-----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, TNWnQE4V93XcldKd2X3o1kJneD8tIo3D6t6aFLOpeWtZSJCsG0oSlTRO1FqtxTE1 Y5FiD2DtUhVpDQ3HpdA9NQ== 0000914039-97-000347.txt : 19971114 0000914039-97-000347.hdr.sgml : 19971114 ACCESSION NUMBER: 0000914039-97-000347 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 000-07849 FILM NUMBER: 97713148 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, 1997 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, 1997: 29,547,822 2 W. R. Berkley Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in thousands)
September 30, December 31, 1997 1996 ------------- ------------ (Unaudited) Assets Investments: Invested cash $ 316,114 $ 327,193 Fixed maturity securities: Held to maturity, at cost (fair value $193,348 and $208,232) 185,750 204,234 Available for sale at fair value (cost $2,169,280 and $2,012,911) 2,228,824 2,045,254 Equity securities, at fair value: Available for sale (cost $84,561 and $78,435) 96,886 93,900 Trading account (cost $338,136 and $260,167) 354,226 267,609 Cash 10,444 19,292 Premiums and fees receivable 334,552 256,441 Due from reinsurers 435,933 427,419 Accrued investment income 34,839 34,577 Prepaid reinsurance premiums 74,043 70,057 Deferred policy acquisition costs 144,536 119,157 Real Estate, furniture & equipment at cost, less accumulated 126,257 116,303 depreciation Excess of cost over net assets acquired 72,171 73,404 Other assets 23,567 18,424 ----------- ----------- $ 4,438,142 $ 4,073,264 =========== =========== Liabilities, Reserves, Debt and Stockholders' Equity Liabilities and reserves: Reserves for losses and loss expenses $ 1,869,456 $ 1,782,703 Unearned premiums 591,951 514,213 Due to reinsurers 83,685 71,352 Deferred Federal income taxes 19,563 4,013 Other liabilities 333,245 210,916 ----------- ----------- 2,897,900 2,583,197 ----------- ----------- Long-term debt 390,337 390,104 ----------- ----------- Company-obligated manditorily redeemable capital securities of a subsidiary trust holding solely 8.197% junior subordinated debentures of the 207,933 207,901 Corporation due December 15, 2045 Minority interest 26,787 12,330 ----------- ----------- Stockholders' equity: Preferred stock, par value $.10 per share: Authorized 5,000,000 shares: 7 3/8% Series A Cumulative Redeemable Preferred Stock 653,952 and 930,807 shares issued and outstanding 65 93 Common stock, par value $.20 per share: Authorized 40,000,000 shares, issued and outstanding, net of treasury shares, 29,534,268 and 29,453,964 shares 7,281 7,281 Additional paid-in capital 427,938 469,065 Retained earnings 549,965 490,338 Net unrealized investment gains, net of taxes 46,712 31,075 Treasury stock, at cost, 6,869,577 and 6,950,103 shares (116,776) (118,120) ----------- ----------- 915,185 879,732 ----------- ----------- $ 4,438,142 $ 4,073,264 =========== ===========
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, -------------------- ------------------- 1997 1996 1997 1996 --------- --------- ----------- --------- Revenues: Net premiums written $ 302,106 $ 269,646 $ 886,875 $ 788,329 Increase in unearned premiums (18,183) (21,068) (73,752) (67,594) --------- --------- ----------- --------- Premiums earned 283,923 248,578 813,123 720,735 Net investment income 48,257 41,483 140,675 120,592 Management fees and commission income 17,413 16,945 52,833 53,231 Realized gains on investments 5,127 3,581 12,321 4,104 Other income 930 947 2,446 2,090 --------- --------- ----------- --------- Total revenues 355,650 311,534 1,021,398 900,752 Operating costs and expenses: Losses and loss expenses (189,569) (170,164) (540,429) (495,206) Other operating costs and expenses (120,503) (101,935) (347,014) (298,296) Interest expense (12,197) (7,967) (36,652) (23,655) --------- --------- ----------- --------- Income before income taxes and minority interest 33,381 31,468 97,303 83,595 Federal income tax expense (7,932) (7,554) (23,291) (18,637) --------- --------- ----------- --------- Income before minority interest 25,449 23,914 74,012 64,958 Minority interest 124 178 738 17 --------- --------- ----------- --------- Net income before preferred dividends 25,573 24,092 74,750 64,975 Preferred dividends (1,852) (3,380) (5,977) (10,598) --------- --------- ----------- --------- Net income attributable to common stockholders $ 23,721 $ 20,712 $ 68,773 $ 54,377 ========= ========= =========== ========= Net income per share $ .80 $ .70 $ 2.34 $ 1.83 ========= ========= =========== ========= Average shares outstanding 29,517 29,438 29,379 29,792 ========= ========= =========== =========
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, ------------------------- 1997 1996 --------- --------- Cash flows from operating activities: Net income before preferred dividends $ 74,750 $ 64,975 Adjustments to reconcile net income to cash flows from operating activities: Minority interest (738) (17) Increase in reserves for losses and loss expenses, net of due to/from reinsurers 90,193 89,041 Depreciation and amortization 4,775 9,187 Change in unearned premiums and prepaid reinsurance premiums 73,752 67,594 Increase in premiums and fees receivable (77,383) (31,047) Change in Federal income taxes (246) 3,816 Change in deferred acquisition cost (25,379) (24,487) Realized gains on investments (12,321) (4,104) Other, net 20,196 (7,295) --------- --------- Net cash flows from operating activities before trading account sales (purchases) 147,599 167,663 Trading account sales (purchases), net (16,365) (15,168) --------- --------- Net cash flows from operating activities 131,234 152,495 --------- --------- Cash flows from investing activities: Proceeds from sales, excluding trading account: Fixed maturity securities available for sale 422,566 281,604 Equity securities 25,306 40,689 Proceeds from maturities and prepayments of fixed maturity securities 99,117 164,681 Cost of purchases, excluding trading account: Fixed maturity securities available for sale (654,260) (441,108) Fixed maturity securities held to maturity -- (55,592) Equity securities (19,136) (12,825) Change in balances due to/from security brokers 40,207 1,414 Cost of acquired companies, net of acquired cash and invested cash (1,439) (11,739) Other, net (23,463) (41,110) --------- --------- Net cash flows from investing activities (111,102) (73,986) --------- --------- Cash flows from financing activities: Net proceeds from issuance of long-term debt -- 98,850 Repurchase of preferred stock (41,523) (27,216) Repayment of subsidiary debt -- (28,306) Cash dividends to common stockholders (8,451) (7,598) Cash dividends to preferred stockholders (6,992) (8,924) Purchase of treasury shares -- (24,152) Other, net 16,907 580 --------- --------- Net cash flows from financing activities (40,059) 3,234 --------- --------- Net increase (decrease) in cash and invested cash (19,927) 81,743 Cash and invested cash at beginning of year 346,485 206,917 --------- --------- Cash and invested cash at end of period $ 326,558 $ 288,660 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 30,330 $ 20,251 ========= ========= Federal income taxes paid, net $ 23,508 $ 14,819 ========= =========
See accompanying notes to consolidated financial statements. 3 5 W. R. Berkley Corporation and Subsidiaries Notes to Consolidated Financial Statements September 30, 1997 (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, 1996. 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, -------------------- ------------------- 1997 1996 1997 1996 ------- ------- -------- -------- Ceded premiums written $59,221 $52,953 $179,741 $155,500 ======= ======= ======== ======== Ceded premiums earned $60,920 $54,200 $174,884 $161,223 ======= ======= ======== ======== Ceded losses and loss expenses $26,973 $37,010 $ 90,986 $ 99,692 ======= ======= ======== ========
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. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), entitled "Earnings Per Share." SFAS 128 will replace the presentation of primary and fully diluted earnings per share with basic earnings per share and diluted earnings per share, respectively. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period, whereas primary earnings per share includes the dilutive effect of common stock equivalents. Diluted earnings per share is generally similar to fully diluted earnings per share under current accounting standards. For calendar year enterprises, SFAS 128 is effective commencing with year end 1997 financial statements and will then apply retroactively to both annual and interim periods, requiring the restatement of previously presented earnings per share data. Earlier application is not permitted. Based on preliminary calculations, the Company does not believe that earnings per share computed under SFAS 128 would be materially different from the earnings per share data presented herein. 4 6 E. OTHER MATTERS Net unrealized investment gains increased by $15,637,000 (net of Federal income taxes of $8,422,000) during the nine months ended September 30, 1997. Of this amount, $2,040,000 was attributable to a decrease in unrealized gains on equity securities and $17,677,000 was attributable to an increase in unrealized gains on fixed maturities available for sale. F. 3 FOR 2 STOCK SPLIT On August 12 the Company announced that its Board of Directors had approved a 3 for 2 stock split of the Company's common stock in the form of a stock dividend. Stockholders of record on August 27, 1997 received additional shares on September 18, 1997. The share information provided on the Statement of Operations gives effect to the split as if the split occurred on January 1 of the respective periods. Reclassifications have been made in the 1996 financial statements as originally reported to conform them to the presentation of the 1997 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) for the first nine months of 1997 was $68,773,000 ($2.34 per share). The comparable 1996 amount was $54,377,000 ($1.83 per share). For the quarter ended September 30, 1997, net income was $23,721,000 ($.80 per share) in comparison with $20,712,000 ($.70 per share) recorded in the comparable prior year period. Operating income, which we define as net income before realized investment gains or losses, for the first nine months of 1997 was $60,764,000 ($2.07 per share). The comparable 1996 amount, was $51,709,000 ($1.74 per share). For the quarter ended September 30, 1997, operating income was $20,388,000 ($.69 per share) in comparison with $18,384,000 ($.62 per share) recorded in the comparable prior year period. Operating Results for the Nine Months ended September 30, 1997 as Compared to the Nine Months ended September 30, 1996 Net premiums written during the first nine months of 1997 increased 13% to $886,875,000 from $788,329,000. Regional net premiums written increased 20% to $472,556,000; 40% of this increase was due to business units which were started during the past five years. Reinsurance net premiums written decreased 3% to $157,297,000. This decrease was substantially due to a decrease in treaty business offset by premiums generated by the Latin American and Caribbean division which commenced operations in February 1996. Specialty net premiums written increased 2% to $155,928,000 due to an increase in business written by Excess and Surplus operations which more than offset a decline in premiums written by our transportation unit. Alternative markets net premiums written increased 17% to $72,234,000 as Signet Star's alternative markets division increased its market penetration. International net premiums written increased $11.7 million or 69% primarily due to the July 1996 start-up of a Worker's Compensation unit in Argentina. For the nine months ended September 30, 1997, pre-tax net investment income increased $20,083,000 to $140,675,000. This increase was primarily due to the increase in average investable assets due to cash flow from operations and the December 1996 issuance of $210 million capital securities discussed below. In addition, an increase in investment income earned by our trading portfolio contributed to the growth in investment income (see "Liquidity and Capital Resources"). Management fees and commission income consist primarily of fees earned by the insurance services sector of the alternative markets segment. Management fees and commissions earned during the first nine months of 1997 decreased 1% to $52,833,000 principally due to the effects of intense competition in the workers' compensation market. Realized investment gains increased to $12,321,000 million from $4,104,000 earned during the comparable 1996 period. 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 1997 and 1996 realized gains resulted from the sale of equity securities. The combined ratio (on a statutory basis) of the Company's insurance operations decreased to 100.7% for the nine months ended September 30, 1997 from 102.2% in the comparable 1996 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 66.8% in 1997 from 69.2% in 1996. This improvement was due to a decrease in weather related losses incurred by our regional operations and better then expected experience on business written in prior years recorded by our specialty operations. 6 8 Other operating costs and expenses, which consists of the expenses of the Company's insurance and alternative markets operations, as well as the Company's corporate and investment expenses increased 16% to $347,014,000 for the nine months ended September 30, 1997. The increase in other operating costs is primarily due to substantial growth in premium, 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 to 33.5% for the 1997 period from 32.6% for the comparable 1996 period. The underwriting expense ratio increased primarily as a result of an increase in commission expense. The Federal income tax provision resulted in an effective tax rate of 24% in 1997 (22% in 1996). The increase in the effective tax rate in 1997 is due primarily to the increase in realized gains on investments which are taxed at the full Corporate rate. Operating Results for the Third Quarter of 1997 as Compared to the Third Quarter of 1996 For the third quarter of 1997 as compared to the corresponding 1996 period, net premiums written increased 12% and net investment income increased 16% for the reasons discussed above. Management fees and commission income increased 3% for the third quarter of 1997 as compared to the corresponding 1996 period due to the inclusion of the results of Berkley Care Network, Northeast, which was acquired in May. The combined ratio (on a statutory basis) of the Company's insurance operations decreased to 101.2% for the three months ended September 30, 1997 from 101.9% in the comparable 1996 period due to a decrease in the consolidated loss ratio which more than offset a higher expense ratio. The consolidated loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned) improved to 67.0% in 1997 from 69.3% in 1996 for the reasons discussed above. Other operating costs and expenses, increased 18% to $120,503,000 for the three months ended September 30, 1997 and the consolidated expense ratio of the Company's insurance operations (underwriting expenses expressed as a percentage of premiums written) increased to 33.7% for the 1997 period from 32.6% for the comparable 1996, for the reasons discussed above. 7 9 Liquidity and Capital Resources Cash flow from operating activities before trading account purchases was $147.6 million during the first nine months of 1997 in comparison with $167.7 million recorded for the same period in 1996. The decrease resulted primarily from an increase in paid losses due to a reduction in the rate of premium growth. The investment portfolio, on a cost basis, rose by $210.9 million to $3,093.8 million at September 30, 1997 from $2,882.9 million at December 31, 1996 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, 1997 in comparison with December 31, 1996 were as follows: tax-exempt securities increased to 31% from 29%; U.S. Government securities and cash equivalents decreased to 23% from 27%; corporate bonds increased to 15% from 14%; mortgage-backed securities decreased to 18% from 19%; and equity securities increased to 13% from 11%. In January 1997, the Company repurchased 183,080 shares of its Series A Preferred stock for $27.5 million. In the second and third quarters 93,775 shares of its Series A Preferred stock were purchased for $14.8 million. For the first nine months of 1997, Stockholders' equity increased by approximately $35.5 million. The increase in stockholders' equity is attributable to an increase in retained earnings and an increase in unrealized gains in marketable securities which was partially offset by the repurchase of the Series A Preferred stock discussed above. Accordingly, the Company's total capitalization increased to $1,513.5 million at September 30, 1997 and the percentage of the Company's capital attributable to long-term debt remained at 26%. 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. Other information The Company continues to address system programming issues with regards to system requirements for the year 2000 and expects to be completed by the end of 1998. Costs associated with the year 2000 projects, which will not be significant, are expensed as incurred. Since the year 2000 issue will be resolved it is not expected to have any impact on the Company's operations. 8 10 Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None (b) Reports on Form 8-K None 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 and Chief Executive Officer By /s/ Anthony J. DelTufo ----------------------------- Anthony J. Del Tufo Senior Vice President, Chief Financial Officer and Treasurer 10 EX-27 2 EXHIBIT 27
7 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 2,228,824 185,750 193,348 451,112 0 0 2,865,686 326,558 0 144,536 4,438,142 1,869,456 591,951 0 0 598,270 0 65 7,281 907,839 4,438,142 813,123 140,675 12,321 2,446 540,429 0 0 97,303 23,291 74,012 0 0 0 68,773 2.34 0 0 0 0 0 0 0 0
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