GREENWICH, Conn.--(BUSINESS WIRE)--W. R. Berkley Corporation (NYSE: WRB) today reported net income for the second quarter of 2018 of $180 million, or $1.40 per share.
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Summary Financial Data (Amounts in thousands, except per share data) |
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| Second Quarter | Six Months | |||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| Gross premiums written | $ | 1,948,074 | $ | 1,887,152 | $ | 3,927,495 | $ | 3,823,359 | ||||||||||||
| Net premiums written | 1,624,104 | 1,564,251 | 3,289,442 | 3,211,089 | ||||||||||||||||
| Net income to common stockholders | 180,075 | 109,004 | 346,472 | 232,451 | ||||||||||||||||
| Net income per diluted share | 1.40 | 0.85 | 2.70 | 1.81 | ||||||||||||||||
| Return on equity (1) | 13.3 | % | 8.6 | % | 12.8 | % | 9.2 | % | ||||||||||||
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(1) |
Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity. |
Second quarter highlights included:
- We reported annualized pre-tax return on equity of 16.9%. (Excluding the accounting change for equity securities that became effective January 1, 2018, the annualized pre-tax return on equity would have been 20.9%.)
- Insurance net premiums written increased 5.2%.
- Investment income increased 13.7%. Investment income attributable to the core investment portfolio increased 9.8%(1).
- The combined ratio was 94.9%.
- Total catastrophe losses were $14 million; non-catastrophe weather-related losses were $15 million.
- Net realized pre-tax gains and net unrealized pre-tax gains on equity securities of $66 million, net of performance-based compensatory costs(2).
- Total capital returned to shareholders was $79 million, including $61 million of special dividends.
The Company commented:
We were pleased with our 13.3% annualized return on equity in the second quarter of 2018, which reflected healthy performance in all areas of the business.
Our net premiums written grew due to a combination of increased market penetration, rate improvements and a strengthening economy. Growth in the Insurance segment of 5.2% was partially offset by a decline in the Reinsurance segment, where we chose to reduce our business in light of the competitive environment. Overall, our underwriting performance was favorable, with a combined ratio that was relatively stable year-over-year. Our ability to manage volatility was again demonstrated in our results, as the impact of severe convective storm activity in the quarter was very modest.
Net investment income grew nearly 14% over the prior year due to an increase in the yield on fixed maturity securities and a higher base of invested assets. We continue to be rewarded from our earlier strategic decision to shorten the duration while maintaining the quality of our portfolio. We realized gains on sales of investments of $124 million, before consideration of the change in accounting for unrealized gains on equity securities.
We remain focused on creating value for our shareholders over the long-term and are confident that we will be able to deliver strong results throughout the remainder of the year.
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(1) |
Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable. |
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(2) |
Net realized pre-tax gains and net unrealized pre-tax gains on equity securities before performance-based compensatory costs were $70 million. |
Webcast Conference Call
The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on July 24, 2018, 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
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.
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 2018 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 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 2018 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 (Amounts in thousands, except per share data) |
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| Second Quarter | Six Months | |||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Net premiums written | $ | 1,624,104 | $ | 1,564,251 | $ | 3,289,442 | $ | 3,211,089 | ||||||||||||
| Change in unearned premiums | (43,051 | ) | 4,452 | (140,981 | ) | (72,345 | ) | |||||||||||||
| Net premiums earned | 1,581,053 | 1,568,703 | 3,148,461 | 3,138,744 | ||||||||||||||||
| Net investment income | 153,777 | 135,264 | 328,295 | 284,123 | ||||||||||||||||
| Net realized and unrealized gains on investments (1) | 69,631 | 40,453 | 118,095 | 92,801 | ||||||||||||||||
| Revenues from non-insurance businesses | 76,698 | 69,857 | 146,869 | 135,247 | ||||||||||||||||
| Insurance service fees | 29,719 | 33,584 | 60,393 | 66,864 | ||||||||||||||||
| Other income | 38 | 188 | 50 | 688 | ||||||||||||||||
| Total revenues | 1,910,916 | 1,848,049 | 3,802,163 | 3,718,467 | ||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Losses and loss expenses | 973,636 | 964,698 | 1,936,856 | 1,944,302 | ||||||||||||||||
| Other operating costs and expenses | 593,142 | 616,632 | 1,203,581 | 1,220,332 | ||||||||||||||||
| Expenses from non-insurance businesses | 75,191 | 68,959 | 144,734 | 134,978 | ||||||||||||||||
| Interest expense | 39,705 | 36,799 | 76,760 | 73,597 | ||||||||||||||||
| Total expenses | 1,681,674 | 1,687,088 | 3,361,931 | 3,373,209 | ||||||||||||||||
| Income before income taxes | 229,242 | 160,961 | 440,232 | 345,258 | ||||||||||||||||
| Income tax expense | (48,464 | ) | (51,388 | ) | (91,881 | ) | (111,011 | ) | ||||||||||||
| Net income before noncontrolling interests | 180,778 | 109,573 | 348,351 | 234,247 | ||||||||||||||||
| Noncontrolling interests | (703 | ) | (569 | ) | (1,879 | ) | (1,796 | ) | ||||||||||||
| Net income to common stockholders | $ | 180,075 | $ | 109,004 | $ | 346,472 | $ | 232,451 | ||||||||||||
| Net income per share: | ||||||||||||||||||||
| Basic | $ | 1.42 | $ | 0.87 | $ | 2.74 | $ | 1.88 | ||||||||||||
| Diluted | $ | 1.40 | $ | 0.85 | $ | 2.70 | $ | 1.81 | ||||||||||||
| Average shares outstanding (2): | ||||||||||||||||||||
| Basic | 126,517 | 125,334 | 126,446 | 123,623 | ||||||||||||||||
| Diluted | 128,339 | 128,601 | 128,189 | 128,546 | ||||||||||||||||
| (1) | Includes net realized gains on investment sales of $124 million reduced by a change in unrealized gains on equity securities of $54 million in the second quarter 2018. For the six months ended June 30, 2018, includes net realized gains on investment sales of $267 million reduced by a change in unrealized gains on equity securities of $149 million. The inclusion of change in unrealized gains on equity securities within net income commenced January 1, 2018 due to our adoption of ASU 2016-01. | |
| (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. | |
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Business Segment Operating Results (Amounts in thousands, except ratios) (1) |
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| Second Quarter | Six Months | |||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| Insurance: | ||||||||||||||||||||
| Gross premiums written | $ | 1,821,228 | $ | 1,745,734 | $ | 3,659,199 | $ | 3,515,139 | ||||||||||||
| Net premiums written | 1,513,526 | 1,438,169 | 3,056,578 | 2,932,303 | ||||||||||||||||
| Premiums earned | 1,456,008 | 1,415,586 | 2,888,345 | 2,828,755 | ||||||||||||||||
| Pre-tax income | 198,052 | 186,134 | 427,080 | 386,127 | ||||||||||||||||
| Loss ratio | 61.5 | % | 61.1 | % | 61.1 | % | 61.0 | % | ||||||||||||
| Expense ratio | 32.9 | % | 33.0 | % | 32.8 | % | 33.0 | % | ||||||||||||
| GAAP combined ratio | 94.4 | % | 94.1 | % | 93.9 | % | 94.0 | % | ||||||||||||
| Reinsurance: | ||||||||||||||||||||
| Gross premiums written | $ | 126,846 | $ | 141,418 | $ | 268,296 | $ | 308,220 | ||||||||||||
| Net premiums written | 110,578 | 126,082 | 232,864 | 278,786 | ||||||||||||||||
| Premiums earned | 125,045 | 153,117 | 260,116 | 309,989 | ||||||||||||||||
| Pre-tax income | 21,303 | 14,771 | 35,895 | 19,364 | ||||||||||||||||
| Loss ratio | 62.0 | % | 65.2 | % | 66.1 | % | 70.6 | % | ||||||||||||
| Expense ratio | 38.7 | % | 39.2 | % | 38.1 | % | 38.1 | % | ||||||||||||
| GAAP combined ratio | 100.7 | % | 104.4 | % | 104.2 | % | 108.7 | % | ||||||||||||
| Corporate and Eliminations: | ||||||||||||||||||||
| Net realized and unrealized gains on investments | $ | 69,631 | $ | 40,453 | $ | 118,095 | $ | 92,801 | ||||||||||||
| Interest expense | (39,705 | ) | (36,799 | ) | (76,760 | ) | (73,597 | ) | ||||||||||||
| Other revenues and expenses | (20,039 | ) | (43,598 | ) | (64,078 | ) | (79,437 | ) | ||||||||||||
| Pre-tax income (loss) | 9,887 | (39,944 | ) | (22,743 | ) | (60,233 | ) | |||||||||||||
| Consolidated: | ||||||||||||||||||||
| Gross premiums written | $ | 1,948,074 | $ | 1,887,152 | $ | 3,927,495 | $ | 3,823,359 | ||||||||||||
| Net premiums written | 1,624,104 | 1,564,251 | 3,289,442 | 3,211,089 | ||||||||||||||||
| Premiums earned | 1,581,053 | 1,568,703 | 3,148,461 | 3,138,744 | ||||||||||||||||
| Pre-tax income | 229,242 | 160,961 | 440,232 | 345,258 | ||||||||||||||||
| Loss ratio | 61.6 | % | 61.5 | % | 61.5 | % | 61.9 | % | ||||||||||||
| Expense ratio | 33.3 | % | 33.6 | % | 33.3 | % | 33.5 | % | ||||||||||||
| GAAP combined ratio | 94.9 | % | 95.1 | % | 94.8 | % | 95.4 | % | ||||||||||||
| (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. | |
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Supplemental Information (Amounts in thousands) |
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| Second Quarter | Six Months | ||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||||
| Net premiums written: | |||||||||||||||||||
| Other liability | $ | 504,315 | $ | 478,595 | $ | 973,155 | $ | 915,041 | |||||||||||
| Workers' compensation | 377,003 | 372,006 | 796,261 | 798,563 | |||||||||||||||
| Short-tail lines (1) | 312,318 | 280,100 | 603,436 | 567,178 | |||||||||||||||
| Commercial automobile | 185,804 | 173,956 | 400,449 | 378,155 | |||||||||||||||
| Professional liability | 134,086 | 133,512 | 283,277 | 273,366 | |||||||||||||||
| Total Insurance | 1,513,526 | 1,438,169 | 3,056,578 | 2,932,303 | |||||||||||||||
| Casualty reinsurance | 80,306 | 86,386 | 162,641 | 179,928 | |||||||||||||||
| Property reinsurance | 30,272 | 39,696 | 70,223 | 98,858 | |||||||||||||||
| Total Reinsurance | 110,578 | 126,082 | 232,864 | 278,786 | |||||||||||||||
| Total | $ | 1,624,104 | $ | 1,564,251 | $ | 3,289,442 | $ | 3,211,089 | |||||||||||
| Losses from catastrophes: | |||||||||||||||||||
| Insurance | $ | 12,929 | $ | 32,540 | $ | 20,060 | $ | 46,844 | |||||||||||
| Reinsurance | 627 | 429 | 884 | 623 | |||||||||||||||
| Total | $ | 13,556 | $ | 32,969 | $ | 20,944 | $ | 47,467 | |||||||||||
| Net investment income: | |||||||||||||||||||
| Core portfolio (2) | $ | 132,728 | $ | 120,912 | $ | 261,701 | $ | 236,761 | |||||||||||
| Investment funds | 12,716 | 8,895 | 53,070 | 35,544 | |||||||||||||||
| Arbitrage trading account | 8,333 | 5,457 | 13,524 | 11,818 | |||||||||||||||
| Total | $ | 153,777 | $ | 135,264 | $ | 328,295 | $ | 284,123 | |||||||||||
| Net realized and unrealized gains on investments: | |||||||||||||||||||
| Net realized gains on investment sales | $ | 124,283 | $ | 40,453 | $ | 266,952 | $ | 92,801 | |||||||||||
| Change in unrealized gains on equity securities (3) | (54,652 | ) | — | (148,857 | ) | — | |||||||||||||
| Total | $ | 69,631 | $ | 40,453 | $ | 118,095 | $ | 92,801 | |||||||||||
| Other operating costs and expenses: | |||||||||||||||||||
| Policy acquisition and insurance operating expenses | $ | 526,862 | $ | 527,707 | $ | 1,047,093 | $ | 1,051,116 | |||||||||||
| Insurance service expenses | 30,990 | 34,923 | 63,702 | 64,856 | |||||||||||||||
| Net foreign currency (gains) losses | (18,251 | ) | 6,968 | (4,767 | ) | 12,477 | |||||||||||||
| Other costs and expenses | 53,541 | 47,034 | 97,553 | 91,883 | |||||||||||||||
| Total | $ | 593,142 | $ | 616,632 | $ | 1,203,581 | $ | 1,220,332 | |||||||||||
| Cash flow from operations | $ | 139,397 | $ | 149,386 | $ | 119,362 | $ | 224,858 | |||||||||||
| (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) | The inclusion of change in unrealized gains on equity securities within net income commenced January 1, 2018 due to our adoption of ASU 2016-01. | |
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Selected Balance Sheet Information (Amounts in thousands, except per share data) |
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June 30, 2018 |
December 31, |
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| Net invested assets (1) | $ | 18,479,194 | $ | 18,508,646 | |||||
| Total assets | 24,621,144 | 24,299,917 | |||||||
| Reserves for losses and loss expenses | 11,736,575 | 11,670,408 | |||||||
| Senior notes and other debt | 1,792,055 | 1,769,052 | |||||||
| Subordinated debentures | 907,117 | 728,218 | |||||||
| Common stockholders’ equity (2) | 5,426,118 | 5,411,344 | |||||||
| Common stock outstanding (3) | 121,716 | 121,515 | |||||||
| Book value per share (4) | 44.58 | 44.53 | |||||||
| Tangible book value per share (4) | 42.59 | 42.51 | |||||||
| (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 June 30, 2018, reflected in common stockholders' equity are after-tax unrealized investment gains of $3 million and unrealized currency translation losses of $399 million. As of December 31, 2017, after-tax unrealized investment gains were $375 million and unrealized currency translation losses were $307 million. The decrease in unrealized investment gains during 2018 was primarily attributable to the change in accounting treatment of equity securities and the impact on fixed maturity securities from rising interest rates. | |
| (3) | During the six months ended June 30, 2018, the Company repurchased 101,000 shares of its common stock for $6.8 million. During the three months ended June 30, 2018, 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) | 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. | |
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Investment Portfolio June 30, 2018 (Amounts in thousands) |
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Carrying
Value |
Percent
of Total |
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| Fixed maturity securities: | |||||||||
| United States government and government agencies | $ | 481,633 | 2.6 | % | |||||
| State and municipal: | |||||||||
| Special revenue | 2,554,685 | 13.8 | % | ||||||
| Pre-refunded | 453,704 | 2.5 | % | ||||||
| Local general obligation | 406,327 | 2.2 | % | ||||||
| State general obligation | 385,800 | 2.1 | % | ||||||
| Corporate backed | 331,387 | 1.8 | % | ||||||
| Total state and municipal | 4,131,903 | 22.4 | % | ||||||
| Mortgage-backed securities: | |||||||||
| Agency | 874,125 | 4.7 | % | ||||||
| Commercial | 363,182 | 2.0 | % | ||||||
| Residential - Prime | 205,996 | 1.1 | % | ||||||
| Residential - Alt A | 27,246 | 0.1 | % | ||||||
| Total mortgage-backed securities | 1,470,549 | 7.9 | % | ||||||
| Asset-backed securities | 2,354,915 | 12.7 | % | ||||||
| Corporate: | |||||||||
| Industrial | 2,308,693 | 12.5 | % | ||||||
| Financial | 1,352,954 | 7.3 | % | ||||||
| Utilities | 275,026 | 1.5 | % | ||||||
| Other | 41,516 | 0.2 | % | ||||||
| Total corporate | 3,978,189 | 21.5 | % | ||||||
| Foreign government | 801,540 | 4.3 | % | ||||||
| Total fixed maturity securities (1) | 13,218,729 | 71.4 | % | ||||||
| Equity securities available for sale: | |||||||||
| Common stocks | 288,027 | 1.6 | % | ||||||
| Preferred stocks | 184,362 | 1.0 | % | ||||||
| Total equity securities available for sale | 472,389 | 2.6 | % | ||||||
| Real estate | 1,883,622 | 10.2 | % | ||||||
| Investment funds (2) | 1,207,251 | 6.5 | % | ||||||
| Cash and cash equivalents (3) | 878,027 | 4.8 | % | ||||||
| Arbitrage trading account | 721,088 | 3.9 | % | ||||||
| Loans receivable | 98,088 | 0.6 | % | ||||||
| Net invested assets | $ | 18,479,194 | 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 $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. |