W. R. Berkley Corporation Reports Second Quarter Results

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

W. R. Berkley Corporation WRB today reported net income for the second quarter of 2014 of $180 million, or $1.35 per share.

Summary Financial Data
(Amounts in thousands, except per share data)
				Second Quarter									Six Months
				2014				2013					2014				2013
Gross premiums written				$	1,772,401			$	1,617,936				$	3,577,668			$	3,249,557
Net premiums written				1,489,776				1,341,898					3,015,656				2,718,864
Net income				179,961				115,957					349,634				232,572
Net income per diluted share				1.35				0.82					2.60				1.65
Operating income (1)				109,002				98,830					244,385				202,465
Operating income per diluted share				0.82				0.70					1.82				1.43
Return on equity (2)				16.6		%		10.8		%			16.1		%		10.8		%

(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.

Second quarter highlights included:

• Net premiums written grew 11%.
• Return on equity was 16.6%.
• GAAP combined ratio improved to 94.4%.
• Net investment gains were $109 million.
• Book value per share increased 5.5% to $36.20.

Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We were very pleased with our second quarter results. Weather-related losses are typically higher in the second quarter than in other quarters for our Company, and this year such losses were about average. We were able to grow our top line by about 11%. Price increases for our domestic insurance businesses were approximately 4%; thus, for the twelfth quarter in a row, prices increased at a rate in excess of loss costs. We believe that in such an environment our goal should be to grow selectively where the margins are most attractive. We continue to focus on reducing our expense ratio, which declined by six tenths of a point in the quarter.

"We have maintained the quality of our fixed-income portfolio, while at the same time investing an increasing portion of new funds into alternative investments with the goal of generating capital gains. As a result, we have sacrificed some ordinary investment income to achieve the level of capital gains currently flowing into our income statement. Our investment returns from our fixed-income portfolio declined slightly, reflecting both the current interest rate environment and the shortening of our portfolio duration, while other parts of our investment activities have generated attractive returns over the recent period. The sale of a property from our real-estate portfolio resulted in a substantial gain this quarter. We also continue to achieve gains from our common stock and private equity investments.

"We are optimistic that the combination of our operating results and investment gains will allow us to achieve our targeted 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 Tuesday, July 29, at 9:00 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; 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)
				Second Quarter									Six Months
				2014				2013					2014				2013
Revenues:
Net premiums written				$	1,489,776			$	1,341,898				$	3,015,656			$	2,718,864
Change in unearned premiums				(72,131		)		(59,383		)			(234,399		)		(204,230		)
Net premiums earned				1,417,645				1,282,515					2,781,257				2,514,634
Investment income				138,729				143,737					307,440				279,666
Insurance service fees				26,922				27,652					55,625				54,388
Net investment gains				109,168				33,058					161,922				53,027
Revenues from wholly-owned investees				104,285				83,775					197,125				175,510
Other income				240				225					526				506
Total revenues				1,796,989				1,570,962					3,503,895				3,077,731
Expenses:
Losses and loss expenses				867,778				805,470					1,689,873				1,550,149
Other operating costs and expenses				534,150				494,286					1,049,316				975,890
Expenses from wholly-owned investees				101,296				81,293					193,026				170,445
Interest expense				30,311				31,207					60,641				62,318
Total expenses				1,533,535				1,412,256					2,992,856				2,758,802
Income before income taxes				263,454				158,706					511,039				318,929
Income tax expense				(83,277		)		(43,579		)			(161,178		)		(87,204		)
Net income before noncontrolling interests				180,177				115,127					349,861				231,725
Noncontrolling interests				(216		)		830					(227		)		847
Net income to common stockholders				$	179,961			$	115,957				$	349,634			$	232,572
Net income per share:
Basic				$	1.41			$	0.85				$	2.72			$	1.71
Diluted				$	1.35			$	0.82				$	2.60			$	1.65
Average shares outstanding:
Basic				127,668				135,894					128,765				135,959
Diluted				133,304				141,274					134,323				141,257

Business Segment Operating Results
(Amounts in thousands, except ratios) (1)
				Second Quarter									Six Months
				2014				2013					2014				2013
Insurance-Domestic:
Gross premiums written				$	1,351,624			$	1,186,186				$	2,694,566			$	2,365,908
Net premiums written				1,123,843				967,784					2,250,224				1,953,964
Premiums earned				1,041,745				925,997					2,045,252				1,810,375
Pre-tax income				176,855				152,334					379,040				293,684
Loss ratio				60.9		%		62.9		%			60.4		%		62.7		%
Expense ratio				32.3		%		32.5		%			32.4		%		32.8		%
GAAP combined ratio				93.2		%		95.4		%			92.8		%		95.5		%
Insurance-International:
Gross premiums written				$	265,200			$	241,738				$	542,386			$	493,313
Net premiums written				222,622				201,445					448,443				406,580
Premiums earned				201,868				180,192					387,192				351,311
Pre-tax income				11,510				12,583					29,257				34,965
Loss ratio				60.7		%		61.0		%			60.0		%		58.5		%
Expense ratio				38.8		%		38.9		%			39.4		%		38.4		%
GAAP combined ratio				99.5		%		99.9		%			99.4		%		96.9		%
Reinsurance-Global:
Gross premiums written				$	155,577			$	190,012				$	340,716			$	390,336
Net premiums written				143,311				172,669					316,989				358,320
Premiums earned				174,032				176,326					348,813				352,948
Pre-tax income				25,866				24,752					57,940				62,693
Loss ratio				63.4		%		63.9		%			64.0		%		59.4		%
Expense ratio				31.9		%		35.1		%			32.4		%		35.7		%
GAAP combined ratio				95.3		%		99.0		%			96.4		%		95.1		%
Corporate and Eliminations:
Net realized investment gains				$	109,168			$	33,058				$	161,922			$	53,027
Interest expense				(30,311		)		(31,207		)			(60,641		)		(62,318		)
Other revenues and expenses				(29,634		)		(32,814		)			(56,479		)		(63,122		)
Pre-tax gain (loss)				49,223				(30,963		)			44,802				(72,413		)
Consolidated:
Gross premiums written				$	1,772,401			$	1,617,936				$	3,577,668			$	3,249,557
Net premiums written				1,489,776				1,341,898					3,015,656				2,718,864
Premiums earned				1,417,645				1,282,515					2,781,257				2,514,634
Pre-tax income				263,454				158,706					511,039				318,929
Loss ratio				61.2		%		62.8		%			60.8		%		61.6		%
Expense ratio				33.2		%		33.8		%			33.4		%		34.0		%
GAAP combined ratio				94.4		%		96.6		%			94.2		%		95.6		%

(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. GAAP combined ratio is the sum of the loss ratio and the expense ratio.

Supplemental Information
(Amounts in thousands)
				Second Quarter									Six Months
				2014				2013					2014				2013
Insurance-Domestic net premiums written:
Other liability				$	400,289			$	348,110				$	771,720			$	671,666
Workers' compensation				283,995				225,888					630,865				524,065
Short-tail lines (1)				235,972				206,357					443,081				386,156
Commercial automobile				129,282				121,063					263,808				244,649
Professional liability				74,305				66,366					140,750				127,428
Total				$	1,123,843			$	967,784				$	2,250,224			$	1,953,964
Losses from catastrophes:
Insurance-Domestic				$	38,370			$	26,696				$	51,111			$	30,356
Insurance-International				272				3,171					1,403				3,404
Reinsurance-Global				1,148				4,293					1,246				5,413
Total				$	39,790			$	34,160				$	53,760			$	39,173
Investment income:
Core portfolio (2)				$	109,431			$	116,171				$	218,824			$	237,383
Investment funds				22,356				22,576					76,155				33,510
Arbitrage trading account				6,942				4,990					12,461				8,773
Total				$	138,729			$	143,737				$	307,440			$	279,666
Other operating costs and expenses:
Underwriting expenses				$	470,296			$	433,271				$	928,434			$	855,484
Service expenses				23,607				23,136					45,864				45,441
Debt extinguishment costs				—				6,709					—				6,709
Net foreign currency (gain) loss				1,993				(6,718		)			1,659				(4,771		)
Other costs and expenses				38,254				37,888					73,359				73,027
Total				$	534,150			$	494,286				$	1,049,316			$	975,890
Cash flow from operations				$	111,459			$	198,820				$	254,623			$	313,932
Reconciliation of operating and net income:
Operating income (3)				$	109,002			$	98,830				$	244,385			$	202,465
After-tax investment gains				70,959				21,488					105,249				34,468
After-tax debt extinguishment costs				—				(4,361		)			—				(4,361		)
Net income				$	179,961			$	115,957				$	349,634			$	232,572

(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 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)
				June 30, 2014					December 31, 2013
Net invested assets (1)				$	16,017,443				$	15,540,488
Total assets				21,167,194					20,551,796
Reserves for losses and loss expenses				10,256,219					10,080,941
Senior notes and other debt				1,697,037					1,692,442
Junior subordinated debentures				339,930					339,800
Common stockholders' equity (2)				4,619,713					4,336,035
Common stock outstanding (3)				127,613					132,233
Book value per share (4)				36.20					32.79
Tangible book value per share (4)				35.18					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 $378 million and $257 million as of June 30, 2014 and December 31, 2013, respectively. Unrealized currency translation losses were $40 million and $61 million as of June 30, 2014 and December 31, 2013, respectively.
(3)		During the second quarter of 2014, the Company repurchased 100,514 shares of its common stock for $4.6 million. During the first six months of 2014, the Company repurchased 4,908,701 shares of its common stock for $198 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
June 30, 2014
(Amounts in thousands)
				Carrying Value					Percent of Total
Fixed maturity securities:
United States government and government agencies				$	867,127				5.4	%
State and municipal:
Special revenue				2,219,350					13.9	%
State general obligation				715,219					4.5	%
Pre-refunded				604,868					3.8	%
Corporate backed				443,660					2.8	%
Local general obligation				308,599					1.9	%
Total state and municipal				4,291,696					26.9	%
Mortgage-backed securities:
Agency				1,005,318					6.3	%
Residential - Prime				163,031					1.0	%
Residential — Alt A				82,798					0.5	%
Commercial				80,387					0.5	%
Total mortgage-backed securities				1,331,534					8.3	%
Corporate:
Asset-backed				1,608,080					10.0	%
Industrial				1,564,582					9.8	%
Financial				1,164,931					7.3	%
Utilities				194,196					1.2	%
Other				97,533					0.6	%
Total corporate				4,629,322					28.9	%
Foreign government				968,376					6.0	%
Total fixed maturity securities (1)				12,088,055					75.5	%
Equity securities available for sale:
Preferred stocks				153,532					1.0	%
Common stocks				103,527					0.6	%
Total equity securities available for sale				257,059					1.6	%
Investment funds (3)				979,450					6.1	%
Arbitrage trading account				732,279					4.6	%
Real estate				530,239					3.3	%
Cash and cash equivalents (2)				774,670					4.8	%
Loans receivable				655,691					4.1	%
Net invested assets				$	16,017,443				100.0	%

(1)		Total fixed maturity securities had an average rating of AA- and an average duration of 3.1 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 $5 million.

Foreign Government Fixed Maturity Securities
June 30, 2014
(Amounts in thousands)
				Carrying Value
Australia				$	258,187
United Kingdom				188,303
Canada				171,353
Argentina				114,038
Brazil				68,431
Germany				66,485
Norway				52,320
Supranational (1)				39,105
Singapore				6,768
Uruguay				3,386
Total				$	968,376

(1)

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