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GREENWICH, Conn., Jul 26, 2010 (BUSINESS WIRE) -- W. R. Berkley Corporation (NYSE: WRB) today reported net income for the second quarter of 2010 of $110 million, or 70 cents per share, compared with $97 million, or 59 cents per share, for the second quarter of 2009. Operating income for the second quarter of 2010 was $102 million, or 65 cents per share, compared with $100 million, or 60 cents per share, for the corresponding quarter of 2009. Operating income is a non-GAAP financial measure defined by the Company as net income excluding income and losses from investment funds and net investment gains and losses.
| Summary Financial Data | ||||||||||||
| (Amounts in thousands, except per share data) | ||||||||||||
| Second Quarter | Six Months | |||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||
| Gross premiums written | $ | 1,113,469 | $ | 1,054,577 | $ | 2,239,589 | $ | 2,202,819 | ||||
| Net premiums written | 961,354 | 908,912 | 1,945,304 | 1,932,384 | ||||||||
| Net income | 110,207 | 97,387 | 228,817 | 77,041 | ||||||||
| Net income per diluted share | 0.70 | 0.59 | 1.44 | 0.46 | ||||||||
| Operating income | 101,775 | 99,930 | 213,475 | 217,226 | ||||||||
| Operating income per diluted share | 0.65 | 0.60 | 1.35 | 1.30 | ||||||||
Second quarter highlights included:
Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We are pleased with our second quarter results. Our new enterprises continue to gain traction, and their growth led to an increase in overall premiums for the first time in fifteen quarters. Written premium grew by more than 5.5% in the quarter as the growth in these new businesses more than offset the slight decline in our established business units. Our calendar year combined ratio was under ninety-five, and we continue to book our current accident year in a prudent manner. We are particularly cognizant of assuring adequate pricing for our new business units. There are a growing number of signs of a coming turn in the cycle, as prices are beginning to stabilize in most areas. Overall, prices were down less than one percent for the quarter. Given the current investment environment, adequate industry returns can only be achieved by improved underwriting results.
"The investment portfolio changed only slightly during the quarter. The current shape of the yield curve and the absolute level of returns available for long term securities caused us to reconsider our plans for extending the portfolio duration, which remained at 3.6 years. We continued to modestly shift our municipal portfolio away from general obligation bonds to other types of municipal securities.
"Looking ahead, we remain cautiously optimistic. With current available yields down over 200 basis points from historic industry investment returns, investment results cannot be the drivers of profitability for property casualty companies. We believe that current investment yields and unsatisfactory underwriting year pricing are generating inadequate current levels of return for the industry. As we approach the end of the year, it is likely our competitors will reach a similar conclusion, and pricing will improve," 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 Tuesday, July 27, 2010 at 9:00 a.m. eastern time. The conference call will be webcast live on the Company's website at www.wrberkley.com. A recording of the call 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 five segments of the property casualty insurance business: specialty insurance, regional property casualty insurance, alternative markets, reinsurance and international.
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 2010 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 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, merger arbitrage and private equity investments; the impact of significant competition; the potential impact of the economic downturn, and any legislative, regulatory, accounting or other initiatives taken in response to it, on our results and financial condition; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; 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 Programs Reauthorization Act of 2007; the ability of our reinsurers to pay reinsurance recoverables owed to us; foreign currency and political risks relating to our international operations; other legislative and regulatory developments, including those related to business practices in the insurance industry; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; our ability to attract and retain qualified employees; 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 2010 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our net premiums written and management fees would not necessarily result in commensurate levels of underwriting and operating profits. 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 | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Revenues: | ||||||||||||||||
| Net premiums written | $ | 961,354 | $ | 908,912 | $ | 1,945,304 | $ | 1,932,384 | ||||||||
| Change in unearned premiums | (13,226 | ) | 42,260 | (66,615 | ) | (2,004 | ) | |||||||||
| Net premiums earned |
|
948,128 | 951,172 | 1,878,689 | 1,930,380 | |||||||||||
| Net investment income | 128,191 | 132,135 | 267,034 | 270,351 | ||||||||||||
| Income (losses) from investment funds | 1,540 | (37,821 | ) | 6,258 | (152,895 | ) | ||||||||||
| Insurance service fees | 20,390 | 25,257 | 41,875 | 51,840 | ||||||||||||
| Net investment gains (losses): | ||||||||||||||||
|
Net realized gains on investment sales |
11,534 | 49,224 | 20,028 | 62,616 | ||||||||||||
| Other-than-temporary impairments | - | (23,932 | ) | (2,582 | ) | (134,132 | ) | |||||||||
|
Less other-than-temporary impairments recognized in other comprehensive income |
- | 8,604 | - | 8,604 | ||||||||||||
| Net investment gains (losses) | 11,534 | 33,896 | 17,446 | (62,912 | ) | |||||||||||
| Revenues from wholly-owned investees | 52,929 | 49,942 | 104,505 | 80,845 | ||||||||||||
| Other income | 356 | 517 | 808 | 1,110 | ||||||||||||
| Total revenues | 1,163,068 | 1,155,098 | 2,316,615 | 2,118,719 | ||||||||||||
| Expenses: | ||||||||||||||||
| Losses and loss expenses | 570,475 | 597,267 | 1,120,448 | 1,207,712 | ||||||||||||
| Other operating costs and expenses | 370,823 | 365,514 | 738,790 | 722,861 | ||||||||||||
| Expenses from wholly-owned investees | 49,934 | 46,791 | 98,908 | 76,745 | ||||||||||||
| Interest expense | 26,014 | 20,213 | 52,055 | 40,437 | ||||||||||||
| Total expenses | 1,017,246 | 1,029,785 | 2,010,201 | 2,047,755 | ||||||||||||
| Income before income taxes |
|
145,822 | 125,313 | 306,414 | 70,964 | |||||||||||
| Income tax (expense) benefit | (35,598 | ) | (27,881 | ) | (77,409 | ) | 6,184 | |||||||||
|
Net income before noncontrolling interests |
|
110,224 | 97,432 | 229,005 | 77,148 | |||||||||||
| Noncontrolling interests | (17 | ) | (45 | ) | (188 | ) | (107 | ) | ||||||||
| Net income to common stockholders | $ | 110,207 | $ | 97,387 | $ | 228,817 | $ | 77,041 | ||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | 0.73 | $ | 0.61 | $ | 1.50 | $ | 0.48 | ||||||||
| Diluted | $ | 0.70 | $ | 0.59 | $ | 1.44 | $ | 0.46 | ||||||||
| Average shares outstanding: | ||||||||||||||||
| Basic | 151,215 | 160,008 | 152,324 | 160,546 | ||||||||||||
| Diluted | 157,461 | 166,226 | 158,539 | 166,716 | ||||||||||||
| Operating Results by Segment | ||||||||||||||||
| (Amounts in thousands, except ratios (1)) | ||||||||||||||||
| Second Quarter | Six Months | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Specialty: (2) | ||||||||||||||||
| Gross premiums written | $ | 404,407 | $ | 394,889 | $ | 747,339 | $ | 759,783 | ||||||||
| Net premiums written | 342,275 | 338,683 | 644,203 | 661,240 | ||||||||||||
| Premiums earned | 316,513 | 346,052 | 629,466 | 703,980 | ||||||||||||
| Pre-tax income | 75,177 | 65,920 | 150,847 | 93,664 | ||||||||||||
| Loss ratio | 57.2 | % | 60.0 | % | 57.6 | % | 61.4 | % | ||||||||
| Expense ratio | 32.7 | % | 29.8 | % | 33.2 | % | 30.3 | % | ||||||||
| GAAP combined ratio | 89.9 | % | 89.8 | % | 90.8 | % | 91.7 | % | ||||||||
| Regional:(2) | ||||||||||||||||
| Gross premiums written | $ | 286,711 | $ | 317,445 | $ | 589,352 | $ | 640,246 | ||||||||
| Net premiums written | 258,543 | 277,730 | 530,575 | 559,765 | ||||||||||||
| Premiums earned | 266,629 | 281,903 | 530,298 | 567,519 | ||||||||||||
| Pre-tax income | 25,505 | 11,677 | 67,469 | 30,042 | ||||||||||||
| Loss ratio | 62.2 | % | 66.6 | % | 59.7 | % | 63.8 | % | ||||||||
| Expense ratio | 35.5 | % | 34.2 | % | 35.5 | % | 33.6 | % | ||||||||
| GAAP combined ratio | 97.7 | % | 100.8 | % | 95.2 | % | 97.4 | % | ||||||||
| Alternative Markets: | ||||||||||||||||
| Gross premiums written | $ | 146,599 | $ | 113,960 | $ | 387,950 | $ | 362,834 | ||||||||
| Net premiums written | 117,092 | 99,486 | 327,497 | 325,201 | ||||||||||||
| Premiums earned | 155,227 | 151,309 | 310,012 | 303,302 | ||||||||||||
| Pre-tax income | 45,571 | 36,961 | 96,556 | 67,395 | ||||||||||||
| Loss ratio | 65.2 | % | 66.4 | % | 64.9 | % | 64.3 | % | ||||||||
| Expense ratio | 26.0 | % | 25.7 | % | 25.8 | % | 24.9 | % | ||||||||
| GAAP combined ratio | 91.2 | % | 92.1 | % | 90.7 | % | 89.2 | % | ||||||||
| Reinsurance:(2) | ||||||||||||||||
| Gross premiums written | $ | 114,646 | $ | 116,217 | $ | 221,015 | $ | 224,073 | ||||||||
| Net premiums written | 107,633 | 107,055 | 206,404 | 207,888 | ||||||||||||
| Premiums earned | 105,632 | 94,257 | 205,190 | 199,880 | ||||||||||||
| Pre-tax income | 30,157 | 21,228 | 64,577 | 24,227 | ||||||||||||
| Loss ratio | 55.7 | % | 56.4 | % | 53.1 | % | 60.1 | % | ||||||||
| Expense ratio | 41.0 | % | 42.9 | % | 42.4 | % | 39.1 | % | ||||||||
| GAAP combined ratio | 96.7 | % | 99.3 | % | 95.5 | % | 99.2 | % | ||||||||
| International:(2) | ||||||||||||||||
| Gross premiums written | $ | 161,106 | $ | 112,066 | $ | 293,933 | $ | 215,883 | ||||||||
| Net premiums written | 135,811 | 85,958 | 236,625 | 178,290 | ||||||||||||
| Premiums earned | 104,127 | 77,651 | 203,723 | 155,699 | ||||||||||||
| Pre-tax income | 6,586 | 720 | 6,959 | 6,888 | ||||||||||||
| Loss ratio | 61.1 | % | 61.9 | % | 64.4 | % | 63.0 | % | ||||||||
| Expense ratio | 41.2 | % | 38.8 | % | 42.4 | % | 38.2 | % | ||||||||
| GAAP combined ratio | 102.3 | % | 100.7 | % | 106.8 | % | 101.2 | % | ||||||||
| Operating Results by Segment (Continued) | ||||||||||||||||
| (Amounts in thousands, except ratios (1)) | ||||||||||||||||
| Second Quarter | Six Months | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Corporate and Eliminations: | ||||||||||||||||
| Net investment gains (losses) | $ | 11,534 | $ | 33,896 | $ | 17,446 | $ | (62,912 | ) | |||||||
| Interest expense | (26,014 | ) | (20,213 | ) | (52,055 | ) | (40,437 | ) | ||||||||
| Other revenues and expenses (3) | (22,694 | ) | (24,876 | ) | (45,385 | ) | (47,903 | ) | ||||||||
| Pre-tax loss | (37,174 | ) | (11,193 | ) | (79,994 | ) | (151,252 | ) | ||||||||
| Consolidated: | ||||||||||||||||
| Gross premiums written | $ | 1,113,469 | $ | 1,054,577 | $ | 2,239,589 | $ | 2,202,819 | ||||||||
| Net premiums written | 961,354 | 908,912 | 1,945,304 | 1,932,384 | ||||||||||||
| Premiums earned | 948,128 | 951,172 | 1,878,689 | 1,930,380 | ||||||||||||
| Pre-tax income | 145,822 | 125,313 | 306,414 | 70,964 | ||||||||||||
| Loss ratio | 60.2 | % | 62.8 | % | 59.6 | % | 62.6 | % | ||||||||
| Expense ratio | 34.2 | % | 32.5 | % | 34.6 | % | 32.0 | % | ||||||||
| GAAP combined ratio | 94.4 | % | 95.3 | % | 94.2 | % | 94.6 | % | ||||||||
(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. Underwriting expenses do not include expenses related to insurance services or unallocated corporate expenses. GAAP combined ratio is the sum of the loss ratio and the expense ratio.
(2) For the second quarters of 2010 and 2009, catastrophe and weather-related losses were $30 million and $28 million, respectively. For the first six months of 2010 and 2009, catastrophe and weather-related losses were $53 million and $36 million, respectively.
(3) Other revenues and expenses include corporate investment income, expenses not allocated to the business segments and revenues and expenses from investments in wholly-owned, non-insurance subsidiaries that are consolidated for financial reporting purposes.
| Selected Balance Sheet Information | ||||||
| (Amounts in thousands, except per share data) | ||||||
| June 30, | December 31, | |||||
| 2010 | 2009 | |||||
| Net invested assets (1) | $ | 13,711,656 | $ | 13,726,213 | ||
| Total assets | 17,416,926 | 17,328,596 | ||||
| Reserves for losses and loss expenses | 9,109,638 | 9,071,671 | ||||
| Senior notes and other debt | 1,342,601 | 1,345,481 | ||||
| Junior subordinated debentures | 242,682 | 249,793 | ||||
| Common stockholders' equity (2) (3) | 3,682,362 | 3,596,067 | ||||
| Common stock outstanding (3) | 148,421 | 156,552 | ||||
| Common stockholders' equity per share (3) | 24.81 | 22.97 | ||||
(1) Net invested assets include investments, cash investments and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.
(2) After-tax unrealized investment gains were $329 million and $219 million as of June 30, 2010 and December 31, 2009, respectively. Unrealized currency translation losses were $58 million and $40 million as of June 30, 2010 and December 31, 2009, respectively.
(3) During the first six months of 2010, the Company repurchased 8.9 million shares of its common stock at an average cost of $25.97 per share and an aggregate cost of $231 million.
| Supplemental Information | ||||||||||||||||
| (Amounts in thousands) | ||||||||||||||||
| Second Quarter | Six Months | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Reconciliation of operating income to net income: |
||||||||||||||||
| Operating income (1) | $ | 101,775 | $ | 99,930 | $ | 213,475 | $ | 217,226 | ||||||||
| Investment gains (losses), net of tax | 7,449 | 22,041 | 11,292 | (40,803 | ) | |||||||||||
|
Income (losses) from investment funds, net of tax |
983 | (24,584 | ) | 4,050 | (99,382 | ) | ||||||||||
| Net income | $ | 110,207 | $ | 97,387 | $ | 228,817 | $ | 77,041 | ||||||||
| Return on equity: | ||||||||||||||||
| Net income (2) | 12.3 | % | 12.8 | % | 12.7 | % | 5.1 | % | ||||||||
| Operating income (1) (2) | 11.3 | % | 13.1 | % | 11.9 | % | 14.3 | % | ||||||||
| Cash flow: | ||||||||||||||||
|
Cash flow from operations before cash transfers to/from trading account (3) |
$ | 129,511 | $ | 189,208 | $ | 186,670 | $ | 280,768 | ||||||||
| Cash transfers to/from trading account | - | (220,000 | ) | - | (290,000 | ) | ||||||||||
| Cash flow from (used in) operations | $ | 129,511 | $ | (30,792 | ) | $ | 186,670 | $ | (9,232 | ) | ||||||
| Other operating costs and expenses: | ||||||||||||||||
| Underwriting expenses | $ | 324,599 | $ | 308,970 | $ | 650,202 | $ | 616,926 | ||||||||
| Service expenses | 18,411 | 20,503 | 36,955 | 42,560 | ||||||||||||
| Net foreign currency losses (gains) | 1,316 | 5,427 | (3,711 | ) | 5,959 | |||||||||||
| Other costs and expenses | 26,497 | 30,614 | 55,344 | 57,416 | ||||||||||||
| Total | $ | 370,823 | $ | 365,514 | $ | 738,790 | $ | 722,861 | ||||||||
(1) Operating income is a non-GAAP financial measure defined by the Company as net income excluding income and losses from investment funds and net investment gains and losses. Management believes that excluding income and losses from investment funds and net investment gains and losses, which result primarily from changes in general economic conditions, provides a useful indicator of trends in the Company's underlying operations.
(2) Return on equity represents net income and net operating income expressed on an annualized basis as a percentage of beginning of year stockholders' equity.
(3) Cash flow from operations before cash transfers to/from trading account is a non-GAAP financial measure that excludes cash contributions to and withdrawals from the arbitrage trading account. Management believes that cash transfers to and withdrawals from the arbitrage trading account are the result of changes in investment allocations and that excluding such transfers provides a useful measure of the Company's cash flow.
| Investment Portfolio | |||||||||
| June 30, 2010 | |||||||||
| Carrying | Percent | ||||||||
| Cost | Value | of Total | |||||||
| Fixed maturity securities: | |||||||||
| United States government and government agencies | $ | 1,519,879 | $ | 1,586,226 | 11.6 | % | |||
| State and municipal | 5,451,318 | 5,694,685 | 41.5 | % | |||||
| Mortgage-backed securities | |||||||||
| Agency | 1,027,851 | 1,078,235 | 7.9 | % | |||||
| Residential - prime | 282,954 | 277,443 | 2.0 | % | |||||
| Residential - Alt A | 68,218 | 65,819 | 0.5 | % | |||||
| Commercial | 44,876 | 37,327 | 0.3 | % | |||||
| Total mortgage-backed securities | 1,423,899 | 1,458,824 | 10.7 | % | |||||
| Corporate | |||||||||
| Industrial | 820,182 | 886,960 | 6.5 | % | |||||
| Financial | 544,061 | 552,700 | 4.0 | % | |||||
| Utilities | 183,998 | 195,928 | 1.4 | % | |||||
| Asset-backed | 226,186 | 209,633 | 1.5 | % | |||||
|
Other |
125,109 | 125,896 | 1.0 | % | |||||
| Total corporate | 1,899,536 | 1,971,117 | 14.4 | % | |||||
| Foreign government and foreign government agencies | 423,381 | 436,900 | 3.2 | % | |||||
| Total fixed maturity securities | 10,718,013 | 11,147,752 | 81.4 | % | |||||
| Equity securities available for sale: | |||||||||
| Preferred stocks | |||||||||
| Financial | 110,102 | 93,994 | 0.7 | % | |||||
| Real Estate | 69,743 | 69,822 | 0.5 | % | |||||
| Utilities | 52,894 | 51,936 | 0.4 | % | |||||
| Common stock | 48,120 | 141,477 | 1.0 | % | |||||
| Total equity securities available for sale | 280,859 | 357,229 | 2.6 | % | |||||
| Arbitrage trading account | 498,368 | 498,368 | 3.6 | % | |||||
| Investment in arbitrage funds | 58,564 | 58,564 | 0.4 | % | |||||
| Investment funds | 422,255 | 421,394 | 3.1 | % | |||||
| Loans receivable | 373,605 | 373,605 | 2.7 | % | |||||
| Cash and cash equivalents (1) | 854,744 | 854,744 | 6.2 | % | |||||
| Net invested assets | $ | 13,206,408 | $ | 13,711,656 |
100.0 |
% | |||
(1) Includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.
| State and Municipal Bonds (1) | ||||||||||||||||||||||||
| June 30, 2010 | ||||||||||||||||||||||||
| % of | ||||||||||||||||||||||||
|
CA |
NY |
IL |
NJ |
FL |
NV |
Total |
Total |
|||||||||||||||||
| Pre-refunded (2) | $ | 278,065 | $ | 66,565 | $ | 88,433 | $ | 96,381 | $ | 5,934 | $ | 10,937 | $ | 546,315 | 9.6 | % | ||||||||
| Corporate-backed | 51,414 | 8,799 | - | - | 5,012 | - | 65,225 | 1.2 | % | |||||||||||||||
| Special revenue (3) | 172,157 | 287,970 | 140,932 | 85,734 | 45,731 | 3,235 | 735,759 | 12.9 | % | |||||||||||||||
|
Non-state general obligation (4) |
76,686 | 21,260 | 35,957 | - | 7,130 | 6,480 | 147,513 | 2.6 | % | |||||||||||||||
|
State general obligation |
10,521 | 61,379 | 26,023 | 68,240 | - | - | 166,163 | 2.9 | % | |||||||||||||||
| Total | $ | 588,843 | $ | 445,973 | $ | 291,345 | $ | 250,355 | $ | 63,807 | $ | 20,652 | 1,660,975 | 29.2 | % | |||||||||
| All other states | 4,033,710 | 70.8 | % | |||||||||||||||||||||
| Total state and municipal bonds | $ | 5,694,685 | 100.0 | % | ||||||||||||||||||||
(1) Overall average rating is AA.
(2) Bonds that have been pre-refunded with United States government securities.
(3) Bonds supported by a specific revenue pledge.
(4) Bonds issued by municipalities, counties and other local governments.
SOURCE: W. R. Berkley Corporation
W. R. Berkley Corporation
Karen A. Horvath, 203-629-3000
Vice President - External Financial Communications
Copyright Business Wire 2010
