W. R. Berkley Corporation Reports Fourth Quarter Results

GREENWICH, Conn.--(BUSINESS WIRE)--

W. R. Berkley Corporation WRB today reported net income for the fourth quarter of 2013 of $130 million, or 93 cents per share.

Summary Financial Data (Amounts in thousands, except per share data)
		Fourth Quarter								Full Year
		2013				2012				2013				2012
Gross premiums written		$	1,594,428			$	1,452,709			$	6,511,091			$	5,779,879
Net premiums written		1,357,684				1,228,135				5,500,173				4,898,539
Net income		130,379				165,489				499,925				510,592
Net income per diluted share		0.93				1.17				3.55				3.56
Operating income (1)		119,243				90,430				430,168				373,790
Operating income per diluted share		0.85				0.64				3.06				2.61
Return on equity (2)		12.1		%		16.7		%		11.6		%		12.9		%

(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.

Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We were pleased with our fourth quarter results. Net written premiums were up 11% and the Company's combined ratio improved. Price increases are outpacing loss cost trends, and although the fourth quarter rate increases were not as strong as the full year, margins have expanded further. We are beginning to make headway on our expense ratio, and anticipate additional improvement in both our overall underwriting results and our combined ratio in 2014. We remain focused on raising prices in order to maintain current margins and regain targeted profitability in some currently lagging lines of business. The challenge that our industry faces is the threat of inflation, which impacts pricing as well as adequate reserving.

"We again reported positive reserve development, and anticipate this will continue if inflation remains below our expectation. Our paid loss ratio on our ongoing business is approximately 52%, which demonstrates a positive trend for the ultimate loss ratio.

"Our investment performance was good while maintaining a high level of liquidity. The year-end portfolio duration was 3.3 years and our current investment strategy is likely to result in no material change in duration in 2014. We believe this strategy creates long term value for our shareholders by reducing risk, despite the fact that investment income declines in the short term. The constant tension between deflation fears and inflationary worries requires that we maintain a fixed income portfolio duration that approximates the duration of our liabilities. We continued to invest in non-fixed income securities and had over $125 million in realized gains for the year. We would expect 2014 will continue to generate significant gains.

"Looking ahead, we expect profitability to improve further without giving consideration to unusual catastrophe activity over the next several years. And while there is new competition, a similar number of players have disappeared from the marketplace. Ultimately, the insurance business is rational over the long run, and the trends we currently see cause us to be optimistic as more rational players enter the industry. These investors search for good risk adjusted returns. We are confident that 2014 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 Wednesday, January 29, at 10:00 a.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 2014 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; pending litigation and related coverage issues; 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 2014 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
		2013				2012				2013				2012
Revenues:
Net premiums written		$	1,357,684			$	1,228,135			$	5,500,173			$	4,898,539
Change in unearned premiums		25,357				11,840				(273,636		)		(225,023		)
Net premiums earned		1,383,041				1,239,975				5,226,537				4,673,516
Investment income		138,991				151,875				544,291				586,763
Insurance service fees		27,004				26,012				107,513				103,133
Net investment gains		30,690				116,462				127,586				201,451
Change in investment valuation allowance, net of other than temporary impairments		(6,042		)		—				(6,042		)		9,014
Revenues from wholly-owned investees		122,723				73,917				407,623				247,113
Other income		272				360				1,026				2,564
Total revenues		1,696,679				1,608,601				6,408,534				5,823,554
Expenses:
Losses and loss expenses		848,599				801,173				3,197,024				2,948,479
Other operating costs and expenses		520,698				467,599				2,000,684				1,799,623
Expenses from wholly-owned investees		115,146				74,784				388,761				247,222
Interest expense		30,510				32,552				123,177				126,302
Total expenses		1,514,953				1,376,108				5,709,646				5,121,626
Income before income taxes		181,726				232,493				698,888				701,928
Income tax expense		(46,338		)		(66,994		)		(193,587		)		(191,285		)
Net income before noncontrolling interests		135,388				165,499				505,301				510,643
Noncontrolling interests		(5,009		)		(10		)		(5,376		)		(51		)
Net income to common stockholders		$	130,379			$	165,489			$	499,925			$	510,592
Net income per share:
Basic		$	0.97			$	1.22			$	3.69			$	3.72
Diluted		$	0.93			$	1.17			$	3.55			$	3.56
Average shares outstanding:
Basic		134,054				135,861				135,305				137,097
Diluted		139,665				141,654				140,743				143,315

Business Segment Operating Results (Amounts in thousands, except ratios) (1) (2)
		Fourth Quarter								Full Year
		2013				2012				2013				2012
Insurance-Domestic:
Gross premiums written		$	1,182,977			$	1,044,015			$	4,803,753			$	4,261,165
Net premiums written		985,958				865,289				3,994,387				3,569,883
Premiums earned		1,013,047				886,384				3,782,416				3,417,022
Pre-tax income		182,879				153,627				648,740				578,500
Loss ratio		60.5		%		63.1		%		61.3		%		63.5		%
Expense ratio		32.3		%		32.5		%		32.7		%		32.5		%
GAAP combined ratio		92.8		%		95.6		%		94.0		%		96.0		%
Insurance-International:
Gross premiums written		$	211,906			$	214,454			$	898,776			$	802,057
Net premiums written		183,544				181,045				756,185				664,459
Premiums earned		182,786				175,682				723,151				631,841
Pre-tax income		5,828				8,352				56,922				51,639
Loss ratio		61.4		%		64.7		%		59.4		%		59.7		%
Expense ratio		41.0		%		38.7		%		39.0		%		40.2		%
GAAP combined ratio		102.4		%		103.4		%		98.4		%		99.9		%
Reinsurance-Global:
Gross premiums written		$	199,545			$	194,240			$	808,562			$	716,657
Net premiums written		188,182				181,801				749,601				664,197
Premiums earned		187,208				177,909				720,970				624,653
Pre-tax income		23,173				21,550				110,425				103,690
Loss ratio		66.1		%		72.1		%		62.2		%		64.3		%
Expense ratio		34.1		%		33.2		%		34.8		%		36.3		%
GAAP combined ratio		100.2		%		105.3		%		97.0		%		100.6		%
Corporate and Eliminations:
Net realized investment gains		$	24,648			$	116,462			$	121,544			$	210,465
Interest expense		(30,510		)		(32,552		)		(123,177		)		(126,302		)
Other revenues and expenses		(24,292		)		(34,946		)		(115,566		)		(116,064		)
Pre-tax income (loss)		(30,154		)		48,964				(117,199		)		(31,901		)
Consolidated:
Gross premiums written		$	1,594,428			$	1,452,709			$	6,511,091			$	5,779,879
Net premiums written		1,357,684				1,228,135				5,500,173				4,898,539
Premiums earned		1,383,041				1,239,975				5,226,537				4,673,516
Pre-tax income		181,726				232,493				698,888				701,928
Loss ratio		61.4		%		64.6		%		61.2		%		63.1		%
Expense ratio		33.7		%		33.5		%		33.9		%		34.1		%
GAAP combined ratio		95.1		%		98.1		%		95.1		%		97.2		%

(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)
		Fourth Quarter								Full Year
		2013				2012				2013				2012
Insurance-Domestic net premiums written:
Other liability		$	348,817			$	305,448			$	1,373,653			$	1,172,699
Workers' compensation		245,164				205,403				1,041,118				917,253
Short-tail lines (1)		198,216				179,397				800,082				757,537
Commercial automobile		119,824				107,170				502,535				464,058
Professional liability		73,937				67,871				276,999				258,336
Total		$	985,958			$	865,289			$	3,994,387			$	3,569,883
Losses from catastrophes:
Insurance-Domestic		$	1,387			$	7,217			$	37,346			$	43,217
Insurance-International		4,557				13,163				11,438				13,952
Reinsurance-Global		7,102				20,434				16,214				23,029
Total		$	13,046			$	40,814			$	64,998			$	80,198
Investment income (loss):
Core portfolio (2)		$	110,361			$	125,636			$	456,148			$	501,462
Investment funds		22,464				26,891				67,712				77,015
Arbitrage trading account		6,166				(652		)		20,431				8,286
Total		$	138,991			$	151,875			$	544,291			$	586,763
Other operating costs and expenses:
Underwriting expenses		$	465,933			$	415,126			$	1,771,128			$	1,592,746
Service expenses		22,157				20,990				88,662				84,986
Debt extinguishment costs		—				—				6,709				—
Net foreign currency gains		(3,732		)		(3,219		)		(10,120		)		(6,092		)
Other costs and expenses		36,340				34,702				144,305				127,983
Total		$	520,698			$	467,599			$	2,000,684			$	1,799,623
Cash flow from operations before reinsurance commutation payments		$	254,640			$	222,108			$	881,335			$	675,457
Cash flow from operations		$	193,103			$	222,108			$	819,798			$	675,457
Reconciliation of operating and net income:
Operating income (3)		$	119,243			$	90,430			$	430,168			$	373,790
After-tax investment gains, net of noncontrolling interest		11,136				75,059				74,118				136,802
After-tax debt extinguishment costs		—				—				(4,361		)		—
Net income		$	130,379			$	165,489			$	499,925			$	510,592

(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) 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)
		December 31, 2013				December 31, 2012
Net invested assets (1)		$	15,540,488			$	15,681,803
Total assets		20,551,796				20,155,896
Reserves for losses and loss expenses		10,080,941				9,751,086
Senior notes and other debt		1,692,442				1,871,535
Junior subordinated debentures		339,800				243,206
Common stockholders' equity (2)		4,336,035				4,306,217
Common stock outstanding (3)		132,233				136,018
Book value per share (4)		32.79				31.66
Tangible book value per share (4)		31.74				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 $257 million and $518 million as of December 31, 2013 and 2012, respectively. Unrealized currency translation losses were $61 million and $37 million as of December 31, 2013 and 2012, respectively.

(3) During the fourth quarter of 2013, the Company repurchased 2,953,280 shares of its common stock for $127 million. During the full year 2013, the Company repurchased 3,924,355 shares of its common stock for $166 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, 2013 (Amounts in thousands)
		Carrying Value				Percent of Total
Fixed maturity securities:
United States government and government agencies		$	884,859			5.7	%
State and municipal:
Special revenue		2,142,866				13.8	%
State general obligation		757,652				4.9	%
Pre-refunded		626,601				4.0	%
Corporate backed		430,961				2.8	%
Local general obligation		329,132				2.1	%
Total state and municipal		4,287,212				27.6	%
Mortgage-backed securities:
Agency		993,890				6.4	%
Residential - Prime		187,871				1.2	%
Residential — Alt A		94,280				0.6	%
Commercial		81,136				0.5	%
Total mortgage-backed securities		1,357,177				8.7	%
Corporate:
Industrial		1,533,935				9.9	%
Asset-backed		1,266,385				8.1	%
Financial		1,108,051				7.1	%
Utilities		194,437				1.3	%
Other		104,933				0.7	%
Total corporate		4,207,741				27.1	%
Foreign government		879,858				5.7	%
Total fixed maturity securities (1)		11,616,847				74.8	%
Equity securities available for sale:
Common stocks		160,775				1.0	%
Preferred stocks		122,562				0.8	%
Total equity securities available for sale		283,337				1.8	%
Cash and cash equivalents (2)		1,000,132				6.4	%
Investment funds (3)		1,059,220				6.8	%
Real estate		715,242				4.6	%
Arbitrage trading account		522,127				3.4	%
Loans receivable		343,583				2.2	%
Net invested assets		$	15,540,488			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 $8 million.

Foreign Government Fixed Maturity Securities          December 31, 2013          (Amounts in thousands)
		Carrying Value
Australia		$	256,413
Canada		157,094
United Kingdom		132,550
Argentina		116,062
Germany		67,422
Brazil		53,949
Norway		53,206
Supranational (1)		33,083
Singapore		6,762
Uruguay		3,317
Total		$	879,858

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