Berkley | W. R. Berkley Corporation Reports Fourth Quarter and Full Year Results

W. R. Berkley Corporation Reports Fourth Quarter and Full Year Results

3 Febrero, 2015

Fourth Quarter Net Income per Share of $0.83, Full Year Return on Equity of 15%

GREENWICH, Conn.–(BUSINESS WIRE)– W. R. Berkley Corporation (NYSE: WRB) today reported net income of $111 million for the fourth quarter of 2014 and $649 million for the full year.

Summary Financial Data
(Amounts in thousands, except per share data)

Fourth Quarter Full Year
2014 2013 2014 2013
Gross premiums written $ 1,705,814 $ 1,594,428 $ 7,062,838 $ 6,511,091
Net premiums written 1,455,909 1,357,684 5,996,947 5,500,173
Net income 110,711 130,379 648,884 499,925
Net income per diluted share 0.83 0.93 4.86 3.55
Operating income (1) 97,274 119,243 483,230 430,168
Operating income per diluted share 0.73 0.85 3.62 3.06
Return on equity (2) 10.2 % 12.1 % 15.0 % 11.6 %

(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.

Highlights for full year and the fourth quarter included:

  • Net premiums written grew 9.0% for the full year and 7.2% for the fourth quarter.
  • GAAP combined ratio improved to 93.8% for the full year and 93.3% for the fourth quarter.
  • Expense ratio improved to 33.0% for the full year and 32.5% for the fourth quarter.
  • Net investment gains were $255 million for the full year and $21 million for the fourth quarter.
  • Return on investment funds was 12.7% for the full year and -1.3% for the fourth quarter.
  • Return on equity was 15.0% for the full year and 10.2% for the fourth quarter.
  • The Company paid a $1.00 per share special dividend in December 2014.
  • Book value per share increased 13.5% for the year, inclusive of the special dividend.

Commenting on the Company’s performance, William R. Berkley, chairman and chief executive officer, said: “We were pleased to have achieved our targeted return on equity of 15% for the full year, as strong underwriting performance and expense management resulted in an improved combined ratio. While our core investment income remained under pressure, we were able to find investment opportunities which, in part, offset declining yields. Our investment funds earned 12.7% for 2014, although the fourth quarter was disappointing. The overall portfolio generated over $255 million of realized gains for the year. We expect both investment funds and realized gains to create substantial income going forward, despite their quarterly volatility.

“Our decentralized structure and long history of strategic cycle management have enabled us to create significant value for our shareholders by delivering superior returns over an extended period of time. As we move into 2015, our focus remains on growing the best performing areas of our business with improved underwriting results, overall investment returns, and capital management. We are optimistic that 2015 will be an excellent year,” 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, February 3, 2015, 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 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 2015 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, 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”); 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 2015 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)

Fourth Quarter Full Year
2014 2013 2014 2013
Revenues:
Net premiums written $ 1,455,909 $ 1,357,684 $ 5,996,947 $ 5,500,173
Change in unearned premiums 46,448 25,357 (252,529 ) (273,636 )
Net premiums earned 1,502,357 1,383,041 5,744,418 5,226,537
Investment income 114,220 138,991 600,885 544,291
Insurance service fees 35,473 27,004 117,443 107,513
Net investment gains 20,672 30,690 254,852 127,586
Change in investment valuation allowance, net of other than temporary impairments (6,042 ) (6,042 )
Revenues from wholly-owned investees 111,329 122,723 410,022 407,623
Other income 377 272 1,308 1,026
Total revenues 1,784,428 1,696,679 7,128,928 6,408,534
Expenses:
Losses and loss expenses 913,571 848,599 3,490,567 3,197,024
Other operating costs and expenses 563,837 520,698 2,157,456 2,000,684
Expenses from wholly-owned investees 109,712 115,146 400,535 388,761
Interest expense 34,604 30,510 128,174 123,177
Total expenses 1,621,724 1,514,953 6,176,732 5,709,646
Income before income taxes 162,704 181,726 952,196 698,888
Income tax expense (51,753 ) (46,338 ) (302,593 ) (193,587 )
Net income before noncontrolling interests 110,951 135,388 649,603 505,301
Noncontrolling interests (240 ) (5,009 ) (719 ) (5,376 )
Net income to common stockholders $ 110,711 $ 130,379 $ 648,884 $ 499,925
Net income per share:
Basic $ 0.87 $ 0.97 $ 5.07 $ 3.69
Diluted $ 0.83 $ 0.93 $ 4.86 $ 3.55
Average shares outstanding:
Basic 126,830 134,054 127,874 135,305
Diluted 132,879 139,665 133,652 140,743

Business Segment Operating Results
(Amounts in thousands, except ratios) (1)

Fourth Quarter Full Year
2014 2013 2014 2013
Insurance-Domestic:
Gross premiums written $ 1,295,927 $ 1,182,977 $ 5,383,679 $ 4,803,753
Net premiums written 1,084,784 985,958 4,517,587 3,994,387
Premiums earned 1,133,127 1,013,047 4,271,933 3,782,416
Pre-tax income 188,910 182,879 796,309 648,740
Loss ratio 60.2 % 60.5 % 60.2 % 61.3 %
Expense ratio 30.4 % 32.3 % 31.6 % 32.7 %
GAAP combined ratio 90.6 % 92.8 % 91.8 % 94.0 %
Insurance-International:
Gross premiums written $ 236,632 $ 211,906 $ 984,271 $ 898,776
Net premiums written 208,051 183,544 828,076 756,185
Premiums earned 209,654 182,786 802,375 723,151
Pre-tax income (loss) (12,081 ) 5,828 29,779 56,922
Loss ratio 68.2 % 61.4 % 62.8 % 59.4 %
Expense ratio 40.2 % 41.0 % 40.0 % 39.0 %
GAAP combined ratio 108.4 % 102.4 % 102.8 % 98.4 %
Reinsurance-Global:
Gross premiums written $ 173,255 $ 199,545 $ 694,888 $ 808,562
Net premiums written 163,074 188,182 651,284 749,601
Premiums earned 159,576 187,208 670,110 720,970
Pre-tax income 28,732 23,173 115,677 110,425
Loss ratio 55.2 % 66.1 % 62.0 % 62.2 %
Expense ratio 37.3 % 34.1 % 34.0 % 34.8 %
GAAP combined ratio 92.5 % 100.2 % 96.0 % 97.0 %
Corporate and Eliminations:
Net realized investment gains $ 20,672 $ 24,648 $ 254,852 $ 121,544
Interest expense (34,604 ) (30,510 ) (128,174 ) (123,177 )
Other revenues and expenses (28,925 ) (24,292 ) (116,247 ) (115,566 )
Pre-tax gain (loss) (42,857 ) (30,154 ) 10,431 (117,199 )
Consolidated:
Gross premiums written $ 1,705,814 $ 1,594,428 $ 7,062,838 $ 6,511,091
Net premiums written 1,455,909 1,357,684 5,996,947 5,500,173
Premiums earned 1,502,357 1,383,041 5,744,418 5,226,537
Pre-tax income 162,704 181,726 952,196 698,888
Loss ratio 60.8 % 61.4 % 60.8 % 61.2 %
Expense ratio 32.5 % 33.7 % 33.0 % 33.9 %
GAAP combined ratio 93.3 % 95.1 % 93.8 % 95.1 %

(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.

Supplemental Information
(Amounts in thousands)

Fourth Quarter Full Year
2014 2013 2014 2013
Insurance-Domestic net premiums written:
Other liability $ 378,009 $ 348,817 $ 1,536,105 $ 1,373,653
Workers’ compensation 263,844 245,164 1,193,493 1,041,118
Short-tail lines (1) 217,915 198,216 913,258 800,082
Commercial automobile 141,293 119,824 547,128 502,535
Professional liability 83,723 73,937 327,603 276,999
Total $ 1,084,784 $ 985,958 $ 4,517,587 $ 3,994,387
Losses from catastrophes:
Insurance-Domestic $ 6,392 $ 1,387 $ 64,937 $ 37,346
Insurance-International 11,495 4,557 20,062 11,438
Reinsurance-Global 528 7,102 2,076 16,214
Total $ 18,415 $ 13,046 $ 87,075 $ 64,998
Investment income (loss):
Core portfolio $ 117,867 $ 116,527 $ 469,300 $ 476,579
Investment funds (3,647 ) 22,464 131,585 67,712
Total $ 114,220 $ 138,991 $ 600,885 $ 544,291
Other operating costs and expenses:
Underwriting expenses $ 488,920 $ 465,933 $ 1,896,528 $ 1,771,128
Service expenses 33,597 22,157 102,727 88,662
Debt extinguishment costs 6,709
Net foreign currency (gain) loss 991 (3,732 ) (27 ) (10,120 )
Other costs and expenses 40,329 36,340 158,228 144,305
Total $ 563,837 $ 520,698 $ 2,157,456 $ 2,000,684
Cash flow from operations before reinsurance commutation payments $ 116,811 $ 254,640 $ 762,597 $ 881,335
Cash flow from operations $ 78,297 $ 193,103 $ 724,083 $ 819,798
Reconciliation of operating and net income:
Operating income (2) $ 97,274 $ 119,243 $ 483,230 $ 430,168
After-tax investment gains 13,437 11,136 165,654 74,118
After-tax debt extinguishment costs (4,361 )
Net income $ 110,711 $ 130,379 $ 648,884 $ 499,925

(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) 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 investment gains and after-tax 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)

December 31, 2014 December 31, 2013
Net invested assets (1) $ 16,508,087 $ 15,540,488
Total assets 21,716,691 20,551,796
Reserves for losses and loss expenses 10,369,701 10,080,941
Senior notes and other debt 2,115,527 1,692,442
Subordinated debentures 340,060 339,800
Common stockholders’ equity (2) 4,589,945 4,336,035
Common stock outstanding (3) 126,749 132,233
Book value per share (4) 36.21 32.79
Tangible book value per share (4)

34.72

31.74

(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 $306 million and $257 million as of December 31, 2014 and December 31, 2013, respectively. Unrealized currency translation losses were $123 million and $61 million as of December 31, 2014 and December 31, 2013, respectively.

(3) During the fourth quarter of 2014, the Company repurchased 169,465 shares of its common stock for $8.6 million. During the full year 2014, the Company repurchased 5,816,468 shares of its common stock for $238.9 million.

(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
December 31, 2014
(Amounts in thousands)

Carrying Value Percent of Total
Fixed maturity securities:
United States government and government agencies $ 803,388 4.9 %
State and municipal:
Special revenue 2,395,424 14.5 %
State general obligation 741,429 4.5 %
Pre-refunded 541,183 3.3 %
Corporate backed 431,355 2.6 %
Local general obligation 326,506 2.0 %
Total state and municipal 4,435,897 26.9 %
Mortgage-backed securities:
Agency 1,019,165 6.2 %
Residential – Prime 151,367 0.9 %
Commercial 76,037 0.5 %
Residential — Alt A 72,345 0.4 %
Total mortgage-backed securities 1,318,914 8.0 %
Corporate:
Asset-backed 2,025,927 12.3 %
Industrial 1,718,799 10.4 %
Financial 1,176,206 7.1 %
Utilities 196,542 1.2 %
Other 87,661 0.5 %
Total corporate 5,205,135 31.5 %
Foreign government 941,826 5.7 %
Total fixed maturity securities (1) 12,705,160 77.0 %
Equity securities available for sale:
Common stocks 76,346 0.5 %
Preferred stocks 94,645 0.5 %
Total equity securities available for sale 170,991 1.0 %
Investment funds (2) 1,207,960 7.3 %
Cash and cash equivalents (3) 919,704 5.6 %
Real estate 731,612 4.4 %
Arbitrage trading account 450,648 2.7 %
Loans receivable 322,012 2.0 %
Net invested assets $ 16,508,087 100.0 %

(1) Total fixed maturity securities had an average rating of AA- and an average duration of 3.2 years.

(2) Investment funds are net of related liabilities of $3.4 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
December 31, 2014
(Amounts in thousands)

Carrying Value
Australia $ 234,645
United Kingdom 204,160
Canada 155,368
Argentina 129,572
Brazil 57,925
Germany 57,599
Supranational (1) 48,710
Norway 43,784
Singapore 6,507
Uruguay 3,556
Total $ 941,826

(1) Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development.

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

Source: W. R. Berkley Corporation