W. R. Berkley Corporation Reports Second Quarter Results

Net Income of $109 Million; Net Premiums Written Increased 6%

GREENWICH, Conn.--()--W. R. Berkley Corporation (NYSE: WRB) today reported net income for the second quarter of 2016 of $109 million, or 85 cents per share.

 
Summary Financial Data
(Amounts in thousands, except per share data)
 
  Second Quarter   Six Months
2016   2015 2016   2015
 
Gross premiums written $ 1,939,365 $ 1,811,398 $ 3,895,062 $ 3,663,203
Net premiums written 1,642,569 1,543,925 3,306,291 3,119,327
 
Net income 108,967 123,035 228,477 241,342
Net income per diluted share 0.85 0.95 1.78 1.84
 
Operating income (1) 104,862 105,124 219,599 211,052
Operating income per diluted share 0.82 0.81 1.71 1.61
 
Return on equity (2) 9.5 % 10.7 % 9.9 % 10.5 %
 
(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.
 

Second quarter highlights included:

  • Net premiums written increased 6.4%.
  • The combined ratio was 92.3% before catastrophe losses and 94.9% after catastrophe losses.
  • Book value per share grew 3.2% in the quarter and 7.1% for the first six months of 2016.
  • Pre-tax return on equity was 13.8%.

The Company commented:

We are pleased with our results for the second quarter, especially in light of significant industry-wide catastrophe activity as well as global uncertainty that contributed to volatility in the financial markets. Although the environment remains competitive, net premiums written continued to grow as we target areas of the market that offer attractive margins. We continue to find opportunities to attract talented individuals with the knowledge and expertise to build new specialty businesses and strengthen our franchise. During the quarter, we announced the creation of a high net worth personal lines business and the formation of Berkley Insurance Asia. We expect to announce other new ventures during the balance of the year.

As we previously stated, we expect to report a pre-tax gain of approximately $130 million from the sale of an investment in our alternative portfolio in the third quarter. Investing for total return remains an important part of our strategy to build long-term shareholder value in a low interest rate environment. These gains cause variability in our quarterly results, but we expect them to enhance our overall returns.

Our Company is well positioned for the current environment and has the strength and flexibility to respond to changes as they occur. Accordingly, we remain optimistic about the second half of 2016.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on July 25, 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 worldwide 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 (including those associated with the United Kingdom's expected withdrawal from the European Union, or "Brexit") 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)
 
  Second Quarter   Six Months
2016   2015 2016   2015
Revenues:
Net premiums written $ 1,642,569 $ 1,543,925 $ 3,306,291 $ 3,119,327
Change in unearned premiums (82,776 ) (50,884 ) (219,163 ) (154,273 )
Net premiums earned 1,559,793 1,493,041 3,087,128 2,965,054
Investment income 129,049 127,583 259,182 251,822
Insurance service fees 36,939 35,942 77,301 72,460
Net realized investment gains 6,315 27,557 31,772 46,601
Other than temporary impairments (18,114 )
Revenues from non-insurance businesses 123,764 105,596 225,544 198,202
Other income 54   46   312   305  
Total revenues 1,855,914   1,789,765   3,663,125   3,534,444  
Expenses:
Losses and loss expenses 964,162 906,235 1,886,483 1,806,943
Other operating costs and expenses 581,955 573,582 1,164,414 1,124,628
Expenses from non-insurance businesses 116,731 98,730 212,262 188,400
Interest expense 34,752   33,031   66,976   67,569  
Total expenses 1,697,600   1,611,578   3,330,135   3,187,540  
Income before income taxes 158,314 178,187 332,990 346,904
Income tax expense (49,408 ) (55,138 ) (103,837 ) (105,411 )
Net income before noncontrolling interests 108,906 123,049 229,153 241,493
Noncontrolling interests 61   (14 ) (676 ) (151 )
Net income to common stockholders $ 108,967   $ 123,035   $ 228,477   $ 241,342  
 
Net income per share:
Basic $ 0.89 $ 0.99 $ 1.86 $ 1.93
Diluted $ 0.85 $ 0.95 $ 1.78 $ 1.84
 
Average shares outstanding:
Basic 122,616 123,781 122,698 124,869
Diluted 128,575 129,988 128,562 131,228
 
   
Business Segment Operating Results
(Amounts in thousands, except ratios) (1) (2)
 
Second Quarter Six Months
2016   2015 2016   2015
Insurance:
Gross premiums written $ 1,753,273 $ 1,658,954 $ 3,516,343 $ 3,351,357
Net premiums written 1,471,749 1,401,078 2,960,486 2,826,217
Premiums earned 1,399,865 1,351,382 2,775,223 2,662,658
Pre-tax income 183,261 183,470 389,176 371,639
Loss ratio 61.9 % 61.3 % 61.2 % 61.2 %
Expense ratio 32.3 % 33.0 % 32.4 % 32.7 %
GAAP combined ratio 94.2 % 94.3 % 93.6 % 93.9 %
 
Reinsurance:
Gross premiums written $ 186,092 $ 152,444 $ 378,719 $ 311,846
Net premiums written 170,820 142,847 345,805 293,110
Premiums earned 159,928 141,659 311,905 302,396
Pre-tax income 17,073 27,122 38,870

 

47,384
Loss ratio 61.3 % 54.9 % 60.5 % 58.8 %
Expense ratio 40.1 % 38.7 % 39.2 % 37.1 %
GAAP combined ratio 101.4 % 93.6 % 99.7 % 95.9 %
 
Corporate and Eliminations:
Net realized investment gains $ 6,315 $ 27,557 $ 13,658 $ 46,601
Interest expense (34,752 ) (33,031 ) (66,976 ) (67,569 )
Other revenues and expenses (13,583 ) (26,931 ) (41,738 ) (51,151 )
Pre-tax loss (42,020 ) (32,405 ) (95,056 ) (72,119 )
 
Consolidated:
Gross premiums written $ 1,939,365 $ 1,811,398 $ 3,895,062 $ 3,663,203
Net premiums written 1,642,569 1,543,925 3,306,291 3,119,327
Premiums earned 1,559,793 1,493,041 3,087,128 2,965,054
Pre-tax income 158,314 178,187 332,990 346,904
Loss ratio 61.8 % 60.7 % 61.1 % 60.9 %
Expense ratio 33.1 % 33.5 % 33.1 % 33.1 %
GAAP combined ratio 94.9 % 94.2 % 94.2 % 94.0 %
 
(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 reports 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.
 
   
Supplemental Information
(Amounts in thousands)
 
Second Quarter Six Months
2016   2015 2016   2015
Net premiums written:
Other liability $ 498,466 $ 432,462 $ 956,764 $ 854,496
Workers' compensation 346,167 348,972 748,949 726,841
Short-tail lines (1) 327,409 328,745 679,305 675,440
Commercial automobile 167,277 167,969 326,279 338,920
Professional liability 132,430   122,930   249,189   230,520
Total Insurance 1,471,749   1,401,078   2,960,486   2,826,217
Casualty reinsurance 105,507 94,842 204,694 204,442
Property reinsurance 65,313   48,005   141,111   88,668
Total Reinsurance 170,820   142,847   345,805   293,110
Total $ 1,642,569   $ 1,543,925   $ 3,306,291   $ 3,119,327
 
Losses from catastrophes:
Insurance $ 32,609 $ 22,690 $ 47,706 $ 37,152
Reinsurance 7,901   1,797   8,440   1,797
Total $ 40,510   $ 24,487   $ 56,146   $ 38,949
 
Investment income
Core portfolio (2) $ 107,341 $ 105,849 $ 217,647 $ 215,048
Investment funds 18,456 21,851 35,093 27,912
Arbitrage trading account $ 3,252   (117 ) $ 6,442   8,862
Total $ 129,049   $ 127,583   $ 259,182     $ 251,822
 
Other operating costs and expenses:
Underwriting expenses $ 516,287 $ 500,234 $ 1,021,542 $ 982,294
Service expenses 37,628 32,374 71,426 63,458
Net foreign currency (gains) losses (13,084 ) 3,076 (9,356 ) 2,509
Other costs and expenses 41,124   37,898   80,802   76,367
Total $ 581,955   $ 573,582   $ 1,164,414   $ 1,124,628
 
Cash flow from operations $ 155,991   $ 271,871   $ 296,759   $ 332,883
 
Reconciliation of operating and net income:
Operating income (3) $ 104,862 $ 105,124 $ 219,599 $ 211,052
After-tax investment gains 4,105   17,911   8,878   30,290
Net income $ 108,967   $ 123,035   $ 228,477   $ 241,342
 
(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)
 
 

June 30,
2016

 

December 31,
2015

 
Net invested assets (1) $ 17,235,050 $ 16,460,690
Total assets 23,025,863 21,724,156
Reserves for losses and loss expenses 10,897,876 10,669,150
Senior notes and other debt 1,808,522 1,844,621
Subordinated debentures 727,242 340,320
Common stockholders’ equity (2) 4,902,501 4,600,246
Common stock outstanding (3) 122,642 123,308
Book value per share (4) 39.97 37.31
Tangible book value per share (4) 38.21 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 $363 million and $181 million as of June 30, 2016 and December 31, 2015, respectively. Unrealized currency translation losses were $305 million and $247 million as of June 30, 2016 and December 31, 2015, respectively.
 
(3) During the first six months of 2016, the Company repurchased 734,055 shares of its common stock for $37.4 million, all of which took place in the first quarter.
 
(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
June 30, 2016
(Amounts in thousands)
 
Carrying

Value

Percent

of Total

 
Fixed maturity securities:
United States government and government agencies $ 560,490 3.3 %
State and municipal:
Special revenue 2,759,821 16.0 %
State general obligation 644,791 3.7 %
Pre-refunded 485,518 2.8 %
Corporate backed 404,060 2.3 %
Local general obligation 392,923   2.3 %
Total state and municipal 4,687,113   27.1 %
Mortgage-backed securities:
Agency 770,222 4.5 %
Residential - Prime 241,798 1.4 %
Commercial 97,724 0.6 %
Residential — Alt A 43,418   0.3 %
Total mortgage-backed securities 1,153,162   6.8 %
Asset-backed securities 1,916,276 11.1 %
Corporate:
Industrial 2,214,423 12.9 %
Financial 1,239,538 7.2 %
Utilities 214,564 1.2 %
Other 71,017   0.4 %
Total corporate 3,739,542   21.7 %
Foreign government 898,339   5.2 %
Total fixed maturity securities (1) 12,954,922   75.2 %
Equity securities available for sale:
Preferred stocks 147,765 0.9 %
Common stocks 138,887   0.8 %
Total equity securities available for sale 286,652   1.7 %
Investment funds (2) 1,203,067 7.0 %
Cash and cash equivalents (3) 1,126,927 6.5 %
Real estate 1,024,102 5.9 %
Arbitrage trading account 496,522 2.9 %
Loans receivable 142,858   0.8 %
Net invested assets $ 17,235,050   100.0 %
 
 
(1) Total fixed maturity securities had an average rating of AA- and an average duration of 3.0 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 June 30, 2016, the investment in HQY had a carrying value of $50.1 million and a fair value of $363.7 million. Investment funds are net of related liabilities of $2.1 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
June 30, 2016
(Amounts in thousands)
 
Carrying Value
 
Australia $ 238,363
Argentina 189,683
Canada 161,744
United Kingdom 140,600
Germany 46,177
Supranational (1) 35,706
Brazil 35,581
Norway 33,261
Singapore 6,436
Colombia 6,050
Uruguay 4,738
Total $ 898,339
 
(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, 203-629-3000
Vice President - External
Financial Communications

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