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

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

W. R. Berkley Corporation 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.