 141,571 | $ | 108,460 | $ | 385,956 | $ | 310,925 | ||||||||
| After-tax investment gains | 46,968 | 28,514 | 152,217 | 62,982 | ||||||||||||
| After-tax debt extinguishment costs | — | — | — | (4,361 | ) | |||||||||||
| Net income | $ | 188,539 | $ | 136,974 | $ | 538,173 | $ | 369,546 | ||||||||
(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.
Selected Balance Sheet Information (Amounts in thousands, except per share data) | |||||||
| September 30, 2014 | December 31, 2013 | ||||||
| Net invested assets (1) | $ | 16,633,570 | $ | 15,540,488 | |||
| Total assets | 22,097,597 | 20,551,796 | |||||
| Reserves for losses and loss expenses | 10,314,265 | 10,080,941 | |||||
| Senior notes and other debt | 2,051,030 | 1,692,442 | |||||
| Junior subordinated debentures | 339,995 | 339,800 | |||||
| Common stockholders’ equity (2) | 4,708,903 | 4,336,035 | |||||
| Common stock outstanding (3) | 126,908 | 132,233 | |||||
| Book value per share (4) | 37.10 | 32.79 | |||||
| Tangible book value per share (4) | 35.72 | 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 $365 million and $257 million as of September 30, 2014 and December 31, 2013, respectively. Unrealized currency translation losses were $89 million and $61 million as of September 30, 2014 and December 31, 2013, respectively.
(3) During the third quarter of 2014, the Company repurchased 738,302 shares of its common stock for $33 million. During the first nine months of 2014, the Company repurchased 5,647,003 shares of its common stock for $230 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.
Investment Portfolio September 30, 2014 (Amounts in thousands) | |||||||
|
Carrying
Value |
Percent
of Total | ||||||
| Fixed maturity securities: | |||||||
| United States government and government agencies | $ | 813,034 | 4.9 | % | |||
| State and municipal: | |||||||
| Special revenue | 2,223,429 | 13.4 | % | ||||
| State general obligation | 748,321 | 4.5 | % | ||||
| Pre-refunded | 546,737 | 3.3 | % | ||||
| Corporate backed | 433,235 | 2.6 | % | ||||
| Local general obligation | 300,243 | 1.8 | % | ||||
| Total state and municipal | 4,251,965 | 25.6 | % | ||||
| Mortgage-backed securities: | |||||||
| Agency | 1,011,584 | 6.1 | % | ||||
| Residential - Prime | 155,169 | 0.9 | % | ||||
| Residential — Alt A | 78,506 | 0.5 | % | ||||
| Commercial | 77,886 | 0.5 | % | ||||
| Total mortgage-backed securities | 1,323,145 | 8.0 | % | ||||
| Corporate: | |||||||
| Asset-backed | 1,870,778 | 11.2 | % | ||||
| Industrial | 1,694,885 | 10.2 | % | ||||
| Financial | 1,201,906 | 7.2 | % | ||||
| Utilities | 188,864 | 1.1 | % | ||||
| Other | 90,268 | 0.5 | % | ||||
| Total corporate | 5,046,701 | 30.2 | % | ||||
| Foreign government | 962,911 | 5.8 | % | ||||
| Total fixed maturity securities (1) | 12,397,756 | 74.5 | % | ||||
| Equity securities available for sale: | |||||||
| Preferred stocks | 142,051 | 0.9 | % | ||||
| Common stocks | 79,973 | 0.5 | % | ||||
| Total equity securities available for sale | 222,024 | 1.4 | % | ||||
| Cash and cash equivalents (2) | 1,032,342 | 6.2 | % | ||||
| Investment funds (3) | 1,015,931 | 6.1 | % | ||||
| Arbitrage trading account | 918,223 | 5.5 | % | ||||
| Real estate | 703,994 | 4.2 | % | ||||
| Loans receivable | 343,300 | 2.1 | % | ||||
| Net invested assets | $ | 16,633,570 | 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 $4.2 million.
Foreign Government Fixed Maturity Securities September 30, 2014 (Amounts in thousands) | |||
| Carrying Value | |||
| Australia | $ | 234,902 | |
| United Kingdom | 184,133 | ||
| Canada | 170,101 | ||
| Argentina | 143,055 | ||
| Germany | 63,035 | ||
| Brazil | 58,198 | ||
| Norway | 49,948 | ||
| Supranational (1) | 49,448 | ||
| Singapore | 6,780 | ||
| Uruguay | 3,311 | ||
| Total | $ | 962,911 | |
(1) Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development.
Contacts:
Karen A. Horvath
Vice
President - External
Financial Communications
203-629-3000
