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| 8-K - FORM 8-K THIRD QUARTER 2017 EARNINGS RELEASE - BERKLEY W R CORP | wrb930178k.htm |
NEWS RELEASE | ||||||
W. R. Berkley Corporation 475 Steamboat Road Greenwich, Connecticut 06830 (203) 629-3000 | ||||||
FOR IMMEDIATE RELEASE | CONTACT: | Karen A. Horvath | ||||
Vice President - External | ||||||
Financial Communications | ||||||
(203) 629-3000 | ||||||
W. R. BERKLEY CORPORATION REPORTS THIRD QUARTER RESULTS
Net Income of $162 Million; Return on Equity of 12.8%
Greenwich, CT, October 24, 2017 -- W. R. Berkley Corporation (NYSE: WRB) today reported net income for the third quarter of 2017 of $162 million, or $1.26 per share.
Summary Financial Data
(Amounts in thousands, except per share data)
Third Quarter | Nine Months | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Gross premiums written | $ | 1,874,158 | $ | 1,868,849 | $ | 5,697,517 | $ | 5,763,911 | ||||||||
Net premiums written | 1,571,183 | 1,607,365 | 4,782,272 | 4,913,656 | ||||||||||||
Net income to common stockholders | 162,054 | 220,650 | 394,505 | 449,127 | ||||||||||||
Net income per diluted share | 1.26 | 1.72 | 3.05 | 3.50 | ||||||||||||
Return on equity (1) | 12.8 | % | 19.2 | % | 10.4 | % | 13.0 | % | ||||||||
(1) | Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity. |
W. R. Berkley Corporation Page 2
Third quarter highlights included:
• | Annualized pre-tax return on equity was 17.9%. |
• | Repurchased 441,119 shares of common stock at an average price of $64.33 per share. |
• | Before dividends and share repurchases, book value per share grew 2.8%. |
• | The accident year combined ratio excluding catastrophes was 93.9%. |
• | Total catastrophe losses were $119 million, including $107 million related to Hurricanes Harvey, Irma and Maria, and the earthquakes in Mexico. |
• | Investment income attributable to the core investment portfolio increased 7.8%. |
• | Realized pre-tax gains of $184 million.(1) |
The Company commented:
In light of significant catastrophe activity in the third quarter, we were pleased with our results. We believe that catastrophe losses, like capital gains, are an inherent part of our business that should not be disregarded. Over time, our focus on limiting underwriting volatility and investing for total return has proven to be a successful formula for generating value for our shareholders.
Our underwriting results, before catastrophe losses, were relatively stable even as market conditions remained competitive. Premiums in the insurance segment were essentially unchanged, as we maintained our focus on the parts of the market where adequate pricing persists and continued to de-emphasize those sectors with less attractive margins. The capital destruction from the recent catastrophe events may drive price firming in affected markets and test the fortitude of capital providers. While the impact on broader pricing remains to be seen, opportunities are likely to increase in select areas, and we are well positioned to benefit from them.
Net investment income from our core portfolio grew nearly 8% compared to the third quarter of 2016, although, as expected, income from the more variable parts of our portfolio declined. Our third quarter results were enhanced by $184 million of pre-tax realized investment gains. Our investment strategy has enabled us to mitigate the impact of low interest rates on investment income, while providing opportunities to grow book value through realized investment gains.
The recent devastating catastrophic events should remind the industry that the property casualty insurance business is all about risk-adjusted returns. Over the long term, our adherence to this fundamental principle has enabled us to produce excellent returns, with lower volatility, and superior long-term value creation for our shareholders.
Webcast Conference Call
The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on October 24, 2017, at 5:00 p.m. eastern time. The conference call will be webcast live on the Company's website at http://www.wrberkley.com/investor-relations/events-and-presentations.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.
About W. R. Berkley Corporation
Celebrating 50 years, 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.
(1) The impact on pre-tax earnings was $177 million after considering related operating costs and expenses, including performance-based compensatory costs.
W. R. Berkley Corporation Page 3
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 2017 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, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's expected 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 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 2017 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.
# # #
W. R. Berkley Corporation Page 4
Consolidated Financial Summary
(Amounts in thousands, except per share data)
Third Quarter | Nine Months | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues: | ||||||||||||||||
Net premiums written | $ | 1,571,183 | $ | 1,607,365 | $ | 4,782,272 | $ | 4,913,656 | ||||||||
Change in unearned premiums | 10,317 | (21,421 | ) | (62,028 | ) | (240,584 | ) | |||||||||
Net premiums earned | 1,581,500 | 1,585,944 | 4,720,244 | 4,673,072 | ||||||||||||
Net investment income | 142,479 | 145,668 | 426,601 | 404,850 | ||||||||||||
Net realized investment gains | 183,959 | 175,738 | 276,760 | 207,508 | ||||||||||||
Other than temporary impairments | — | — | — | (18,114 | ) | |||||||||||
Revenues from non-insurance businesses (1) | 89,786 | 80,242 | 225,033 | 305,787 | ||||||||||||
Insurance service fees | 33,612 | 32,135 | 100,475 | 109,437 | ||||||||||||
Other income | 6 | — | 695 | — | ||||||||||||
Total revenues | 2,031,342 | 2,019,727 | 5,749,808 | 5,682,540 | ||||||||||||
Expenses: | ||||||||||||||||
Losses and loss expenses | 1,081,174 | 965,856 | 3,025,475 | 2,852,339 | ||||||||||||
Other operating costs and expenses | 600,822 | 606,348 | 1,821,155 | 1,770,450 | ||||||||||||
Expenses from non-insurance businesses (1) | 86,412 | 78,865 | 221,389 | 291,127 | ||||||||||||
Interest expense | 36,821 | 37,043 | 110,419 | 104,019 | ||||||||||||
Total expenses | 1,805,229 | 1,688,112 | 5,178,438 | 5,017,935 | ||||||||||||
Income before income taxes | 226,113 | 331,615 | 571,370 | 664,605 | ||||||||||||
Income tax expense | (63,295 | ) | (110,952 | ) | (174,305 | ) | (214,789 | ) | ||||||||
Net income before noncontrolling interests | 162,818 | 220,663 | 397,065 | 449,816 | ||||||||||||
Noncontrolling interests | (764 | ) | (13 | ) | (2,560 | ) | (689 | ) | ||||||||
Net income to common stockholders | $ | 162,054 | $ | 220,650 | $ | 394,505 | $ | 449,127 | ||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 1.29 | $ | 1.80 | $ | 3.17 | $ | 3.66 | ||||||||
Diluted | $ | 1.26 | $ | 1.72 | $ | 3.05 | $ | 3.50 | ||||||||
Average shares outstanding (2): | ||||||||||||||||
Basic | 125,818 | 122,562 | 124,363 | 122,652 | ||||||||||||
Diluted | 128,944 | 128,556 | 129,289 | 128,501 | ||||||||||||
(1) For the nine months ended 2017 revenues and expenses from non-insurance businesses declined because of the sale of a wholly-owned investment, Aero Precision Industries, and certain related aviation services businesses in August 2016.
(2) Basic shares outstanding consists of the weighted average number of common shares outstanding during the period (including shares held in a grantor trust established in March 2017). Diluted shares outstanding consists of the weighted average number of basic and common equivalent shares outstanding during the period.
W. R. Berkley Corporation Page 5
Business Segment Operating Results
(Amounts in thousands, except ratios) (1) (2)
Third Quarter | Nine Months | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Insurance: | ||||||||||||||||
Gross premiums written | $ | 1,718,552 | $ | 1,688,712 | $ | 5,233,692 | $ | 5,184,033 | ||||||||
Net premiums written | 1,432,334 | 1,443,986 | 4,364,638 | 4,386,944 | ||||||||||||
Premiums earned | 1,433,729 | 1,423,635 | 4,262,485 | 4,180,985 | ||||||||||||
Pre-tax income | 171,478 | 210,498 | 557,605 | 586,651 | ||||||||||||
Loss ratio | 63.2 | % | 60.9 | % | 61.7 | % | 61.1 | % | ||||||||
Expense ratio | 32.4 | % | 32.3 | % | 32.8 | % | 32.3 | % | ||||||||
GAAP combined ratio | 95.6 | % | 93.2 | % | 94.5 | % | 93.4 | % | ||||||||
Reinsurance: | ||||||||||||||||
Gross premiums written | $ | 155,606 | $ | 180,137 | $ | 463,825 | $ | 579,878 | ||||||||
Net premiums written | 138,849 | 163,379 | 417,634 | 526,712 | ||||||||||||
Premiums earned | 147,771 | 162,309 | 457,759 | 492,087 | ||||||||||||
Pre-tax (loss) income | (57,644 | ) | 27,321 | (38,279 | ) | 79,215 | ||||||||||
Loss ratio | 118.7 | % | 61.3 | % | 86.1 | % | 60.5 | % | ||||||||
Expense ratio | 34.9 | % | 38.9 | % | 37.1 | % | 39.1 | % | ||||||||
GAAP combined ratio | 153.6 | % | 100.2 | % | 123.2 | % | 99.6 | % | ||||||||
Corporate and Eliminations: | ||||||||||||||||
Net realized investment gains | $ | 183,959 | $ | 175,738 | $ | 276,760 | $ | 189,394 | ||||||||
Interest expense | (36,821 | ) | (37,043 | ) | (110,419 | ) | (104,019 | ) | ||||||||
Other revenues and expenses | (34,859 | ) | (44,899 | ) | (114,297 | ) | (86,636 | ) | ||||||||
Pre-tax income (loss) | 112,279 | 93,796 | 52,044 | (1,261 | ) | |||||||||||
Consolidated: | ||||||||||||||||
Gross premiums written | $ | 1,874,158 | $ | 1,868,849 | $ | 5,697,517 | $ | 5,763,911 | ||||||||
Net premiums written | 1,571,183 | 1,607,365 | 4,782,272 | 4,913,656 | ||||||||||||
Premiums earned | 1,581,500 | 1,585,944 | 4,720,244 | 4,673,072 | ||||||||||||
Pre-tax income | 226,113 | 331,615 | 571,370 | 664,605 | ||||||||||||
Loss ratio | 68.4 | % | 60.9 | % | 64.1 | % | 61.0 | % | ||||||||
Expense ratio | 32.6 | % | 33.0 | % | 33.2 | % | 33.1 | % | ||||||||
GAAP combined ratio | 101.0 | % | 93.9 | % | 97.3 | % | 94.1 | % | ||||||||
(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 2017, the Company reclassified two businesses from the Insurance segment to the Reinsurance segment. Reclassifications have been made to the Company's 2016 financial information to conform with this presentation.
W. R. Berkley Corporation Page 6
Supplemental Information
(Amounts in thousands)
Third Quarter | Nine Months | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net premiums written: | |||||||||||||||
Other liability | $ | 469,763 | $ | 484,241 | $ | 1,384,804 | $ | 1,420,610 | |||||||
Workers' compensation | 366,839 | 352,599 | 1,165,401 | 1,097,981 | |||||||||||
Short-tail lines (1) | 281,290 | 291,910 | 889,610 | 961,439 | |||||||||||
Commercial automobile | 173,796 | 168,818 | 510,809 | 495,097 | |||||||||||
Professional liability | 140,646 | 146,418 | 414,014 | 411,817 | |||||||||||
Total Insurance | 1,432,334 | 1,443,986 | 4,364,638 | 4,386,944 | |||||||||||
Casualty reinsurance | 95,710 | 93,093 | 275,637 | 305,540 | |||||||||||
Property reinsurance | 43,139 | 70,286 | 141,997 | 221,172 | |||||||||||
Total Reinsurance | 138,849 | 163,379 | 417,634 | 526,712 | |||||||||||
Total | $ | 1,571,183 | $ | 1,607,365 | $ | 4,782,272 | $ | 4,913,656 | |||||||
Losses from catastrophes: | |||||||||||||||
Insurance | $ | 47,002 | $ | 8,742 | $ | 93,846 | $ | 58,054 | |||||||
Reinsurance | 72,105 | 3,425 | 72,727 | 10,258 | |||||||||||
Total | $ | 119,107 | $ | 12,167 | $ | 166,573 | $ | 68,312 | |||||||
Net investment income: | |||||||||||||||
Core portfolio (2) | $ | 122,861 | $ | 113,934 | $ | 359,622 | $ | 331,580 | |||||||
Investment funds | 15,200 | 25,293 | 50,744 | 60,387 | |||||||||||
Arbitrage trading account | 4,418 | 6,441 | 16,235 | 12,883 | |||||||||||
Total | $ | 142,479 | $ | 145,668 | $ | 426,601 | $ | 404,850 | |||||||
Other operating costs and expenses: | |||||||||||||||
Policy acquisition and insurance operating expenses | $ | 516,243 | $ | 523,254 | $ | 1,567,359 | $ | 1,544,792 | |||||||
Insurance service expenses | 32,451 | 32,441 | 97,308 | 103,868 | |||||||||||
Net foreign currency losses (gains) | 1,779 | (2,193 | ) | 14,255 | (11,547 | ) | |||||||||
Other costs and expenses | 50,349 | 52,846 | 142,233 | 133,337 | |||||||||||
Total | $ | 600,822 | $ | 606,348 | $ | 1,821,155 | $ | 1,770,450 | |||||||
Cash flow from operations | $ | 297,000 | $ | 394,192 | $ | 521,858 | $ | 726,510 | |||||||
(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.
W. R. Berkley Corporation Page 7
Selected Balance Sheet Information
(Amounts in thousands, except per share data)
September 30, 2017 | December 31, 2016 | ||||||
Net invested assets (1) | $ | 18,526,592 | $ | 17,857,006 | |||
Total assets | 24,336,076 | 23,350,076 | |||||
Reserves for losses and loss expenses | 11,654,346 | 11,197,195 | |||||
Senior notes and other debt | 1,759,929 | 1,760,595 | |||||
Subordinated debentures | 728,071 | 727,630 | |||||
Common stockholders’ equity (2) | 5,430,536 | 5,047,208 | |||||
Common stock outstanding (3) | 121,769 | 121,194 | |||||
Book value per share (4) | 44.60 | 41.65 | |||||
Tangible book value per share (4) | 42.71 | 40.06 | |||||
(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 $454 million and $427 million as of September 30, 2017 and December 31, 2016, respectively. Unrealized currency translation losses were $300 million and $372 million as of September 30, 2017 and December 31, 2016, respectively. |
(3) | During the three and nine months ended September 30, 2017, the Company repurchased 441,119 shares of its common stock for $28.4 million. The number of shares of common stock outstanding excludes shares held in a grantor trust. |
(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. |
W. R. Berkley Corporation Page 8
Investment Portfolio
September 30, 2017
(Amounts in thousands)
Carrying Value | Percent of Total | ||||||
Fixed maturity securities: | |||||||
United States government and government agencies | $ | 411,605 | 2.2 | % | |||
State and municipal: | |||||||
Special revenue | 2,829,795 | 15.3 | % | ||||
State general obligation | 537,537 | 2.9 | % | ||||
Local general obligation | 415,635 | 2.2 | % | ||||
Corporate backed | 391,627 | 2.1 | % | ||||
Pre-refunded | 303,947 | 1.7 | % | ||||
Total state and municipal | 4,478,541 | 24.2 | % | ||||
Mortgage-backed securities: | |||||||
Agency | 832,993 | 4.5 | % | ||||
Commercial | 251,578 | 1.4 | % | ||||
Residential - Prime | 226,274 | 1.2 | % | ||||
Residential - Alt A | 23,298 | 0.3 | % | ||||
Total mortgage-backed securities | 1,334,143 | 7.2 | % | ||||
Asset-backed securities | 2,388,618 | 12.9 | % | ||||
Corporate: | |||||||
Industrial | 2,636,885 | 14.2 | % | ||||
Financial | 1,374,021 | 7.4 | % | ||||
Utilities | 267,331 | 1.4 | % | ||||
Other | 42,137 | 0.2 | % | ||||
Total corporate | 4,320,374 | 23.3 | % | ||||
Foreign government | 940,409 | 5.1 | % | ||||
Total fixed maturity securities (1) | 13,873,690 | 74.9 | % | ||||
Equity securities available for sale: | |||||||
Common stocks | 419,520 | 2.3 | % | ||||
Preferred stocks | 194,505 | 1.0 | % | ||||
Total equity securities available for sale | 614,025 | 3.3 | % | ||||
Real Estate | 1,391,274 | 7.5 | % | ||||
Investment funds (2) | 1,117,841 | 6.0 | % | ||||
Cash and cash equivalents (3) | 967,295 | 5.2 | % | ||||
Arbitrage trading account | 488,238 | 2.6 | % | ||||
Loans receivable | 74,229 | 0.5 | % | ||||
Net invested assets | $ | 18,526,592 | 100.0 | % | |||
(1) | Total fixed maturity securities had an average rating of AA- and an average duration of 2.9 years, including cash and cash equivalents. |
(2) | Investment funds are net of related liabilities of $2.1 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. |
W. R. Berkley Corporation Page 9
Foreign Government Fixed Maturity Securities
September 30, 2017
(Amounts in thousands)
Carrying Value | ||||
Argentina | $ | 259,720 | ||
Australia | 217,397 | |||
Canada | 175,816 | |||
United Kingdom | 84,894 | |||
Brazil | 53,547 | |||
Germany | 48,794 | |||
Supranational (1) | 40,591 | |||
Singapore | 25,326 | |||
Norway | 9,930 | |||
Mexico | 9,490 | |||
Colombia | 7,696 | |||
Uruguay | 7,208 | |||
Total | $ | 940,409 | ||
(1) | Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development. |