W. R. Berkley Corporation Reports Third Quarter Results

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W. R. Berkley Corporation Reports Third Quarter Results

Net Income Up 32%, Net Premiums Written Up 13.3%

GREENWICH, Conn.--(BUSINESS WIRE)-- W. R. Berkley Corporation (NYSE: WRB) today reported net income for the third quarter of 2012 of $101 million, or 71 cents per share, compared with $76 million, or 53 cents per share, for the third quarter of 2011.

Summary Financial Data

(Amounts in thousands, except per share data)

2012 2011 2012 2011
 
Gross premiums written$1,494,724$1,306,300$4,327,170$3,821,434
Net premiums written1,275,8871,126,1393,670,4043,266,857
 
Net income100,94776,410345,103274,184
Net income per diluted share0.710.532.411.87
 
Operating income (1)86,13662,626283,360227,274
Operating income per diluted share0.610.431.981.55

(1) Operating income is a non-GAAP financial measure defined by the Company as net income excluding net investment gains and losses.

Third quarter highlights included:

  • Book value per share increased $1.13, representing a 15% increase on an annualized basis.
  • Average rates on renewed policies increased 7.0%.
  • GAAP combined ratio was 95.8%.
  • Net premiums written increased 13.3%.
  • The Company repurchased 2 million shares of its common stock at an average cost of $37.05 per share and an aggregate cost of $73 million.

Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We were very pleased with our third quarter results. Significant rate increases were a part of our substantial growth in the quarter, and we continue to see positive trends in most lines of business.

"It is clear, as we enter the second year of significant rate increases, that the cyclical change is no longer hypothetical. Rate increases continue to be available for disciplined companies that recognize the need for adequate returns. The consequence of declining fixed income yields has increased the need for meaningful improvement in underwriting margin. We anticipate continued price increases over the next twelve months.

"Although our current yields were virtually unchanged from a year ago, investment returns still represent the most serious obstacle to achieving adequate returns. With ten-year treasury yields hovering around 2%, it is a challenge to maintain our current portfolio yield. Our shift in focus toward investing more for capital gains has rewarded us as we achieved significant income in the first three quarters and anticipate gains in excess of $75 million in the fourth quarter.

"We remain confident that we will be able to grow and raise prices for the foreseeable future. We continue to believe that we will be able to deliver outstanding returns to our shareholders," 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 Tuesday October 23, 2012 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 2012 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; 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; foreign currency and political risks relating to our international operations; 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; our ability to attract and retain key personnel and qualified employees; 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 2012 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)

 2012 2011 2012 2011
Revenues:
Net premiums written$1,275,887$1,126,139$3,670,404$3,266,857
Change in unearned premiums(89,354)(70,316)(236,863)(211,293)
Net premiums earned1,186,5331,055,8233,433,5413,055,564
Net investment income116,019114,063434,888409,261
Insurance service fees26,20822,27977,12169,487
Net investment gains:
Net realized gains on investment sales17,22621,23884,98973,812
Change in valuation allowance, net of other-than-temporary impairments5,000  9,014 (400)
Net investment gains22,226 21,238 94,003 73,412 
Revenues from wholly-owned investees68,08765,922173,196175,943
Other income1,428 406 2,204 1,364 
Total revenues1,420,501 1,279,731 4,214,953 3,785,031 
Expenses:
Losses and loss expenses736,632683,9802,147,3061,965,351
Other operating costs and expenses451,487407,1491,332,0241,196,936
Expenses from wholly-owned investees66,17764,388172,438174,059
Interest expense32,512 28,068 93,750 84,317 
Total expenses1,286,808 1,183,585 3,745,518 3,420,663 
Income before income taxes133,69396,146469,435364,368
Income tax expense(32,685)(19,775)(124,291)(90,282)
Net income before noncontrolling interests101,00876,371345,144274,086
Noncontrolling interests(61)39 (41)98 
Net income to common stockholders$100,947 $76,410 $345,103 $274,184 
 
Net income per share:
Basic$0.74$0.55$2.51$1.95
Diluted$0.71$0.53$2.41$1.87
 
Average shares outstanding:
Basic136,553138,816137,512140,535
Diluted141,637144,538142,941146,553

Operating Results by Segment

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

 2012 2011 2012 2011
 
Specialty:
Gross premiums written$533,592$454,560$1,526,265$1,344,139
Net premiums written452,000382,5411,295,5561,146,091
Premiums earned420,165367,4171,215,4171,047,567
Pre-tax income59,84670,590204,573237,613
Loss ratio62.4%58.3%61.8%57.8%
Expense ratio32.1%32.9%32.8%32.9%
GAAP combined ratio94.5%91.2%94.6%90.7%
 
Regional:
Gross premiums written$321,659$301,542$926,242$881,224
Net premiums written295,122277,177852,971817,380
Premiums earned276,629267,142809,072795,423
Pre-tax income (loss)33,219(11,163)79,211(2,770)
Loss ratio57.2%74.2%60.8%71.5%
Expense ratio35.9%35.9%36.5%36.2%
GAAP combined ratio93.1%110.1%97.3%107.7%
 
Alternative Markets:
Gross premiums written$272,327$222,423$764,643$656,062
Net premiums written205,210174,744556,067497,117
Premiums earned177,041156,820506,149454,156
Pre-tax income39,43332,984141,089116,007
Loss ratio72.9%70.9%72.4%71.9%
Expense ratio24.8%26.7%25.8%26.8%
GAAP combined ratio97.7%97.6%98.2%98.7%
 
Reinsurance:
Gross premiums written$132,247$118,266$373,912$337,696
Net premiums written123,098113,620349,361319,524
Premiums earned111,599103,906327,452315,220
Pre-tax income21,11816,10974,74266,782
Loss ratio58.1%61.5%57.8%60.9%
Expense ratio40.0%40.9%40.8%40.7%
GAAP combined ratio98.1%102.4%98.6%101.6%
 
International:
Gross premiums written$234,899$209,509$736,108$602,313
Net premiums written200,457178,057616,449486,745
Premiums earned201,099160,538575,451443,198
Pre-tax i
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