-----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, D/uDpuedmxWylDnljaWVH4yU2eaQY6u8Pcl1sIkXng9f9KUNAGo6laZ1lp5hBRW6 ml1uztZuqSR0Q+tTFZb2Lg== 0000914039-96-000147.txt : 19960515 0000914039-96-000147.hdr.sgml : 19960515 ACCESSION NUMBER: 0000914039-96-000147 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 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: 96562515 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. . . . . . . . March 31, 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 May 3, 1996: 19,660,485. 2 W. R. Berkley Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in thousands)
March 31, December 31, 1996 1995 ----------- ----------- (Unaudited) Assets Investments: Invested cash $ 205,441 $ 196,732 Fixed maturity securities: Held to maturity, at cost (fair value $192,872 and $176,193) 191,098 169,078 Available for sale at fair value (cost $1,944,512 and $1,894,451) 1,960,792 1,959,910 Equity securities, at fair value: Available for sale (cost $92,327 and $92,472) 102,121 101,551 Trading account (cost $145,764 and $155,301) 150,946 161,075 Cash 15,262 10,185 Premiums and fees receivable 248,528 231,093 Due from reinsurers 431,047 423,626 Accrued investment income 32,394 34,373 Prepaid reinsurance premiums 75,616 77,656 Deferred policy acquisition costs 96,965 89,517 Excess of cost over net assets acquired 71,020 69,600 Deferred Federal income taxes 2,228 -- Other assets 101,803 94,288 ----------- ----------- $ 3,685,261 $ 3,618,684 =========== =========== Liabilities, Reserves, Debt and Stockholders' Equity Liabilities and reserves: Reserves for losses and loss expenses $ 1,694,493 $ 1,660,020 Unearned premiums 468,552 450,522 Due to reinsurers 71,097 65,798 Deferred Federal income taxes -- 14,363 Other liabilities 165,719 169,080 ----------- ----------- 2,399,861 2,359,783 ----------- ----------- Long-term debt 389,899 290,981 Notes payable to Banks -- 28,306 Minority interest 9,853 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, 20,183,998 and 20,168,167 shares 4,854 4,854 Additional paid-in capital 520,993 547,068 Retained earnings 437,321 424,261 Net unrealized investment gains, net of taxes 16,950 48,450 Treasury stock, at cost, 4,085,380 and 4,101,211 shares (94,597) (94,964) ----------- ----------- 885,648 929,815 ----------- ----------- $ 3,685,261 $ 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 Ended March 31, ------------------------ 1996 1995 --------- --------- Revenues: Net premiums written $ 249,208 $ 190,576 Increase in unearned premiums (20,069) (10,951) --------- --------- Premiums earned 229,139 179,625 Net investment income 39,619 30,843 Management fees and commissions 18,562 16,754 Realized gains on investments 311 997 Other income 643 713 --------- --------- Total revenues 288,274 228,932 Operating costs and expenses: Losses and loss expenses (160,763) (125,097) Other operating costs and expenses (95,393) (78,749) Interest expense (7,787) (7,025) --------- --------- Income before income taxes and minority interest 24,331 18,061 Federal income tax expense (4,809) (3,455) --------- --------- Income before minority interest 19,522 14,606 Minority interest -- (1,033) --------- --------- Net income before preferred dividends 19,522 13,573 Preferred dividends (3,838) (2,766) --------- --------- Net income attributable to common stockholders $ 15,684 $ 10,807 ========= ========= Net income per share $ .78 $ .65 ========= ========= Average shares outstanding 20,178 16,749 ========= =========
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 Three Months Ended March 31, --------------- 1996 1995 --------- --------- Cash flows from operating activities: Net income before preferred dividends $ 19,522 $ 13,573 Adjustments to reconcile net income to cash flows from operating activities: Minority interest -- 1,033 Increase in reserves for losses and loss expenses, net of due to/from reinsurers 32,351 29,370 Depreciation and amortization 2,889 3,062 Change in unearned premiums and prepaid reinsurance premiums 20,069 10,951 Increase in premiums and fees receivable (17,435) (13,967) Change in Federal income taxes 4,400 2,654 Change in deferred acquisition cost (7,448) (2,759) Realized gains on investments (311) (997) Other (13,231) (8,144) --------- --------- Net cash flows from operating activities before trading account sales 40,806 34,776 Trading account sales 13,335 (6,679) --------- --------- Net cash flows from operating activities 54,141 28,097 --------- --------- Cash flows from investing activities: Proceeds from sales, excluding trading account: Fixed maturity securities available for sale 96,627 91,585 Equity securities 2,197 478 Proceeds from maturities and prepayments of fixed maturity securities 52,087 26,396 Cost of purchases, excluding trading account: Fixed maturity securities available for sale (191,618) (166,373) Fixed maturity securities held to maturity (28,448) -- Equity securities (2,080) (1,284) Change in balances due to/from security brokers 946 (128) Other (9,481) (3,159) --------- --------- Net cash flows from investing activities (79,770) (52,485) --------- --------- Cash flows from financing activities: Net proceeds from issuance of long-term debt 98,850 -- Repayment of preferred stock (27,351) -- Repayment of subsidiary debt (27,225) (2,971) Cash dividends to common stockholders (2,419) (1,842) Cash dividends to preferred stockholders (2,856) (2,766) Purchase of treasury shares -- (4,095) Other 416 61 --------- --------- Net cash flows from financing activities 39,415 (11,613) --------- --------- Net decrease in cash and invested cash 13,786 (36,001) Cash and invested cash at beginning of year 206,917 219,629 --------- --------- Cash and invested cash at end of period $ 220,703 $ 183,628 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 4,531 $ 4,945 ========= ========= Federal income taxes paid, net $ 408 $ 800 ========= =========
3 5 W. R. Berkley Corporation and Subsidiaries Notes to Consolidated Financial Statements March 31, 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 Ended March 31, ------------------------ 1996 1995 -------- -------- Ceded premiums written $ 50,874 $ 50,797 ======== ======== Ceded premiums earned $ 52,760 $ 49,883 ======== ======== Ceded losses and loss expenses $ 31,066 $ 27,963 ======== ========
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. 4 6 D. OTHER MATTERS Net unrealized investment gains decreased by $31,500,000 (net of Federal income taxes of $16,962,000) during the three months ended March 31, 1996. Of this amount, $465,000 was attributable to a increase in unrealized gains on equity securities and $31,965,000 was attributable to a 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. 5 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income attributable to common stockholders ("net income") was $15.7 million, ($.78 per share) for the first quarter of 1996, in comparison with $10.8 million, ($.65 per share), for the 1995 period. Operating income, which is net income before realized investment gains, was $15.5 million, ($.77 per share), in the first quarter of 1996 in comparison with $10.2 million, ($.61 per share), earned in the corresponding 1995 period. Net premiums written during the first quarter of 1996 increased by 31% to $249.2 million from $190.6 million written in the comparable 1995 period. Alternative markets net premiums increased $20.6 million in the first quarter of 1996 due to the acquisition of MECC, Inc. in November 1995. Regional net premiums written increased by $16.8 million or 17%; two-thirds of this increase is due to business units which were added in past four years. Specialty net premiums written increased by $9.9 million or 25% due primarily to decreases in the amounts of business ceded to unaffiliated reinsurers. Net premiums written by our reinsurance operation increased by $5.9 million or 13% due to growth in treaty and fidelity and surety business. For the three months ended March 31, 1996, pre-tax investment income increased by 29% to $39.6 million primarily due to the acquisition of MECC, Inc. In addition, the higher level of investment earnings reflects the increase in average investable assets due to cash flow from operations, an increase in investment yields available in the financial markets and the net effects of the financing transactions discussed below (See "Liquidity and Capital Resources"). Management fees and commission income ("Management fees") consist primarily of revenues earned by the Alternative Markets segment. During the first quarter of 1996, management fees increased 11%. The increase in management fees resulted principally from an increase in business serviced by our third party administrators. The combined ratio (on a statutory basis) of the Company's insurance operations increased to 103.0% for the quarter ended March 31, 1996 from 101.5% in the comparable 1995 period due to increases in the consolidated loss ratio and the expense ratio. The consolidated loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned) increased to 70.4% in 1996 from 69.1% in 1995 due to an increase in weather related losses. Other operating costs and expenses, which consists of the expenses of the Company's insurance and alternative markets segments as well as the Company's corporate and investment expenses, increased by 21% to $95.4 million. The increase in other operating costs and expenses is primarily due to the acquisition of MECC, Inc. In addition, substantial growth in premium volume in all segments of the Company's business, which in turn results in an increase in underwriting expense contributed to the increase. The consolidated expense ratio (underwriting expenses expressed as a percentage of premiums written) increased to 32.2% from 31.8% primarily due to an increase in expenses relating to the international operations. Interest expense increased due to the January 1996 issuance of $100 million of 6.25%, ten year notes which was partially offset by the redemption of Notes payable to Banks. 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 expense in 1996 was $4.8 million (20% effective rate) as compared to a $3.5 million (19% effective rate) for the comparable 1995 period. The increase in the effective tax rate in 1996 is due primarily to a decrease in the percentage of pre-tax income that is tax-exempt. (See "Liquidity and Capital Resources"). 6 8 Liquidity and Capital Resources Cash flow from operating activities before trading account, increased to $40.8 million in the first quarter of 1996 from $34.8 million in the same period in 1995 primarily due to the acquisition of MECC, Inc. The investment portfolio, on a cost basis, increased $71.1 million to $2,579.1 million at March 31, 1996 from $2,508.0 million at December 31, 1995 due to cash flow from operations and the net financing activities discussed below. The change in the Company's investment portfolio distribution at March 31, 1996 compared with December 31, 1995 was: tax-exempt securities decreased to 32% from 35%; U.S. Government securities increased to 13% from 12%; corporate bonds decreased to 15% from 19% mortgage-backed securities increased to 22% from 18%; cash equivalents increased to 9% from 6% and equity securities decreased to 9% 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 Signet Star's bank debt. On March 29, 1996 the Company repurchased 192,000 shares of the Series B Cumulative Redeemable Preferred Stock for $27.2 million. For the first quarter of 1996, Stockholders' equity decreased by approximately $44.2 million. The decrease in stockholders' equity is attributable to the repurchase of the Series B Cumulative Redeemable Preferred Stock and a decrease in unrealized investment gains which was partially offset by an increase in retained earnings. As a result of the financing transactions discussed above, the Company's total capitalization, grew to $1,275.5 million at March 31, 1996 and the percentage of the Company's capital attributable to debt increased to 31% from 26% at December 31, 1995. The Company purchased 525,000 shares of common stock in April and May of 1996. As authorized by the Board of Directors, up to 809,000 additional shares may be purchased from time to time. 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 3-MOS DEC-31-1995 JAN-01-1996 MAR-31-1996 1 1,960,792 191,098 192,872 253,067 0 0 2,404,957 220,703 0 96,965 3,685,261 1,694,493 468,552 0 0 389,899 0 127 4,854 880,667 3,685,261 229,139 39,619 311 643 160,763 0 0 24,331 4,809 19,522 0 0 0 15,684 .78 0 0 0 0 0 0 0 0
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