W. R. Berkley Corporation Reports First Quarter Results

Operating Income Per Share Increased 11%

GREENWICH, Conn.--()--W. R. Berkley Corporation (NYSE:WRB) today reported net income for the first quarter of 2016 of $120 million, or $0.93 cents per share.

Summary Financial Data

(Amounts in thousands, except per share data)

 
  First Quarter
2016   2015
 
Gross premiums written $ 1,955,697 $ 1,851,805
Net premiums written 1,663,722 1,575,402
 
Net income 119,511 118,307
Net income per diluted share 0.93 0.89
 
Operating income (1) 114,738 105,928
Operating income per diluted share 0.89 0.80
 
Return on equity (2) 10.4 % 10.3 %

(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.

First quarter highlights included:

  • Net premiums written increased 6%
  • Combined ratio of 93.5%
  • Operating income per share increased 11%
  • Book value per share grew 4% in the quarter
  • Pre-tax return on equity was 15.2%

The Company commented:

The Company’s first quarter operating results provided a solid start to the year. Both our underwriting and our investment results were favorable, as we continued to take advantage of opportunities provided by the current environment.

As previously announced, storm losses during the quarter were consistent with our first quarter experience in each of the prior few years. The underlying loss ratio, excluding catastrophes, declined by approximately one point, reflecting our careful underwriting, risk selection and exposure management.

We continue to identify opportunities to start new operating units or divisions that will enhance our business in the future. Investments in these new ventures can have a temporary impact on our expense ratio, however they create substantial economic value over the long term. Nevertheless, we are making progress on our expense ratio compared to the latter half of 2015.

Though the ongoing decline in interest rates presents challenges to our investment income, we have been able to maintain the quality and yield of our portfolio, while at the same time shortening our duration and reducing the concomitant risk. Our non-fixed income investments also performed well in the quarter. Certain of these investments are carried under accounting methods that do not allow their unrealized appreciation to be recognized on our balance sheet. We anticipate that we can achieve $100 million or more of annual gains, on average, as some of these investments are monetized. While the timing of realizing gains may continue to cause variability in our quarterly results, the amount of gains is expected to enhance our returns and assist us in meeting our objectives over the long term.

While certain aspects of the market may be more competitive today than just a short time ago, we see a meaningful number of opportunities that may potentially create long-term value for our shareholders, and we are optimistic about the remainder of the year.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on April 26, 2016, 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 two segments of the property casualty business: Insurance and Reinsurance.

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 2016 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, 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 Program Reauthorization Act of 2015; 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 2016 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)

 
  First Quarter
2016   2015
Revenues:
Net premiums written $ 1,663,722 $ 1,575,402
Change in unearned premiums (136,387 ) (103,389 )
Net premiums earned 1,527,335 1,472,013
Investment income 130,133 124,239
Insurance service fees 40,362 36,518
Net realized investment gains 25,457 19,044
Other than temporary impairments (18,114 )
Revenues from wholly-owned investees 101,780 92,606
Other income 258   259  
Total revenues 1,807,211   1,744,679  
Expenses:
Losses and loss expenses 922,321 900,708
Other operating costs and expenses 582,459 551,046
Expenses from wholly-owned investees 95,531 89,670
Interest expense 32,224   34,538  
Total expenses 1,632,535   1,575,962  
Income before income taxes 174,676 168,717
Income tax expense (54,428 ) (50,273 )
Net income before noncontrolling interests 120,248 118,444
Noncontrolling interests (737 ) (137 )
Net income to common stockholders $ 119,511   $ 118,307  
 
Net income per share:
Basic $ 0.97 $ 0.94
Diluted $ 0.93 $ 0.89
 
Average shares outstanding:
Basic 122,780 125,969
Diluted 128,529 132,484

Business Segment Operating Results

(Amounts in thousands, except ratios) (1) (2)

 
  First Quarter
2016   2015
Insurance:
Gross premiums written $ 1,763,070 $ 1,692,403
Net premiums written 1,488,737 1,425,139
Premiums earned 1,375,358 1,311,276
Pre-tax income 205,915 188,169
Loss ratio 60.5 % 61.1 %
Expense ratio 32.5 % 32.4 %
GAAP combined ratio 93.0 % 93.5 %
 
Reinsurance:
Gross premiums written $ 192,627 $ 159,402
Net premiums written 174,985 150,263
Premiums earned 151,977 160,737
Pre-tax income 21,797 20,262
Loss ratio 59.6 % 62.2 %
Expense ratio 38.2 % 35.8 %
GAAP combined ratio 97.8 % 98.0 %
 
Corporate and Eliminations:
Net realized investment gains $ 25,457 $ 19,044
Other than temporary impairment (18,114 )
Interest expense (32,224 ) (34,538 )
Other revenues and expenses (28,155 ) (24,220 )
Pre-tax loss (53,036 ) (39,714 )
 
Consolidated:
Gross premiums written $ 1,955,697 $ 1,851,805
Net premiums written 1,663,722 1,575,402
Premiums earned 1,527,335 1,472,013
Pre-tax income 174,676 168,717
Loss ratio 60.4 % 61.2 %
Expense ratio 33.1 % 32.7 %
GAAP combined ratio 93.5 % 93.9 %

(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.

(2) Commencing with the first quarter of 2016, the Company will report its operating results in two segments - Insurance (formerly, Insurance-Domestic and Insurance-International) and Reinsurance. Reclassifications have been made to the Company's 2015 financial information to conform with this presentation. Please refer to http://www.wrberkley.com/investor-relations/financial-information/quarterly-results.aspx. for supplementary investor information regarding these changes to the Company's business segments.

Supplemental Information

(Amounts in thousands)

 
  First Quarter
2016   2015
Net premiums written:
Workers' compensation $ 458,297 $ 377,869
Other liability 402,783 422,034
Short-tail lines (1) 351,896 346,695
Commercial automobile 159,002 170,951
Professional liability 116,759   107,590  
Total Insurance 1,488,737   1,425,139  
Casualty reinsurance 99,187 109,600
Property reinsurance 75,798   40,663  
Total Reinsurance 174,985   150,263  
Total $ 1,663,722   $ 1,575,402  
 
Losses from catastrophes:
Insurance $ 15,097 $ 14,462
Reinsurance 539    
Total $ 15,636   $ 14,462  
 
Investment income:
Core portfolio (2) $ 113,497 $ 118,178
Investment funds 16,636   6,061  
Total $ 130,133   $ 124,239  
 
Other operating costs and expenses:
Underwriting expenses $ 505,255 $ 482,060
Service expenses 33,798 31,084
Net foreign currency (gain) loss 3,728 (567 )
Other costs and expenses 39,678   38,469  
Total $ 582,459   $ 551,046  
 
Cash flow from operations $ 140,768   $ 61,012  
 
Reconciliation of operating and net income:
Operating income (3) $ 114,738 $ 105,928
After-tax investment gains 4,773   12,379  
Net income $ 119,511   $ 118,307  

(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.

Selected Balance Sheet Information

(Amounts in thousands, except per share data)

 
  March 31, 2016   December 31, 2015
 
Net invested assets (1) $ 16,689,329 $ 16,460,690
Total assets 22,230,934 21,730,967
Reserves for losses and loss expenses 10,788,342 10,669,150
Senior notes and other debt 1,814,998 1,844,621
Subordinated debentures 446,485 340,320
Common stockholders’ equity (2) 4,751,213 4,600,246
Common stock outstanding (3) 122,600 123,308
Book value per share (4) 38.75 37.31
Tangible book value per share (4) 36.97 35.78

(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 $258 million and $181 million as of March 31, 2016 and December 31, 2015, respectively. Unrealized currency translation losses were $249 million and $247 million as of March 31, 2016 and December 31, 2015, respectively.

(3) During the first quarter of 2016, the Company repurchased 734,055 shares of its common stock for $37.4 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

March 31, 2016

(Amounts in thousands)

 
  Carrying

Value

  Percent

of Total

 
Fixed maturity securities:
United States government and government agencies $ 597,951 3.6 %
State and municipal:
Special revenue 2,754,797 16.5 %
State general obligation 657,062 3.9 %
Pre-refunded 441,106 2.6 %
Local general obligation 407,243 2.4 %
Corporate backed 402,824   2.4 %
Total state and municipal 4,663,032   27.8 %
Mortgage-backed securities:
Agency 832,541 5.0 %
Residential - Prime 227,355 1.4 %
Commercial 65,300 0.4 %
Residential — Alt A 48,358   0.3 %
Total mortgage-backed securities 1,173,554   7.1 %
Asset-backed securities 1,844,404 11.1 %
Corporate:
Industrial 2,093,572 12.6 %
Financial 1,202,140 7.2 %
Utilities 206,149 1.2 %
Other 66,715   0.4 %
Total corporate 3,568,576   21.4 %
Foreign government 897,919   5.4 %
Total fixed maturity securities (1) 12,745,436   76.4 %
Equity securities available for sale:
Preferred stocks 104,128 0.6 %
Common stocks 37,571   0.2 %
Total equity securities available for sale 141,699   0.8 %
Investment funds (2) 1,177,109 7.1 %
Cash and cash equivalents (3) 1,104,368 6.6 %
Real estate 986,810 5.9 %
Arbitrage trading account 384,519 2.3 %
Loans receivable 149,388   0.9 %
Net invested assets $ 16,689,329   100.0 %

(1) Total fixed maturity securities had an average rating of AA- and an average duration of 3.1 years, including cash and cash equivalents.

(2) Investment funds include an investment in publicly traded common stock of HealthEquity, Inc. (HQY), which is carried on the equity method of accounting. At March 31, 2016, the investment in HQY had a carrying value of $46.3 million and a fair value of $295.3 million. Investment funds are net of related liabilities of $2.2 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.

Foreign Government Fixed Maturity Securities

March 31, 2016

(Amounts in thousands)

 
  Carrying Value
 
Australia $ 250,641
Argentina 161,778
Canada 158,180
United Kingdom 157,261
Germany 52,226
Supranational (1) 36,421
Norway 33,904
Brazil 31,388
Singapore 6,483
Colombia 5,798
Uruguay 3,839
Total $ 897,919

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

Contacts

W. R. Berkley Corporation
Karen A. Horvath
Vice President - External
Financial Communications
203-629-3000

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