-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GolFhg+/fs0hsJqGao7H7w5Te58p76bvR2szwA1VT3OX7cwu4EtnYyuWb0gLdymT FucSzcT+UiEJzw5e0dIshA== 0000914039-96-000281.txt : 19960816 0000914039-96-000281.hdr.sgml : 19960816 ACCESSION NUMBER: 0000914039-96-000281 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERKLEY W R CORP CENTRAL INDEX KEY: 0000011544 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 221867895 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07849 FILM NUMBER: 96614208 BUSINESS ADDRESS: STREET 1: 165 MASON ST STREET 2: P O BOX 2518 CITY: GREENWICH STATE: CT ZIP: 06836-2518 BUSINESS PHONE: 2036293000 MAIL ADDRESS: STREET 1: 165 MASON ST STREET 2: PO BOX 2518 CITY: GREENWICH STATE: CT ZIP: 06836-2518 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended. . . . . . . . June 30, 1996 Commission File Number 0-7849 W. R. BERKLEY CORPORATION (Exact name of registrant as specified in its charter) Delaware 22-1867895 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 165 Mason Street, Greenwich, Connecticut 06836-2518 (Address of principal executive offices) (Zip Code) (203) 629-3000 (Registrant's telephone number, including area code) None Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares of common stock, $.20 par value, outstanding as of August 2, 1996: 19,611,485 2 W. R. Berkley Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in thousands)
June 30, December 31, 1996 1995 ----------- ------------ (Unaudited) Assets Investments: Invested cash $ 255,659 $ 196,732 Fixed maturity securities: Held to maturity, at cost (fair value $201,232 and $176,193) 201,761 169,078 Available for sale at fair value (cost $1,941,784 and $1,894,451) 1,935,757 1,959,910 Equity securities, at fair value: Available for sale (cost $67,263 and $92,472) 79,580 101,551 Trading account (cost $98,416 and $155,301) 100,006 161,075 Cash 10,799 10,185 Premiums and fees receivable 262,331 231,093 Due from reinsurers 408,335 423,626 Accrued investment income 36,334 34,373 Prepaid reinsurance premiums 73,407 77,656 Deferred policy acquisition costs 106,727 89,517 Excess of cost over net assets acquired 71,007 69,600 Deferred Federal income taxes 7,740 -- Other assets 149,800 94,288 ----------- ----------- $ 3,699,243 $ 3,618,684 =========== =========== Liabilities, Reserves, Debt and Stockholders' Equity Liabilities and reserves: Reserves for losses and loss expenses $ 1,722,005 $ 1,660,020 Unearned premiums 492,899 450,522 Due to reinsurers 75,827 65,798 Deferred Federal income taxes -- 14,363 Other liabilities 142,004 169,080 ----------- ----------- 2,432,735 2,359,783 ----------- ----------- Long-term debt 389,967 290,981 Notes payable to Banks -- 28,306 Minority interest 10,102 9,799 Stockholders' equity: Preferred stock, par value $.10 per share: Authorized 5,000,000 shares: 7 3/8% Series A Cumulative Redeemable Preferred Stock 1,000,000 shares issued and outstanding 100 100 Series B Cumulative Redeemable Preferred Stock 266,667 and 458,667 shares issued and outstanding 27 46 Common stock, par value $.20 per share: Authorized 40,000,000 shares, issued and outstanding, net of treasury shares, 19,661,485 and 20,168,167 shares 4,854 4,854 Additional paid-in capital 521,284 547,068 Retained earnings 452,747 424,261 Net unrealized investment gains, net of taxes 4,089 48,450 Treasury stock, at cost, 4,607,893 and 4,101,211 shares (116,662) (94,964) ----------- ----------- 866,439 929,815 ----------- ----------- $ 3,699,243 $ 3,618,684 =========== ===========
See accompanying notes to consolidated financial statements 1 3 W. R. Berkley Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited) (Amounts in thousands except per share data)
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Net premiums written $ 269,477 $ 216,575 $ 518,683 $ 407,151 Increase in unearned premiums (26,456) (25,421) (46,526) (36,372) --------- --------- --------- --------- Premiums earned 243,021 191,154 472,157 370,779 Net investment income 39,494 32,562 79,109 63,405 Management fees and commissions 18,066 17,475 36,286 34,229 Realized gains on investments 213 5,776 523 6,773 Other income 499 475 1,143 1,188 --------- --------- --------- --------- Total revenues 301,293 247,442 589,218 476,374 Operating costs and expenses: Losses and loss expenses (164,278) (138,633) (325,042) (263,730) Other operating costs and expenses (101,478) (80,284) (196,522) (159,033) Interest expense (7,901) (7,120) (15,688) (14,145) --------- --------- --------- --------- Income before income taxes and minority interest 27,636 21,405 51,966 39,466 Federal income tax expense (6,275) (4,684) (11,083) (8,139) --------- --------- --------- --------- Income before minority interest 21,361 16,721 40,883 31,327 Minority interest -- (1,352) -- (2,385) --------- --------- --------- --------- Net income before preferred dividends 21,361 15,369 40,883 28,942 Preferred dividends (3,380) (2,765) (7,218) (5,531) --------- --------- --------- --------- Net income attributable to common stockholders $ 17,981 $ 12,604 $ 33,665 $ 23,411 ========= ========= ========= ========= Net income per share $ .91 $ .76 $ 1.68 $ 1.40 ========= ========= ========= ========= Average shares outstanding 19,782 16,664 19,980 16,706 ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 2 4 W. R. Berkley Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)
For the Six Months Ended June 30, 1996 1995 --------- --------- Cash flows from operating activities: Net income before preferred dividends $ 40,883 $ 28,942 Adjustments to reconcile net income to cash flows from operating activities: Minority interest -- 2,385 Increase in reserves for losses and loss expenses, net of due to/from reinsurers 87,071 51,841 Depreciation and amortization 5,583 6,364 Change in unearned premiums and prepaid reinsurance premiums 46,526 36,372 Increase in premiums and fees receivable (31,238) (26,937) Change in Federal income taxes 199 (765) Change in deferred acquisition cost (17,210) (9,377) Realized gains on investments (523) (6,773) Other (41,501) (14,090) --------- --------- Net cash flows from operating activities before trading account sales (purchases) 89,790 67,962 Trading account sales (purchases), net 53,307 (23,548) --------- --------- Net cash flows from operating activities 143,097 44,414 --------- --------- Cash flows from investing activities: Proceeds from sales, excluding trading account: Fixed maturity securities available for sale 181,600 241,794 Equity securities 28,852 20,829 Proceeds from maturities and prepayments of fixed maturity securities 108,692 41,333 Cost of purchases, excluding trading account: Fixed maturity securities available for sale (320,422) (325,671) Fixed maturity securities held to maturity (49,451) -- Equity securities (2,925) (33,717) Change in balances due to/from security brokers (11,655) (7,516) Other (29,107) (8,969) --------- --------- Net cash flows from investing activities (94,416) (71,917) --------- --------- Cash flows from financing activities: Net proceeds from issuance of long-term debt 98,850 -- Repayment of preferred stock (27,216) -- Repayment of subsidiary debt (28,306) (5,941) Cash dividends to common stockholders (5,043) (3,844) Cash dividends to preferred stockholders (5,791) (5,531) Purchase of treasury shares (22,121) (4,095) Other 487 108 --------- --------- Net cash flows from financing activities 10,860 (19,303) --------- --------- Net increase (decrease) in cash and invested cash 59,541 (46,806) Cash and invested cash at beginning of year 206,917 219,629 --------- --------- Cash and invested cash at end of period $ 266,458 $ 172,823 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 11,770 $ 12,741 ========= ========= Federal income taxes paid, net $ 10,883 $ 8,907 ========= =========
See accompanying notes to consolidated financial statements. 3 5 W. R. Berkley Corporation and Subsidiaries Notes to Consolidated Financial Statements June 30, 1996 (Unaudited) The accompanying consolidated financial statements should be read in conjunction with the following notes and with the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. A. FEDERAL INCOME TAXES The Federal income tax provision has been computed based on the Company's estimated annual effective tax rate which differs from the Federal income tax rate of 35% principally because of tax-exempt investment income. B. REINSURANCE CEDED The amounts of ceded reinsurance included in the statements of operations are as follows (amounts in thousands):
For the Three Months For the Six Months Ended June 30, Ended June 30, -------------------------- -------------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Ceded premiums written $ 51,673 $ 51,513 $102,547 $102,310 ======== ======== ======== ======== Ceded premiums earned $ 54,263 $ 50,099 $107,023 $ 99,982 ======== ======== ======== ======== Ceded losses and loss expenses $ 31,616 $ 47,029 $ 62,682 $ 74,992 ======== ======== ======== ========
C. PER SHARE DATA Per share amounts have been computed based on net income less preferred dividends divided by the weighted average number of common shares outstanding. Incremental shares arising from the assumed issuance of employee stock options, which are considered common stock equivalents, were not included in the computations because the assumed dilutive effect was not material. D. OTHER MATTERS Net unrealized investment gains decreased by $44,361,000 (net of Federal income taxes of $23,887,000) during the three months ended June 30, 1996. Of this amount, $2,105,000 was attributable to an increase in unrealized gains on equity securities and $46,466,000 was attributable to an decrease in unrealized gains on fixed maturities available for sale. Reclassifications have been made in the 1995 financial statements as originally reported to conform them to the presentation of the 1996 financial statements. In the opinion of management, the summarized financial information reflects all adjustments which are necessary for a fair presentation of financial position and results of operations for the interim periods. The Company's results of operations are affected by seasonal weather variations. Accordingly, results reflected for any interim period are not necessarily indicative of those to be expected for the entire year. 4 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income attributable to common stockholders (net income) for the first six months of 1996 was $33,665,000 ($1.68 per share). The comparable 1995 amount was $23,411,000 ($1.40 per share). For the quarter ended June 30, 1996, net income was $17,981,000 ($.91 per share) in comparison with $12,604,000 ($.76 per share) recorded in the comparable prior year period. Operating income, which we define as net income before realized investment gains or losses, for the first six months of 1996 was $33,325,000 ($1.66 per share). The comparable 1995 amount, was $19,299,000 ($1.16 per share). For the quarter ended June 30, 1996, operating income was $17,843,000 ($.90 per share) in comparison with $9,101,000 ($.55 per share) recorded in the comparable prior year period. Operating Results for the Six Months ended June 30, 1996 as Compared to the Six Months ended June 30, 1995 Net premiums written during the first six months of 1996 increased 27% to $518,683,000 from $407,151,000. Regional net premiums written increased 15% to $256,256,000; three-fourths of this increase was due to business units which were started during the past four years. Reinsurance net premiums written increased 16% to $108,025,000; this increase was substantially due to an increase in treaty business and the start-up of the Latin American and Caribbean division. Specialty net premiums written increased 28% to $104,112,000; this increase is due to an increase in business written by Admiral as well as increases in the amount of business retained by Admiral, Monitor and Nautilus which more than offset a decline in premiums written by Carolina Casualty. Alternative markets net premiums written increased $28,894,000 to $38,568,000 due to the inclusion of the results of MECC, Inc. ("MECC"), acquired in November 1995. International operations, which were acquired during the 2nd quarter of 1995, contributed $11,722,000 to net premiums written. For the six months ended June 30, 1996, pre-tax net investment income increased $15,704,000 to $79,109,000. Three-fourths of this increase was due to the inclusion of the results of MECC. Excluding effects of the acquisition of MECC, pre-tax net investment income increased 6%; this increase was due to the increase in average investable assets due to cash flow from operations (see "Liquidity and Capital Resources"), which more than offset a decline in yields available in the financial markets. Management fees and commissions consist primarily of fees earned by the alternative markets segment. Management fees and Commissions during the first six months of 1996 increased 6% to $36,286,000. Realized investment gains declined to $523,000 from $6,773,000 earned during the comparable 1995 period. Realized gains resulted from the Company's strategy of continually rebalancing the asset and liability duration relationship based upon changes in financial market conditions. The combined ratio (on a statutory basis) of the Company's insurance operations increased to 102.1% for the six months ended June 30, 1996 from 101.9% in the comparable 1995 period due to a decrease in the consolidated loss ratio which was offset by a higher expense ratio. The consolidated loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned) decreased to 69.1% in 1996 from 70.5% in 1995, due to improved results recorded by our specialty operations which more than offset the impact of a significant increase in weather related losses incurred by our regional operations. 5 7 Other operating costs and expenses, which consists of the expenses of the Company's insurance and insurance services segments, as well as the Company's corporate and investment expenses increased 24% to $196,522,000 for the six months ended June 30, 1996. The increase in other operating costs is primarily due to substantial growth in premium volume in all segments of the Company's business, which in turn results in an increase in underwriting expenses contributed to this increase and the acquisition of MECC. In addition the consolidated expense ratio of the Company's insurance operations (underwriting expenses expressed as a percentage of premiums written) increased to 32.6% for the 1996 period from 30.8% for the comparable 1995 period. The underwriting expense ratio increased primarily as a result of an increase in commission expense. Interest expense increased due to the January 1996 issuance of $100 million of long-term debt. Preferred dividends increased as a result of the December 1995 issuance of $68.8 million Series B Cumulative Redeemable Preferred Stock. (see "Liquidity and Capital Resources"). The Federal income tax provision resulted in an effective tax rate of 21% in 1996 and 1995. The rate is lower than the statutory tax rate of 35% because a substantial portion of investment income is tax-exempt. Operating Results for the Second Quarter of 1996 as Compared to the Second Quarter of 1995 For the second quarter of 1996 as compared to the corresponding 1995 period, net premiums written increased 24%. Net investment income increased 21% and management fees and commission income increased 3% all for the reasons discussed above. The combined ratio (on a statutory basis) of the Company's insurance operations decreased to 101.4% for the three months ended June 30, 1996 from 102.3% in the comparable 1995 period due to a decrease in the consolidated loss ratio which more than offset a higher expense ratio. The consolidated loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned) improved to 67.9% in 1996 from 71.8% in 1995 due to significant improvement in our specialty operations. The improvement in our specialty operations was due to an improvement in the anticipated loss ratios for business written in the current and prior periods. Other operating costs and expenses, increased 26% to $101,478,000 for the three months ended June 30, 1996. The consolidated expense ratio of the Company's insurance operations (underwriting expenses expressed as a percentage of premiums written) increased to 33.0% for the 1996 period from 30.0% for the comparable 1995 all for the reasons discussed above. The Federal income tax provision applicable to operating income varies with the percentage of pre-tax income that is tax-exempt as discussed previously. 6 8 Liquidity and Capital Resources Cash flow from operating activities before trading account transactions, increased to $89.8 million during the first six months of 1996 from $68.0 million in the same period in 1995 due to an increase in premium volume and the inclusion of the results of MECC. The investment portfolio, on a cost basis, increased $57.8 million to $2,564.9 million at June 30, 1996 from $2,508.0 million at December 31, 1995 due to cash flow from operations and the net effects of financing activities discussed below. Changes in the distribution of the Company's investment portfolio at June 30, 1996 in comparison with December 31, 1995 were as follows: tax-exempt securities increased to 34% from 33%; U.S. Government securities increased to 15% from 12%; corporate bonds decreased to 15% from 19%; mortgage-backed securities increased to 19% from 18%; cash equivalents increased to 10% from 8%; and equity securities decreased to 7% from 10%. On January 19, 1996, the Company issued $100 million of 6.25%, ten-year notes which are not redeemable until maturity and utilized a portion of the proceeds to retire $28.4 million of subsidiary bank debt. On March 29, 1996 the Company repurchased 192,000 shares ($28.8 million redemption value) of the Series B Cumulative Redeemable Preferred Stock for $27.2 million. The Company purchased 575,000 shares of common stock from April through July of 1996. Pursuant to the current authorization by the Board of Directors, up to 759,000 additional shares may be purchased from time to time. For the first six months of 1996, Stockholders' equity decreased by approximately $63.4 million. The decrease in stockholders' equity is attributable to the repurchase of the Series B Cumulative Redeemable Preferred Stock, the purchase of treasury stock and a decrease in unrealized investment gains which more than offset an increase in retained earnings. As a result of the net effect of the financing transactions and the change in stockholders' equity discussed above, the Company's total capitalization grew to $1,256.4 million at June 30, 1996 and the percentage of the Company's capital attributable to debt increased to 31% from 26% at December 31, 1995. For background information concerning a further discussion of the Company's Liquidity and Capital Resources, see the Company's Annual Report on Form 10-K. 7 9 Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None (b) Reports on Form 8-K None 8 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. W. R. BERKLEY CORPORATION By /s/ William R. Berkley ------------------------- William R. Berkley Chairman of the Board and Chief Executive Officer By /s/ Anthony J. DelTufo ------------------------- Anthony J. Del Tufo Senior Vice President, Chief Financial Officer and Treasurer 9 EX-27 2 FINANCIAL DATA SCHEDULE
7 1,000 U.S. DOLLARS 6-MOS DEC-31-1995 JAN-01-1996 JUN-30-1996 1 1,935,757 201,761 201,232 179,586 0 0 2,317,104 266,458 0 106,727 3,699,243 1,722,005 492,899 0 0 389,967 0 127 4,854 861,458 3,699,243 472,157 79,109 523 1,143 325,042 0 0 51,966 11,083 40,883 0 0 0 33,665 1.68 0 0 0 0 0 0 0 0
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