EX-99.1 2 wrb63020188kex991.htm EARNINGS PRESS RELEASE JUNE 30, 2018 Exhibit
 
 
 
 
NEWS
RELEASE
 
W. R. Berkley Corporation
475 Steamboat Road
Greenwich, Connecticut 06830
(203) 629-3000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 FOR IMMEDIATE RELEASE
 
 
CONTACT: 
 
Karen A. Horvath
 
 
 
 
 
 
Vice President - External
 
 
 
 
 
 
Financial Communications
 
 
 
 
 
 
(203) 629-3000
             

W. R. BERKLEY CORPORATION REPORTS SECOND QUARTER RESULTS
Net Income Increased 65% to $180 Million; Return on Equity of 13.3%

Greenwich, CT, July 24, 2018 -- W. R. Berkley Corporation (NYSE: WRB)
today reported net income for the second quarter of 2018 of $180 million, or $1.40 per share.

Summary Financial Data
(Amounts in thousands, except per share data)
 
 
Second Quarter
 
Six Months
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Gross premiums written
 
$
1,948,074

 
$
1,887,152

 
$
3,927,495

 
$
3,823,359

Net premiums written
 
1,624,104

 
1,564,251

 
3,289,442

 
3,211,089

 
 
 
 
 
 
 
 
 
Net income to common stockholders
 
180,075

 
109,004

 
346,472

 
232,451

Net income per diluted share
 
1.40

 
0.85

 
2.70

 
1.81

 
 
 
 
 
 
 
 
 
Return on equity (1)
 
13.3
%
 
8.6
%
 
12.8
%
 
9.2
%

(1)
Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity.




W. R. Berkley Corporation     Page 2


Second quarter highlights included:
•
We reported annualized pre-tax return on equity of 16.9%. (Excluding the accounting change for equity securities that became effective January 1, 2018, the annualized pre-tax return on equity would have been 20.9%.)
•
Insurance net premiums written increased 5.2%.
•
Investment income increased 13.7%. Investment income attributable to the core investment portfolio increased 9.8%(1).
•
The combined ratio was 94.9%.
•
Total catastrophe losses were $14 million; non-catastrophe weather-related losses were $15 million.
•
Net realized pre-tax gains and net unrealized pre-tax gains on equity securities of $66 million, net of performance-based compensatory costs(2).
•
Total capital returned to shareholders was $79 million, including $61 million of special dividends.

The Company commented:
We were pleased with our 13.3% annualized return on equity in the second quarter of 2018, which reflected healthy performance in all areas of the business.
Our net premiums written grew due to a combination of increased market penetration, rate improvements and a strengthening economy. Growth in the Insurance segment of 5.2% was partially offset by a decline in the Reinsurance segment, where we chose to reduce our business in light of the competitive environment. Overall, our underwriting performance was favorable, with a combined ratio that was relatively stable year-over-year. Our ability to manage volatility was again demonstrated in our results, as the impact of severe convective storm activity in the quarter was very modest.
Net investment income grew nearly 14% over the prior year due to an increase in the yield on fixed maturity securities and a higher base of invested assets. We continue to be rewarded from our earlier strategic decision to shorten the duration while maintaining the quality of our portfolio. We realized gains on sales of investments of $124 million, before consideration of the change in accounting for unrealized gains on equity securities.
We remain focused on creating value for our shareholders over the long-term and are confident that we will be able to deliver strong results throughout the remainder of the year.

(1) Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable.

(2) Net realized pre-tax gains and net unrealized pre-tax gains on equity securities before performance-based compensatory costs were $70 million.


W. R. Berkley Corporation     Page 3


Webcast Conference Call
The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on July 24, 2018, 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. 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.
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.




W. R. Berkley Corporation     Page 4


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 2018 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; 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 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 2018 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.


# # #



W. R. Berkley Corporation     Page 5



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

 
 
Second Quarter
 
Six Months
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Net premiums written
 
$
1,624,104

 
$
1,564,251

 
$
3,289,442

 
$
3,211,089

Change in unearned premiums
 
(43,051
)
 
4,452

 
(140,981
)
 
(72,345
)
Net premiums earned
 
1,581,053

 
1,568,703

 
3,148,461

 
3,138,744

Net investment income
 
153,777

 
135,264

 
328,295

 
284,123

Net realized and unrealized gains on investments (1)
 
69,631

 
40,453

 
118,095

 
92,801

Revenues from non-insurance businesses
 
76,698

 
69,857

 
146,869

 
135,247

Insurance service fees
 
29,719

 
33,584

 
60,393

 
66,864

Other income
 
38

 
188

 
50

 
688

Total revenues
 
1,910,916

 
1,848,049

 
3,802,163

 
3,718,467

Expenses:
 
 
 
 
 
 
 
 
Losses and loss expenses
 
973,636

 
964,698

 
1,936,856

 
1,944,302

Other operating costs and expenses
 
593,142

 
616,632

 
1,203,581

 
1,220,332

Expenses from non-insurance businesses
 
75,191

 
68,959

 
144,734

 
134,978

Interest expense
 
39,705

 
36,799

 
76,760

 
73,597

Total expenses
 
1,681,674

 
1,687,088

 
3,361,931

 
3,373,209

Income before income taxes
 
229,242

 
160,961

 
440,232

 
345,258

Income tax expense
 
(48,464
)
 
(51,388
)
 
(91,881
)
 
(111,011
)
Net income before noncontrolling interests
 
180,778

 
109,573

 
348,351

 
234,247

Noncontrolling interests
 
(703
)
 
(569
)
 
(1,879
)
 
(1,796
)
Net income to common stockholders
 
$
180,075

 
$
109,004

 
$
346,472

 
$
232,451

 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
Basic
 
$
1.42

 
$
0.87

 
$
2.74

 
$
1.88

Diluted
 
$
1.40

 
$
0.85

 
$
2.70

 
$
1.81

 
 
 
 
 
 
 
 
 
Average shares outstanding (2):
 
 
 
 
 
 
 
 
Basic
 
126,517

 
125,334

 
126,446

 
123,623

Diluted
 
128,339

 
128,601

 
128,189

 
128,546



(1) Includes net realized gains on investment sales of $124 million reduced by a change in unrealized gains on equity securities of $54 million in the second quarter 2018. For the six months ended June 30, 2018, includes net realized gains on investment sales of $267 million reduced by a change in unrealized gains on equity securities of $149 million. The inclusion of change in unrealized gains on equity securities within net income commenced January 1, 2018 due to our adoption of ASU 2016-01.

(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.


W. R. Berkley Corporation     Page 6

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

 
 
Second Quarter
 
Six Months
 
 
2018
 
2017
 
2018
 
2017
Insurance:
 
 
 
 
 
 
 
 
Gross premiums written
 
$
1,821,228

 
$
1,745,734

 
$
3,659,199

 
$
3,515,139

Net premiums written
 
1,513,526

 
1,438,169

 
3,056,578

 
2,932,303

Premiums earned
 
1,456,008

 
1,415,586

 
2,888,345

 
2,828,755

Pre-tax income
 
198,052

 
186,134

 
427,080

 
386,127

Loss ratio
 
61.5
%
 
61.1
%
 
61.1
%
 
61.0
%
Expense ratio
 
32.9
%
 
33.0
%
 
32.8
%
 
33.0
%
GAAP combined ratio
 
94.4
%
 
94.1
%
 
93.9
%
 
94.0
%
 
 
 
 
 
 
 
 
 
Reinsurance:
 
 
 
 
 
 
 
 
Gross premiums written
 
$
126,846

 
$
141,418

 
$
268,296

 
$
308,220

Net premiums written
 
110,578

 
126,082

 
232,864

 
278,786

Premiums earned
 
125,045

 
153,117

 
260,116

 
309,989

Pre-tax income
 
21,303

 
14,771

 
35,895

 
19,364

Loss ratio
 
62.0
%
 
65.2
%
 
66.1
%
 
70.6
%
Expense ratio
 
38.7
%
 
39.2
%
 
38.1
%
 
38.1
%
GAAP combined ratio
 
100.7
%
 
104.4
%
 
104.2
%
 
108.7
%
 
 
 
 
 
 
 
 
 
Corporate and Eliminations:
 
 
 
 
 
 
 
 
  Net realized and unrealized gains on investments
 
$
69,631

 
$
40,453

 
$
118,095

 
$
92,801

  Interest expense
 
(39,705
)
 
(36,799
)
 
(76,760
)
 
(73,597
)
  Other revenues and expenses
 
(20,039
)
 
(43,598
)
 
(64,078
)
 
(79,437
)
  Pre-tax income (loss)
 
9,887

 
(39,944
)
 
(22,743
)
 
(60,233
)
 
 
 
 
 
 
 
 
 
Consolidated:
 
 
 
 
 
 
 
 
  Gross premiums written
 
$
1,948,074

 
$
1,887,152

 
$
3,927,495

 
$
3,823,359

  Net premiums written
 
1,624,104

 
1,564,251

 
3,289,442

 
3,211,089

  Premiums earned
 
1,581,053

 
1,568,703

 
3,148,461

 
3,138,744

  Pre-tax income
 
229,242

 
160,961

 
440,232

 
345,258

  Loss ratio
 
61.6
%
 
61.5
%
 
61.5
%
 
61.9
%
  Expense ratio
 
33.3
%
 
33.6
%
 
33.3
%
 
33.5
%
  GAAP combined ratio
 
94.9
%
 
95.1
%
 
94.8
%
 
95.4
%

(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.



W. R. Berkley Corporation     Page 7


Supplemental Information
(Amounts in thousands)
 
 
Second Quarter
 
Six Months
 
 
2018
 
2017
 
2018
 
2017
Net premiums written:
 
 
 
 
 
 
 
 
  Other liability
 
$
504,315

 
$
478,595

 
$
973,155

 
$
915,041

  Workers' compensation
 
377,003

 
372,006

 
796,261

 
798,563

  Short-tail lines (1)
 
312,318

 
280,100

 
603,436

 
567,178

  Commercial automobile
 
185,804

 
173,956

 
400,449

 
378,155

  Professional liability
 
134,086

 
133,512

 
283,277

 
273,366

    Total Insurance
 
1,513,526

 
1,438,169

 
3,056,578

 
2,932,303

  Casualty reinsurance
 
80,306

 
86,386

 
162,641

 
179,928

  Property reinsurance
 
30,272

 
39,696

 
70,223

 
98,858

     Total Reinsurance
 
110,578

 
126,082

 
232,864

 
278,786

          Total
 
$
1,624,104

 
$
1,564,251

 
$
3,289,442

 
$
3,211,089

 
 
 
 
 
 
 
 
 
Losses from catastrophes:
 
 
 
 
 
 
 
 
  Insurance
 
$
12,929

 
$
32,540

 
$
20,060

 
$
46,844

  Reinsurance
 
627

 
429

 
884

 
623

    Total
 
$
13,556

 
$
32,969

 
$
20,944

 
$
47,467

 
 
 
 
 
 
 
 
 
Net investment income:
 
 
 
 
 
 
 
 
  Core portfolio (2)
 
$
132,728

 
$
120,912

 
$
261,701

 
$
236,761

  Investment funds
 
12,716

 
8,895

 
53,070

 
35,544

  Arbitrage trading account
 
8,333

 
5,457

 
13,524

 
11,818

    Total
 
$
153,777

 
$
135,264

 
$
328,295

 
$
284,123

 
 
 
 
 
 
 
 
 
Net realized and unrealized gains on investments:
 
 
 
 
 
 
 
 
  Net realized gains on investment sales
 
$
124,283

 
$
40,453

 
$
266,952

 
$
92,801

  Change in unrealized gains on equity securities (3)
 
(54,652
)
 
—

 
(148,857
)
 
—

    Total
 
$
69,631

 
$
40,453

 
$
118,095

 
$
92,801

 
 
 
 
 
 
 
 
 
Other operating costs and expenses:
 
 
 
 
 
 
 
 
  Policy acquisition and insurance operating expenses
 
$
526,862

 
$
527,707

 
$
1,047,093

 
$
1,051,116

  Insurance service expenses
 
30,990

 
34,923

 
63,702

 
64,856

  Net foreign currency (gains) losses
 
(18,251
)
 
6,968

 
(4,767
)
 
12,477

  Other costs and expenses
 
53,541

 
47,034

 
97,553

 
91,883

    Total
 
$
593,142

 
$
616,632

 
$
1,203,581

 
$
1,220,332

 
 
 
 
 
 
 
 
 
Cash flow from operations
 
$
139,397

 
$
149,386

 
$
119,362

 
$
224,858


(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) The inclusion of change in unrealized gains on equity securities within net income commenced January 1, 2018 due to our adoption of ASU 2016-01.

W. R. Berkley Corporation     Page 8

Selected Balance Sheet Information
(Amounts in thousands, except per share data)
 
June 30,
2018
 
December 31, 2017
 
 
 
 
Net invested assets (1)
$
18,479,194

 
$
18,508,646

Total assets
24,621,144

 
24,299,917

Reserves for losses and loss expenses
11,736,575

 
11,670,408

Senior notes and other debt
1,792,055

 
1,769,052

Subordinated debentures
907,117

 
728,218

Common stockholders’ equity (2)
5,426,118

 
5,411,344

Common stock outstanding (3)
121,716

 
121,515

Book value per share (4)
44.58

 
44.53

Tangible book value per share (4)
42.59

 
42.51

(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, 2018, reflected in common stockholders' equity are after-tax unrealized investment gains of $3 million and unrealized currency translation losses of $399 million. As of December 31, 2017, after-tax unrealized investment gains were $375 million and unrealized currency translation losses were $307 million. The decrease in unrealized investment gains during 2018 was primarily attributable to the change in accounting treatment of equity securities and the impact on fixed maturity securities from rising interest rates.
(3)
During the six months ended June 30, 2018, the Company repurchased 101,000 shares of its common stock for $6.8 million. During the three months ended June 30, 2018, 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)
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.


W. R. Berkley Corporation     Page 9

Investment Portfolio
June 30, 2018
(Amounts in thousands)
 
 
Carrying
Value
 
Percent
of Total
Fixed maturity securities:
 
 
 
 
United States government and government agencies
 
$
481,633

 
2.6
%
State and municipal:
 
 
 
 
Special revenue
 
2,554,685

 
13.8
%
Pre-refunded
 
453,704

 
2.5
%
Local general obligation
 
406,327

 
2.2
%
State general obligation
 
385,800

 
2.1
%
Corporate backed
 
331,387

 
1.8
%
Total state and municipal
 
4,131,903

 
22.4
%
Mortgage-backed securities:
 
 
 
 
Agency
 
874,125

 
4.7
%
      Commercial
 
363,182

 
2.0
%
Residential - Prime
 
205,996

 
1.1
%
Residential - Alt A
 
27,246

 
0.1
%
Total mortgage-backed securities
 
1,470,549

 
7.9
%
Asset-backed securities
 
2,354,915

 
12.7
%
Corporate:
 
 
 
 
Industrial
 
2,308,693

 
12.5
%
Financial
 
1,352,954

 
7.3
%
Utilities
 
275,026

 
1.5
%
Other
 
41,516

 
0.2
%
Total corporate
 
3,978,189

 
21.5
%
Foreign government
 
801,540

 
4.3
%
Total fixed maturity securities (1)
 
13,218,729

 
71.4
%
Equity securities available for sale:
 
 
 
 
Common stocks
 
288,027

 
1.6
%
Preferred stocks
 
184,362

 
1.0
%
Total equity securities available for sale
 
472,389

 
2.6
%
Real estate
 
1,883,622

 
10.2
%
Investment funds (2)
 
1,207,251

 
6.5
%
Cash and cash equivalents (3)
 
878,027

 
4.8
%
Arbitrage trading account
 
721,088

 
3.9
%
Loans receivable
 
98,088

 
0.6
%
Net invested assets
 
$
18,479,194

 
100.0
%
(1)
Total fixed maturity securities had an average rating of AA - and an average duration of 2.9 years, including cash and cash equivalents.
(2)
Investment funds are net of related liabilities of $1.3 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.