-----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, HmU1pmQLRDrjiJMSBsnBWU0NFcmlvcv5Kzf0riisAPVFAArCgMaG1xrGNKrcEj6q lGqB0tC8L5SslvHJc4V75Q== 0000914039-95-000141.txt : 19951119 0000914039-95-000141.hdr.sgml : 19951119 ACCESSION NUMBER: 0000914039-95-000141 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 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: 95589817 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 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. . . . . . . . September 30, 1995 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 1, 1995: 20,148,349. 2 W. R. Berkley Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in thousands)
September 30, December 31, 1995 1994 ----------- ----------- (Unaudited) ASSETS Investments: Invested cash $ 161,403 $ 214,116 Fixed maturity securities: Held to maturity, at cost (fair value $167,067 and $195,983) 160,701 192,827 Available for sale, at fair value (cost $1,536,345 and $1,408,063) 1,568,446 1,353,891 Equity securities, at fair value Available for sale (cost $81,648 and $68,787) 90,805 69,338 Trading Account (cost $163,849 and $71,211) 169,449 71,543 Cash 10,500 5,513 Premiums and fees receivable 236,688 191,418 Due from reinsurers 1,108,736 1,127,416 Accrued investment income 26,775 30,118 Prepaid reinsurance premiums 74,819 69,169 Deferred policy acquisition costs 90,341 72,026 Excess of cost over net assets acquired 55,556 55,319 Deferred Federal income taxes 16,937 42,217 Other assets 96,569 87,380 ----------- ----------- $ 3,867,725 $ 3,582,291 =========== =========== LIABILITIES, RESERVES, DEBT AND STOCKHOLDERS' EQUITY Liabilities and reserves: Reserves for losses and loss expenses $ 2,148,449 $ 2,070,886 Unearned premiums 425,833 350,263 Due to reinsurers 59,256 54,845 Other liabilities 153,982 116,983 ----------- ----------- 2,787,520 2,592,977 ----------- ----------- Corporate debt 255,141 255,006 Subsidiary debt 67,076 75,996 Minority interest 75,069 60,711 Stockholders' equity: Preferred stock, par value $.10 per share: Authorized 5,000,000 shares, issued and outstanding 1,000,000 shares 100 100 Common stock, par value $.20 per share: Authorized 40,000,000 shares, issued and outstanding, net of treasury shares, 16,684,041 and 16,777,718 shares 4,166 4,165 Additional paid-in capital 336,656 336,659 Retained earnings 412,299 382,859 Net unrealized investment gains (losses) 25,514 (33,973) Treasury stock, at cost, 4,135,337 and 4,041,660 shares (95,816) (92,209) ----------- ----------- 682,919 597,601 ----------- ----------- $ 3,867,725 $ 3,582,291 =========== ===========
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, 1995 1994 1995 1994 --------- --------- --------- --------- Revenues: Net premiums written $ 235,055 $ 184,813 $ 642,206 $ 538,108 Increase in unearned premiums (27,674) (19,712) (64,046) (56,677) --------- --------- --------- --------- Premiums earned 207,381 165,101 578,160 481,431 Net investment income 32,927 28,213 96,332 80,149 Management fees and commissions 17,625 18,699 51,854 48,792 Realized gains (losses) on investments 2,568 (1,687) 9,341 429 Other income 392 464 1,580 1,523 --------- --------- --------- --------- Total revenues 260,893 210,790 737,267 612,324 Operating costs and expenses: Losses and loss expenses (151,705) (126,958) (415,435) (366,594) Other operating costs and expenses (82,929) (74,135) (241,962) (208,720) Interest expense (7,071) (6,918) (21,216) (20,717) --------- --------- --------- --------- Income before income taxes and minority interest 19,188 2,779 58,654 16,293 Federal income tax (expense) benefit (3,152) 1,864 (11,291) 3,714 --------- --------- --------- --------- Income before minority interest 16,036 4,643 47,363 20,007 Minority interest (1,242) 1,493 (3,627) 3,503 --------- --------- --------- --------- Net income before preferred dividends 14,794 6,136 43,736 23,510 Preferred dividends (2,766) (2,766) (8,297) (7,590) --------- --------- --------- --------- Net income attributable to common stockholders $ 12,028 $ 3,370 $ 35,439 $ 15,920 ========= ========= ========= ========= Net income per share $ .72 $ .19 $ 2.12 $ .92 ========= ========= ========= ========= Average shares outstanding 16,668 17,336 16,693 17,318 ========= ========= ========= =========
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, ---------------------- 1995 1994 --------- --------- Cash flows from operating activities: Net income before preferred dividends $ 43,736 $ 23,510 Adjustments to reconcile net income to cash flows from operating activities: Minority interest 3,627 (3,503) Increase in reserves for losses and loss expenses net of due from/to reinsurers 87,647 100,290 Depreciation and amortization 10,869 10,602 Change in unearned premiums and prepaid reinsurance premiums 64,043 56,677 Increase in premiums and fees receivable (35,444) (37,471) Change in Federal income taxes (1,077) (10,548) Change in deferred acquisition cost (16,659) (12,621) Realized gains on investments (9,341) (429) Other 6,930 16,438 --------- --------- Net cash flows from operating activities before trading account sales 154,331 142,945 Trading account sales (56,851) (51,961) --------- --------- Net cash flows from operating activities 97,480 90,984 --------- --------- Cash flows from investing activities: Proceeds from sales, excluding trading account: Fixed maturity securities available for sale 320,718 318,967 Equity securities 41,353 175,640 Proceeds from maturities and prepayments of fixed maturity securities 100,300 103,845 Cost of purchases, excluding trading account: Fixed maturity securities (504,948) (586,612) Equity securities (51,832) (203,316) Change in balances due to/from security brokers (9,923) (22,055) Cost of acquired companies, net of acquired cash and invested cash (3,575) -- Other (10,633) (30,046) --------- --------- Net cash flows from investing activities (118,540) (243,577) --------- --------- Cash flows from financing activities: Net proceeds from issuance preferred stock -- 145,275 Cash dividends to common stockholders (5,842) (5,548) Cash dividends to preferred stockholders (8,297) (5,285) Repayment of acquired debt (8,918) (4,527) Purchase of treasury shares (4,095) (17,908) Other 486 61 --------- --------- Net cash flows from financing activities (26,666) 112,068 --------- --------- Net increase (decrease) in cash and invested cash (47,726) (40,525) Cash and invested cash at beginning of year 219,629 225,540 --------- --------- Cash and invested cash at end of period $ 171,903 $ 185,015 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 17,812 $ 17,330 ========= ========= Federal income taxes paid, net $ 12,369 $ 6,835 ========= =========
See accompanying notes to consolidated financial statements. 3 5 W. R. Berkley Corporation and Subsidiaries Notes to Consolidated Financial Statements September 30, 1995 (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, 1994. 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 Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 ------- ------- -------- -------- Ceded premiums written $52,982 $57,262 $155,292 $157,470 ======= ======= ======== ======== Ceded premiums earned $49,306 $54,807 $149,288 $143,543 ======= ======= ======== ======== Ceded losses and loss expenses $40,865 $41,383 $115,857 $118,399 ======= ======= ======== ========
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 (losses) changed by $59,487,000 (net of Federal income taxes of $27,169,000 and minority interest of $8,223,000) during the nine months ended September 30, 1995. Of this amount, $5,565,000 was attributable to an increase in unrealized gains on equity securities and $53,922,000 was attributable to an increase in unrealized gains on fixed maturities available for sale. 4 6 Reclassifications have been made in the 1994 financial statements as originally reported to conform them to the presentation of the 1995 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. E. EVENTS SUBSEQUENT TO DECEMBER 31, 1994 On October 19, 1995 the Company issued 3,450,000 shares of its Common Stock at a price of $43.75 per share. On September 14, 1995, the Company entered into an Agreement and Plan of Merger to acquire MECC, inc. ("MECC"). MECC is an insurance holding company, which through its sole, wholly-owned subsidiary, Midwest Employers Casualty Company, markets and underwrites excess workers' compensation ("EWC") insurance. The Company will pay approximately $138 million in cash in connection with the acquisition and will prepay or assume approximately $20 million of MECC's outstanding indebtedness. The merger, is scheduled to be completed during the fourth quarter of 1995. On September 11, 1995, the Company and Northwestern Mutual Life International, Inc. ("NML"), a wholly-owned subsidiary of Northwestern Mutual Life Insurance Company, entered into a Subscription Agreement, Operating Agreement and Management Agreement with respect to Berkley International, LLC ("Berkley International"), a limited liability company. Berkley International was established as the exclusive vehicle of the Company and NML to acquire interests outside of the United States in existing and start-up property and casualty, life insurance and reinsurance businesses, including insurance-related financial services businesses, located in emerging markets including Asia and Latin America. The Company agreed to contribute up to $65 million to Berkley International in exchange for a 65% membership interest and NML agreed to contribute up to $35 million to Berkley International in exchange for a 35% membership interest. Monies will be contributed as required to fund future investments. During 1995, the Company purchased majority interest in two small property and casualty companies in Argentina, which constituted a portion of the Company's initial contribution to Berkley International. On July 20, 1995, the Company entered into an Agreement and Plan of Restructuring with General Re Corporation ("General Re") pursuant to which the Company would purchase from General Re all of the capital stock of Signet Star Holdings, Inc. ("Signet Star Holdings") owned by General Re. As a result of a 1993 venture between the two companies, the Company currently owns 60% and General Re currently owns 40% of Signet Star Holdings. Pursuant to the Agreement and Plan of Restructuring, the Company will purchase General Re's interest in Signet Star Holdings by issuing to General Re approximately 450,000 shares of Series B Cumulative Redeemable Preferred Stock of the Company having an aggregate liquidation preference of $68,800,000. The transaction, which is subject to various closing conditions, is anticipated to be completed during the fourth quarter of 1995. 5 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income attributable to common stockholders (net income) for the first nine months of 1995 was $35,439,000 ($2.12 per share). The comparable 1994 amount was $15,920,000 ($.92 per share). For the quarter ended September 30, 1995, net income was $12,028,000 ($.72 per share) in comparison with $3,370,000 ($.19 per share) recorded in the comparable prior year period. Operating income, which we define as net income before realized investment gains or losses, was $29,744,000 ($1.78 per share) and $10,445,000 ($.63 per share) for the 1995 year-to-date and quarterly periods, respectively. The corresponding 1994 amounts were $15,608,000 ($.90 per share) and $4,309,000 ($.24 per share), respectively. The 1994 results were adversely affected by the Company's share of losses incurred by Signet Star Holdings, Inc. due to the Northridge earthquake in California. The Northridge earthquake amounted to $2,902,000 ($.17 per share) and $7,435,000 ($.43 per share) for the third quarter and first nine months of 1994, respectively. Operating Results for the Nine Months ended September 30, 1995 as Compared to the Nine Months ended September 30, 1994 Net premiums written during the first nine months of 1995 increased by 19% to $642,206,000 from $538,108,000 written in the comparable 1994 period. Premiums written by the Regional insurance group increased 25%, of which over half was due to three new units which were added in the latter half of 1992 and 1993. The balance of the Regional group growth results from additional volume in the remaining Regional operations. Reinsurance premiums written for the first nine months increased by 10% over 1994 and specialty premiums written grew 18% primarily due to increases in the amount of business retained by Admiral and Nautilus. For the nine months ended September 30, 1995, net investment income, on a pre-tax basis, increased 20% to $96,332,000. The higher level of investment earnings reflects the increase in average investable assets due to cash flow from operations and an increase in investment yields available in the financial markets (see "Liquidity and Capital Resources"). Management fees and commission income consist primarily of revenues earned by the insurance services segment. During the first nine months of 1995 the revenues of this segment increased 11% while their pre-tax earnings decreased 14% to $4,598,000. The increase in revenues was due to the acquisition of Key Risk; excluding the Key Risk acquisition, revenues were basically unchanged. The lower level of earnings resulted principally from losses at one operating unit, which has since undergone a restructuring. The combined ratio (on a statutory basis) of the Company's insurance operations decreased to 102.3% for the nine months ended September 30, 1995 from 106.3% in the comparable 1994 period due to a decrease in the consolidated loss ratio which was offset by a slightly higher expense ratio. The consolidated loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned) decreased to 71.4% in 1995 from 75.6% in 1994; (71.3% excluding the Northridge earthquake). 6 8 Other operating costs and expenses, which increased 16% to $241,962,000 for the nine months ended September 30, 1995, consists of the expenses of the Company's insurance and insurance services segments, as well as the Company's corporate and investment expenses. The increase in other operating costs and expenses is due primarily to the substantial growth in premium volume which in turn results in an increase in underwriting expenses. The consolidated expense ratio of the Company's insurance operations (underwriting expenses expressed as a percentage of premiums written) increased slightly to 30.4% for the 1995 period from 30.2% for the comparable 1994 period. The Federal income tax provision was $11,291,000 (19% effective rate) for the nine months ended September 30, 1995 as compared to a benefit of $3,714,000 for the comparable 1994 period. The 1994 tax benefit is due to the fact that tax-exempt investment income exceeded total pre-tax income. The 1995 effective tax rate is lower than the statutory tax rate of 35% because a substantial portion of investment income is tax-exempt. The Company's effective tax rate varies from period to period due primarily to fluctuations in the percentage of pretax income that is tax-exempt. Operating Results for the Third Quarter of 1995 as Compared to the Third Quarter of 1994 For the third quarter of 1995 as compared to the corresponding 1994 period, net premiums written, increased 27%, and net investment income increased 17%, for the reasons discussed above. The revenues of the insurance services segment decreased 4% due to the restructuring previously discussed. The combined ratio (on a statutory basis) of the Company's insurance operations decreased to 103.3% for the three months ended September 30, 1995 from 107.6% in the comparable 1994 period due to decreases in the consolidated loss and expense ratios. The consolidated loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned) improved to 73.0% in 1995 from 76.4% (71.6% excluding the Northridge earthquake) in 1994. The increase in the loss ratio, excluding the Northridge earthquake, is attributable to an increase in the frequency and severity of losses incurred by the Company's commercial transportation subsidiary. Other operating costs and expenses increased 12% to $82,929,000 for the three months ended September 30, 1995 as a result of the reasons discussed above. The consolidated expense ratio of the Company's insurance operations (underwriting expenses expressed as a percentage of premiums written) improved to 29.8% for the 1995 period from 30.6% for the comparable 1994 period due mainly to growth recorded by the new business units noted above. Liquidity and Capital Resources Cash flow from operating activities increased to $154.3 million for the nine months ended September 30, 1995 from $142.9 million in the same period in 1994 due primarily to cash flow generated by the Company's reinsurance and regional operations. The investment portfolio, on a cost basis, increased by $149 million to $2,104 million at September 30, 1995 from $1,955 million at December 31, 1994. 7 9 At September 30, 1995 the portion of the portfolio invested in tax-exempt securities was 32% while U.S. Government securities and cash and cash equivalents comprised approximately 21% of the portfolio. The percentage invested in corporate bonds was approximately 14%, the percentage invested in mortgage-backed securities was 21% and equity securities represented the balance of the portfolio. Subsequent to September 30, 1995, stockholders' equity will increase by approximately $145 million due to the issuance of 3,450,000 shares of Common Stock at a price of $43.75 per share. In addition, stockholders' equity will increase by approximately $66 million due to the issuance of 450,000 shares of Series B Cumulative Redeemable Preferred Stock ("Preferred Stock"). The Preferred Stock will be issued in connection with the Company's acquisition of the minority interest in Signet Star Holdings, Inc. For the first nine months of 1995, the Company generated an increase of approximately $85 million in stockholders' equity generated by the net effects of earnings, an increase in unrealized investment gains of $59 million and the purchase of treasury stock. The Company's total capitalization, excluding subsidiary debt, grew to $938 million at September 30, 1995 and the percentage of the Company's capital attributable to corporate debt decreased to 27% from 30% at December 31, 1994. On a proforma basis, giving effect to the issuance of 3,450,000 shares of Common Stock in October, 1995, the Company's total capitalization, excluding subsidiary debt, would have been approximately $1,083 at September 30, 1995 and the percentage of the Company's capital attributable to corporate debt would have been approximately 24% at that date. 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. 8 10 Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 27, Financial Data Schedule. (b) Reports on Form 8-K On July 20, 1995, the Company filed a current report on Form 8-K announcing that it had executed a definitive agreement with General Re Corporation ("General Re") pursuant to which the Company would purchase from General Re all of the Capital stock of Signet Star Holdings, Inc. owned by General Re. On September 14, 1995, the Company filed a current report on Form 8-K announcing that it had entered into an Agreement and Plan of Merger to acquire MECC, Inc. ("MECC"). In addition, the Company reported that it and Northwestern Mutual Life International, Inc., a wholly owned subsidiary of Northwestern Mutual Life Insurance Company entered into a Subscription Agreement, Operating Agreement and Management Agreement with respect to Berkley International, LLC. On September 14, 1995, the Company filed a current report on Form 8-K announcing that it proposes to offer approximately 3,000,000 shares of its common stock in an underwritten public offering. 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 By /s/ William R. Berkley --------------------------- William R. Berkley Chairman of the Board, Chief Executive Officer and President By /s/ Anthony J. DelTufo --------------------------- Anthony J. Del Tufo Senior Vice President, Chief Financial Officer and Treasurer 10 EX-27 2 EX-27
7 1,000 U.S. DOLLARS 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 1 1,568,446 160,701 167,067 260,254 0 0 2,150,804 171,903 1 90,341 3,867,725 2,148,449 425,833 1 1 322,217 4,166 0 100 678,653 3,867,725 578,160 96,332 9,341 1,580 415,435 1 1 58,654 11,291 47,363 1 1 1 35,439 2.12 1 1 1 1 1 1 1 1
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