-----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, H/Fz+fn65X8Bl88dlg/5uzuIwol0LvLZLksmqqlNGMCa4VbHLYcV0dU+ZAilDkC+ ZDYZuKneQYKkzkPSV4Plvw== 0000914039-96-000378.txt : 19961115 0000914039-96-000378.hdr.sgml : 19961115 ACCESSION NUMBER: 0000914039-96-000378 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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: 96661715 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. . . . . . . . September 30, 1996 Commission File Number 0-7849 W. R. BERKLEY CORPORATION (Exact name of registrant as specified in its charter) Delaware 22-1867895 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 165 Mason Street, Greenwich, Connecticut 06836-2518 (Address of principal executive offices) (Zip Code) (203) 629-3000 (Registrant's telephone number, including area code) None Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Number of shares of common stock, $.20 par value, outstanding as of November 1, 1996: 19,623,803 2 W. R. Berkley Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in thousands)
September 30, December 31, 1996 1995 ------------- ------------- (Unaudited) Assets Investments: Invested cash $ 278,236 $ 196,732 Fixed maturity securities: Held to maturity, at cost (fair value $195,399 and $176,193) 194,659 169,078 Available for sale at fair value (cost $1,926,682 and $1,894,451) 1,936,274 1,959,910 Equity securities, at fair value: Available for sale (cost $68,843 and $92,472) 81,970 101,551 Trading account (cost $172,694 and $155,301) 177,876 161,075 Cash 10,424 10,185 Premiums and fees receivable 262,140 231,093 Due from reinsurers 441,191 423,626 Accrued investment income 31,438 34,373 Prepaid reinsurance premiums 71,285 77,656 Deferred policy acquisition costs 114,004 89,517 Excess of cost over net assets acquired 74,246 69,600 Deferred Federal income taxes 1,084 -- Other assets 139,214 94,288 ----------- ----------- $ 3,814,041 $ 3,618,684 =========== =========== Liabilities, Reserves, Debt and Stockholders' Equity Liabilities and reserves: Reserves for losses and loss expenses $ 1,761,949 $ 1,660,020 Unearned premiums 511,848 450,522 Due to reinsurers 68,913 65,798 Deferred Federal income taxes -- 14,363 Other liabilities 177,886 169,080 ----------- ----------- 2,520,596 2,359,783 ----------- ----------- Long-term debt 390,035 290,981 Notes payable to Banks -- 28,306 Minority interest 10,066 9,799 Stockholders' equity: Preferred stock, par value $.10 per share: Authorized 5,000,000 shares: 7 3/8% Series A Cumulative Redeemable Preferred Stock 1,000,000 shares issued and outstanding 100 100 Series B Cumulative Redeemable Preferred Stock 266,667 and 458,667 shares issued and outstanding 27 46 Common stock, par value $.20 per share: Authorized 40,000,000 shares, issued and outstanding, net of treasury shares, 19,612,184 and 20,168,167 shares 4,854 4,854 Additional paid-in capital 521,361 547,068 Retained earnings 470,910 424,261 Net unrealized investment gains, net of taxes 14,768 48,450 Treasury stock, at cost, 4,657,194 and 4,101,211 shares (118,676) (94,964) ----------- ----------- 893,344 929,815 ----------- ----------- $ 3,814,041 $ 3,618,684 =========== ===========
See accompanying notes to consolidated financial statements. 1 3 W. R. Berkley Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited) (Amounts in thousands except per share data)
For the Three Months For the Nine Months Ended September 30, Ended September 30, -------------------------- -------------------------- 1996 1995 1996 1995 --------- --------- --------- --------- Revenues: Net premiums written $ 269,646 $ 235,055 $ 788,329 $ 642,206 Increase in unearned premiums (21,068) (27,674) (67,594) (64,046) --------- --------- --------- --------- Premiums earned 248,578 207,381 720,735 578,160 Net investment income 41,483 32,927 120,592 96,332 Management fees and commissions 16,945 17,625 53,231 51,854 Realized gains on investments 3,581 2,568 4,104 9,341 Other income 947 392 2,090 1,580 --------- --------- --------- --------- Total revenues 311,534 260,893 900,752 737,267 Operating costs and expenses: Losses and loss expenses (170,164) (151,705) (495,206) (415,435) Other operating costs and expenses (101,757) (82,929) (298,279) (241,962) Interest expense (7,967) (7,071) (23,655) (21,216) --------- --------- --------- --------- Income before income taxes and minority interest 31,646 19,188 83,612 58,654 Federal income tax expense (7,554) (3,152) (18,637) (11,291) --------- --------- --------- --------- Income before minority interest 24,092 16,036 64,975 47,363 Minority interest -- (1,242) -- (3,627) --------- --------- --------- --------- Net income before preferred dividends 24,092 14,794 64,975 43,736 Preferred dividends (3,380) (2,766) (10,598) (8,297) --------- --------- --------- --------- Net income attributable to common stockholders $ 20,712 $ 12,028 $ 54,377 $ 35,439 ========= ========= ========= ========= Net income per share $ 1.06 $ .72 $ 2.74 $ 2.12 ========= ========= ========= ========= Average shares outstanding 19,625 16,668 19,861 16,693 ========= ========= ========= =========
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, -------------------------- 1996 1995 --------- --------- Cash flows from operating activities: Net income before preferred dividends $ 64,975 $ 43,736 Adjustments to reconcile net income to cash flows from operating activities: Minority interest -- 3,627 Increase in reserves for losses and loss expenses net of due from/to reinsurers 89,041 87,647 Depreciation and amortization 9,187 10,869 Change in unearned premiums and prepaid reinsurance premiums 67,594 64,043 Increase in premiums and fees receivable (31,047) (35,444) Change in Federal income taxes 3,816 (1,077) Change in deferred acquisition cost (24,487) (16,659) Realized gains on investments (4,104) (9,341) Other (7,312) 6,930 --------- --------- Net cash flows from operating activities before trading account sales 167,663 154,331 Trading account sales (15,168) (56,851) --------- --------- Net cash flows from operating activities 152,495 97,480 --------- --------- Cash flows from investing activities: Proceeds from sales, excluding trading account: Fixed maturity securities available for sale 281,604 320,718 Equity securities 40,689 41,353 Proceeds from maturities and prepayments of fixed maturity securities 164,681 100,300 Cost of purchases, excluding trading account: Fixed maturity securities available for sale (441,108) (504,948) Fixed maturity securities held to maturity (55,592) -- Equity securities (12,825) (51,832) Change in balances due to/from security brokers 1,414 (9,923) Cost of acquired companies, net of acquired cash and invested cash (11,739) (3,575) Other (41,110) (10,633) --------- --------- Net cash flows from investing activities (73,986) (118,540) --------- --------- Cash flows from financing activities: Net proceeds from issuance of long-term 98,850 -- Repayment of preferred stock (27,216) -- Cash dividends to common stockholders (7,598) (5,842) Cash dividends to preferred stockholders (8,924) (8,297) Repayment of acquired debt (28,306) (8,918) Purchase of treasury shares (24,152) (4,095) Other 580 486 --------- --------- Net cash flows from financing activities 3,234 (26,666) --------- --------- Net increase (decrease) in cash and invested cash 81,743 (47,726) Cash and invested cash at beginning of year 206,917 219,629 --------- --------- Cash and invested cash at end of period $ 288,660 $ 171,903 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 20,251 $ 17,812 ========= ========= Federal income taxes paid, net $ 14,819 $ 12,369 ========= =========
See accompanying notes to consolidated financial statements 3 5 W. R. Berkley Corporation and Subsidiaries Notes to Consolidated Financial Statements September 30, 1996 (Unaudited) The accompanying consolidated financial statements should be read in conjunction with the following notes and with the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. A. FEDERAL INCOME TAXES The Federal income tax provision has been computed based on the Company's estimated annual effective tax rate which differs from the Federal income tax rate of 35% principally because of tax-exempt investment income. B. REINSURANCE CEDED The amounts of ceded reinsurance included in the statements of operations are as follows (amounts in thousands):
For the Three Months For the Nine Months Ended September 30, Ended September 30, -------------------- --------------------- 1996 1995 1996 1995 ------ ------ ------ ------ Ceded premiums written $52,953 $52,982 $155,500 $155,292 ======= ======= ======== ======== Ceded premiums earned $54,200 $49,306 $161,223 $149,288 ======= ======= ======== ======== Ceded losses and loss expenses $37,010 $40,865 $ 99,692 $115,857 ======= ======= ======== ========
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 declined by $33,682,000 (net of Federal income taxes of $18,137,000) during the nine months ended September 30, 1996. Of this amount, $2,631,000 was attributable to an increase in unrealized gains on equity securities and $36,313,000 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. 4 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income attributable to common stockholders (net income) for the first nine months of 1996 was $54,377,000 ($2.74 per share). The comparable 1995 amount was $35,439,000 ($2.12 per share). For the quarter ended September 30, 1996, net income was $20,712,000 ($1.06 per share) in comparison with $12,028,000 ($.72 per share) recorded in the comparable prior year period. Operating income, which we define as net income before realized investment gains, for the first nine months of 1996 was $51,709,000 ($2.60 per share). The comparable 1995 amount, was $29,744,000 ($1.78 per share). For the quarter ended September 30, 1996, operating income was $18,384,000 ($.94 per share) in comparison with $10,445,000 ($.63 per share) recorded in the comparable prior year period. Operating Results for the Nine Months ended September 30, 1996 as Compared to the Nine Months ended September 30, 1995 Net premiums written during the first nine months of 1996 increased 23% to $788,329,000 from $642,206,000. Regional net premiums written increased 11% to $394,265,000; three-fourths of this increase was due to business units which were started during the past four years. Reinsurance net premiums written increased 10% to $162,849,000; this increase was substantially due to an increase in treaty business and the start-up of the Latin American and Caribbean division. Specialty net premiums written increased 24% to $152,322,000; this increase is due to an increase in business written by Admiral and Monitor as well as increases in the amount of business retained by Admiral, Monitor and Nautilus which more than offset a decline in premiums written by Carolina Casualty. Alternative markets net premiums written increased $46,627,000 to $61,769,000 primarily due to the inclusion of the results of MECC, Inc. ("MECC"), acquired in November 1995. International operations, which commenced during the 2nd quarter of 1995, contributed $17,124,000 to net premiums written. For the nine months ended September 30, 1996, pre-tax net investment income increased $24,260,000 to $120,592,000. Three-fourths of this increase was due to the inclusion of the results of MECC. Excluding effects of the acquisition of MECC, pre-tax net investment income increased 6.6%; this increase was due to the increase in average investable assets generated by cash flow from operations (see "Liquidity and Capital Resources"), which more than offset a decline in yields available in the financial markets. Management fees and commissions consist primarily of fees earned by the alternative markets segment. Management fees and commissions during the first nine months of 1996 increased 3% to $53,231,000 as market conditions, particularly in workers' compensation insurance, inhibited growth. Realized gains on fixed income securities result primarily from the Company's strategy of rebalancing the asset and liability duration relationship; 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 1996 realized gains resulted from the sale of equity securities, whereas in 1995 the majority of realized gains were from the sale of fixed income securities. The combined ratio (on a statutory basis) of the Company's insurance operations decreased to 102.2% for the nine months ended September 30, 1996 from 102.3% in the comparable 1995 period due to a decrease in the consolidated loss ratio which was partially offset by a higher expense ratio. The consolidated loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned) decreased to 69.2% in 1996 from 71.4% in 1995, due to improved results recorded by our specialty operations which more than offset the impact of an increase in weather related losses incurred by our regional operations. 5 7 Other operating costs and expenses, which consists of the expenses of the Company's insurance and insurance services segments, as well as the Company's corporate and investment expenses increased 23% to $298,279,000 for the nine months ended September 30, 1996. The increase in other operating costs is primarily due to substantial growth in premium volume in all segments of the Company's business, which in turn results in an increase in underwriting expenses. In addition the acquisition of MECC contributed to this increase. The consolidated expense ratio of the Company's insurance operations (underwriting expenses expressed as a percentage of premiums written) increased to 32.6% for the 1996 period from 30.4% for the comparable 1995 period. The underwriting expense ratio increased primarily as a result of an increase in commission expense. Interest expense increased due to the January 1996 issuance of $100 million of long-term debt. Preferred dividends increased as a result of the December 1995 issuance of $68.8 million Series B Cumulative Redeemable Preferred Stock. (see "Liquidity and Capital Resources"). The Federal income tax provision resulted in an effective tax rate of 22% in 1996 and 19% in 1995. The rate is lower than the statutory tax rate of 35% because a substantial portion of investment income is tax-exempt. 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. Operating Results for the Third Quarter of 1996 as Compared to the Third Quarter of 1995 For the third quarter of 1996 as compared to the corresponding 1995 period, net premiums written increased 15%; net investment income increased 26% and management fees and commission income decreased 4%, all for the reasons discussed above. The combined ratio (on a statutory basis) of the Company's insurance operations decreased to 102.1% for the three months ended September 30, 1996 from 103.3% in the comparable 1995 period. Other operating costs and expenses, increased 23% to $101,757,000 for the three months ended September 30, 1996. The consolidated expense ratio of the Company's insurance operations (underwriting expenses expressed as a percentage of premiums written) increased to 32.6% for the 1996 period from 29.8% for the comparable 1995 as discussed above. 6 8 Liquidity and Capital Resources Cash flow from operating activities before trading account sales, increased to $167.7 million during the first nine months of 1996 from $154.3 million in the same period in 1995 due to an increase in premium volume and the inclusion of the results of MECC. The investment portfolio, on a cost basis, increased $133.1 million to $2,641.1 million at September 30, 1996 from $2,508.0 million at December 31, 1995 due to cash flow from operations and the net effects of financing activities discussed below. Changes in the distribution of the Company's investment portfolio at September 30, 1996 in comparison with December 31, 1995 were as follows: tax-exempt securities decreased to 32% from 33%; U.S. Government securities increased to 13% from 12%; corporate bonds decreased to 16% from 19%; mortgage-backed securities increased to 19% from 18%; cash equivalents increased to 10% from 8%; and equity securities remained at 10%. On January 19, 1996, the Company issued $100 million of 6.25%, ten-year notes which are not redeemable until maturity and utilized a portion of the proceeds to retire $28.4 million of subsidiary bank debt. On March 29, 1996 the Company repurchased 192,000 shares ($28.8 million redemption value) of the Series B Cumulative Redeemable Preferred Stock for $27.2 million. For the first nine months of 1996, Stockholders' equity decreased by approximately $36.5 million. The decrease in stockholders' equity is attributable to the repurchase of the Series B Cumulative Redeemable Preferred Stock, the purchase of treasury stock and a decrease in unrealized investment gains which more than offset an increase in retained earnings. As a result of the net effect of the financing transactions and change in stockholders' equity discussed above, the Company's total capitalization grew to $1,283.4 million at September 30, 1996 and the percentage of the Company's capital attributable to debt increased to 30% from 26% at December 31, 1995. For background information concerning a further discussion of the Company's Liquidity and Capital Resources, see the Company's Annual Report on Form 10-K. 7 9 Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None (b) Reports on Form 8-K None 8 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. W. R. BERKLEY CORPORATION By /s/ William R. Berkley ------------------------- William R. Berkley Chairman of the Board and Chief Executive Officer By /s/ Anthony J. DelTufo ------------------------- Anthony J. Del Tufo Senior Vice President, Chief Financial Officer and Treasurer 9 EX-27 2 EX-27
7 1,000 US DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 1,936,274 194,659 195,399 259,846 0 0 2,669,015 10,424 0 114,004 3,814,041 1,761,949 511,848 0 0 390,035 0 127 4,854 888,363 3,814,041 720,735 120,592 4,104 2,090 495,206 0 0 83,612 18,637 64,975 0 0 0 54,377 2.74 0 0 0 0 0 0 0 0
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