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W. R. Berkley Corporation Reports 2010 Results

Net Income Up 45% in 2010

GREENWICH, Conn.--(BUSINESS WIRE)-- W. R. Berkley Corporation (NYSE: WRB) today reported net income for 2010 of $449 million, or $2.90 per share, compared with $309 million, or $1.86 per share, for 2009. Operating income for 2010 was $418 million, or $2.69 per share, compared with $447 million, or $2.68 per share, for 2009. Net income for the fourth quarter of 2010 was $127 million, or 85 cents per share, compared with $134 million, or 81 cents per share, for the fourth quarter of 2009. Operating income for the fourth quarter of 2010 was $102 million, or 68 cents per share, compared with $118 million, or 71 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)
       
Fourth Quarter Full Year
2010 2009 2010 2009
 
Gross premiums written $ 1,055,093 $ 953,880 $ 4,416,077 $ 4,253,439
Net premiums written 918,916 828,382 3,850,926 3,730,095
 
Net income 126,851 134,294 449,287 309,057
Net income per diluted share 0.85 0.81 2.90 1.86
 
Operating income 101,671 117,768 417,725 446,740
Operating income per diluted share 0.68 0.71 2.69 2.68
 

Fourth quarter highlights included:

Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "The Company once again delivered good results in the fourth quarter in spite of the competitive marketplace, with a return on equity for the quarter of 14%. Over the past four years, we have repurchased over 30% of our common stock while maintaining substantial financial flexibility.

"Our net premiums written grew by eleven percent in the quarter. This growth came mainly from our business written outside the U.S., with modest domestic growth driven by our newer units. Overall, rates are relatively flat. We have been able to increase rates in some of our units, and with the slowly improving economy, we have seen a modest increase in our exposure base.

"Investment income was in line with our expectations. During the quarter, we purchased more dividend paying common stocks and took advantage of short-term market inefficiencies that offered us investment opportunities with favorable returns. Our asset quality remains outstanding and our portfolio had over $516 million in unrealized gains as of December 31, 2010. We continue to maintain a healthy level of liquidity to allow us to be opportunistic in the future.

"Current premium rates are at unsustainably low levels. Existing inadequate pricing combined with declining investment returns will result in an overall lack of industry profitability.

"Whether the cycle turns this quarter or next, our strategy remains unchanged: find outstanding people; provide them with the platform and resources they require to build a business; and select places in the domestic and global marketplace that offer the best opportunities. It is W. R. Berkley's long-term commitment and stability, along with these outstanding people, that attracts agents and brokers to be our underwriting partners.

"While 2011 will undoubtedly continue to be challenging for the industry, the Company is well-positioned to navigate the current environment and to capitalize on the hard market when it returns," 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 Wednesday, February 2, 2011 at 5:30 p.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 2011 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 2011 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)
                 
Fourth Quarter Full Year
2010 2009 2010 2009
Revenues:
Net premiums written $ 918,916 $ 828,382 $ 3,850,926 $ 3,730,095
Change in unearned premiums   70,680     103,947     (15,344 )   75,754  
Net premiums earned

 

989,596 932,329 3,835,582 3,805,849
Net investment income 133,477 141,181 538,698 552,561
Income (losses) from investment funds 4,613 4,999 (8,173 ) (173,553 )
Insurance service fees 21,355 19,366 85,405 93,245
Net investment gains (losses):
Net realized gains on
investment sales 39,431 32,243 65,786 104,453
Other-than-temporary impairments (5,500 ) (12,279 ) (9,205 ) (151,727 )
Less other-than-temporary impairments
recognized in other comprehensive income   -     457     -     8,866  
Net investment gains (losses)   33,931     20,421     56,581     (38,408 )
Revenues from wholly-owned investees 47,966 57,301 214,454 189,347
Other income   404     553     1,522     2,137  
Total revenues   1,231,342     1,176,150     4,724,069     4,431,178  
 
Expenses:
Losses and loss expenses 591,512 543,031 2,309,867 2,336,707
Other operating costs and expenses 388,355 364,855 1,496,362 1,440,838
Expenses from wholly-owned investees 47,695 56,820 207,566 183,414
Interest expense   28,189     25,953     106,969     87,989  
Total expenses   1,055,751     990,659     4,120,764     4,048,948  
 
Income before income taxes

 

175,591 185,491 603,305 382,230
Income tax expense   (48,699 )   (51,347 )   (153,739 )   (73,150 )
Net income before
noncontrolling interests

 

126,892 134,144 449,566 309,080
Noncontrolling interests   (41 )   150     (279 )   (23 )
Net income to common stockholders $ 126,851   $ 134,294   $ 449,287   $ 309,057  
 
Net income per share:
Basic $ 0.88 $ 0.84 $ 3.02 $ 1.93
Diluted $ 0.85 $ 0.81 $ 2.90 $ 1.86
 
Average shares outstanding:
Basic 143,400 159,873 148,752 160,357
Diluted 150,033 166,193 155,081 166,574
 
 
Operating Results by Segment
(Amounts in thousands, except ratios (1))
                   
Fourth Quarter Full Year
2010 2009 2010 2009
Specialty:
Gross premiums written $ 394,640 $ 352,050 $ 1,525,856 $ 1,464,205
Net premiums written 336,643 298,699 1,311,831 1,260,451
Premiums earned 332,668 323,730 1,288,373 1,354,355
Pre-tax income 83,809 71,031 296,645 220,906
Loss ratio 56.3 % 61.2 % 58.3 % 61.9 %
Expense ratio 32.7 % 32.4 % 32.7 % 31.1 %
GAAP combined ratio 89.0 % 93.6 % 91.0 % 93.0 %
 
Regional:(2)
Gross premiums written $ 270,774 $ 278,110 $ 1,160,136 $ 1,229,786
Net premiums written 241,656 244,238 1,044,347 1,081,100
Premiums earned 268,535 272,983 1,066,922 1,116,871
Pre-tax income 26,938 45,749 117,353 106,078
Loss ratio 60.9 % 55.3 % 60.7 % 61.4 %
Expense ratio 36.8 % 36.4 % 35.9 % 34.2 %
GAAP combined ratio 97.7 % 91.7 % 96.6 % 95.6 %
 
Alternative Markets:
Gross premiums written $ 130,199 $ 110,422 $ 702,717 $ 664,749
Net premiums written 102,480 95,222 582,045 589,637
Premiums earned 149,349 145,024 608,191 597,932
Pre-tax income 40,044 52,767 178,607 162,875
Loss ratio 72.7 % 61.0 % 67.6 % 63.4 %
Expense ratio 24.9 % 27.0 % 25.6 % 25.8 %
GAAP combined ratio 97.6 % 88.0 % 93.2 % 89.2 %
 
Reinsurance:(2)
Gross premiums written $ 101,497 $ 100,116 $ 425,297 $ 455,968
Net premiums written 96,407 92,574 401,239 423,425
Premiums earned 111,040 104,586 419,356 411,511
Pre-tax income 38,837 35,870 129,922 86,358
Loss ratio 50.3 % 54.3 % 52.5 % 57.9 %
Expense ratio 39.7 % 38.5 % 41.0 % 39.1 %
GAAP combined ratio 90.0 % 92.8 % 93.5 % 97.0 %
 
International:(2)
Gross premiums written $ 157,983 $ 113,182 $ 602,071 $ 438,731
Net premiums written 141,730 97,649 511,464 375,482
Premiums earned 128,004 86,006 452,740 325,180
Pre-tax income 1,503 6,335 21,174 22,719
Loss ratio 59.4 % 56.6 % 61.8 % 59.9 %
Expense ratio 39.1 % 43.3 % 40.4 % 40.2 %
GAAP combined ratio 98.5 % 99.9 % 102.2 % 100.1 %
 
 
Operating Results by Segment (Continued)
(Amounts in thousands, except ratios (1))
       
Fourth Quarter Full Year
2010 2009 2010 2009
Corporate and Eliminations:
Net investment gains (losses) $ 33,931 $ 20,421 $ 56,581 $ (38,408 )
Interest expense (28,189 ) (25,953 ) (106,969 ) (87,989 )
Other revenues and expenses (3) (21,282 ) (20,729 ) (90,008 ) (90,309 )
Pre-tax loss (15,540 ) (26,261 ) (140,396 ) (216,706 )
 
Consolidated:
Gross premiums written $ 1,055,093 $ 953,880 $ 4,416,077 $ 4,253,439
Net premiums written 918,916 828,382 3,850,926 3,730,095
Premiums earned 989,596 932,329 3,835,582 3,805,849
Pre-tax income 175,591 185,491 603,305 382,230
Loss ratio 59.8 % 58.2 % 60.2 % 61.4 %
Expense ratio 34.3 % 34.4 % 34.3 % 32.8 %
GAAP combined ratio 94.1 % 92.6 % 94.5 % 94.2 %
   
(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 fourth quarter of 2010 and 2009, catastrophe and weather-related losses were $6 million and $4 million, respectively. For the full year of 2010 and 2009, catastrophe and weather-related losses were $81 million and $63 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)
         
December 31,
2010 2009
 
Net invested assets (1) $ 13,918,768 $ 13,726,213
Total assets 17,528,547 17,328,596
Reserves for losses and loss expenses 9,016,549 9,071,671
Senior notes and other debt 1,500,419 1,345,481
Junior subordinated debentures 242,784 249,793
Common stockholders' equity (2) (3) 3,702,876 3,596,067
Common stock outstanding (3) 141,010 156,552
Common stockholders' equity per share (3) 26.26 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 $335 million and $219 million as of December 31, 2010 and 2009, respectively. Unrealized currency translation losses were $42 million and $40 million as of December 31, 2010 and 2009, respectively.
 
(3) During 2010, the Company repurchased 17 million shares of its common stock at an average cost of $26.40 per share and an aggregate cost of $449 million.
 
 
Supplemental Information
(Amounts in thousands)
                   
Fourth Quarter Full Year
2010 2009 2010 2009
 
Reconciliation of operating income
to net income:
Operating income (1) $ 101,671 $ 117,768 $ 417,725 $ 446,740
Investment gains (losses), net of tax 22,218 13,276 36,874 (24,874 )
Income (losses) from investment funds,
net of tax   2,962     3,250     (5,312 )   (112,809 )
Net income $ 126,851   $ 134,294   $ 449,287   $ 309,057  
 
Return on equity:
Net income (2) 14.1 % 17.6 % 12.5 % 10.1 %
Operating income (1) (2) 11.3 % 15.5 % 11.6 % 14.7 %
 
Cash flow:
Cash flow from operations before cash
transfers to trading account (3) (4) $ 60,600 $ 150,757 $ 451,317 $ 699,395
Cash transfers to trading account   -     -     -     (383,341 )
Cash flow from operations $ 60,600   $ 150,757   $ 451,317   $ 316,054  
 
Other operating costs and expenses:
Underwriting expenses $ 338,941 $ 320,919 $ 1,314,483 $ 1,248,463
Service expenses 17,930 16,001 72,372 78,331
Net foreign currency losses 7,753 2,885 2,126 4,213
Other costs and expenses   23,731     25,050     107,381     109,831  
Total $ 388,355   $ 364,855   $ 1,496,362   $ 1,440,838  
   
(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.
 
(4) Cash flow from operations before transfers to trading account for the fourth quarter of 2010 is net of cash payments of $78,800 related to two reinsurance commutations. Cash flow from operations before transfers to trading account and these reinsurance payments was $139,400.
 
 
Investment Portfolio
December 31, 2010
(Amounts in thousands)
         
Carrying Percent
Value of Total
Fixed maturity securities:
United States government and government agencies $ 1,347,875 9.7 %
 
State and municipal
Special revenue 2,204,898 15.8 %

State general obligation

1,067,012

7.7

%

Local general obligation

424,188

3.0

%

Pre-refunded 1,468,700 10.6 %
Corporate backed   368,646     2.7 %

Total state and municipal (2)

  5,533,444     39.8 %
 
Mortgage-backed securities
Agency 1,058,216 7.6 %
Residential - Prime 265,381 1.9 %
Residential - Alt A 73,581 0.5 %
Commercial   53,670     0.4 %

Total mortgage-backed securities

  1,450,848     10.4 %
 
Corporate
Industrial 1,112,855 8.0 %
Financial 671,298 4.8 %
Utilities 187,204 1.3 %
Asset-backed 285,117 2.1 %
Other   128,783     0.9 %
Total corporate   2,385,257     17.1 %
 

Foreign government and foreign government agencies

  491,730     3.5 %

Total fixed maturity securities (2)

  11,209,154     80.5 %
 
Equity securities available for sale:
Preferred stocks
Financial 101,900 0.7 %
Real estate 89,446 0.6 %
Utilities 53,651 0.4 %
Common stocks   316,056     2.3 %
Total equity securities available for sale   561,053     4.0 %
 
Arbitrage trading account 359,192 2.6 %
Investment in arbitrage funds 60,660 0.4 %
Investment funds 451,751 3.3 %
Loans receivable 353,583 2.6 %
Cash and cash equivalents (1) 923,375 6.6 %
       
Net invested assets $ 13,918,768    

100.0

%
   
(1) Includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.
 

(2)

For state and municipal securities, the average rating was AA and the average duration was 4.1 years. For total fixed maturity securities, the average rating was AA and the average duration was 3.6 years.

         
 
State and Municipal Bonds
December 31, 2010
(Amounts in thousands)
 
Carrying Percent
Value of Total
General obligation (1)
Washington $ 145,283 2.6 %
New Jersey 119,786 2.2 %
Virginia 118,205 2.1 %
Ohio 116,902 2.1 %
New York 106,738 1.9 %
Pennsylvania 76,199 1.4 %
North Carolina 75,858 1.4 %
Texas 72,929 1.3 %
Maryland 62,603 1.1 %
Oregon 63,372 1.1 %
Massachusetts 62,108 1.1 %
California 61,961 1.1 %
Tennessee 48,009 0.9 %
Minnesota 34,934 0.6 %
Illinois 32,901 0.6 %
Georgia 31,335 0.6 %
Oklahoma 26,906 0.5 %
Wisconsin 26,615 0.5 %
Others under $25 million   208,556     3.8 %
Total (1) 1,491,200 26.9 %
 
Special revenue (2) 2,204,898 39.9 %
Pre-refunded (3) 1,468,700 26.5 %
Corporate backed 368,646 6.7 %
       
Total $ 5,533,444     100.0 %
   
(1) Includes $1.067 billion of general obligation bonds issued by states and $0.424 billion of general obligation bonds issued by municipalities, counties and other local governments.
 
(2) Bonds supported by a specific revenue pledge.
 
(3) Bonds that have been pre-refunded with United States government securities.
 

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

Source: W. R. Berkley Corporation

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