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W. R. Berkley Corporation Reports Fourth Quarter Results

February 2, 2016

Released : 02/02/2016

Operating Income of $115 Million, Operating Return on Equity of 10.0%

GREENWICH, Conn.--(BUSINESS WIRE)-- W. R. Berkley Corporation (NYSE:WRB) today reported operating income for the fourth quarter of 2015 of $115 million, or $0.89 per share.

Summary Financial Data

(Amounts in thousands, except per share data)

 
  Fourth Quarter   Full Year
2015   2014 2015   2014
 
Gross premiums written $ 1,764,209 $ 1,705,814 $ 7,249,993 $ 7,062,838
Net premiums written 1,499,151 1,455,909 6,189,515 5,996,947
 
Net income 109,745 110,711 503,694 648,884
Net income per diluted share 0.85 0.83 3.87 4.86
 
Operating income (1) 115,062 97,274 443,683 483,230
Operating income per diluted share 0.89 0.73 3.41 3.62
 
Net income return on equity (2) 9.6 % 10.2 % 11.0 % 15.0 %
Operating income return on equity (2) 10.0 % 9.0 % 9.7 % 11.1 %

(1) Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains.

(2) Return on equity represents net income and operating income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity.

Fourth quarter highlights included:

  • Operating income per share increased 22%.
  • Insurance-Domestic net premiums written grew 8%.
  • Investment income was up 12%.
  • GAAP combined ratio was 93.1%.
  • Pre-tax return on equity was 13.6%.

The Company commented: We were pleased with our operating results in both the fourth quarter and full year 2015. Our combined ratio for the quarter was 93.1% and our investment results were more than satisfactory given the conservative risk profile of our portfolio. We continue to focus on managing risk and volatility throughout the business. Maintaining a consistent and stable risk-adjusted return has enabled us to deliver superior value creation to our shareholders over the long term.

Written premium growth in the domestic insurance segment was strong, especially in the fourth quarter. Overall, due to the strong dollar, foreign currency translations reduced our total premium growth by 1.5% for both the quarter and the year. We are confident our unique specialist approach and various market dislocations will provide us with greater opportunities in the coming year.

We maintain a cautious approach to reserves due to the potential for inflation. Consequently, our loss reserves continue to develop favorably and our accident-year loss ratio, excluding catastrophes, has been stable. The domestic insurance expense ratio is generally satisfactory, and there are opportunities for further improvement in our international expense ratio.

Our investment portfolio is very high quality, with an average rating of AA-, and ample liquidity. We have modest exposure to the oil industry, the vast majority of which is in investment grade securities. The after-tax exposure to the oil industry for our investment funds is less than half of one percent of our invested assets.

We believe we are well positioned for the current environment and have the flexibility to manage whatever the future presents. In spite of the various uncertainties in the insurance and investment markets, we are positive about our future and foresee better returns for 2016.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on Tuesday, February 2, 2016 at 5:00 p.m. eastern time. The conference call will be webcast live on the Company's website at www.wrberkley.com. A replay of the webcast will be available on the Company's website approximately two hours after the end of the conference call.

About W. R. Berkley Corporation

Founded in 1967, W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates in three segments of the property casualty business: Insurance-Domestic, Insurance-International and Reinsurance-Global.

Forward Looking Information

This is a “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2016 and beyond, are based upon the Company’s historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the impact of significant competition, including new alternative entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response to it, on our results and financial condition; foreign currency and political risks relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Act of 2002, as amended ("TRIA"); the ability of our reinsurers to pay reinsurance recoverables owed to us; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or data security; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. These risks and uncertainties could cause our actual results for the year 2016 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. 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.

Consolidated Financial Summary

(Amounts in thousands, except per share data)

 
  Fourth Quarter   Full Year
2015   2014 2015   2014
Revenues:
Net premiums written $ 1,499,151 $ 1,455,909 $ 6,189,515 $ 5,996,947
Change in unearned premiums 44,846   46,448   (148,906 ) (252,529 )
Net premiums earned 1,543,997 1,502,357 6,040,609 5,744,418
Investment income 127,609 114,220 512,645 600,885
Insurance service fees 31,788 35,473 139,440 117,443

Net realized gains on investment sales

12,613 20,672 125,633 254,852
Other-than-temporary impairments (20,794 ) — (33,309 ) —
Revenues from wholly-owned investees 115,841 111,329 421,102 410,022
Other income 2   377   337   1,308  
Total revenues 1,811,056   1,784,428   7,206,457   7,128,928  
Expenses:
Losses and loss expenses 922,972 913,571 3,656,270 3,490,567
Other operating costs and expenses 591,581 563,837 2,289,750 2,157,456
Expenses from wholly-owned investees 108,561 109,712 397,461 400,535
Interest expense 31,736   34,604   130,946   128,174  
Total expenses 1,654,850   1,621,724   6,474,427   6,176,732  
Income before income taxes 156,206 162,704 732,030 952,196
Income tax expense (46,328 ) (51,753 ) (227,923 ) (302,593 )
Net income before noncontrolling interests 109,878 110,951 504,107 649,603
Noncontrolling interests (133 ) (240 ) (413 ) (719 )
Net income to common stockholders $ 109,745   $ 110,711   $ 503,694   $ 648,884  
 
Net income per share:
Basic $ 0.89 $ 0.87 $ 4.06 $ 5.07
Diluted $ 0.85 $ 0.83 $ 3.87 $ 4.86
 
Average shares outstanding:
Basic 123,287 126,830 124,040 127,874
Diluted 129,016 132,879 130,189 133,652

Business Segment Operating Results

(Amounts in thousands, except ratios) (1)

 
  Fourth Quarter   Full Year
2015   2014 2015   2014
Insurance-Domestic:
Gross premiums written $ 1,395,146 $ 1,295,927 $ 5,684,188 $ 5,383,679
Net premiums written 1,167,871 1,084,784 4,812,830 4,517,587
Net premiums earned 1,200,241 1,133,127 4,659,359 4,271,933
Pre-tax income 190,266 188,910 724,667 796,309
Loss ratio 60.4 % 60.2 % 61.2 % 60.2 %
Expense ratio 31.2 % 30.4 % 31.2 % 31.6 %
GAAP combined ratio 91.6 % 90.6 % 92.4 % 91.8 %
 
Insurance-International:
Gross premiums written $ 209,743 $ 236,632 $ 923,304 $ 984,271
Net premiums written 184,982 208,051 778,567 828,076
Net premiums earned 189,100 209,654 772,141 802,375
Pre-tax income (loss) 10,579 (12,081 ) 51,926 29,779
Loss ratio 58.2 % 68.2 % 58.2 % 62.8 %
Expense ratio 41.5 % 40.2 % 41.4 % 40.0 %
GAAP combined ratio 99.7 % 108.4 % 99.6 % 102.8 %
 
Reinsurance-Global:
Gross premiums written $ 159,320 $ 173,255 $ 642,501 $ 694,888
Net premiums written 146,298 163,074 598,118 651,284
Net premiums earned 154,656 159,576 609,109 670,110
Pre-tax income 25,055 28,732 94,852 115,677
Loss ratio 57.1 % 55.2 % 58.4 % 62.0 %
Expense ratio 39.4 % 37.3 % 38.2 % 34.0 %
GAAP combined ratio 96.5 % 92.5 % 96.6 % 96.0 %
 
Corporate and Eliminations:

Net investment gains (losses)

$ (8,181 ) $ 20,672 $ 92,324 $ 254,852
Interest expense (31,736 ) (34,604 ) (130,946 ) (128,174 )
Other revenues and expenses (29,777 ) (28,925 ) (100,793 ) (116,247 )
Pre-tax gain (loss) (69,694 ) (42,857 ) (139,415 ) 10,431
 
Consolidated:
Gross premiums written $ 1,764,209 $ 1,705,814 $ 7,249,993 $ 7,062,838
Net premiums written 1,499,151 1,455,909 6,189,515 5,996,947
Net premiums earned 1,543,997 1,502,357 6,040,609 5,744,418
Pre-tax income 156,206 162,704 732,030 952,196
Loss ratio 59.8 % 60.8 % 60.5 % 60.8 %
Expense ratio 33.3 % 32.5 % 33.2 % 33.0 %
GAAP combined ratio 93.1 % 93.3 % 93.7 % 93.8 %

(1) Loss ratio is losses and loss expenses incurred expressed as a percentage of premiums earned. Expense ratio is underwriting expenses expressed as a percentage of premiums earned. GAAP combined ratio is the sum of the loss ratio and the expense ratio.

Supplemental Information

(Amounts in thousands)

 
  Fourth Quarter   Full Year
2015   2014 2015   2014
Insurance-Domestic net premiums written:
Other liability $ 411,691 $ 378,009 $ 1,623,710 $ 1,536,105
Workers' compensation 297,936 263,844 1,311,303 1,193,493
Short-tail lines (1) 221,103 217,915 933,726 913,258
Commercial automobile 129,426 141,293 541,426 547,128
Professional liability 107,715   83,723   402,665   327,603  
Total $ 1,167,871   $ 1,084,784   $ 4,812,830   $ 4,517,587  
 
Losses from catastrophes:
Insurance-Domestic $ 8,662 $ 6,392 $ 49,880 $ 64,937
Insurance-International 1,904 11,495 4,385 20,062
Reinsurance-Global 587   528   3,343   2,076  
Total $ 11,153   $ 18,415   $ 57,608   $ 87,075  
 
Investment income:
Core portfolio (2) $ 110,798 $ 107,937 $ 433,526 $ 446,862
Investment funds 11,390 (3,647 ) 62,228 131,585
Arbitrage trading account 5,421   9,930   16,891   22,438  
Total $ 127,609   $ 114,220   $ 512,645   $ 600,885  
 
Other operating costs and expenses:
Underwriting expenses $ 514,389 $ 488,920 $ 2,005,498 $ 1,896,528
Service expenses 34,051 33,597 127,365 102,727
Net foreign currency losses (gains) 3,634 991 400 (27 )
Other costs and expenses 39,507   40,329   156,487   158,228  
Total $ 591,581   $ 563,837   $ 2,289,750   $ 2,157,456  
 
Cash flow from operations $ 260,969 $ 89,061 $ 881,304 $ 734,847
 
Reconciliation of operating and net income:
Operating income (3) $ 115,062 $ 97,274 $ 443,683 $ 483,230
After-tax investment (losses) gains (5,317 ) 13,437   60,011   165,654  
Net income $ 109,745   $ 110,711   $ 503,694   $ 648,884  

(1) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.

(2) Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable.

(3) Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains. Management believes that excluding net investment gains provides a useful indicator of trends in the Company’s underlying operations.

Selected Balance Sheet Information

(Amounts in thousands, except per share data)

 
 

December 31,
2015

 

December 31,
2014

 
Net invested assets (1) $ 16,460,690 $ 16,508,087
Total assets 21,730,967 21,716,691
Reserves for losses and loss expenses 10,669,150 10,369,701
Senior notes and other debt 1,844,621 2,115,527
Subordinated debentures 340,320 340,060
Common stockholders’ equity (2) 4,600,246 4,589,945
Common stock outstanding (3) 123,308 126,749
Book value per share (4) 37.31 36.21
Tangible book value per share (4) 35.78 34.79

(1) Net invested assets include investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases, net of related liabilities.

(2) After-tax unrealized investment gains were $181 million and $306 million as of December 31, 2015 and December 31, 2014, respectively. Unrealized currency translation losses were $247 million and $123 million as of December 31, 2015 and December 31, 2014, respectively.

(3) During the full year 2015, the Company repurchased 4,502,025 shares of its common stock for $224 million.

(4) Book value per share is total common stockholders’ equity divided by the number of common shares outstanding. Tangible book value per share is total common stockholders’ equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding.

Investment Portfolio

December 31, 2015

(Amounts in thousands)

 
  Carrying

Value

  Percent

of Total

 
Fixed maturity securities:
United States government and government agencies $ 670,419 4.1 %
State and municipal:
Special revenue 2,632,626 16.0 %
State general obligation 641,790 3.9 %
Pre-refunded 472,697 2.9 %
Corporate backed 402,541 2.4 %
Local general obligation 387,654   2.3 %
Total state and municipal 4,537,308   27.5 %
Mortgage-backed securities:
Agency 855,195 5.2 %
Residential - Prime 245,611 1.5 %
Commercial 65,722 0.4 %
Residential - Alt A 52,469   0.3 %
Total mortgage-backed securities 1,218,997   7.4 %
Asset-backed securities 1,705,172 10.4 %
Corporate:
Industrial 2,021,534 12.3 %
Financial 1,173,021 7.1 %
Utilities 198,651 1.2 %
Other 81,832   0.5 %
Total corporate 3,475,038   21.1 %
Foreign government 837,460   5.1 %
Total fixed maturity securities (1) 12,444,394   75.6 %
Equity securities available for sale:
Preferred stocks 113,593 0.7 %
Common stocks 37,273   0.2 %
Total equity securities available for sale 150,866   0.9 %
Investment funds (2) 1,167,839 7.1 %
Arbitrage trading account 376,697 2.3 %
Real estate 936,367 5.7 %
Cash and cash equivalents (3) 1,111,424 6.7 %
Loans receivable 273,103   1.7 %
Net invested assets $ 16,460,690   100.0 %

(1) Total fixed maturity securities had an average rating of AA- and an average duration of 3.3 years, including cash and cash equivalents.

(2) Investment funds include an investment in publicly traded common stock of HealthEquity, Inc. (HQY), which is carried on the equity method of accounting. At December 31, 2015, the investment in HQY had a carrying value of $45.4 million and a fair value of $300.1 million. Investment funds are reported net of related liabilities of $2.2 million.

(3) Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.

Foreign Government Fixed Maturity Securities

December 31, 2015

(Amounts in thousands)

 
  Carrying Value
 
Australia $ 230,036
United Kingdom 165,114
Canada 150,501
Argentina 105,428
Germany 51,759
Brazil 51,405
Supranational (1) 36,090
Norway 31,656
Singapore 6,101
Colombia 5,502
Uruguay 3,868
Total $ 837,460

(1) Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development

 

W. R. Berkley Corporation
Karen A. Horvath
Vice President - External
Financial Communications
203-629-3000

 

Source: W. R. Berkley Corporation

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