W. R. Berkley Corporation Reports First Quarter Results Earnings per Share of 83 Cents, Net Premiums Written up 14.4% Business Wire GREENWICH, Conn. -- April 23, 2013 W. R. Berkley Corporation (NYSE: WRB) today reported net income for the first quarter of 2013 of $117 million, or 83 cents per share, compared with $135 million, or 94 cents per share, for the first quarter of 2012. Summary Financial Data (Amounts in thousands, except per share data) First Quarter 2013 2012 Gross premiums written $ 1,631,621 $ 1,401,526 Net premiums written 1,376,966 1,203,526 Net income 116,615 135,318 Net income per diluted share 0.83 0.94 Operating income (1) 103,635 104,236 Operating income per diluted share 0.74 0.73 Return on equity (2) 10.8 % 13.7 % (1) Operating income is a non-GAAP financial measure defined by the Company as net income excluding net investment gains and losses. (2) Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity. First quarter highlights included: *Average rates on renewed policies increased 7.3%. *Net premiums written increased 14.4%. *GAAP combined ratio was 94.7%. *Return on equity of 10.8%. Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We had a good quarter, setting the foundation for an excellent year. Our business is showing continued signs of improvement, and we are well positioned to take advantage of the positive rate environment. "The benefits of our improved pricing are slowly being reflected in our financial results. We see new opportunities created by the current underwriting environment as prices continue to increase faster than loss costs. Our management team recognizes that to achieve adequate returns in the current low interest rate environment, increased underwriting margins are required. We believe this is attainable. "The core fixed income investment portfolio continues to perform well, with investment yields that remain above current market rates. Short-term fears of inflation seem to have abated, making us less eager to further reduce the duration of our portfolio. We continue to search the range of investment offerings for yield as well as capital gains, but we will not sacrifice quality nor do we intend to extend duration. "We are optimistic that our business will continue to improve, and 2013 will be an excellent year," Mr. Berkley concluded. Webcast Conference Call and Supplementary Information The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on Wednesday, April 24, 2013 at 8:30 a.m. eastern time. The conference call will be webcast live on the Company's website at www.wrberkley.com. A replay of the webcast will be available on the Company's website approximately two hours after the end of the conference call. Commencing with the first quarter of 2013, the Company will report its results in three segments – Insurance-Domestic (formerly, Specialty, Regional and Alternative Markets), Insurance-International and Reinsurance-Global. Reclassifications have been made to the Company’s 2012 financial information to conform with this presentation. Please see the Company’s website at www.wrberkley.com for supplementary investor information regarding these changes to its business segments. 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 three segments of the property casualty business: insurance-domestic, insurance-international and reinsurance-global. 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 2013 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; 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, real estate, merger arbitrage 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 to it, on our results and financial condition; foreign currency and political risks 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 Act of 2002, as amended; 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 2013 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) First Quarter 2013 2012 Revenues: Net premiums written $ 1,376,966 $ 1,203,526 Change in unearned premiums (144,847 ) (103,875 ) Net premiums earned 1,232,119 1,099,651 Investment income 135,929 157,619 Insurance service fees 26,736 23,877 Net investment gains 19,969 43,477 Change in investment valuation allowance, net — 4,014 of other than temporary impairments Revenues from wholly-owned investees 91,735 49,675 Other income 281 392 Total revenues 1,506,769 1,378,705 Expenses: Losses and loss expenses 744,679 679,472 Other operating costs and expenses 481,604 431,779 Expenses from wholly-owned investees 89,152 51,330 Interest expense 31,111 28,821 Total expenses 1,346,546 1,191,402 Income before income taxes 160,223 187,303 Income tax expense (43,625 ) (52,071 ) Net income before noncontrolling interests 116,598 135,232 Noncontrolling interests 17 86 Net income to common stockholders $ 116,615 $ 135,318 Net income per share: Basic $ 0.86 $ 0.98 Diluted $ 0.83 $ 0.94 Average shares outstanding: Basic 136,025 137,814 Diluted 141,223 143,411 Business Segment Operating Results (Amounts in thousands, except ratios) (1) (2) First Quarter 2013 2012 Insurance-Domestic: Gross premiums written $ 1,179,722 $ 1,038,434 Net premiums written 986,180 882,943 Premiums earned 884,378 810,069 Pre-tax income 141,350 147,735 Loss ratio 62.4 % 62.9 % Expense ratio 33.1 % 33.2 % GAAP combined ratio 95.5 % 96.1 % Insurance-International: Gross premiums written $ 251,575 $ 200,504 Net premiums written 205,135 167,994 Premiums earned 171,119 143,885 Pre-tax income 22,382 15,699 Loss ratio 55.8 % 57.3 % Expense ratio 38.0 % 40.3 % GAAP combined ratio 93.8 % 97.6 % Reinsurance-Global: Gross premiums written $ 200,324 $ 162,588 Net premiums written 185,651 152,589 Premiums earned 176,622 145,697 Pre-tax income 37,941 31,638 Loss ratio 55.0 % 60.2 % Expense ratio 36.3 % 37.6 % GAAP combined ratio 91.3 % 97.8 % Corporate and Eliminations: Net realized investment gains $ 19,969 $ 47,791 Interest expense (31,111 ) (28,821 ) Other revenues and expenses (30,308 ) (26,439 ) Pre-tax loss (41,450 ) (7,769 ) Consolidated: Gross premiums written $ 1,631,621 $ 1,401,526 Net premiums written 1,376,966 1,203,526 Premiums earned 1,232,119 1,099,651 Pre-tax income 160,223 187,303 Loss ratio 60.4 % 61.8 % Expense ratio 34.3 % 34.7 % GAAP combined ratio 94.7 % 96.5 % (1) Commencing with the first quarter of 2013, the Company will report its results in three segments – Insurance-Domestic (formerly, Specialty, Regional and Alternative Markets), Insurance-International and Reinsurance-Global. Reclassifications have been made to the Company’s 2012 financial information to conform with this presentation. (2) 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. Supplemental Information (Amounts in thousands, except ratios) First Quarter 2013 2012 Insurance-Domestic net premiums written by line: Workers' compensation $ 298,177 $ 244,441 Other liability 323,556 292,059 Short-tail lines (1) 179,799 169,129 Commercial automobile 123,586 120,811 Professional liability 61,062 56,503 Total $ 986,180 $ 882,943 Losses from catastrophes: Insurance-Domestic $ 3,660 $ 4,378 Insurance-International 233 — Reinsurance-Global 1,120 28 Total $ 5,013 $ 4,406 Investment income: Core portfolio (2) $ 121,212 $ 123,515 Investment funds 10,934 27,623 Arbitrage trading account 3,783 6,481 Total $ 135,929 $ 157,619 Other operating costs and expenses: Underwriting expenses $ 422,213 $ 382,023 Service expenses 22,305 19,592 Net foreign currency losses (gains) 1,947 (1,434 ) Other costs and expenses 35,139 31,598 Total $ 481,604 $ 431,779 Cash flow from operations $ 75,070 $ 73,762 Reconciliation of operating income to net income: Operating income (3) $ 103,635 $ 104,236 After-tax investment gains 12,980 31,082 Net income $ 116,615 $ 135,318 (1) Short-tail lines includes commercial multi-peril (non-liability), inland and ocean 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) Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net realized investment gains (losses). Management believes that excluding net realized investment gains (losses), which are often discretionary and frequently relate to economic factors, provides a useful indicator of trends in the Company’s underlying operations. Selected Balance Sheet Information (Amounts in thousands, except per share data) March 31, 2013 December 31, 2012 Net invested assets (1) $ 15,438,868 $ 15,681,803 Total assets 20,120,634 20,155,896 Reserves for losses and loss expenses 9,809,843 9,751,086 Senior notes and other debt 1,693,279 1,871,535 Junior subordinated debentures 243,258 243,206 Common stockholders’ equity (2) 4,378,541 4,306,217 Common stock outstanding 136,028 136,018 Book value per share (3) 32.19 31.66 Tangible book value per share (3) 31.18 30.95 (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 $525 million and $518 million as of March 31, 2013 and December 31, 2012, respectively. Unrealized currency translation losses were $83 million and $37 million as of March 31, 2013 and December 31, 2012, respectively. (3) 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, 2013 (Amounts in thousands) Carrying Percent Value of Total Fixed maturity securities: United States government and government agencies $ 875,712 5.7 % State and municipal: Special revenue 2,018,194 13.1 % State general obligation 859,481 5.6 % Pre-refunded 853,418 5.5 % Local general obligation 374,158 2.4 % Corporate backed 370,490 2.4 % Total state and municipal 4,475,741 29.0 % Mortgage-backed securities: Agency 1,057,039 6.8 % Residential — Prime 209,938 1.4 % Commercial 209,366 1.4 % Residential — Alt A 99,751 0.6 % Total mortgage-backed securities 1,576,094 10.2 % Corporate: Industrial 1,548,214 10.0 % Financial 859,566 5.6 % Asset-backed 822,825 5.3 % Utilities 219,618 1.4 % Other 125,853 0.8 % Total corporate 3,576,076 23.1 % Foreign 1,161,494 7.5 % Total fixed maturity securities (1) 11,665,117 75.5 % Equity securities available for sale: Common stocks 295,031 1.9 % Preferred stocks 104,355 0.7 % Total equity securities available for sale 399,386 2.6 % Cash and cash equivalents (2) 862,129 5.6 % Investment funds (3) 765,703 5.0 % Arbitrage trading account 701,223 4.5 % Real estate 588,777 3.8 % Loans receivable 456,533 3.0 % Net invested assets $ 15,438,868 100.0 % (1) Total fixed maturity securities had an average rating of AA- and an average duration of 3.3 years. (2) Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases. (3) Investment funds are net of related liabilities of $28 million. Foreign Fixed Maturity Securities March 31, 2013 (Amounts in thousands) Government Corporate Total Australia $ 243,737 $ 139,062 $ 382,799 Canada 136,247 49,419 185,666 United Kingdom 111,644 58,200 169,844 Argentina 133,466 29,511 162,977 Germany 72,055 — 72,055 Norway 64,936 — 64,936 Brazil 49,550 — 49,550 Supranational (1) 38,672 — 38,672 Netherlands — 13,057 13,057 Switzerland — 11,279 11,279 Singapore 6,840 — 6,840 Uruguay 3,400 — 3,400 New Zealand 419 — 419 Total $ 860,966 $ 300,528 $ 1,161,494 (1) Supranational represents investments in the North American Development Bank, European Investment Bank and Inter-American Development Bank. Contact: W. R. Berkley Corporation Karen A. Horvath Vice President - External Financial Communications 203-629-3000
W. R. Berkley Corporation Reports First Quarter Results
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