-----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, Qp8pqyVngUgD86gANJpjVZa1SaXI6fkbCjqGm5eeTTqhx73PnnDAlro4x8BRb7HH v3hpMosvipuDoCszb5KdTw== /in/edgar/work/0000914039-00-000480/0000914039-00-000480.txt : 20001115 0000914039-00-000480.hdr.sgml : 20001115 ACCESSION NUMBER: 0000914039-00-000480 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERKLEY W R CORP CENTRAL INDEX KEY: 0000011544 STANDARD INDUSTRIAL CLASSIFICATION: [6331 ] IRS NUMBER: 221867895 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07849 FILM NUMBER: 763920 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 y42529e10-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. . . . . . . . September 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 November 3, 2000: 25,500,847. 2 Part I - FINANCIAL INFORMATION ITEM 1. Financial Statements W. R. Berkley Corporation and Subsidiaries Consolidated Balance Sheets
(Dollars in thousands) September 30, December 31, 2000 1999 ------------- ------------ Assets (Unaudited) Investments: Invested cash $ 271,258 $ 295,423 Fixed maturity securities: Held to maturity, at cost (fair value $157,878 and $150,465) 155,514 152,657 Available for sale, at fair value (cost $2,099,323 And $2,180,509) 2,068,463 2,110,411 Equity securities, at fair value: Available for sale (cost $85,894 and $54,437) 94,028 61,380 Trading account (cost $385,348 and $236,453) 385,015 253,430 Cash 16,006 20,051 Premiums and fees receivable 410,481 380,887 Due from reinsurers 653,732 620,446 Accrued investment income 30,003 36,925 Prepaid reinsurance premiums 102,599 91,005 Deferred policy acquisition costs 195,377 182,348 Real estate, furniture & equipment at cost, less accumulated depreciation 123,537 128,735 Excess of cost over net assets acquired 72,709 76,523 Trading account receivable from brokers and clearing organizations 193,208 258,454 Deferred Federal income taxes 80,535 81,976 Other assets 32,439 34,140 ----------- ----------- $ 4,884,904 $ 4,784,791 =========== =========== Liabilities, Reserves, Debt and Stockholders' Equity Liabilities and reserves: Reserves for losses and loss expenses $ 2,462,114 $ 2,361,238 Unearned premiums 721,724 689,826 Due to reinsurers 137,119 144,712 Short-term debt 10,000 35,000 Trading securities sold but not yet purchased, at fair value (proceeds $139,571 and $137,801) 137,216 155,826 Other liabilities 196,113 183,218 ----------- ----------- 3,664,286 3,569,820 ----------- ----------- Long-term debt 370,068 394,792 Company-obligated manditorily redeemable capital securities of a Subsidiary trust holding solely 8.197% junior subordinated Debentures of the Corporation due December 15, 2045 198,158 198,126 Minority interest 31,609 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, 25,413,619 and 25,616,578 shares 7,281 7,281 Additional paid-in capital 331,620 331,640 Retained earnings 559,513 551,401 Accumulated other comprehensive income (18,250) (44,500) Treasury stock, at cost, 10,990,448 and 10,787,489 shares (259,381) (254,044) ----------- ----------- 620,783 591,778 ----------- ----------- $ 4,884,904 $ 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 Nine Months Ended September 30, Ended September 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Revenues: Net premiums written $ 376,084 $ 359,881 $ 1,111,926 $ 1,085,652 Change in net unearned premiums (5,252) 3,657 (20,243) (33,760) ----------- ----------- ----------- ----------- Premiums earned 370,832 363,538 1,091,683 1,051,892 Net investment income 56,513 48,090 153,025 145,265 Management fees and commission income 15,818 19,099 51,535 55,347 Realized gains (losses) on investments 1,092 (3,417) 1,885 (2,404) Other income 1,702 513 3,086 1,686 ----------- ----------- ----------- ----------- Total revenues 445,957 427,823 1,301,214 1,251,786 Operating costs and expenses: Losses and loss expenses 276,344 272,819 803,596 764,916 Other operating costs and expenses 150,829 151,792 444,406 448,150 Interest expense 11,670 12,246 35,954 38,068 Restructuring charge -- -- 1,850 11,505 ----------- ----------- ----------- ----------- Income (loss) before income taxes 7,114 (9,034) 15,408 (10,853) Federal income tax benefit 869 8,145 4,085 17,768 ----------- ----------- ----------- ----------- Net Income (loss) before minority interest and preferred dividends 7,983 (889) 19,493 6,915 Minority interest (891) (467) (1,419) (175) Preferred dividends -- -- -- (497) ----------- ----------- ----------- ----------- Net income (loss) before change in accounting principle and extraordinary gain 7,092 (1,356) 18,074 6,243 Cumulative effect of change in accounting principle (net of taxes of $1,750) -- -- -- (3,250) Extraordinary gain on early extinguishment -- 735 -- 735 of long-term debt (net of taxes of $396) ----------- ----------- ----------- ----------- Net income (loss)attributable to common stockholders $ 7,092 $ (621) $ 18,074 $ 3,728 =========== =========== =========== =========== Earning per share: Basic: Net income (loss) before change in accounting principle and extraordinary gain $ .28 $ (.05) $ .71 $ .23 Cumulative effect of change in accounting principle -- -- -- (.12) Extraordinary gain on early extinguishment of long-term debt -- .03 -- .03 ----------- ----------- ----------- ----------- Net income (loss)attributable to common stockholders $ .28 $ (.02) $ .71 $ .14 =========== =========== =========== =========== Diluted: Net income (loss) before change in accounting principle and extraordinary gain $ .27 $ (.05) $ .70 $ .23 Cumulative effect of change in accounting principle -- -- -- (.12) Extraordinary gain on early extinguishment of long-term debt -- .03 -- .03 ----------- ----------- ----------- ----------- Net income (loss)attributable to common stockholders $ .27 $ (.02) $ .70 $ .14 =========== =========== =========== =========== Average shares outstanding: Basic 25,476 25,723 25,571 25,999 =========== =========== =========== =========== Diluted 25,807 25,822 25,769 26,133 =========== =========== =========== ===========
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 Nine Months Ended September 30, ------------------------- 2000 1999 --------- --------- Cash flows from (used in) operating activities: Net income before preferred dividends and extraordinary items $ 18,074 $ 3,490 Adjustments to reconcile net income to cash flows from operating activities: Minority interest 1,419 175 Increase in reserves for losses and loss expenses, net of due to/from reinsurers 61,872 62,118 Depreciation and amortization 15,594 17,344 Change in unearned premiums and prepaid reinsurance premiums 20,304 33,825 Increase in premiums and fees receivable (29,594) (27,376) Change in Federal income taxes 5,338 (5,875) Change in deferred acquisition cost (13,029) (16,365) Realized gains on investments (1,885) 2,404 Other, net (26,643) (42,675) --------- --------- Net cash flows from operating activities before trading account 51,450 27,065 Net Trading account sales (purchases), net (55,034) 950 --------- --------- Net cash flows from (used in) operating activities (3,584) 28,015 --------- --------- Cash flows from (used in) investing activities: Proceeds from sales, excluding trading account: Fixed maturity securities available for sale 616,430 432,791 Equity securities 19,847 9,533 Proceeds from maturities and prepayments of fixed maturity securities 117,320 117,726 Cost of purchases, excluding trading account: Fixed maturity securities available for sale (649,662) (574,047) Fixed maturity securities held to maturity -- Equity securities (59,212) (5,457) Change in balances due to/from security brokers (636) 6,609 Proceeds from the sale of a subsidiary 2,532 -- Other, net (6,514) 2,006 --------- --------- Net cash flows from (used in) investing activities 40,105 (10,839) --------- --------- Cash flows used in financing activities: Repurchase of preferred stock -- (98,092) Proceeds from (repayment of) short-term debt (25,000) (20,500) Purchase of treasury shares (7,020) (22,119) Retirement of long-term debt and Capital Securities (25,000) (9,171) Cash dividends to common stockholders (9,399) (9,968) Cash dividends to preferred stockholders -- (2,001) Other, net 1,688 8,585 --------- --------- Net cash flows used in financing activities (64,731) (153,266) --------- --------- Net decrease in cash and invested cash (28,210) (136,090) Cash and invested cash at beginning of year 315,474 386,278 --------- --------- Cash and invested cash at end of period $ 287,264 $ 250,188 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 31,351 $ 33,247 ========= ========= Federal income taxes received, net $ (9,806) $ (13,544) ========= =========
See accompanying notes to consolidated financial statements. 3 5 W. R. Berkley Corporation and Subsidiaries Notes to Consolidated Financial Statements September 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 Nine Months Ended September 30, Ended September 30, --------------------------- -------------------------- 2000 1999 2000 1999 --------- -------- -------- -------- Ceded premiums written $ 77,606 $ 77,575 $238,432 $234,480 ========= ======== ======== ======== Ceded premiums earned $ 79,618 $ 72,416 $225,962 $223,440 ========= ======== ======== ======== Ceded losses and loss expenses $ 76,458 $ 73,474 $178,253 $198,735 ========= ======== ======== ========
3. COMPREHENSIVE INCOME The differences between comprehensive income (loss) and net income (loss) 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 Nine Months Ended September 30, Ended September 30, ----------------------- ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net income (loss) attributable to common stockholders $ 7,092 $ (621) $ 18,074 $ 3,728 Other comprehensive income: Unrealized holding gains(losses) on investment securities arising during the period, net of tax 17,526 (12,527) 25,426 (76,635) Less: Reclassification adjustment for gains (losses) included in net income (loss), net of tax 709 (2,221) 1,224 (1,563) -------- -------- -------- -------- Net change in unrealized gains (losses) during the period 18,235 (14,748) 26,650 (78,198) Change in unrealized foreign exchange gains (losses) (357) 124 (400) 835 -------- -------- -------- -------- Comprehensive income (loss) $ 24,970 $(15,245) $ 44,324 $(73,635) ======== ======== ======== ========
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 nine months ended September 30, 2000 and 1999, the joint venture revenues include life insurance premiums of $24.7 million and $16.7 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) Income ---------------------------------------- Before Tax Investment Unaffiliated Inter- Income (Expense) (Dollars in thousands) Income Customers Segment Total Taxes Benefits - ------------------------------------------------------------------------------------------------------------------------------- For the nine months ended September 30, 2000: Regional $ 43,859 $ 534,262 $ 1,015 $ 535,277 $ (2,972) $ 2,257 Reinsurance 36,643 251,371 1,026 252,397 17,253 (4,312) Specialty 35,844 236,347 1,724 238,071 16,860 (4,656) Alternative Markets 31,555 190,257 171 190,428 24,488 (5,982) International 6,882 84,319 -- 84,319 3,707 (396) Corporate and other 755 4,658 41,170 45,828 (14,389) 4,482 Adjustments and eliminations (2,513) -- (45,106) (45,106) (29,539) 12,692 - ------------------------------------------------------------------------------------------------------------------------------- Consolidated $153,025 $1,301,214 -- $1,301,214 $ 15,408 $ 4,085 - ------------------------------------------------------------------------------------------------------------------------------- For the nine months ended September 30, 1999: Regional $ 39,167 $ 518,714 $ 1,266 $ 519,980 $(32,210) $ 9,169 Reinsurance 36,608 256,700 520 257,220 13,596 (2,737) Specialty 38,918 235,194 (887) 234,307 34,713 (8,252) Alternative Markets 27,564 167,959 351 168,310 19,628 (3,553) International 4,935 68,556 -- 68,556 1,569 (956) Corporate and other 846 4,663 45,851 50,514 (15,409) 18,725 Adjustments and eliminations (2,773) -- (47,101) (47,101) (32,740) 5,372 - --------------------------------------------------------------------------------------------------------------------------------- Consolidated $145,265 $1,251,786 $ -- $1,251,786 $(10,853) $17,768 - ---------------------------------------------------------------------------------------------------------------------------------
5 7 Interest expense for reinsurance, alternative markets and corporate was $1,745,000, $441,000 and $33,768,000, respectively, for the nine months ended September 30, 2000 and $1,745,000, $445,000 and $35,878,000, respectively, for the corresponding period in 1999. Identifiable assets by segment are as follows:
September 30, December 31, 2000 1999 ------------------------------------ Regional $ 1,472,927 $ 1,436,575 Reinsurance 1,221,814 1,022,776 Specialty 1,374,216 1,370,837 Alternative Markets 930,111 878,125 International 211,334 177,675 Corporate and other 1,334,149 1,362,345 Elimination (1,659,647) (1,463,542) - ------------------------------------------------------------------------------- Consolidated $ 4,884,904 $ 4,784,791 ===============================================================================
5. SALE OF ASSETS In the second quarter 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. All American's revenues and operating profits (losses) were $1.8 million and ($0.7) million, respectively, for the first nine months of 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 for our reinsurance operations. 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 have been substantially completed. 7. RECENT ACCOUNTING PRONOUNCEMENTS During 1999, the FASB issued FAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB 133, and Amendment of FASB 133" which extended the effective date of FASB 133 to January 1, 2001. FAS 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments. This statement will not have a material impact on the Company's results of operations or financial condition. 8. OTHER MATTERS 6 8 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. 9. 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results for the First Nine Months of 2000 as Compared to the First Nine Months of 1999 Net premiums written during the first nine months of 2000 increased by 2% to $1,112 million from $1,086 million written in the comparable 1999 period. Net premiums written by the regional segment decreased by $7 million, or 2%, as a decline in policy count more than offset price increases. Specialty net premiums written increased by $8 million, or 4%, as increases in excess and surplus and financial products lines were offset by a 43% decrease in commercial transportation business. Net premiums written by the reinsurance operations decreased by $31 million, or 14%, as a result of the business restructuring implemented in the first quarter of 2000. (See Notes to Consolidated Financial Statements.) Alternative markets net premiums written increased $35 million, or 35%, due to an increase in excess and reinsured workers' compensation business. International net premiums written increased $22 million, or 37%, due to growth in both Argentina and the Philippines. Pre-tax investment income increased by 5% to $153 million in 2000. The average gross yield earned on the portfolio increased from 6.6% to 7.1% due primarily 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 7 9 $3.8 million to $51.5 million in 2000, principally due to the sale of All American Agency Facilities, Inc. (See Notes to Consolidated Financial Statements.) Realized gains were $1.9 million in 2000 compared with a loss of $2.4 million earned in 1999. Realized gains and losses relate primarily to sales of fixed income and equity securities, sales or disposals of other assets and adjustments to the carrying value of permanently impaired securities. Realized gains and losses 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 combined ratio (on a statutory basis) of the Company's insurance operations increased to 108.0% for the first nine months of 2000 from 107.7% for the comparable 1999 period. The consolidated loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned) increased to 73.5% in 2000 from 72.4% in 1999 due to an increase in loss ratios for the alternative markets and specialty segments, which was partially offset by lower loss ratios for the regional and reinsurance segments. The increase in the alternative markets loss ratio reflects higher estimated losses on reinsured workers' compensation business and a decrease in favorable reserve development for excess workers' compensation business. The decrease in the regional loss ratio was due to the impact of price increases. The decrease in the reinsurance loss ratio reflects the change in business relating to the restructuring implemented in the first quarter of 2000. (See Notes to Consolidated Financial Statements.) The increase in the specialty loss ratio reflects lower prior year reserve redundancies. During 2000, the specialty segment has experienced 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. 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 $444 million. The decrease in other operating costs and expenses is primarily due to a decline in corporate expenses and service company expenses. The consolidated expense ratio (underwriting expenses expressed as a percentage of premiums written) decreased to 34.2% 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 $4 million as compared to $18 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 5 cents per diluted share, related to the Company's reinsurance operations. (See Notes to Consolidated Financial Statements.) The restructuring, which has been substantially completed, 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 Third Quarter of 2000 as Compared to the Third Quarter of 1999 8 10 For the third quarter of 2000 as compared to the corresponding 1999 period, net premiums written increased 5% and net investment income increased 18%, generally for the reasons discussed above. The combined ratio (on a statutory basis) of the Company's insurance operations for the third quarter of 2000 increased to 110.2% from 109.4% for the comparable 1999 period due to an increase in the consolidated loss ratio. The consolidated loss ratio (losses and loss expense incurred expressed as a percentage of premiums earned) increased to 74.9% in 2000 from 74.0% in 1999 for the reasons discussed above. Other operating costs and expenses decreased 1% to $151 million and the consolidated expense ratio of the Company's insurance operations (underwriting expenses expressed as a percentage of premiums written)remained at 35.0%. Liquidity and Capital Resources Cash flow from operating activities before trading account activities was $51 million for the first nine months of 2000 compared with $27 million for the same period in 1999. Cash and investments (including trading account receivable from brokers and clearing organizations and trading securities sold but not yet purchased), on a cost basis, increased by $7 million to $3,067 million at September 30, 2000 from $3,060 million at December 31, 1999. The increase in cash and investments reflects cash flow from operations, which was partially offset by cash used for the repayment of debt and other financing activities. At September 30, 2000, as compared to December 31, 1999, the composition of the investment portfolio was as follows: state and municipal securities were 20% (36% in 1999); U.S. Government securities and cash equivalents were 24% (21% in 1999); mortgage-backed securities were 19% (15% in 1999); corporate fixed maturity securities were 20% (14% in 1999); and the balance of 17% (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 $441 million as of September 30, 2000, as compared to $356 million as of December 31, 1999. The net trading account represented approximately 14% and 12% of the Company's net invested assets as of September 30, 2000 and December 31, 1999, respectively. In the first nine months of 2000, the Company retired $25 million of 6.31% senior notes and repaid $25 million of borrowings under a line of credit. The debt repayments were financed by distributions from the Company's insurance subsidiaries. For the first nine months of 2000, stockholders' equity increased by approximately $29 million to $621 million. At September 30, 2000 the Company's total capitalization was $1,189 million and the percentage of the Company's capital attributable to long-term debt was 31%, compared with 33% at December 31, 1999. 9 11 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 September 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 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K During the quarter ended September 30, 2000, the Company filed the following Reports on Form 8-K: Report dated August 1, 2000 with respect to a press release announcing results of Operations of the Company for the second quarter of 2000 (Under Item 5 of Form 8-K.) Report dated September 26, 2000 with respect to a press release announcing the realignment of insurance companies (Under Item 5 of Form 8-K.) 10 12 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: November 7, 2000 /s/ WILLIAM R. BERKLEY ------------------------------ William R. Berkley Chairman of the Board and President Date: November 7, 2000 /s/ EUGENE G. BALLARD ------------------------------ Eugene G. Ballard Senior Vice President, Chief Financial Officer and Treasurer 11 EX-27 2 y42529ex27.txt EXHIBIT 27
7 1,000 U.S. DOLLAR 3-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 2,068,463 155,514 157,878 479,043 0 0 2,703,020 287,264 0 195,377 4,884,904 2,462,114 721,724 0 0 578,226 0 0 7,281 613,502 4,884,904 1,091,683 153,025 1,885 3,086 803,596 0 0 15,408 (4,085) 19,493 0 0 0 18,074 0.71 0.70 0 0 0 0 0 0 0
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