W.R. Berkley (NYSE:BER)
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W. R. Berkley Corporation (NYSE: BER) today reported net income
for 2007 of $3.78 per share, or $744 million, compared to $3.46 per
share, or $700 million, for 2006. Net operating income for 2007 was
$3.73 per share, or $734 million, compared with $3.43 per share, or $692
million, for 2006. Net operating income is a non-GAAP financial measure
defined by the Company as net income excluding realized investment gains
and losses.
Summary Financial Data
(Amounts in thousands, except per share data)
Fourth Quarter
Full Year
2007
2006
2007
2006
Gross premiums written
$
1,160,080
$
1,218,542
$
5,053,230
$
5,276,914
Net premiums written
1,051,964
1,113,571
4,575,989
4,818,993
Income before income taxes
261,565
282,431
1,057,634
988,645
Net income
184,124
198,056
743,646
699,518
Net income per diluted share
0.97
0.98
3.78
3.46
Net operating income
183,213
193,666
734,005
692,404
Net operating income per diluted share
0.97
0.96
3.73
3.43
Full year 2007 highlights included:
Return on equity was 22.3%.
GAAP combined ratio was 88.1%.
Net investment income grew 15% to $673 million.
Paid loss ratio was 42%.
Repurchased 15.2 million shares of the Company’s
common stock, including 3.2 million shares in the fourth quarter.
Commenting on the Company’s performance,
William R. Berkley, chairman and chief executive officer, said: “We
are pleased with our financial results for the fourth quarter and full
year, having achieved a twenty-two percent return on equity after tax
for both periods. The Company continued to have strong underwriting
performance with a combined ratio of 88.1% and a paid loss ratio of 42%.
While we anticipate 2008 will be increasingly competitive from an
underwriting perspective, we still expect to deliver excellent returns.
“Investment income grew by fifteen percent in
2007, without any sacrifice to the quality of the investment portfolio.
We have virtually no sub-prime exposure. It is likely that investment
returns will continue to be under pressure due to current economic
uncertainties and the shape of the yield curve.
“In the current environment, capital
oversight is an important part of management’s
responsibility. We repurchased over fifteen million shares of our common
stock in 2007, representing eight percent of our outstanding shares.
“In the long-run, every business succeeds
because of its people, its relationships with its distribution and its
ultimate customers. We continue to believe that we will be able to
deliver outstanding returns to our shareholders and exceed our minimum
targeted return of fifteen percent after tax for the foreseeable future,”
Mr. Berkley concluded.
Webcast Conference Call
The Company will hold its quarterly conference call with analysts and
investors to discuss its earnings and other information on Monday,
February 11, 2008 at 8:30 a.m. eastern time. The conference call will be
webcast live on the Company's website at www.wrberkley.com. A recording
of the call will be available on the Company's website approximately two
hours after the end of the conference call.
About W. R. Berkley Corporation
Founded in 1967, W. R. Berkley Corporation is an insurance holding
company that is among the largest commercial lines writers in the United
States and operates in five segments of the property casualty insurance
business: specialty insurance, regional property casualty insurance,
alternative markets, reinsurance and international.
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 2008 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 long-tail
and potentially volatile nature of the insurance and reinsurance
business, product demand and pricing, claims development and the process
of estimating reserves, 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 competition, the success of our
new ventures or acquisitions and the availability of other
opportunities, the availability of reinsurance, exposure as to coverage
for terrorist acts, our retention under the Terrorism Risk Insurance
Program Reauthorization Act of 2007 (“TRIPRA”),
the ability of our reinsurers to pay reinsurance recoverables owed to
us, investment risks, including those of our portfolio of fixed income
securities and investments in equity securities, including merger
arbitrage investments, exchange rate and political risks relating to our
international operations, legislative and regulatory developments,
including those related to alleged anti-competitive or other improper
business practices in the insurance or reinsurance industry, changes in
the ratings assigned to us by ratings agencies, the availability of
dividends from our insurance company subsidiaries, our ability to
attract and retain qualified employees, and other risks detailed from
time to time in the Company’s filings with
the Securities and Exchange Commission. These risks could cause actual
results of the industry or our actual results for the year 2008 and
beyond to differ materially from those expressed in any forward-looking
statement made by or on behalf of the Company. Any projections of growth
in the Company’s net premiums written and
management fees would not necessarily result in commensurate levels of
underwriting and operating profits. Forward-looking statements speak
only as of the date on which they are made, and the Company undertakes
no obligation to update publicly or revise any forward-looking
statement, whether as a result of new information, future developments
or otherwise.
Consolidated Financial Summary
(Amounts in thousands, except per share data)
Fourth Quarter
Full Year
2007
2006
2007
2006
Revenues:
Net premiums written
$
1,051,964
$
1,113,571
$
4,575,989
$
4,818,993
Change in unearned premiums
109,600
52,137
87,712
(126,371
)
Premiums earned
1,161,564
1,165,708
4,663,701
4,692,622
Net investment income
172,506
163,827
672,660
586,175
Insurance service fees
22,663
24,630
97,689
104,812
Realized investment gains
1,456
5,912
14,938
9,648
Revenues from wholly-owned investees
41,619
-
102,846
-
Other revenues
195
366
1,805
1,574
Total revenues
1,400,003
1,360,443
5,553,639
5,394,831
Expenses:
Losses and loss expenses
684,388
689,249
2,779,578
2,864,498
Operating costs and expenses
391,232
366,275
1,530,987
1,449,166
Expenses from wholly-owned investees
39,929
-
96,444
-
Interest expense
22,889
22,488
88,996
92,522
Total expenses
1,138,438
1,078,012
4,496,005
4,406,186
Income before income taxes and minority interest
261,565
282,431
1,057,634
988,645
Income tax expense
(76,050
)
(83,147
)
(310,905
)
(286,398
)
Minority interest
(1,391
)
(1,228
)
(3,083
)
(2,729
)
Net income
$
184,124
$
198,056
$
743,646
$
699,518
Net income per share:
Basic
$
1.01
$
1.03
$
3.94
$
3.65
Diluted
$
0.97
$
0.98
$
3.78
$
3.46
Average shares outstanding:
Basic
181,930
191,745
188,981
191,809
Diluted
189,167
201,557
196,698
201,961
Operating Results by Segment
(Amounts in thousands, except ratios (1))
Fourth Quarter
Full Year
2007
2006
2007
2006
Specialty:
Gross premiums written
$
450,323
$
467,560
$
1,816,727
$
1,918,521
Net premiums written
415,963
438,139
1,704,880
1,814,479
Premiums earned
445,038
444,597
1,772,547
1,752,507
Pre-tax income
127,985
140,389
516,931
479,105
Loss ratio
57.6
%
56.4
%
57.3
%
59.1
%
Expense ratio
27.7
%
24.6
%
26.7
%
25.0
%
GAAP combined ratio
85.3
%
81.0
%
84.0
%
84.1
%
Regional: (2)
Gross premiums written
$
336,646
$
328,811
$
1,441,077
$
1,415,311
Net premiums written
299,305
291,597
1,267,451
1,235,302
Premiums earned
321,377
308,074
1,250,914
1,205,912
Pre-tax income
54,497
51,796
215,228
201,417
Loss ratio
59.2
%
60.3
%
59.1
%
59.7
%
Expense ratio
31.7
%
30.5
%
31.4
%
30.6
%
GAAP combined ratio
90.9
%
90.8
%
90.5
%
90.3
%
Alternative Markets:
Gross premiums written
$
139,631
$
140,715
$
758,285
$
747,680
Net premiums written
114,791
119,569
656,369
651,255
Premiums earned
164,293
167,157
651,909
658,805
Pre-tax income
56,764
73,081
248,080
291,416
Loss ratio
62.9
%
55.7
%
59.2
%
53.5
%
Expense ratio
22.5
%
21.4
%
23.1
%
22.1
%
GAAP combined ratio
85.4
%
77.1
%
82.3
%
75.6
%
Reinsurance:
Gross premiums written
$
139,800
$
201,717
$
732,233
$
940,797
Net premiums written
134,120
192,840
682,241
892,769
Premiums earned
167,616
192,834
740,439
859,411
Pre-tax income
41,109
40,137
178,302
135,424
Loss ratio
60.3
%
66.8
%
65.3
%
72.0
%
Expense ratio
37.1
%
31.6
%
31.3
%
27.8
%
GAAP combined ratio
97.4
%
98.4
%
96.6
%
99.8
%
International:
Gross premiums written
$
93,680
$
79,739
$
304,908
$
254,605
Net premiums written
87,785
71,426
265,048
225,188
Premiums earned
63,240
53,046
247,892
215,987
Pre-tax income
17,880
12,676
44,457
34,447
Loss ratio
53.3
%
57.3
%
62.6
%
64.2
%
Expense ratio
34.6
%
32.3
%
32.4
%
32.0
%
GAAP combined ratio
87.9
%
89.6
%
95.0
%
96.2
%
(Continued)
Operating Results by Segment (continued)
(Amounts in thousands, except ratios (1))
Fourth Quarter
Full Year
2007
2006
2007
2006
Corporate and Eliminations:
Realized investment gains
$
1,456
$
5,912
$
14,938
$
9,648
Interest expense
(22,889
)
(22,488
)
(88,996
)
(92,522
)
Other revenues and expenses (3)
(15,237
)
(19,072
)
(71,306
)
(70,290
)
Pre-tax loss
(36,670
)
(35,648
)
(145,364
)
(153,164
)
Total:
Gross premiums written
$
1,160,080
$
1,218,542
$
5,053,230
$
5,276,914
Net premiums written
1,051,964
1,113,571
4,575,989
4,818,993
Premiums earned
1,161,564
1,165,708
4,663,701
4,692,622
Pre-tax income
261,565
282,431
1,057,634
988,645
Loss ratio
58.9
%
59.1
%
59.6
%
61.0
%
Expense ratio
29.8
%
27.4
%
28.5
%
27.0
%
GAAP combined ratio
88.7
%
86.5
%
88.1
%
88.0
%
(1)
Loss ratio is losses and loss expenses expressed as a percentage
of premiums earned. Expense ratio is underwriting expenses
expressed as a percentage of premiums earned. Underwriting
expenses do not include expenses related to insurance services or
unallocated corporate expenses. GAAP combined ratio is the sum of
the loss ratio and the expense ratio.
(2)
For the fourth quarters of 2007 and 2006, weather-related losses
were $3 million and $8 million, respectively. For the full year of
2007 and 2006, weather-related losses were $34 million and $39
million, respectively.
(3)
Other revenues and expenses include corporate investment income,
expenses not allocated to the business segments and revenues and
expenses from investments in wholly-owned, non-insurance
subsidiaries that are consolidated for financial reporting
purposes.
Selected Balance Sheet Information
(Amounts in thousands, except per share data)
December 31,
December 31,
2007
2006
Net invested assets (1)
$
13,182,991
$
12,012,298
Total assets
16,828,718
15,656,489
Reserves for losses and loss expenses
8,678,034
7,784,269
Senior notes and other debt
1,121,793
869,187
Junior subordinated debentures
249,375
241,953
Stockholders’ equity (2)
3,566,323
3,335,159
Shares outstanding
180,321
192,772
Stockholders’ equity per share
19.78
17.30
(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.
(2)
Stockholders' equity includes after-tax unrealized gains from
investments and currency translation adjustments of $67 million and
$126 million as of December 31, 2007 and December 31, 2006,
respectively.
Supplemental Information
(Amounts in thousands)
Fourth Quarter
Full Year
Reconciliation of net operating income to net income:
2007
2006
2007
2006
Net operating income (1)
$
183,213
$
193,666
$
734,005
$
692,404
Realized investment gains, net of taxes
911
4,390
9,641
7,114
Net income
$
184,124
$
198,056
$
743,646
$
699,518
Return on equity (2):
Net Income
22.1
%
30.9
%
22.3
%
27.2
%
Net operating income
22.0
%
30.2
%
22.0
%
27.0
%
Cash flow:
Cash flow from operations before cash transfers to/from trading
account (3)
$
349,718
$
452,611
$
1,479,767
$
1,789,014
Trading account transfers
-
-
-
(225,000
)
Cash flow from operations
$
349,718
$
452,611
$
1,479,767
$
1,564,014
(1)
Net operating income is a non-GAAP financial measure defined by the
Company as net income excluding realized investment gains and
losses. Management believes that excluding realized investment gains
and losses, which result primarily from changes in general economic
conditions, provides a useful indicator of trends in the Company's
underlying operations.
(2)
Return on equity represents net income and net operating income
expressed on an annualized basis as a percentage of beginning of
year stockholders' equity.
(3)
Cash flow before trading account transfers is a non-GAAP financial
measure that excludes cash contributions to and withdrawals from the
arbitrage trading account. Management believes that cash transfers
to and withdrawals from the arbitrage trading account are the result
of changes in investment allocations and that excluding such
transfers provides a useful measure of the Company's cash flow.
Investments
(Amounts in thousands)
December 31, 2007
With
With
Insured
Underlying
Municipal Fixed Income Securities
Rating
Rating
AAA (1)
$
4,017,912
$
2,001,492
AA+
400,734
642,457
AA
343,708
747,144
AA-
237,874
620,113
A+
60,925
480,193
A
35,863
220,487
A-
37,764
186,895
BBB+
45,499
47,845
BBB
28,901
95,397
BBB-
26,145
37,562
B-
8,963
8,963
Not rated (2)
-
155,740
Total
$
5,244,288
$
5,244,288
Overall credit quality
AA+
AA
(1)
Includes $1,107,721 of escrowed to maturity and pre-refunded bonds.
(2)
Represents insured bonds for which the underlying securities are not
rated. Based on ratings for similar securities of the same issuer,
the Company considers these securities to be investment grade with
an average rating of A. In the interest of conservatism, a BBB-
rating was applied to these securities in computing the overall
credit quality of the portfolio.
Residential mortgage-backed
securities
US Government or government sponsored entity
$
1,242,274
Prime
270,711
Alt A (1)
114,523
Total
$
1,627,508
(1)
The Company defines Alt A securities as securities issued by
dedicated Alt A shelves and backed by loans made to borrowers with
credit ratings that fall below prime (the highest rated borrowers)
but above sub-prime. The Company's Alt A securities are backed by
fixed rate loans that were issued in 2003 and 2004 and have
demonstrated good payment history and solid credit support
characteristics to date.