[April 24, 2018] |
|
W. R. Berkley Corporation Reports First Quarter Results
W. R. Berkley Corporation (NYSE:WRB) today reported net income
for the first quarter of 2018 of $166 million, or $1.30 per share.
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Summary Financial Data
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(Amounts in thousands, except per share data)
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First Quarter
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Gross premiums written
|
|
|
|
$
|
1,979,421
|
|
|
$
|
1,936,207
|
|
Net premiums written
|
|
|
|
1,665,338
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|
|
1,646,838
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|
|
|
|
|
|
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Net income to common stockholders
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|
|
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166,396
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|
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123,447
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Net income per diluted share
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1.30
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0.96
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Return on equity (1)
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|
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12.3
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%
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9.8
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%
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(1)
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Return on equity represents net income expressed on an annualized
basis as a percentage of beginning of year stockholders' equity.
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First quarter highlights included:
-
We reported annualized pre-tax return on equity of 15.5%, which
adjusted for accounting changes for equity securities effective
January 1, 2018 would have been 22.5%.
-
The combined ratio was 94.6%, inclusive of 0.5 loss ratio points from
catastrophes and an additional 0.7 loss ratio points from
non-catastrophe weather.
-
Total catastrophe losses were $7 million.
-
Investment income increased 17.2%. Investment income attributable to
the core investment portfolio increased 11.3%(1).
-
Net realized pre-tax gains and net unrealized pre-tax gains on equity
securities of $44 million, net of performance-based compensatory costs(2).
The Company commented:
Our performance in the first quarter of 2018 was strong, resulting from
our ongoing strategy to minimize volatility in our underwriting results,
combined with robust investment income. Our 12.3% annualized ROE is a
reflection of our focus on delivering superior risk-adjusted returns to
our shareholders.
Net premiums written in the Insurance segment grew by 3.3% in the
quarter, with steady price improvement in each month. This growth was
partially offset by a decline of 20% in net premiums written in the
Reinsurance segment, where the pricing environment remained
exceptionally competitive. Similar to others, we experienced a higher
level of non-catastrophe weather-related property losses in the quarter.
However, the net impact of catastrophe losses was relatively modest, and
our accident year loss ratio excluding catastrophe losses was stable. We
remain optimistic that slow but steady improvements in pricing, along
with growth in the economy benefiting from recent tax reform, will
enable our underwriting results to improve.
Net investment income was particularly strong this quarter as investment
funds performed notably well. Investment funds have wide variations in
income from quarter to quarter, but they continue to provide us with an
enhanced overall long-term return. Recurring income from the core
portfolio grew primarily due to an increase in invested assets. We
realized gains on sales of investments of $142 million, before
consideration of the change in accounting for unrealized gains on equity
securities.
Our first quarter results have provided a solid start to the year. The
market is slowly moving in the right direction, and we anticipate that
these trends, and consequently our results, will improve further during
the remainder of the year. Changes in the tax code and accounting rules
have made it more challenging to compare our current results with prior
periods. We remain focused on creating shareholder value over the
long-term.
(1)
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Core portfolio includes fixed maturity securities, equity
securities, cash and cash equivalents, real estate and loans
receivable.
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(2)
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Net realized pre-tax gains and net unrealized pre-tax gains on
equity securities before performance-based compensatory costs were
$48 million.
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Webcast Conference Call
The Company will hold its quarterly conference call with analysts and
investors to discuss its earnings and other information on April 24,
2018, 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.
Please log on at least ten minutes early to register and download and
install any necessary software. 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 2018 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 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 2018
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.
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Consolidated Financial Summary
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(Amounts in thousands, except per share data)
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First Quarter
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2018
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2017
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Revenues:
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Net premiums written
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|
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$
|
1,665,338
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|
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$
|
1,646,838
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Change in unearned premiums
|
|
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|
(97,930
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)
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|
(76,796
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)
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Net premiums earned
|
|
|
|
1,567,408
|
|
|
1,570,042
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|
Net investment income
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174,518
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148,858
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Net realized and unrealized gains on investments (1)
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48,464
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52,348
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Revenues from non-insurance businesses
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70,171
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65,390
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Insurance service fees
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|
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30,675
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33,280
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Other income
|
|
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|
11
|
|
|
500
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Total revenues
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1,891,247
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1,870,418
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Expenses:
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|
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Losses and loss expenses
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|
963,219
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|
|
979,603
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|
Other operating costs and expenses
|
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610,439
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|
603,700
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Expenses from non-insurance businesses
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69,543
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66,019
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Interest expense
|
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|
37,056
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|
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36,799
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Total expenses
|
|
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1,680,257
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|
|
1,686,121
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Income before income taxes
|
|
|
|
210,990
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|
|
184,297
|
|
Income tax expense
|
|
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|
(43,417
|
)
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|
(59,623
|
)
|
Net income before noncontrolling interests
|
|
|
|
167,573
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|
|
124,674
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|
Noncontrolling interests
|
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|
(1,177
|
)
|
|
(1,227
|
)
|
Net income to common stockholders
|
|
|
|
$
|
166,396
|
|
|
$
|
123,447
|
|
|
|
|
|
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Net income per share:
|
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|
Basic
|
|
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|
$
|
1.32
|
|
|
$
|
1.01
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|
Diluted
|
|
|
|
$
|
1.30
|
|
|
$
|
0.96
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|
|
|
|
|
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Average shares outstanding (2):
|
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|
Basic
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|
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|
126,375
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|
|
121,893
|
Diluted
|
|
|
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128,125
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|
128,453
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(1)
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Includes net realized gains on investment sales of $142 million
reduced by a change in unrealized gains on equity securities of $94
million. The change in unrealized gains on equity securities
commenced January 1, 2018 due to our adoption of ASU 2016-01.
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(2)
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Basic shares outstanding consist of the weighted average number of
common shares outstanding during the period (including shares held
in a grantor trust). Diluted shares outstanding consist of the
weighted average number of basic and common equivalent shares
outstanding during the period.
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Business Segment Operating Results
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(Amounts in thousands, except ratios) (1)
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First Quarter
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2018
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|
2017
|
Insurance:
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|
|
|
|
|
Gross premiums written
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|
|
|
$
|
1,837,971
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|
|
$
|
1,769,405
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|
Net premiums written
|
|
|
|
1,543,052
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|
|
1,494,135
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|
Premiums earned
|
|
|
|
1,432,337
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|
|
1,413,170
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|
Pre-tax income
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|
|
|
229,028
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|
|
199,994
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|
Loss ratio
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|
|
|
60.6
|
%
|
|
60.9
|
%
|
Expense ratio
|
|
|
|
32.8
|
%
|
|
32.9
|
%
|
GAAP combined ratio
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|
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|
93.4
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%
|
|
93.8
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%
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|
|
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|
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Reinsurance:
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|
|
|
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Gross premiums written
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|
|
$
|
141,450
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|
|
$
|
166,802
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|
Net premiums written
|
|
|
|
122,286
|
|
|
152,703
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|
Premiums earned
|
|
|
|
135,071
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|
|
156,872
|
|
Pre-tax income
|
|
|
|
14,592
|
|
|
4,594
|
|
Loss ratio
|
|
|
|
69.9
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%
|
|
75.9
|
%
|
Expense ratio
|
|
|
|
37.5
|
%
|
|
37.0
|
%
|
GAAP combined ratio
|
|
|
|
107.4
|
%
|
|
112.9
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%
|
|
|
|
|
|
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|
Corporate and Eliminations:
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|
|
|
|
|
|
Net realized and unrealized gains on investments
|
|
|
|
$
|
48,464
|
|
|
$
|
52,348
|
|
Interest expense
|
|
|
|
(37,056
|
)
|
|
(36,799
|
)
|
Other revenues and expenses
|
|
|
|
(44,038
|
)
|
|
(35,840
|
)
|
Pre-tax loss
|
|
|
|
(32,630
|
)
|
|
(20,291
|
)
|
|
|
|
|
|
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|
Consolidated:
|
|
|
|
|
|
|
Gross premiums written
|
|
|
|
$
|
1,979,421
|
|
|
$
|
1,936,207
|
|
Net premiums written
|
|
|
|
1,665,338
|
|
|
1,646,838
|
|
Premiums earned
|
|
|
|
1,567,408
|
|
|
1,570,042
|
|
Pre-tax income
|
|
|
|
210,990
|
|
|
184,297
|
|
Loss ratio
|
|
|
|
61.4
|
%
|
|
62.4
|
%
|
Expense ratio
|
|
|
|
33.2
|
%
|
|
33.3
|
%
|
GAAP combined ratio
|
|
|
|
94.6
|
%
|
|
95.7
|
%
|
|
|
|
|
|
|
|
|
|
(1)
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|
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.
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|
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|
Supplemental Information
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(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
2018
|
|
2017
|
Net premiums written:
|
|
|
|
|
|
|
Other liability
|
|
|
|
$
|
468,840
|
|
|
$
|
436,446
|
Workers' compensation
|
|
|
|
419,258
|
|
|
426,557
|
Short-tail lines (1)
|
|
|
|
291,118
|
|
|
287,078
|
Commercial automobile
|
|
|
|
214,645
|
|
|
204,200
|
Professional liability
|
|
|
|
149,191
|
|
|
139,854
|
Total Insurance
|
|
|
|
1,543,052
|
|
|
1,494,135
|
Casualty reinsurance
|
|
|
|
82,335
|
|
|
93,541
|
Property reinsurance
|
|
|
|
39,951
|
|
|
59,162
|
Total Reinsurance
|
|
|
|
122,286
|
|
|
152,703
|
Total
|
|
|
|
$
|
1,665,338
|
|
|
$
|
1,646,838
|
|
|
|
|
|
|
|
Losses from catastrophes:
|
|
|
|
|
|
|
Insurance
|
|
|
|
$
|
7,131
|
|
|
$
|
14,304
|
Reinsurance
|
|
|
|
257
|
|
|
194
|
Total
|
|
|
|
$
|
7,388
|
|
|
$
|
14,498
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
|
Core portfolio (2)
|
|
|
|
$
|
128,973
|
|
|
$
|
115,849
|
Investment funds
|
|
|
|
40,354
|
|
|
26,649
|
Arbitrage trading account
|
|
|
|
5,191
|
|
|
6,360
|
Total
|
|
|
|
$
|
174,518
|
|
|
$
|
148,858
|
|
|
|
|
|
|
|
Net realized and unrealized gains on investments:
|
|
|
|
|
|
|
Net realized gains on investment sales
|
|
|
|
$
|
142,669
|
|
|
$
|
52,348
|
Change in unrealized gains on equity securities (3)
|
|
|
|
(94,205
|
)
|
|
-
|
Total
|
|
|
|
$
|
48,464
|
|
|
$
|
52,348
|
|
|
|
|
|
|
|
Other operating costs and expenses:
|
|
|
|
|
|
|
Policy acquisition and insurance operating expenses
|
|
|
|
$
|
520,231
|
|
|
$
|
523,409
|
Insurance service expenses
|
|
|
|
32,712
|
|
|
29,933
|
Net foreign currency losses
|
|
|
|
13,484
|
|
|
5,508
|
Other costs and expenses
|
|
|
|
44,012
|
|
|
44,850
|
Total
|
|
|
|
$
|
610,439
|
|
|
$
|
603,700
|
|
|
|
|
|
|
|
Cash flow from operations
|
|
|
|
$
|
(20,035
|
)
|
|
$
|
75,472
|
|
|
|
|
|
|
|
|
|
|
(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)
|
|
The change in unrealized gains on equity securities commenced
January 1, 2018 due to our adoption of ASU 2016-01.
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Information
|
(Amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Net invested assets (1)
|
|
|
|
$
|
18,532,423
|
|
|
$
|
18,508,646
|
Total assets
|
|
|
|
24,587,832
|
|
|
24,299,917
|
Reserves for losses and loss expenses
|
|
|
|
11,784,895
|
|
|
11,670,408
|
Senior notes and other debt
|
|
|
|
1,782,139
|
|
|
1,769,052
|
Subordinated debentures
|
|
|
|
897,426
|
|
|
728,218
|
Common stockholders' equity (2)
|
|
|
|
5,451,776
|
|
|
5,411,344
|
Common stock outstanding (3)
|
|
|
|
121,544
|
|
|
121,515
|
Book value per share (4)
|
|
|
|
44.85
|
|
|
44.53
|
Tangible book value per share (4)
|
|
|
|
42.84
|
|
|
42.51
|
|
|
|
|
|
|
|
|
(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)
|
|
As of March 31, 2018, reflected in common stockholders' equity are
after-tax unrealized investment gains of $35 million and unrealized
currency translation losses of $294 million. As of December 31,
2017, after-tax unrealized investment gains were $375 million and
unrealized currency translation losses were $307 million. The
decrease in unrealized investment gains in the first quarter 2018
was primarily attributable to the change in accounting treatment of
equity securities.
|
|
(3)
|
|
During the three months ended March 31, 2018, the Company
repurchased 101,000 shares of its common stock for $6.8 million. The
number of shares of common stock outstanding excludes shares held in
a grantor trust.
|
|
(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, 2018
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
Percent of Total
|
Fixed maturity securities:
|
|
|
|
|
|
|
United States government and government agencies
|
|
|
|
$
|
479,909
|
|
2.6
|
%
|
State and municipal:
|
|
|
|
|
|
|
Special revenue
|
|
|
|
2,676,724
|
|
14.4
|
%
|
Pre-refunded
|
|
|
|
467,758
|
|
2.5
|
%
|
State general obligation
|
|
|
|
450,878
|
|
2.4
|
%
|
Local general obligation
|
|
|
|
408,745
|
|
2.2
|
%
|
Corporate backed
|
|
|
|
373,878
|
|
2.1
|
%
|
Total state and municipal
|
|
|
|
4,377,983
|
|
23.6
|
%
|
Mortgage-backed securities:
|
|
|
|
|
|
|
Agency
|
|
|
|
827,309
|
|
4.4
|
%
|
Commercial
|
|
|
|
335,284
|
|
1.8
|
%
|
Residential - Prime
|
|
|
|
218,183
|
|
1.2
|
%
|
Residential - Alt A
|
|
|
|
18,993
|
|
0.1
|
%
|
Total mortgage-backed securities
|
|
|
|
1,399,769
|
|
7.6
|
%
|
Asset-backed securities
|
|
|
|
2,101,691
|
|
11.3
|
%
|
Corporate:
|
|
|
|
|
|
|
Industrial
|
|
|
|
2,374,121
|
|
12.8
|
%
|
Financial
|
|
|
|
1,418,598
|
|
7.7
|
%
|
Utilities
|
|
|
|
274,532
|
|
1.5
|
%
|
Other
|
|
|
|
43,450
|
|
0.2
|
%
|
Total corporate
|
|
|
|
4,110,701
|
|
22.2
|
%
|
Foreign government
|
|
|
|
873,079
|
|
4.7
|
%
|
Total fixed maturity securities (1)
|
|
|
|
13,343,132
|
|
71.9
|
%
|
Equity securities available for sale:
|
|
|
|
|
|
|
Common stocks
|
|
|
|
320,435
|
|
1.7
|
%
|
Preferred stocks
|
|
|
|
175,599
|
|
1.0
|
%
|
Total equity securities available for sale
|
|
|
|
496,034
|
|
2.7
|
%
|
Real estate
|
|
|
|
1,833,337
|
|
9.9
|
%
|
Investment funds (2)
|
|
|
|
1,159,792
|
|
6.3
|
%
|
Cash and cash equivalents (3)
|
|
|
|
879,367
|
|
4.8
|
%
|
Arbitrage trading account
|
|
|
|
744,859
|
|
4.0
|
%
|
Loans receivable
|
|
|
|
75,902
|
|
0.4
|
%
|
Net invested assets
|
|
|
|
$
|
18,532,423
|
|
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 are net of related liabilities of $1.3 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.
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20180424006504/en/
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