W. R. Berkley Corporation Reports Third Quarter Results

Published

Gross Premiums Written Up 8.6%; Return on Equity of 12.2%

GREENWICH, Conn.--(BUSINESS WIRE)-- W. R. Berkley Corporation (NYSE: WRB) today reported net income for the third quarter of 2019 of $165 million, or $0.85 per share.

 

Summary Financial Data

(Amounts in thousands, except per share data)

 

 

Third Quarter

 

Nine Months

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

2,093,050

 

 

$

1,927,785

 

 

$

6,229,141

 

 

$

5,855,280

 

Net premiums written

 

1,749,906

 

 

1,624,214

 

 

5,202,971

 

 

4,913,656

 

 

 

 

 

 

 

 

 

 

Net income to common stockholders

 

165,208

 

 

161,920

 

 

562,638

 

 

508,392

 

Net income per diluted share (1)

 

0.85

 

 

0.84

 

 

2.91

 

 

2.64

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

 

12.2

%

 

12.0

%

 

13.8

%

 

12.5

%

(1)

2018 per share amounts were restated for comparative purposes to reflect the 3-for-2 common stock split effected on April 2, 2019.

(2)

Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity.

Third quarter highlights included:

  • Gross and net premiums written increased 8.6% and 7.7%, respectively.
  • Average rate increases excluding workers' compensation were more than 7%.
  • Underwriting income increased 61.1% to $107 million.
  • Annualized after-tax return on equity was 12.2% (pre-tax of 14.9%).
  • The accident year combined ratio excluding catastrophe losses was 91.9%. The reported combined ratio was 93.6%, inclusive of 1.9 loss ratio points from catastrophes.
  • For the nine months ended, book value per share grew 13.7%, before dividends.

The Company commented:

The Company continued its strong performance in the third quarter of 2019 with a 12.2% annualized after-tax return on equity.

Growing opportunities presented by current market conditions, including accelerating rate increases in all lines of business except workers’ compensation, drove growth in premiums written. We continue to focus on lines of business that have the potential to meet or exceed our targeted risk-adjusted return and have been carefully monitoring the rising trends in loss costs for an extended period of time. As market momentum accelerates, we anticipate that price increases will persist for the foreseeable future.

The investment portfolio performed as anticipated despite a challenging interest rate environment that remains volatile and difficult to predict. We manage the investment portfolio for stability and predictability by maintaining the quality and duration of our fixed maturity securities. Overall net investment income was impacted as investment fund performance returned to an average level compared to the notably strong earnings in the prior year. While our total return approach to portfolio management has resulted in some variability from quarter to quarter, it has benefited our overall long-term returns.

We continue to successfully execute our long-term strategy of delivering superior risk-adjusted returns to our shareholders through profitable underwriting with low volatility, growth in areas of the market with attractive returns and an above average-total return in our investment portfolio. The (re)insurance market is in the early stages of a meaningful transition. Historically, this type of market dislocation has provided the Company with meaningful opportunities and, once again, we expect our results will benefit from them.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on October 22, 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 ("TRIPRA"), and TRIPRA's potential expiration; 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.

 

Consolidated Financial Summary

(Amounts in thousands, except per share data)

 

 

 

Third Quarter

 

Nine Months

 

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

 

Net premiums written

 

$

1,749,906

 

 

$

1,624,214

 

 

$

5,202,971

 

 

$

4,913,656

 

Change in unearned premiums

 

(73,096

)

 

(20,729

)

 

(286,464

)

 

(161,709

)

Net premiums earned

 

1,676,810

 

 

1,603,485

 

 

4,916,507

 

 

4,751,947

 

Net investment income

 

161,692

 

 

186,124

 

 

508,279

 

 

514,419

 

Net realized and unrealized gains on investments

 

1,465

 

 

22,334

 

 

143,691

 

 

140,429

 

Revenues from non-insurance businesses

 

101,880

 

 

95,168

 

 

283,005

 

 

242,037

 

Insurance service fees

 

23,681

 

 

30,782

 

 

71,440

 

 

91,175

 

Other income

 

188

 

 

9

 

 

3,200

 

 

59

 

Total revenues

 

1,965,716

 

 

1,937,902

 

 

5,926,122

 

 

5,740,066

 

Expenses:

 

 

 

 

 

 

 

 

Losses and loss expenses

 

1,041,471

 

 

1,017,720

 

 

3,058,950

 

 

2,954,575

 

Other operating costs and expenses

 

581,045

 

 

577,648

 

 

1,760,961

 

 

1,781,230

 

Expenses from non-insurance businesses

 

101,743

 

 

93,463

 

 

280,141

 

 

238,198

 

Interest expense

 

38,475

 

 

39,848

 

 

119,913

 

 

116,608

 

Total expenses

 

1,762,734

 

 

1,728,679

 

 

5,219,965

 

 

5,090,611

 

Income before income taxes

 

202,982

 

 

209,223

 

 

706,157

 

 

649,455

 

Income tax expense

 

(37,831

)

 

(44,780

)

 

(141,965

)

 

(136,661

)

Net income before noncontrolling interests

 

165,151

 

 

164,443

 

 

564,192

 

 

512,794

 

Noncontrolling interests

 

57

 

 

(2,523

)

 

(1,554

)

 

(4,402

)

Net income to common stockholders

 

$

165,208

 

 

$

161,920

 

 

$

562,638

 

 

$

508,392

 

 

 

 

 

 

 

 

 

 

Net income per share (1):

 

 

 

 

 

 

 

 

Basic

 

$

0.87

 

 

$

0.85

 

 

$

2.95

 

 

$

2.68

 

Diluted

 

$

0.85

 

 

$

0.84

 

 

$

2.91

 

 

$

2.64

 

 

 

 

 

 

 

 

 

 

Average shares outstanding (1) (2):

 

 

 

 

 

 

 

 

Basic

 

190,862

 

 

190,241

 

190,593

 

 

189,862

Diluted

 

193,589

 

 

192,842

 

193,557

 

 

192,606

(1)

2018 per share amounts were restated for comparative purposes to reflect the 3-for-2 common stock split effected on April 2, 2019.

(2)

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.

Business Segment Operating Results

(Amounts in thousands, except ratios) (1) (2)

 

 

 

Third Quarter

 

Nine Months

 

 

2019

 

2018

 

2019

 

2018

Insurance:

 

 

 

 

 

 

 

 

Gross premiums written

 

$

1,850,012

 

 

$

1,740,318

 

 

$

5,565,862

 

 

$

5,298,564

 

Net premiums written

 

1,529,113

 

 

1,455,342

 

 

4,601,077

 

 

4,420,019

 

Premiums earned

 

1,493,854

 

 

1,447,628

 

 

4,396,071

 

 

4,254,497

 

Pre-tax income

 

202,390

 

 

193,587

 

 

612,777

 

 

555,697

 

Loss ratio

 

61.8

%

 

63.6

%

 

62.3

%

 

62.3

%

Expense ratio

 

31.2

%

 

32.0

%

 

31.3

%

 

32.6

%

GAAP combined ratio

 

93.0

%

 

95.6

%

 

93.6

%

 

94.9

%

 

 

 

 

 

 

 

 

 

Reinsurance & Monoline Excess:

 

 

 

 

 

 

 

 

Gross premiums written

 

$

243,038

 

 

$

187,467

 

 

$

663,279

 

 

$

556,716

 

Net premiums written

 

220,793

 

 

168,872

 

 

601,894

 

 

493,637

 

Premiums earned

 

182,956

 

 

155,857

 

 

520,436

 

 

497,450

 

Pre-tax income

 

46,863

 

 

48,061

 

 

144,353

 

 

148,926

 

Loss ratio

 

64.6

%

 

62.1

%

 

61.6

%

 

60.9

%

Expense ratio

 

33.7

%

 

36.2

%

 

35.2

%

 

36.2

%

GAAP combined ratio

 

98.3

%

 

98.3

%

 

96.8

%

 

97.1

%

 

 

 

 

 

 

 

 

 

Corporate and Eliminations:

 

 

 

 

 

 

 

 

Net realized and unrealized gains on investments

 

$

1,465

 

 

$

22,334

 

 

$

143,691

 

 

$

140,429

 

Interest expense

 

(38,475

)

 

(39,848

)

 

(119,913

)

 

(116,608

)

Other revenues and expenses

 

(9,261

)

 

(14,911

)

 

(74,751

)

 

(78,989

)

Pre-tax loss

 

(46,271

)

 

(32,425

)

 

(50,973

)

 

(55,168

)

 

 

 

 

 

 

 

 

 

Consolidated:

 

 

 

 

 

 

 

 

Gross premiums written

 

$

2,093,050

 

 

$

1,927,785

 

 

$

6,229,141

 

 

$

5,855,280

 

Net premiums written

 

1,749,906

 

 

1,624,214

 

 

5,202,971

 

 

4,913,656

 

Premiums earned

 

1,676,810

 

 

1,603,485

 

 

4,916,507

 

 

4,751,947

 

Pre-tax income

 

202,982

 

 

209,223

 

 

706,157

 

 

649,455

 

Loss ratio

 

62.1

%

 

63.5

%

 

62.2

%

 

62.2

%

Expense ratio

 

31.5

%

 

32.4

%

 

31.7

%

 

33.0

%

GAAP combined ratio

 

93.6

%

 

95.9

%

 

93.9

%

 

95.2

%

(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.

(2)

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 retains risk on an excess basis. Reclassifications have been made to the Company's 2018 financial information to conform with this presentation.

 

Supplemental Information

(Amounts in thousands)

 

 

 

Third Quarter

 

Nine Months

 

 

2019

 

2018

 

2019

 

2018

Net premiums written:

 

 

 

 

 

 

 

 

Other liability

 

$

553,802

 

 

$

497,990

 

 

$

1,607,613

 

 

$

1,471,145

 

Workers' compensation

 

303,116

 

 

321,995

 

 

997,733

 

 

1,026,543

 

Short-tail lines (1)

 

318,310

 

 

305,516

 

 

934,757

 

 

908,765

 

Commercial automobile

 

196,851

 

 

189,474

 

 

608,533

 

 

589,923

 

Professional liability

 

157,034

 

 

140,367

 

 

452,441

 

 

423,643

 

Total Insurance

 

1,529,113

 

 

1,455,342

 

 

4,601,077

 

 

4,420,019

 

Casualty reinsurance

 

132,335

 

 

90,305

 

 

343,541

 

 

252,946

 

Monoline excess

 

49,851

 

 

49,450

 

 

141,572

 

 

141,351

 

Property reinsurance

 

38,607

 

 

29,117

 

 

116,781

 

 

99,340

 

Total Reinsurance & Monoline Excess

 

220,793

 

 

168,872

 

 

601,894

 

 

493,637

 

Total

 

$

1,749,906

 

 

$

1,624,214

 

 

$

5,202,971

 

 

$

4,913,656

 

 

 

 

 

 

 

 

 

 

Losses from catastrophes:

 

 

 

 

 

 

 

 

Insurance

 

$

15,381

 

 

$

29,352

 

 

$

53,444

 

 

$

49,412

 

Reinsurance & Monoline Excess

 

16,079

 

 

9,650

 

 

16,178

 

 

10,534

 

Total

 

$

31,460

 

 

$

39,002

 

 

$

69,622

 

 

$

59,946

 

 

 

 

 

 

 

 

 

 

Net investment income:

 

 

 

 

 

 

 

 

Core portfolio (2)

 

$

134,259

 

 

$

137,487

 

 

$

404,812

 

 

$

399,188

 

Investment funds

 

19,033

 

 

41,005

 

 

77,284

 

 

94,075

 

Arbitrage trading account

 

8,400

 

 

7,632

 

 

26,183

 

 

21,156

 

Total

 

$

161,692

 

 

$

186,124

 

 

$

508,279

 

 

$

514,419

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains on investments:

 

 

 

 

 

 

 

 

Net realized (losses) gains on investment sales

 

$

(2,761

)

 

$

153,847

 

 

$

27,969

 

 

$

420,799

 

Change in unrealized gains on equity securities

 

4,226

 

 

(131,513

)

 

115,722

 

 

(280,370

)

Total

 

$

1,465

 

 

$

22,334

 

 

$

143,691

 

 

$

140,429

 

 

 

 

 

 

 

 

 

 

Other operating costs and expenses:

 

 

 

 

 

 

 

 

Policy acquisition and insurance operating expenses

 

$

528,399

 

 

$

519,380

 

 

$

1,560,350

 

 

$

1,566,473

 

Insurance service expenses

 

26,171

 

 

27,268

 

 

77,513

 

 

90,970

 

Net foreign currency gains

 

(22,590

)

 

(17,267

)

 

(29,084

)

 

(22,033

)

Other costs and expenses

 

49,065

 

 

48,267

 

 

152,182

 

 

145,820

 

Total

 

$

581,045

 

 

$

577,648

 

 

$

1,760,961

 

 

$

1,781,230

 

 

 

 

 

 

 

 

 

 

Cash flow from operations

 

$

392,398

 

 

$

223,162

 

 

$

795,044

 

 

$

342,524

 

(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.

 

Selected Balance Sheet Information

(Amounts in thousands, except per share data)

 

 

September 30, 2019

 

December 31, 2018

 

 

 

 

Net invested assets (1)

$

19,470,231

 

 

$

18,828,321

 

Total assets

26,218,511

 

 

24,895,977

 

Reserves for losses and loss expenses

12,396,955

 

 

11,966,448

 

Senior notes and other debt

1,434,725

 

 

1,882,028

 

Subordinated debentures

908,053

 

 

907,491

 

Common stockholders’ equity (2)

6,056,296

 

 

5,437,851

 

Common stock outstanding (3) (4)

183,674

 

 

182,994

 

Book value per share (4) (5)

32.97

 

 

29.72

 

Tangible book value per share (4) (5)

31.71

 

 

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 September 30, 2019, reflected in common stockholders' equity are after-tax unrealized investment gains of $128 million and unrealized currency translation losses of $450 million. As of December 31, 2018, after-tax unrealized investment losses were $91 million and unrealized currency translation losses were $419 million.

(3)

During the three and nine months ended September 30, 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)

December 31, 2018 shares outstanding and per share amounts were restated for comparative purposes to 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

September 30, 2019

(Amounts in thousands)

 

 

 

Carrying

Value

 

Percent

of Total

Fixed maturity securities:

 

 

 

 

United States government and government agencies

 

$

816,114

 

 

4.2

%

State and municipal:

 

 

 

 

Special revenue

 

2,457,938

 

 

12.6

%

Local general obligation

 

466,969

 

 

2.4

%

State general obligation

 

404,875

 

 

2.1

%

Pre-refunded

 

305,546

 

 

1.6

%

Corporate backed

 

250,980

 

 

1.3

%

Total state and municipal

 

3,886,308

 

 

19.9

%

Mortgage-backed securities:

 

 

 

 

Agency

 

912,782

 

 

4.7

%

Residential - Prime

 

408,412

 

 

2.1

%

Commercial

 

363,075

 

 

1.9

%

Residential - Alt A

 

34,892

 

 

0.2

%

Total mortgage-backed securities

 

1,719,161

 

 

8.9

%

Asset-backed securities

 

2,748,256

 

 

14.1

%

Corporate:

 

 

 

 

Industrial

 

2,365,523

 

 

12.1

%

Financial

 

1,427,591

 

 

7.3

%

Utilities

 

322,060

 

 

1.8

%

Other

 

21,094

 

 

0.1

%

Total corporate

 

4,136,268

 

 

21.2

%

Foreign government

 

779,968

 

 

4.0

%

Total fixed maturity securities (1)

 

14,086,075

 

 

72.3

%

Equity securities available for sale:

 

 

 

 

Preferred stocks

 

295,593

 

 

1.5

%

Common stocks

 

148,061

 

 

0.8

%

Total equity securities available for sale

 

443,654

 

 

2.3

%

Real estate

 

2,102,391

 

 

10.8

%

Investment funds (2)

 

1,226,405

 

 

6.3

%

Cash and cash equivalents (3)

 

877,428

 

 

4.5

%

Arbitrage trading account

 

641,993

 

 

3.3

%

Loans receivable

 

92,285

 

 

0.5

%

Net invested assets

 

$

19,470,231

 

 

100.0

%

(1)

Total fixed maturity securities had an average rating of AA- and an average duration of 2.8 years, including cash and cash equivalents.

(2)

Investment funds are net of related liabilities of $0.9 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/20191022006111/en/

Karen A. Horvath Vice President - External Financial Communications (203) 629-3000

Source: W. R. Berkley Corporation

In This Story