Net Income Increased 9% to $181 Million; Return on Equity of 13.3%
GREENWICH, Conn.--(BUSINESS WIRE)--
W. R. Berkley Corporation (NYSE: WRB) today reported net income
for the first quarter of 2019 of $181 million, or $0.94 per share.
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Summary Financial Data
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(Amounts in thousands, except per share data)
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First Quarter
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2019
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2018
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Gross premiums written
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$
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2,046,230
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$
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1,979,421
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Net premiums written
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1,709,601
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1,665,338
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Net income to common stockholders
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180,722
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166,396
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Net income per diluted share (1)
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0.94
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0.87
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Return on equity (2)
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13.3
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%
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12.3
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%
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(1)
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Reflects the 3-for-2 common stock split effected on April 2, 2019.
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(2)
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Return on equity represents net income expressed on an annualized
basis as a percentage of beginning of year stockholders’ equity.
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First quarter highlights included:
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Annualized return on equity of 13.3%.
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Average rate increases excluding workers' compensation were more than
6%.
-
For the quarter, book value per share grew 6.2%, before dividends.
-
The accident year combined ratio excluding catastrophe losses was
93.9%. The reported combined ratio was 94.3%, inclusive of 0.8 loss
ratio points from catastrophes and an additional 0.9 loss ratio points
from non-catastrophe weather.
-
Investment income attributable to the core investment portfolio
increased 5.6%(1).
-
Net realized pre-tax gains and net unrealized pre-tax gains on equity
securities of $66 million, net of performance-based compensation costs(2).
The Company commented:
We are pleased with the performance of the business in the first quarter
of 2019, with solid performance in both underwriting and investments and
an annualized return on equity of 13.3%.
Further rate improvement contributed to steady net premium growth. We
believe our rate increases are currently outpacing loss cost trend in
many lines of business. Given the potential for claims inflation, we
believe this is appropriate and that for several lines of business it
will persist for the foreseeable future. We continue to focus on
improving our combined ratio by seeking additional rate and managing
both volatility and expenses. As we see the potential for additional
margin improvement, we expect this will lead to greater opportunities
for further growth. We remain focused on underwriting profitability and
will continue to emphasize areas of the business that offer better
margins.
Growth in income from the core portfolio partially offset a reduction in
investment fund income. Our $27 million of realized gains on sales of
investments and $42 million of change in unrealized gains on equity
securities reflect our focus on total return.
Our first quarter results are a solid start to the year. The industry
appears to be grappling with the reality that rate adequacy is of
paramount importance. Signs of rate movement and returning discipline
may be early indicators that the moment the industry has been waiting
for is coming to many parts of the business. We anticipate that these
trends, and consequently our results, will further improve during the
balance of the year.
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(1)
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Core investment portfolio includes fixed maturity securities, equity
securities, cash and cash equivalents, real estate and loans
receivable.
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(2)
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Net realized pre-tax gains and net unrealized pre-tax gains on
equity securities before performance-based compensation costs were
$69 million.
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Webcast Conference Call
The Company will hold its quarterly conference call with analysts and
investors to discuss its earnings and other information on April 23,
2019, at 5:00 p.m. eastern time. The conference call will be webcast
live on the Company's website at https://ir.berkley.com/news-and-events/events-and-presentations/default.aspx.
Please log on at least ten minutes early to register and download and
install any necessary software. A replay of the webcast will be
available on the Company's website approximately two hours after the end
of the conference call. Additional financial information can be found on
the Company's website at https://ir.berkley.com/investor-relations/financial-information/annual-reports/default.aspx.
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 worldwide in two segments of the property casualty
business: Insurance and Reinsurance & Monoline Excess.
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 2019 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; the impact of
climate change, which may increase the frequency and severity of
catastrophe events; 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, on our results and
financial condition; foreign currency and political risks (including
those associated with the United Kingdom's withdrawal from the European
Union, or "Brexit") 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 Program Reauthorization Act of 2015; the ability or
willingness 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
cyber security issues; 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 2019 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.
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Consolidated Financial Summary
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(Amounts in thousands, except per share data)
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First Quarter
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2019
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2018
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Revenues:
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Net premiums written
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$
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1,709,601
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$
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1,665,338
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Change in unearned premiums
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(116,745
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)
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(97,930
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)
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Net premiums earned
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1,592,856
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1,567,408
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Net investment income
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158,254
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174,518
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Net realized and unrealized gains on investments
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68,653
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48,464
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Revenues from non-insurance businesses
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91,827
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70,171
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Insurance service fees
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25,312
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30,675
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Other income
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120
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11
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Total revenues
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1,937,022
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1,891,247
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Expenses:
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Losses and loss expenses
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988,650
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963,219
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Other operating costs and expenses
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588,087
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610,439
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Expenses from non-insurance businesses
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90,125
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69,543
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Interest expense
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40,721
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37,056
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Total expenses
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1,707,583
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1,680,257
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Income before income taxes
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229,439
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210,990
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Income tax expense
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(47,825
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)
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(43,417
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Net income before noncontrolling interests
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181,614
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167,573
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Noncontrolling interests
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(892
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)
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(1,177
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)
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Net income to common stockholders
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$
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180,722
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$
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166,396
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Net income per share (1):
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Basic
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$
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0.95
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$
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0.88
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Diluted
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$
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0.94
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$
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0.87
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Average shares outstanding (1) (2):
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Basic
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190,400
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189,563
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Diluted
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192,669
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192,188
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(1)
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Shares outstanding and per share amounts reflect the 3-for-2 common
stock split effected on April 2, 2019.
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(2)
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Basic shares outstanding consist of the weighted average number of
common shares outstanding during the period (including shares held
in a grantor trust). Diluted shares outstanding consist of the
weighted average number of basic and common equivalent shares
outstanding during the period.
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Business Segment Operating Results
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(Amounts in thousands, except ratios) (1) (2)
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First Quarter
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2019
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2018
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Insurance:
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Gross premiums written
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$
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1,810,483
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$
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1,760,173
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Net premiums written
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1,497,378
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1,473,244
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Premiums earned
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1,427,034
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1,391,289
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Pre-tax income
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184,516
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198,929
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Loss ratio
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62.2
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%
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60.9
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%
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Expense ratio
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31.8
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%
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32.9
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%
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GAAP combined ratio
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94.0
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%
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93.8
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%
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Reinsurance & Monoline Excess:
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Gross premiums written
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$
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235,747
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$
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219,248
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Net premiums written
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212,223
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192,094
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Premiums earned
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165,822
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176,119
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Pre-tax income
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44,855
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44,691
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Loss ratio
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60.7
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%
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65.6
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%
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Expense ratio
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36.1
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%
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35.7
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%
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GAAP combined ratio
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96.8
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%
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101.3
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%
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Corporate and Eliminations:
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Net realized and unrealized gains on investments
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$
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68,653
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$
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48,464
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Interest expense
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(40,721
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)
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(37,056
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)
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Other revenues and expenses
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(27,864
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)
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(44,038
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)
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Pre-tax income (loss)
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68
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(32,630
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)
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Consolidated:
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Gross premiums written
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$
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2,046,230
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$
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1,979,421
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Net premiums written
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1,709,601
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1,665,338
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Premiums earned
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1,592,856
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1,567,408
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Pre-tax income
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229,439
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210,990
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Loss ratio
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62.0
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%
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61.4
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%
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Expense ratio
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32.3
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%
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33.2
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%
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GAAP combined ratio
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94.3
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%
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|
94.6
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%
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(1)
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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.
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(2)
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Commencing with the first quarter of 2019, the Company renamed the
Reinsurance segment to Reinsurance & Monoline Excess, and
reclassified the monoline excess business from the Insurance
segment. The reclassified business includes operations that solely
retain risk on an excess basis. Reclassifications have been made
to the Company's 2018 financial information to conform with this
presentation.
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Supplemental Information
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(Amounts in thousands)
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First Quarter
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2019
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2018
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Net premiums written:
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|
|
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Other liability
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$
|
506,950
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$
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468,840
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Workers' compensation
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354,187
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|
349,541
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|
Short-tail lines (1)
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278,836
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|
|
291,027
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|
Commercial automobile
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|
212,955
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|
214,645
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Professional liability
|
|
144,450
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|
|
149,191
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Total Insurance
|
|
1,497,378
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|
|
1,473,244
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Casualty reinsurance
|
|
104,516
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|
|
82,335
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|
Monoline excess
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|
67,792
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|
|
69,808
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|
Property reinsurance
|
|
39,915
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|
|
39,951
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|
Total Reinsurance & Monoline Excess
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|
212,223
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|
|
192,094
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Total
|
|
$
|
1,709,601
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|
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$
|
1,665,338
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|
|
|
|
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Losses from catastrophes:
|
|
|
|
|
|
Insurance
|
|
$
|
12,618
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|
|
$
|
7,131
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|
Reinsurance & Monoline Excess
|
|
42
|
|
|
257
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|
Total
|
|
$
|
12,660
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|
|
$
|
7,388
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|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
Core portfolio (2)
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|
$
|
136,258
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|
|
$
|
128,973
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|
|
Investment funds
|
|
11,411
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|
|
40,354
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|
|
Arbitrage trading account
|
|
10,585
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|
|
5,191
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|
|
Total
|
|
$
|
158,254
|
|
|
$
|
174,518
|
|
|
|
|
|
|
|
Net realized and unrealized gains on investments:
|
|
|
|
|
|
Net realized gains on investment sales
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|
$
|
26,575
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|
|
$
|
142,669
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|
|
Change in unrealized gains on equity securities
|
|
42,078
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|
|
(94,205
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)
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Total
|
|
$
|
68,653
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|
|
$
|
48,464
|
|
|
|
|
|
|
|
Other operating costs and expenses:
|
|
|
|
|
|
Policy acquisition and insurance operating expenses
|
|
$
|
513,791
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|
|
$
|
520,231
|
|
|
Insurance service expenses
|
|
25,956
|
|
|
32,712
|
|
|
Net foreign currency (gains) losses
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|
(6,964
|
)
|
|
13,484
|
|
|
Other costs and expenses
|
|
55,304
|
|
|
44,012
|
|
|
Total
|
|
$
|
588,087
|
|
|
$
|
610,439
|
|
|
|
|
|
|
|
Cash flow from operations
|
|
$
|
78,330
|
|
|
$
|
(20,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
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|
Short-tail lines include commercial multi-peril (non-liability),
inland marine, accident and health, fidelity and surety, boiler and
machinery and other lines.
|
|
|
|
|
(2)
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|
Core portfolio includes fixed maturity securities, equity
securities, cash and cash equivalents, real estate and loans
receivable.
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Information
|
|
(Amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
|
|
|
|
|
|
Net invested assets (1)
|
|
$
|
19,164,608
|
|
|
$
|
18,828,321
|
|
Total assets
|
|
25,585,261
|
|
|
24,895,977
|
|
Reserves for losses and loss expenses
|
|
12,093,110
|
|
|
11,966,448
|
|
Senior notes and other debt
|
|
1,875,018
|
|
|
1,882,028
|
|
Subordinated debentures
|
|
907,679
|
|
|
907,491
|
|
Common stockholders’ equity (2)
|
|
5,759,952
|
|
|
5,437,851
|
|
Common stock outstanding (3) (4)
|
|
183,024
|
|
|
182,994
|
|
Book value per share (4) (5)
|
|
31.47
|
|
|
29.72
|
|
Tangible book value per share (4) (5)
|
|
30.19
|
|
|
28.42
|
|
|
|
|
|
|
|
|
|
|
(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)
|
|
As of March 31, 2019, reflected in common stockholders' equity are
after-tax unrealized investment gains of $34 million and unrealized
currency translation losses of $399 million. As of December 31,
2018, after-tax unrealized investment losses were $91 million and
unrealized currency translation losses were $419 million.
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|
|
|
|
(3)
|
|
During the three months ended March 31, 2019, the Company did not
repurchase any shares of its common stock. The number of shares of
common stock outstanding excludes shares held in a grantor trust.
|
|
|
|
|
(4)
|
|
Shares outstanding and per share amounts reflect the 3-for-2 common
stock split effected on April 2, 2019.
|
|
|
|
|
(5)
|
|
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
|
|
March 31, 2019
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
Carrying
Value
|
|
Percent
of Total
|
|
Fixed maturity securities:
|
|
|
|
|
|
United States government and government agencies
|
|
$
|
738,663
|
|
|
3.9
|
%
|
|
State and municipal:
|
|
|
|
|
|
Special revenue
|
|
2,452,678
|
|
|
12.8
|
%
|
|
Local general obligation
|
|
435,910
|
|
|
2.3
|
%
|
|
State general obligation
|
|
389,166
|
|
|
2.0
|
%
|
|
Pre-refunded
|
|
360,954
|
|
|
1.9
|
%
|
|
Corporate backed
|
|
256,690
|
|
|
1.3
|
%
|
|
Total state and municipal
|
|
3,895,398
|
|
|
20.3
|
%
|
|
Mortgage-backed securities:
|
|
|
|
|
|
Agency
|
|
889,288
|
|
|
4.7
|
%
|
|
Commercial
|
|
352,059
|
|
|
1.8
|
%
|
|
Residential - Prime
|
|
311,259
|
|
|
1.6
|
%
|
|
Residential - Alt A
|
|
38,197
|
|
|
0.2
|
%
|
|
Total mortgage-backed securities
|
|
1,590,803
|
|
|
8.3
|
%
|
|
Asset-backed securities
|
|
2,630,799
|
|
|
13.7
|
%
|
|
Corporate:
|
|
|
|
|
|
Industrial
|
|
2,130,251
|
|
|
11.1
|
%
|
|
Financial
|
|
1,478,798
|
|
|
7.7
|
%
|
|
Utilities
|
|
321,391
|
|
|
1.7
|
%
|
|
Other
|
|
43,492
|
|
|
0.3
|
%
|
|
Total corporate
|
|
3,973,932
|
|
|
20.8
|
%
|
|
Foreign government
|
|
811,074
|
|
|
4.2
|
%
|
|
Total fixed maturity securities (1)
|
|
13,640,669
|
|
|
71.2
|
%
|
|
Equity securities available for sale:
|
|
|
|
|
|
Preferred stocks
|
|
205,882
|
|
|
1.1
|
%
|
|
Common stocks
|
|
136,099
|
|
|
0.7
|
%
|
|
Total equity securities available for sale
|
|
341,981
|
|
|
1.8
|
%
|
|
Real estate
|
|
2,019,123
|
|
|
10.5
|
%
|
|
Investment funds (2)
|
|
1,358,572
|
|
|
7.1
|
%
|
|
Cash and cash equivalents (3)
|
|
1,204,073
|
|
|
6.3
|
%
|
|
Arbitrage trading account
|
|
504,633
|
|
|
2.6
|
%
|
|
Loans receivable
|
|
95,557
|
|
|
0.5
|
%
|
|
Net invested assets
|
|
$
|
19,164,608
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Total fixed maturity securities had an average rating of AA - and an
average duration of 2.7 years, including cash and cash equivalents.
|
|
|
|
|
(2)
|
|
Investment funds are net of related liabilities of $1.3 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.
|
|
|
|
View source version on businesswire.com:
https://www.businesswire.com/news/home/20190423005913/en/
Karen A. Horvath
Vice President - External
Financial
Communications
(203) 629-3000
Source: W. R. Berkley Corporation