W.R. Berkley Corporation

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W. R. Berkley Corporation Reports Second Quarter Results

Net Income per Share up 8%, Net Premiums Written up 13%

GREENWICH, Conn.--(BUSINESS WIRE)-- W. R. Berkley Corporation (NYSE: WRB) today reported net income for the second quarter of 2013 of $116 million, or 82 cents per share, compared with $109 million, or 76 cents per share, for the second quarter of 2012.

Summary Financial Data

(Amounts in thousands, except per share data)

 
  Second Quarter   Six Months
2013   2012 2013   2012
 
Gross premiums written $ 1,617,936 $ 1,430,920 $ 3,249,557 $ 2,832,446
Net premiums written 1,341,898 1,190,991 2,718,864 2,394,517
 
Net income 115,957 108,838 232,572 244,156
Net income per diluted share 0.82 0.76 1.65 1.70
 
Operating income (1) 98,830 92,988 202,465 197,224
Operating income per diluted share 0.70 0.65 1.43 1.37
 
Return on equity (2) 10.8 % 11.0 % 10.8 % 12.4 %

(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.

Second quarter highlights included:

  • Net premiums written increased 12.7%.
  • Average rates on renewed policies increased 6.5%.
  • GAAP combined ratio was 96.6%.
  • Return on equity of 10.8%.

Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We are pleased with the second quarter’s results. Our improved performance was driven by higher underwriting margins and a declining expense ratio. The benefits from improved underwriting results more than offset the decline in investment income.

"Our cumulative rate increases since 2010 are in excess of 18%, and our premium volume has grown by over 30% in the past two years. Our Company continues to improve its relative competitive position while avoiding the extreme volatility impacting the general marketplace. We expect our returns to increase as our earned premium reflects the recently improved pricing levels.

"The current bond market yields continue to impact our investment income. In spite of the recent improvement in yields, new purchases result in substantially lower returns than maturing securities. We continue to search for attractive opportunities but we are still unwilling to extend the duration or diminish the quality of our portfolio. Overall, yields will remain under pressure, although we anticipate benefiting from capital gains through the balance of the year.

"We are confident that our growth will continue and our returns will improve for the foreseeable 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 Monday, July 22, 2013 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.

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 2013 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; 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 2013 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
2013   2012 2013   2012
Revenues:
Net premiums written $ 1,341,898 $ 1,190,991 $ 2,718,864 $ 2,394,517
Change in unearned premiums (59,383 ) (43,634 ) (204,230 ) (147,509 )
Net premiums earned 1,282,515 1,147,357 2,514,634 2,247,008
Investment income 143,737 161,250 279,666 318,869
Insurance service fees 27,652 27,036 54,388 50,913
Net investment gains 33,058 24,286 53,027 67,763
Change in investment valuation allowance, net of other than temporary impairments 4,014
Revenues from wholly-owned investees 83,775 55,434 175,510 105,109
Other income 225   384   506   776  
Total revenues 1,570,962   1,415,747   3,077,731   2,794,452  
Expenses:
Losses and loss expenses 805,470 731,202 1,550,149 1,410,674
Other operating costs and expenses 494,286 448,758 975,890 880,537
Expenses from wholly-owned investees 81,293 54,931 170,445 106,261
Interest expense 31,207   32,417   62,318   61,238  
Total expenses 1,412,256   1,267,308   2,758,802   2,458,710  
Income before income taxes 158,706 148,439 318,929 335,742
Income tax expense (43,579 ) (39,535 ) (87,204 ) (91,606 )
Net income before noncontrolling interests 115,127 108,904 231,725 244,136
Noncontrolling interests 830   (66 ) 847   20  
Net income to common stockholders $ 115,957   $ 108,838   $ 232,572   $ 244,156  
 
Net income per share:
Basic $ 0.85 $ 0.79 $ 1.71 $ 1.77
Diluted $ 0.82 $ 0.76 $ 1.65 $ 1.70
 
Average shares outstanding:
Basic 135,894 138,181 135,959 137,997
Diluted 141,274 143,528 141,257 143,506



Business Segment Operating Results

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

 
  Second Quarter   Six Months
2013   2012   2013   2012
Insurance-Domestic:  
Gross premiums written $ 1,186,186 $ 1,051,138 $ 2,365,908 $ 2,089,572
Net premiums written 967,784 869,319 1,953,964 1,752,262
Premiums earned 925,997 846,734 1,810,375 1,656,803
Pre-tax income 152,334 144,640 293,684 292,375
Loss ratio 62.9 % 65.1 % 62.7 % 64.0 %
Expense ratio 32.5 % 32.7 % 32.8 % 33.0 %
GAAP combined ratio 95.4 % 97.8 % 95.5 % 97.0 %
 
Insurance-International:
Gross premiums written $ 241,738 $ 217,062 $ 493,313 $ 417,566
Net premiums written 201,445 174,976 406,580 342,970
Premiums earned 180,192 154,501 351,311 298,386
Pre-tax income 12,583 13,782 34,965 29,481
Loss ratio 61.0 % 58.3 % 58.5 % 57.8 %
Expense ratio 38.9 % 40.5 % 38.4 % 40.4 %
GAAP combined ratio 99.9 % 98.8 % 96.9 % 98.2 %
 
Reinsurance-Global:
Gross premiums written $ 190,012 $ 162,720 $ 390,336 $ 325,308
Net premiums written 172,669 146,696 358,320 299,285
Premiums earned 176,326 146,122 352,948 291,819
Pre-tax income 24,752 27,454 62,693 59,092
Loss ratio 63.9 % 61.6 % 59.4 % 60.9 %
Expense ratio 35.1 % 38.6 % 35.7 % 38.1 %
GAAP combined ratio 99.0 % 100.2 % 95.1 % 99.0 %
 
Corporate and Eliminations:
Net realized investment gains $ 33,058 $ 24,286 $ 53,027 $ 71,777
Interest expense (31,207 ) (32,417 ) (62,318 ) (61,238 )
Other revenues and expenses (32,814 ) (29,306 ) (63,122 ) (55,745 )
Pre-tax loss (30,963 ) (37,437 ) (72,413 ) (45,206 )
 
Consolidated:
Gross premiums written $ 1,617,936 $ 1,430,920 $ 3,249,557 $ 2,832,446
Net premiums written 1,341,898 1,190,991 2,718,864 2,394,517
Premiums earned 1,282,515 1,147,357 2,514,634 2,247,008
Pre-tax income 158,706 148,439 318,929 335,742
Loss ratio 62.8 % 63.7 % 61.6 % 62.8 %
Expense ratio 33.8 % 34.5 % 34.0 % 34.6 %
GAAP combined ratio 96.6 % 98.2 % 95.6 % 97.4 %

(1) Commencing with the first quarter of 2013, the Company reports its results in three segments – Insurance-Domestic (formerly, Specialty, Regional and Alternative Markets), Insurance-International and Reinsurance-Global. Reclassifications have been made to the Company’s 2012 financial information to conform with this presentation.

(2) 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, except ratios)

 
  Second Quarter   Six Months
2013   2012 2013   2012

Insurance-Domestic

Net premiums written:

Other liability $ 348,110 $ 276,330 $ 671,666 $ 568,389
Workers' compensation 225,888 226,365 524,065 470,806
Short-tail lines (1) 206,357 199,338 386,156 368,467
Commercial automobile 121,063 104,887 244,649 225,698
Professional liability 66,366   62,399   127,428   118,902  
Total $ 967,784   $ 869,319   $ 1,953,964   $ 1,752,262  
 
Losses from catastrophes:
Insurance-Domestic $ 26,696 $ 25,713 $ 30,356 $ 30,091
Insurance-International 3,171 54 3,404 54
Reinsurance-Global 4,293     458   5,413   486  
Total $ 34,160   $ 26,225   $ 39,173   $ 30,631  
 
Investment income:
Core portfolio (2) $ 116,171 $ 125,571 $ 237,383 $ 249,086
Investment funds 22,576 35,619 33,510 63,242
Arbitrage trading account 4,990   60   8,773   6,541  
Total $ 143,737   $ 161,250   $ 279,666   $ 318,869  
 
Other operating costs and expenses:
Underwriting expenses $ 433,271 $ 395,920 $ 855,484 $ 777,943
Service expenses 23,136 21,635 45,441 41,227
Debt extinguishment costs 6,709 6,709
Net foreign currency losses (gains) (6,718 ) 137 (4,771 ) (1,297 )
Other costs and expenses 37,888   31,066   73,027   62,664  
Total $ 494,286   $ 448,758   $ 975,890   $ 880,537  
 
Cash flow from operations $ 198,820 $ 238,649 $ 313,932 $ 312,411
 
Reconciliation of operating and net income:
Operating income (3) $ 98,830 $ 92,988 $ 202,465 $ 197,224
After-tax investment gains 21,488 15,850 34,468 46,932
After-tax debt extinguishment costs (4,361 )   (4,361 )  
Net income $ 115,957   $ 108,838   $ 232,572   $ 244,156  

(1) Short-tail lines includes commercial multi-peril (non-liability), inland and ocean 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 realized investment gains and 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)

 
  June 30, 2013   December 31, 2012
 
Net invested assets (1) $ 15,178,710 $ 15,681,803
Total assets 20,211,542 20,155,896
Reserves for losses and loss expenses 9,921,072 9,751,086
Senior notes and other debt 1,695,986 1,871,535
Junior subordinated debentures 339,614 243,206
Common stockholders’ equity (2) 4,238,604 4,306,217
Common stock outstanding 135,308 136,018
Book value per share (3) 31.33 31.66
Tangible book value per share (3) 30.29 30.95

(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 $328 million and $518 million as of June 30, 2013 and December 31, 2012, respectively. Unrealized currency translation losses were $106 million and $37 million as of June 30, 2013 and December 31, 2012, respectively.

(3) 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.

(4) During the second quarter of 2013, the Company repurchased 776,237 shares of its common stock at an average cost of $40.40 per share and an aggregate cost of $31 million.

Investment Portfolio

June 30, 2013

(Amounts in thousands)

 
  Carrying

Value

  Percent

of Total

 
Fixed maturity securities:
United States government and government agencies $ 844,102 5.6 %
State and municipal:
Special revenue 1,987,799 13.1 %
State general obligation 801,134 5.3 %
Pre-refunded 670,987 4.4 %
Corporate backed 394,589 2.6 %
Local general obligation 359,835   2.4 %
Total state and municipal 4,214,344   27.8 %
Mortgage-backed securities:
Agency 1,096,535 7.2 %
Residential — Prime 219,235 1.4 %
Commercial 181,053 1.2 %
Residential — Alt A 92,591   0.6 %
Total mortgage-backed securities 1,589,414   10.4 %
Corporate:
Industrial 1,540,555 10.1 %
Asset-backed 1,049,126 6.9 %
Financial 929,279 6.1 %
Utilities 229,827 1.5 %
Other 117,072   0.8 %
Total corporate 3,865,859   25.4 %
Foreign 1,121,459   7.4 %
Total fixed maturity securities (1) 11,635,178   76.6 %
Equity securities available for sale:
Common stocks 330,636 2.2 %
Preferred stocks 104,205   0.7 %
Total equity securities available for sale 434,841   2.9 %
Cash and cash equivalents (2) 639,900 4.2 %
Investment funds (3) 838,965 5.5 %
Arbitrage trading account 680,713 4.5 %
Real estate 589,936 3.9 %
Loans receivable 359,177   2.4 %
Net invested assets $ 15,178,710   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 are net of related liabilities of $19 million.



         Foreign Fixed Maturity Securities

         June 30, 2013

         (Amounts in thousands)

 
  Government   Corporate   Total
Australia $ 231,716 $ 119,102 $ 350,818
Canada 133,684 52,800 186,484
United Kingdom 116,187 56,605 172,792
Argentina 117,520 39,981 157,501
Germany 74,471 74,471
Norway 61,123 61,123
Brazil 46,726 46,726
Supranational (1) 37,652 37,652
Netherlands 12,965 12,965
Switzerland 10,721 10,721
Singapore 6,805 6,805
Uruguay 3,401     3,401
Total $ 829,285   $ 292,174   $ 1,121,459

(1) Supranational represents investments in the North American Development Bank, European Investment Bank and Inter-American Development Bank.

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

Source: W. R. Berkley Corporation

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