10-Q 1 e10-q.txt FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark one) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period . . . . . . June 30, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Transition Period from ____ to ____. 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 3, 2000 25,647,359: 2 Part I - FINANCIAL INFORMATION ITEM 1. Financial Statements W. R. Berkley Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in thousands)
June 30, December 31, 2000 1999 ----------- ----------- (Unaudited) Assets Investments: Invested cash $ 277,602 $ 295,423 Fixed maturity securities: Held to maturity, at cost (fair value $154,572 and $150,465) 154,152 152,657 Available for sale, at fair value (cost $2,103,941 And $2,180,509) 2,049,038 2,110,411 Equity securities, at fair value: Available for sale (cost $76,556 and $54,437) 81,745 61,380 Trading account (cost $324,209 and $236,453) 321,973 253,430 Cash 12,867 20,051 Premiums and fees receivable 402,932 380,887 Due from reinsurers 633,758 620,446 Accrued investment income 32,096 36,925 Prepaid reinsurance premiums 104,353 91,005 Deferred policy acquisition costs 191,487 182,348 Real estate, furniture & equipment at cost, less accumulated depreciation 124,969 128,735 Excess of cost over net assets acquired 73,688 76,523 Trading account receivable from brokers and clearing organizations 186,226 258,454 Deferred Federal income taxes 83,585 81,976 Other assets 37,360 34,140 ----------- ----------- $ 4,767,831 $ 4,784,791 =========== =========== Liabilities, Reserves, Debt and Stockholders' Equity Liabilities and reserves: Reserves for losses and loss expenses $ 2,419,311 $ 2,361,238 Unearned premiums 718,052 689,826 Due to reinsurers 136,063 144,712 Short-term debt -- 35,000 Trading securities sold but not yet purchased, at market value (proceeds $141,351 and $137,801) 134,361 155,826 Other liabilities 155,773 183,218 ----------- ----------- 3,563,560 3,569,820 ----------- ----------- Long-term debt 369,978 394,792 Company-obligated mandatorily redeemable capital securities of a Subsidiary trust holding solely 8.197% junior subordinated Debentures of the Corporation due December 15, 2045 198,147 198,126 Minority interest 31,529 30,275 Stockholders' equity: Preferred stock, par value $.10 per share: Authorized 5,000,000 shares; no shares issued Common stock, par value $.20 per share: Authorized 80,000,000 shares, issued and outstanding, Net of treasury shares, 25,624,859 and 25,616,578 shares 7,281 7,281 Additional paid-in capital 331,641 331,640 Retained earnings 555,724 551,401 Accumulated other comprehensive income (36,128) (44,500) Treasury stock, at cost, 10,779,208 and 10,787,489 shares (253,901) (254,044) ----------- ----------- 604,617 591,778 ----------- ----------- $ 4,767,831 $ 4,784,791 =========== ===========
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 -------------------------- -------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Revenues: Net premiums written $ 350,081 $ 345,187 $ 735,842 $ 725,771 Change in net unearned premiums 12,026 1,195 (14,991) (37,417) --------- --------- --------- --------- Premiums earned 362,107 346,382 720,851 688,354 Net investment income 49,584 51,181 96,512 97,175 Management fees and commission income 19,191 17,852 35,717 36,248 Realized gains on investments 325 285 793 1,013 Other income 726 550 1,384 1,173 --------- --------- --------- --------- Total revenues 431,933 416,250 855,257 823,963 Operating costs and expenses: Losses and loss expenses 265,493 249,258 527,252 492,097 Other operating costs and expenses 148,220 152,133 293,577 296,358 Interest expense 11,791 13,017 24,284 25,822 Restructuring charge -- -- 1,850 11,505 --------- --------- --------- --------- Income before income taxes and minority interest 6,429 1,842 8,294 (1,819) Federal and foreign income tax benefit 564 4,450 3,216 9,623 --------- --------- --------- --------- Income before minority interest 6,993 6,292 11,510 7,804 Minority interest (357) (668) (528) 292 --------- --------- --------- --------- Net income before preferred dividends 6,636 5,624 10,982 8,096 Preferred dividends -- -- -- (497) --------- --------- --------- --------- Net income before change in accounting principle 6,636 5,624 10,982 7,599 Cumulative effect of change in accounting principle (net of taxes of $1,750) -- -- -- (3,250) --------- --------- --------- --------- Net income attributable to common stockholders $ 6,636 $ 5,624 $ 10,982 $ 4,349 ========= ========= ========= ========= Earning per share: Basic: Net income before change in accounting principle and extraordinary loss $ .26 $ .22 $ .43 $ .29 --------- Cumulative effect of change in accounting Principle -- -- -- (.12) --------- --------- --------- --------- Net income attributable to common stockholders $ .26 $ .22 $ .43 $ .17 ========= ========= ========= ========= Diluted: Net income before change in accounting principle and extraordinary loss $ .26 $ .22 $ .43 $ .29 Cumulative effect of change in accounting principle -- -- -- (.12) --------- --------- --------- --------- Net income attributable to common stockholders $ .26 $ .22 $ .43 $ .17 ========= ========= ========= ========= Average shares outstanding: Basic 25,621 25,955 25,619 26,139 ========= ========= ========= ========= Diluted 25,796 26,095 25,725 26,304 ========= ========= ========= =========
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, -------------------------- 2000 1999 --------- --------- Cash flows from operating activities: Net income before preferred dividends $ 10,982 $ 4,846 Adjustments to reconcile net income to cash flows from operating activities: Minority interest 528 (292) Change in reserves for losses and loss expenses, net of due to/from reinsurers 37,987 53,481 Depreciation and amortization 10,207 11,483 Change in unearned premiums and prepaid reinsurance premiums 14,878 37,483 Change in premiums and fees receivable (22,045) (41,606) Change in Federal income taxes (3,304) (11,364) Change in deferred acquisition cost (9,139) (15,395) Realized gains on investments (793) (1,013) Other, net (41,966) (31,707) --------- --------- Net cash flows from (used in) operating activities before trading account sales (2,665) 5,916 Trading account sales, net (636) (1,758) --------- --------- Net cash flows from (used in) operating activities (3,301) 4,158 --------- --------- Cash flows from (used in) investing activities: Proceeds from sales, excluding trading account: Fixed maturity securities available for sale 752,816 300,540 Equity securities 29,884 433 Proceeds from maturities and prepayments of fixed maturity securities 87,610 82,814 Cost of purchases, excluding trading account: Fixed maturity securities available for sale (762,630) (407,546) Equity securities (58,238) (3,841) Change in balances due to/from security brokers (4,489) (15,287) Net additions to real estate, furniture & equipment (4,389) (1,494) Net proceeds from sale of subsidiary 2,532 -- Other, net 1,000 2,668 --------- --------- Net cash flows from (used in) investing activities 44,096 (41,713) --------- --------- Cash flows used in financing activities: Net proceeds (repayment) from short-term debt (35,000) 19,500 Purchase of treasury shares -- (18,072) Cash dividends to common stockholders (6,067) (6,590) Cash dividends to preferred stockholders -- (2,001) Repurchase of preferred stock -- (98,092) Retirement of long-term debt (25,000) -- Other, net 267 8,553 --------- --------- Net cash flows used in financing activities (65,800) (96,702) --------- --------- Net decrease in cash and invested cash (25,005) (134,257) Cash and invested cash at beginning of year 315,474 386,278 --------- --------- Cash and invested cash at end of period 290,469 $ 252,021 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 24,532 $ 25,661 ========= ========= Federal and foreign income taxes paid, net $ 218 $ -- ========= =========
See accompanying notes to consolidated financial statements. 3 5 W. R. Berkley Corporation and Subsidiaries Notes to Consolidated Financial Statements June 30, 2000 (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, 1999. 1. 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. 2. 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, ----------------------- ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Ceded premiums written $ 84,196 $ 83,422 $160,826 $156,905 ======== ======== ======== ======== Ceded premiums earned $ 76,304 $ 82,101 $146,344 $151,024 ======== ======== ======== ======== Ceded losses and loss expenses $ 46,101 $ 81,685 $101,795 $125,261 ======== ======== ======== ========
3. COMPREHENSIVE INCOME The differences between comprehensive income and net income are unrealized foreign exchange gains (losses) as well as unrealized gains (losses) on securities. The following is a reconciliation of comprehensive income (amounts in thousands):
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------ ------------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Net income attributable to common stockholders $ 6,636 $ 5,624 $ 10,982 $ 4,349 -------- -------- -------- -------- Other comprehensive income: Change in unrealized foreign exchange gains (losses) (174) 2 (43) 711 Unrealized holding gains (losses) on investment securities arising during the period 2,782 (40,708) 7,900 (64,108) Less: Reclassification adjustment for gains included in net income, net of tax 211 185 515 658 -------- -------- -------- -------- Net change in unrealized gains during the period 2,993 (40,523) 8,415 (63,450) Other comprehensive income (loss) 2,819 (40,521) 8,372 (62,739) -------- -------- -------- -------- Comprehensive income (loss) $ 9,455 $(34,897) $ 19,354 $(58,390) ======== ======== ======== ========
4 6 4. INDUSTRY SEGMENTS The Company's operations are presently conducted through five basic segments: regional property casualty insurance; reinsurance; specialty lines of insurance; alternative markets operations and international. The regional property casualty insurance segment writes standard commercial and personal lines insurance for such risks as automobiles, homes and businesses. The Company's reinsurance segment specializes in underwriting property, casualty and surety reinsurance on both a treaty and facultative basis. The specialty lines of insurance consist primarily of excess and surplus lines, commercial transportation, professional liability, directors and officers liability and surety. The Company's alternative markets segment specializes in insuring, reinsuring, and administering self-insurance programs and other alternative risk transfer mechanisms for public entities, private employers and associations. Finally, the international operations represent the Company's joint venture (65% owned by the Company) with Northwestern Mutual Life International, Inc., which writes property and casualty insurance, as well as life insurance, internationally. For the six months ended June 30, 2000 and 1999, the joint venture wrote life insurance premiums of $16.4 million and $9.3 million, respectively. The accounting policies of the segments are the same as those described in the summary of significant accounting policies; see the Company's Annual Report on Form 10-K for the year ended December 31, 1999 for a complete description. Income tax expense (benefits) were calculated in accordance with the Company's tax sharing agreements, which provide for the recognition of tax loss carry-forwards only to the extent of taxes previously paid. Summary financial information about the Company's operating segments is presented in the following table. Income before income taxes by segment consists of revenues less expenses related to the respective segment's operations. These amounts include realized gains (losses) where applicable. Intersegment revenues consist primarily of dividends, interest on inter-company debt and fees paid by subsidiaries for portfolio management and other services to the Company. Identifiable assets by segment are those assets used in the operation of each segment.
INCOME REVENUES (LOSS) --------------------------------------- BEFORE INCOME TAX INVESTMENT UNAFFILIATED INTER- INCOME (EXPENSE) (DOLLARS IN THOUSANDS) INCOME CUSTOMERS SEGMENT TOTAL TAXES BENEFITS -------------------------------------------------------------------------------------------------------------------------------- For the six months ended June 30, 2000: Regional $ 27,878 $ 354,009 $ 881 $ 354,890 $ (1,317) $ 1,104 Reinsurance 23,480 166,327 399 166,726 10,714 (2,424) Specialty 22,952 156,496 1,322 157,818 10,667 (2,447) Alternative Markets 18,983 120,579 22 120,601 15,186 (3,298) International 4,163 53,571 -- 53,571 2,107 (612) Corporate and other 732 4,275 36,606 40,881 (33) 3,829 Adjustments and eliminations (1,676) -- (39,230) (39,230) (29,030) 7,064 -------------------------------------------------------------------------------------------------------------------------------- Consolidated $ 96,512 $ 855,257 $ -- $ 855,257 $ 8,294 $ 3,216 -------------------------------------------------------------------------------------------------------------------------------- For the six months ended June 30, 1999: Regional $ 27,084 $ 345,527 $ 948 $ 346,475 $ (14,798) $ 6,850 Reinsurance 23,778 165,631 338 165,969 8,033 (1,060) Specialty 26,324 155,766 (1,211) 154,555 21,374 (5,010) Alternative Markets 17,993 110,046 204 110,250 15,462 (2,560) International 3,341 44,034 -- 44,034 560 (879) Corporate and other 721 2,959 37,754 40,713 (3,853) 10,503 Adjustments and eliminations (2,066) -- (38,033) (38,033) (28,597) 1,779 -------------------------------------------------------------------------------------------------------------------------------- Consolidated $ 97,175 $ 823,963 $ -- $ 823,963 $ (1,819) $ 9,623 --------------------------------------------------------------------------------------------------------------------------------
Interest expense for reinsurance, alternative markets and corporate was $1,163,000, $297,000 and $22,824,000, respectively, for the six months ended June 30, 2000 and $1,163,000, $297,000 and $24,362,000, respectively, for the corresponding period in 1999. 5 7 Identifiable assets by segment are as follows:
JUNE 30, DECEMBER 31, 2000 1999 ------------------------------ Regional $1,461,817 $ 1,436,575 Reinsurance 1,178,678 1,022,776 Specialty 1,355,224 1,370,837 Alternative Markets 869,297 878,125 International 204,771 177,675 Corporate and other 1,308,766 1,362,345 Elimination (1,610,722) (1,463,542) ------------------------------------------------------ Consolidated $4,767,831 $ 4,784,791 ======================================================
5. SALE OF ASSETS For the first six months of 2000, the Company reported realized gains of $3.2 million in connection with the sale of the assets of All American Agency Facilities, Inc. ("All American"), a managing general agency, and the sale of certain equipment. All American's revenues and operating profits (losses) were $1.8 million and ($0.6) million, respectively, for the six months ended June 30, 2000 and $7.5 million and $0.4 million, respectively, for the year ended December 31, 1999. 6. RESTRUCTURING CHARGE In the first quarter of 2000, the Company implemented a restructuring plan. Under the plan, the reinsurance segment has withdrawn from the Latin American and Caribbean market, and the domestic reinsurance operations are focusing on specialty reinsurance lines while de-emphasizing certain commodity-type lines. The Company reduced its permanent workforce by approximately 37 employees in connection with the plan. The Company recognized $1,850,000 in expense in its statement of operations to reflect charges related to the plan. These charges consisted mainly of severance payments and contractual lease payments related to abandoned facilities. The activities under the plan are expected to be substantially completed in 2000. 7. OTHER MATTERS Reclassifications have been made in the 1999 financial statements as originally reported to conform them to the presentation of the 2000 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. Seasonal weather variations affect the severity and frequency of losses sustained by the insurance and reinsurance subsidiaries. Although the effect on the Company's business of such natural catastrophes as tornadoes, hurricanes, hailstorms and earthquakes is mitigated by reinsurance, they nevertheless can have a significant impact on the results of any one or more reporting periods. 8. SAFE HARBOR STATEMENT This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including those related to the Company's performance for the year 2000 and beyond, are based upon the Company's historical performance and on current plans, estimates and expectations. They are subject to various risks and uncertainties, including but not limited to the impact of competition, product demand and pricing, claims development, catastrophe and storm losses, investment results, legislative and regulatory developments and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. These risks could cause the Company's actual results for the 2000 fiscal year and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company. 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. 6 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results for the First Six Months of 2000 as Compared to the First Six Months of 1999 Net premiums written during the first six months of 2000 increased by 1% to $736 million from $726 million written in the comparable 1999 period. Net premiums written by the regional segment decreased by $5.9 million, or 2%, due to a decline in policy count. Specialty net premiums written increased by $1.4 million, or 1%, as increases in business written by the excess and surplus and financial products lines were offset by a 39% decrease in commercial transportation business. Net premiums written by the reinsurance operations decreased by $20.2 million, or 13%, due to a decrease in treaty property business which was partially offset by an increase in facultative business. Alternative markets net premiums written increased $19.1 million, or 29%, due to an increase in business written by Signet Star Reinsurance Company. International net premiums written increased $15.7 million, or 41%, due to growth in both Argentina and the Philippines. Pre-tax investment income decreased by 1% to $96.5 million. The decrease in investment income was due to a decrease in average investable assets as a result of the repayment of short-term debt and the retirement of certain long-term debt. The average yield earned on the portfolio increased from 6.5% to 6.7% due to a decrease in the portion of the portfolio invested in municipal securities. (See "Liquidity and Capital Resources.") Management fees and commission income ("Management fees") consist primarily of revenues earned by the alternative markets segment. Management fees decreased $0.5 million from the comparable 1999 amount, principally due to the sale of All American Agency Facilities, Inc. (See Notes to Consolidated Financial Statements.) Realized gains decreased to $0.8 million from $1.0 million earned in the comparable 1999 period. Realized gains on fixed income securities result primarily from the Company's strategy of maintaining an appropriate balance between the duration of its fixed income portfolio and the duration of its liabilities; realized gains on equity securities arise primarily as a result of a variety of factors which influence the Company's valuation criteria. The majority of the 2000 and 1999 realized gains and losses resulted from the sale of fixed income securities, and other assets. (See Notes to Consolidated Financial Statements.) The combined ratio (on a statutory basis) of the Company's insurance operations increased to 107.4% for the first six months of 2000 from 106.8% for the comparable 1999 period. The consolidated loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned) increased to 73.3% in 2000 from 71.5% in 1999 due to an increase in loss ratios at the alternative markets and specialty segments. The increase in the alternative markets loss ratio reflects higher estimated losses on new business written by Signet Star Reinsurance Company and a decrease in favorable reserve development at Midwest Employers Casualty Company. The increase in the specialty loss ratio reflects increased claims activity arising from policies issued to nursing home and assisted care facilities by Admiral Insurance Company, primarily in 1998 and 1999. Admiral ceased issuing policies to such facilities in early 2000 and is continuing to monitor developments and evaluate claims reserves with respect to this coverage. 7 9 Other operating costs and expenses, which consist of the expenses of the Company's insurance and alternative markets operations as well as the Company's corporate and investment expenses, decreased by 1% to $293.6 million. The decrease in other operating costs and expenses is primarily due to a decline in premium volume which in turn results in a decrease in underwriting expenses. The consolidated expense ratio (underwriting expenses expressed as a percentage of premiums written) decreased to 33.8% from 34.9% as a result of savings from the restructuring of the regional segment in 1999. The Federal income tax benefit in 2000 was $3.2 million as compared to $9.6 million for the comparable 1999 period. The effective tax rate differs from the Federal tax rate of 35% principally because of tax-exempt investment income. (See "Liquidity and Capital Resources.") First quarter 2000 results include an after-tax restructuring charge of $1.2 million, or 4 cents per diluted share, related to the Company's reinsurance operations. (See Notes to Consolidated Financial Statements.) The restructuring, which should be substantially completed by the end of 2000, is expected to result in annual after-tax savings of approximately $ 2.5 million. The first quarter 1999 results include an after-tax restructuring charge of $ 7.3 million, or 28 cents per diluted share, primarily related to the restructuring of the Company's regional property casualty business. Operating Results for the Second Quarter of 2000 as Compared to the Second Quarter of 1999 For the second quarter of 2000 as compared to the corresponding 1999 period, net premiums written increased 1% and net investment income decreased 3%, generally for the reasons discussed above. The combined ratio (on a statutory basis) of the Company's insurance operations for the second quarter of 2000 decreased to 108.2% from 108.7% for the comparable 1999 period due to an increase in the consolidated loss ratio and a decrease in the consolidated expense ratio. The consolidated loss ratio (losses and loss expense incurred expressed as a percentage of premiums earned) increased to 73.1% in 2000 from 71.9% in 1999 for the reasons discussed above. Other operating costs and expenses decreased 3% to $148.2 million and the consolidated expense ratio of the Company's insurance operations (underwriting expenses expressed as a percentage of premiums written) decreased to 34.7% for the 2000 period from 36.4% for the comparable 1999 quarter for the reasons discussed above. Liquidity and Capital Resources Cash flow used in operating activities before trading account activities was $3 million for the first six months of 2000 compared with cash flow from operating activities of $6 million for the same period in 1999. The investment portfolio, excluding trading account securities, on a cost basis, decreased by $71 million to $2,612 million at June 30, 2000 from $2,683 million at December 31, 1999. The decrease in the investment portfolio is primarily attributable to the repayment of $60 million of corporate debt during the first six months of 2000. At June 30, 2000, as compared to December 31, 1999, the investment portfolio was as follows: state and municipal securities were 25% (36% in 1999); U.S. Government securities and cash equivalents were 23% (21% in 1999); mortgage-backed securities were 18% (15% in 1999); corporate fixed maturity securities were 18% (14% in 1999); and the balance of 16% (14% in 1999) was invested in equity securities. The Company had net trading assets (trading account equity securities plus trading account receivables from brokers and clearing organizations less trading account securities sold but not yet purchased) of $374 million as of June 30, 2000, as compared to $356 million as of December 8 10 31, 1999. The net trading account represented approximately 13% (12% in 1999) of the Company's net invested assets as of June 30, 2000 and December 31, 1999. In the first six months of 2000, the Company retired $25 million of 6.31% senior notes and repaid $35 million of borrowings under a line of credit. The debt repayments were financed by distributions from the Company's insurance subsidiaries and, as a result, the consolidated surplus of the insurance subsidiaries decreased to approximately $801 million at June 30, 2000 from approximately $851 million at December 31, 1999. For the first six months of 2000, stockholders' equity increased by approximately $13 million to $605 million. At June 30, 2000 the Company's total capitalization was $1,173 million and the percentage of the Company's capital attributable to long-term debt was 32%, compared with 33% at December 31, 1999. For background information concerning discussion of the Company's Liquidity and Capital Resources, see the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Item 3. Quantitative and Qualitative Disclosure About Market Risk The Company's market risk generally represents the risk of gain or loss that may result from the potential change in the fair value of the Company's investment portfolio as a result of fluctuations in prices, interest rates and currency exchange rates. The Company attempts to manage its interest rate risk by maintaining an appropriate relationship between the average duration of the investment portfolio and the approximate duration of its liabilities, i.e., policy claims and debt obligations. The Company has maintained approximately the same duration of its investment portfolio to its liabilities from December 31, 1999 to June 30, 2000, and the overall market risk relating to the Company's portfolio has remained similar to the risk at December 31, 1999. PART II - OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds On May 9, 2000 the Company issued 346 shares of its Common Stock to each of its eight directors (2,768 shares in the aggregate). The shares were issued as payment of a portion of annual director's fees pursuant to the Company's 1997 Director Stock Plan. The shares were not registered under the Securities Act of 1933 in reliance on the exemption provided in Section 4(2) thereof for transactions not involving a public offering. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K During the quarter ended June 30, 2000, the Company filed the following Report on Form 8-K: Report dated April 26, 2000 with respect to a press release announcing results of operations of the Company for the first quarter of 2000 (Under Item 5 of Form 8-K.) 9 11 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 Date: August 8, 2000 /s/ WILLIAM R. BERKLEY ------------------------------ William R. Berkley Chairman of the Board and Chief Executive Officer Date: August 8, 2000 /s/ EUGENE G. BALLARD ------------------------------ Eugene G. Ballard Senior Vice President, Chief Financial Officer and Treasurer 10