W. R. Berkley Corporation Reports Second Quarter Results

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Net Income Increased 20% to $217 Million; Return on Equity of 15.9%

W. R. Berkley Corporation WRB today reported net income for the second quarter of 2019 of $217 million, or $1.12 per share.

 

Summary Financial Data

(Amounts in thousands, except per share data)

 

 

 

Second Quarter

 

Six Months

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

2,089,861

 

 

$

1,948,074

 

 

$

4,136,090

 

 

$

3,927,495

 

Net premiums written

 

1,743,464

 

 

1,624,104

 

 

3,453,065

 

 

3,289,442

 

 

 

 

 

 

 

 

 

 

Net income to common stockholders

 

216,709

 

 

180,075

 

 

397,431

 

 

346,472

 

Net income per diluted share (1)

 

1.12

 

 

0.93

 

 

2.06

 

 

1.80

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

 

15.9

%

 

13.3

%

 

14.6

%

 

12.8

%

(1) 2018 per share amounts were restated for comparative purposes to reflect the 3-for-2 common stock split effected on April 2, 2019.

(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:

  • Annualized after-tax return on equity was 15.9% (pre-tax of 20.1%).
  • Net premiums written increased 7.3%.
  • Average rate increases excluding workers' compensation were more than 5%.
  • Net investment income increased 22.5%.
  • The accident year combined ratio excluding catastrophe losses was 92.8%. The reported combined ratio was 93.9%, inclusive of 1.5 loss ratio points from catastrophes.
  • Book value per share grew 5.6% for the quarter, before dividends.
  • Total capital returned to shareholders was $112 million, including $92 million of special dividends.
  • Net realized and unrealized pre-tax gains on investments were $73 million, net of performance-based compensation costs(1).

The Company commented:

We are very pleased with our 15.9% annualized after-tax return on equity in the second quarter of 2019.

The underwriting environment continues to improve with rate increases in all lines of business except workers' compensation. We remain focused on businesses that have the highest potential risk-adjusted returns. We see increasing signs of rate firming on both domestic and international business, which should provide even greater opportunities for further growth.

Overall investment income grew nearly 23% as steady income from the core portfolio was enhanced by better-than-average investment fund performance. We have generally maintained the quality and duration of our fixed-maturity portfolio as the current interest rate environment has been somewhat volatile and difficult to predict. In addition, we recorded $74 million of net realized and unrealized pre-tax gains on investments.

Our second quarter results demonstrated the growing momentum in our economic model. The pursuit of rate adequacy is taking hold in much of the commercial lines (re)insurance market, and we anticipate that these market conditions will persist for the foreseeable future. We remain focused on our risk-adjusted total return strategy as we deliver on our commitment to create long-term shareholder value.

(1) Net realized and unrealized pre-tax gains on investments before performance-based compensation costs were $74 million.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on July 23, 2019, at 5:00 p.m. eastern time. The conference call will be webcast live on the Company's website at https://ir.berkley.com/news-and-events/events-and-presentations/default.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. Additional financial information can be found on the Company's website at https://ir.berkley.com/investor-relations/financial-information/annual-reports/default.aspx.

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 & Monoline Excess.

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 2019 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; the impact of climate change, which may increase the frequency and severity of catastrophe events; 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 or willingness 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 cyber security issues; 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 2019 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

 

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

 

Net premiums written

 

$

1,743,464

 

 

$

1,624,104

 

 

$

3,453,065

 

 

$

3,289,442

 

Change in unearned premiums

 

(96,623

)

 

(43,051

)

 

(213,368

)

 

(140,981

)

Net premiums earned

 

1,646,841

 

 

1,581,053

 

 

3,239,697

 

 

3,148,461

 

Net investment income

 

188,333

 

 

153,777

 

 

346,587

 

 

328,295

 

Net realized and unrealized gains on investments

 

73,574

 

 

69,631

 

 

142,226

 

 

118,095

 

Revenues from non-insurance businesses

 

89,297

 

 

76,698

 

 

181,124

 

 

146,869

 

Insurance service fees

 

22,446

 

 

29,719

 

 

47,759

 

 

60,393

 

Other income

 

2,893

 

 

38

 

 

3,013

 

 

50

 

Total revenues

 

2,023,384

 

 

1,910,916

 

 

3,960,406

 

 

3,802,163

 

Expenses:

 

 

 

 

 

 

 

 

Losses and loss expenses

 

1,028,830

 

 

973,636

 

 

2,017,479

 

 

1,936,856

 

Other operating costs and expenses

 

591,828

 

 

593,142

 

 

1,179,916

 

 

1,203,581

 

Expenses from non-insurance businesses

 

88,272

 

 

75,191

 

 

178,397

 

 

144,734

 

Interest expense

 

40,718

 

 

39,705

 

 

81,439

 

 

76,760

 

Total expenses

 

1,749,648

 

 

1,681,674

 

 

3,457,231

 

 

3,361,931

 

Income before income taxes

 

273,736

 

 

229,242

 

 

503,175

 

 

440,232

 

Income tax expense

 

(56,309

)

 

(48,464

)

 

(104,134

)

 

(91,881

)

Net income before noncontrolling interests

 

217,427

 

 

180,778

 

 

399,041

 

 

348,351

 

Noncontrolling interests

 

(718

)

 

(703

)

 

(1,610

)

 

(1,879

)

Net income to common stockholders

 

$

216,709

 

 

$

180,075

 

 

$

397,431

 

 

$

346,472

 

 

 

 

 

 

 

 

 

 

Net income per share (1):

 

 

 

 

 

 

 

 

Basic

 

$

1.14

 

 

$

0.95

 

 

$

2.09

 

 

$

1.83

 

Diluted

 

$

1.12

 

 

$

0.93

 

 

$

2.06

 

 

$

1.80

 

 

 

 

 

 

 

 

 

 

Average shares outstanding (1) (2):

 

 

 

 

 

 

 

 

Basic

 

190,512

 

 

189,776

 

190,456

 

 

189,669

Diluted

 

193,059

 

 

192,509

 

192,804

 

 

192,284

(1) 2018 per share amounts were restated for comparative purposes to reflect the 3-for-2 common stock split effected on April 2, 2019.

(2) 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.

 

Business Segment Operating Results

(Amounts in thousands, except ratios) (1) (2)

 

 

 

Second Quarter

 

Six Months

 

 

2019

 

2018

 

2019

 

2018

Insurance:

 

 

 

 

 

 

 

 

Gross premiums written

 

$

1,905,367

 

 

$

1,798,074

 

 

$

3,715,850

 

 

$

3,558,247

 

Net premiums written

 

1,574,585

 

 

1,491,432

 

 

3,071,964

 

 

2,964,676

 

Premiums earned

 

1,475,184

 

 

1,415,579

 

 

2,902,218

 

 

2,806,868

 

Pre-tax income

 

225,871

 

 

163,181

 

 

410,387

 

 

362,109

 

Loss ratio

 

62.9

%

 

62.4

%

 

62.5

%

 

61.7

%

Expense ratio

 

30.9

%

 

32.9

%

 

31.4

%

 

32.9

%

GAAP combined ratio

 

93.8

%

 

95.3

%

 

93.9

%

 

94.6

%

 

 

 

 

 

 

 

 

 

Reinsurance & Monoline Excess:

 

 

 

 

 

 

 

 

Gross premiums written

 

$

184,494

 

 

$

150,000

 

 

$

420,240

 

 

$

369,248

 

Net premiums written

 

168,879

 

 

132,672

 

 

381,101

 

 

324,766

 

Premiums earned

 

171,657

 

 

165,474

 

 

337,479

 

 

341,593

 

Pre-tax income

 

52,635

 

 

56,174

 

 

97,490

 

 

100,866

 

Loss ratio

 

59.2

%

 

54.6

%

 

60.0

%

 

60.3

%

Expense ratio

 

36.0

%

 

36.8

%

 

36.0

%

 

36.2

%

GAAP combined ratio

 

95.2

%

 

91.4

%

 

96.0

%

 

96.5

%

 

 

 

 

 

 

 

 

 

Corporate and Eliminations:

 

 

 

 

 

 

 

 

Net realized and unrealized gains on investments

 

$

73,574

 

 

$

69,631

 

 

$

142,226

 

 

$

118,095

 

Interest expense

 

(40,718

)

 

(39,705

)

 

(81,439

)

 

(76,760

)

Other revenues and expenses

 

(37,626

)

 

(20,039

)

 

(65,489

)

 

(64,078

)

Pre-tax (loss) income

 

(4,770

)

 

9,887

 

 

(4,702

)

 

(22,743

)

 

 

 

 

 

 

 

 

 

Consolidated:

 

 

 

 

 

 

 

 

Gross premiums written

 

$

2,089,861

 

 

$

1,948,074

 

 

$

4,136,090

 

 

$

3,927,495

 

Net premiums written

 

1,743,464

 

 

1,624,104

 

 

3,453,065

 

 

3,289,442

 

Premiums earned

 

1,646,841

 

 

1,581,053

 

 

3,239,697

 

 

3,148,461

 

Pre-tax income

 

273,736

 

 

229,242

 

 

503,175

 

 

440,232

 

Loss ratio

 

62.4

%

 

61.6

%

 

62.2

%

 

61.5

%

Expense ratio

 

31.5

%

 

33.3

%

 

31.9

%

 

33.3

%

GAAP combined ratio

 

93.9

%

 

94.9

%

 

94.1

%

 

94.8

%

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(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.

(2) Commencing with the first quarter of 2019, the Company renamed the Reinsurance segment to Reinsurance & Monoline Excess, and reclassified the monoline excess business from the Insurance segment. The reclassified business includes operations that solely retains risk on an excess basis. Reclassifications have been made to the Company's 2018 financial information to conform with this presentation.

 

Supplemental Information

(Amounts in thousands)

 

 

 

Second Quarter

 

Six Months

 

 

2019

 

2018

 

2019

 

2018

Net premiums written:

 

 

 

 

 

 

 

 

Other liability

 

$

546,861

 

 

$

504,315

 

 

$

1,053,811

 

 

$

973,155

 

Workers' compensation

 

340,430

 

 

355,006

 

 

694,617

 

 

704,547

 

Short-tail lines (1)

 

337,611

 

 

312,221

 

 

616,447

 

 

603,248

 

Commercial automobile

 

198,728

 

 

185,804

 

 

411,683

 

 

400,449

 

Professional liability

 

150,955

 

 

134,086

 

 

295,406

 

 

283,277

 

Total Insurance

 

1,574,585

 

 

1,491,432

 

 

3,071,964

 

 

2,964,676

 

Casualty reinsurance

 

106,690

 

 

80,306

 

 

211,206

 

 

162,641

 

Monoline excess

 

23,929

 

 

22,094

 

 

91,721

 

 

91,902

 

Property reinsurance

 

38,260

 

 

30,272

 

 

78,174

 

 

70,223

 

Total Reinsurance & Monoline Excess

 

168,879

 

 

132,672

 

 

381,101

 

 

324,766

 

Total

 

$

1,743,464

 

 

$

1,624,104

 

 

$

3,453,065

 

 

$

3,289,442

 

 

 

 

 

 

 

 

 

 

Losses from catastrophes:

 

 

 

 

 

 

 

 

Insurance

 

$

25,446

 

 

$

12,929

 

 

$

38,064

 

 

$

20,060

 

Reinsurance & Monoline Excess

 

57

 

 

627

 

 

99

 

 

884

 

Total

 

$

25,503

 

 

$

13,556

 

 

$

38,163

 

 

$

20,944

 

 

 

 

 

 

 

 

 

 

Net investment income:

 

 

 

 

 

 

 

 

Core portfolio (2)

 

$

134,294

 

 

$

132,728

 

 

$

270,552

 

 

$

261,701

 

Investment funds

 

46,840

 

 

12,716

 

 

58,251

 

 

53,070

 

Arbitrage trading account

 

7,199

 

 

8,333

 

 

17,784

 

 

13,524

 

Total

 

$

188,333

 

 

$

153,777

 

 

$

346,587

 

 

$

328,295

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains on investments:

 

 

 

 

 

 

 

 

Net realized gains on investment sales

 

$

4,156

 

 

$

124,283

 

 

$

30,730

 

 

$

266,952

 

Change in unrealized gains on equity securities

 

69,418

 

 

(54,652

)

 

111,496

 

 

(148,857

)

Total

 

$

73,574

 

 

$

69,631

 

 

$

142,226

 

 

$

118,095

 

 

 

 

 

 

 

 

 

 

Other operating costs and expenses:

 

 

 

 

 

 

 

 

Policy acquisition and insurance operating expenses

 

$

518,160

 

 

$

526,862

 

 

$

1,031,951

 

 

$

1,047,093

 

Insurance service expenses

 

25,386

 

 

30,990

 

 

51,343

 

 

63,702

 

Net foreign currency losses (gains)

 

470

 

 

(18,251

)

 

(6,494

)

 

(4,767

)

Other costs and expenses

 

47,812

 

 

53,541

 

 

103,116

 

 

97,553

 

Total

 

$

591,828

 

 

$

593,142

 

 

$

1,179,916

 

 

$

1,203,581

 

 

 

 

 

 

 

 

 

 

Cash flow from operations

 

$

324,316

 

 

$

139,397

 

 

$

402,646

 

 

$

119,362

 

(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.

 

Selected Balance Sheet Information

(Amounts in thousands, except per share data)

 

 

June 30,
2019

 

December 31,
2018

 

 

 

 

Net invested assets (1)

$

19,707,264

 

 

$

18,828,321

 

Total assets

26,487,903

 

 

24,895,977

 

Reserves for losses and loss expenses

12,320,278

 

 

11,966,448

 

Senior notes and other debt

1,873,799

 

 

1,882,028

 

Subordinated debentures

907,866

 

 

907,491

 

Common stockholders' equity (2)

5,976,760

 

 

5,437,851

 

Common stock outstanding (3) (4)

183,168

 

 

182,994

 

Book value per share (4) (5)

32.63

 

 

29.72

 

Tangible book value per share (4) (5)

31.36

 

 

28.42

 

(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 June 30, 2019, reflected in common stockholders' equity are after-tax unrealized investment gains of $153 million and unrealized currency translation losses of $414 million. As of December 31, 2018, after-tax unrealized investment losses were $91 million and unrealized currency translation losses were $419 million.

(3) During the three and six months ended June 30, 2019, the Company did not repurchase any shares of its common stock. The number of shares of common stock outstanding excludes shares held in a grantor trust.

(4) December 31, 2018 shares outstanding and per share amounts were restated for comparative purposes to reflect the 3-for-2 common stock split effected on April 2, 2019.

(5) 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, 2019

(Amounts in thousands)

 

 

 

Carrying
Value

 

Percent
of Total

Fixed maturity securities:

 

 

 

 

United States government and government agencies

 

$

777,070

 

 

3.9

%

State and municipal:

 

 

 

 

Special revenue

 

2,402,349

 

 

12.2

%

Local general obligation

 

464,109

 

 

2.4

%

State general obligation

 

381,719

 

 

1.9

%

Pre-refunded

 

324,068

 

 

1.6

%

Corporate backed

 

244,745

 

 

1.2

%

Total state and municipal

 

3,816,990

 

 

19.3

%

Mortgage-backed securities:

 

 

 

 

Agency

 

902,565

 

 

4.6

%

Residential - Prime

 

335,938

 

 

1.7

%

Commercial

 

309,781

 

 

1.6

%

Residential - Alt A

 

36,962

 

 

0.2

%

Total mortgage-backed securities

 

1,585,246

 

 

8.1

%

Asset-backed securities

 

2,701,785

 

 

13.7

%

Corporate:

 

 

 

 

Industrial

 

2,230,207

 

 

11.3

%

Financial

 

1,453,723

 

 

7.4

%

Utilities

 

324,322

 

 

1.7

%

Other

 

28,033

 

 

0.1

%

Total corporate

 

4,036,285

 

 

20.5

%

Foreign government

 

815,424

 

 

4.1

%

Total fixed maturity securities (1)

 

13,732,800

 

 

69.7

%

Equity securities available for sale:

 

 

 

 

Preferred stocks

 

276,362

 

 

1.4

%

Common stocks

 

140,226

 

 

0.7

%

Total equity securities available for sale

 

416,588

 

 

2.1

%

Real estate

 

2,067,544

 

 

10.5

%

Cash and cash equivalents (2)

 

1,461,956

 

 

7.4

%

Investment funds (3)

 

1,400,237

 

 

7.1

%

Arbitrage trading account

 

533,442

 

 

2.7

%

Loans receivable

 

94,697

 

 

0.5

%

Net invested assets

 

$

19,707,264

 

 

100.0

%

(1) Total fixed maturity securities had an average rating of AA- and an average duration of 2.6 years, including cash and cash equivalents.

(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 $1.3 million.

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