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GREENWICH, Conn., Oct 25, 2006 (BUSINESS WIRE) -- W. R. Berkley Corporation (NYSE: BER) today reported net income for the third quarter of 2006 of $174 million, or 87 cents per share, a 42% increase from $123 million, or 61 cents per share, for the third quarter of 2005. Net operating income for the third quarter of 2006 increased 47% to $173 million, or 86 cents per share, compared with $117 million, or 58 cents per share, for the corresponding quarter of 2005. Net operating income is a non-GAAP financial measure defined by the Company as net income excluding realized investment gains and losses. All per share amounts in this release reflect the 3-for-2 common stock split effected on April 4, 2006.
Summary Financial Data
(Amounts in thousands, except per share data)
Third Quarter Nine Months
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Gross premiums written $1,306,190 $1,239,114 $4,058,372 $3,832,016
Net premiums written 1,208,906 1,131,128 3,705,422 3,454,307
Net income 174,308 122,518 501,462 377,468
Net income per diluted
share 0.87 0.61 2.49 1.89
Net operating income 172,803 117,321 498,738 368,595
Net operating income
per diluted share 0.86 0.58 2.48 1.85
Third quarter highlights included:
-- Return on equity was 27.2% on an annualized basis.
-- GAAP combined ratio was 88.5%.
-- Net investment income grew 36% to $146 million.
-- Net premiums written increased 7% to $1.2 billion.
-- Paid loss ratio was 35%.
Commenting on the Company's activities, William R. Berkley, chairman and chief executive officer, said: "Once again we had an outstanding quarter. Our Company has continued to deliver excellent returns while growing in an increasingly competitive environment. Our expansion into new lines of business and the growth of our existing activities have enabled us to maintain a growth rate in excess of the industry. We remain confident in our competitive posture even as some of our competitors continue to behave aggressively in areas they find attractive.
"Cash flow and investment income continue to be strong. As a result, investment income is an increasing portion of our profitability. We remain focused on asset quality while we carefully examine opportunities that offer higher returns without stepping outside of our risk parameters.
"We continue to believe that returns in excess of twenty percent are attainable next year and that returns in 2008 will be comfortably above our long term objective. While the environment is becoming more challenging, we remain enthusiastic about the returns that we will be able to deliver to our shareholders 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 Wednesday, October 25, 2006 at 3:00 p.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 2006 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 reinsurance business, product demand and pricing, claims development and the process of estimating reserves, the uncertain nature of damage theories and loss amounts, the increased level of our retention, natural and man-made catastrophic losses, including hurricanes and 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 Act of 2002, as amended ("TRIA"), 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 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 2006 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)
Third Quarter Nine Months
----------------------- ----------------------
2006 2005 2006 2005
----------- ----------- ----------- ----------
Revenues:
Net premiums written $1,208,906 $1,131,128 $3,705,422 3,454,307
Change in unearned
premiums (15,049) 44 (178,508) (191,287)
----------- ----------- ----------- ----------
Premiums earned 1,193,857 1,131,172 3,526,914 3,263,020
Net investment income 145,784 107,502 422,348 290,682
Service fees 26,622 25,064 80,182 84,025
Realized investment
gains 1,734 8,120 3,736 13,885
Other income 511 319 1,208 1,337
----------- ----------- ----------- ----------
Total revenues 1,368,508 1,272,177 4,034,388 3,652,949
----------- ----------- ----------- ----------
Expenses:
Losses and loss
expenses 731,941 742,242 2,175,249 2,058,714
Other operating
expenses 368,311 338,962 1,082,891 1,000,367
Interest expense 23,293 23,632 70,034 60,974
----------- ----------- ----------- ----------
Total expenses 1,123,545 1,104,836 3,328,174 3,120,055
----------- ----------- ----------- ----------
Income before
income taxes and
minority interest 244,963 167,341 706,214 532,894
Income tax expense (70,445) (44,540) (203,251) (153,364)
Minority interest (210) (283) (1,501) (2,062)
----------- ----------- ----------- ----------
Net income $ 174,308 122,518 501,462 377,468
=========== =========== =========== ==========
Net income per
share: (1)
Basic $ 0.91 0.64 $ 2.62 1.99
=========== =========== =========== ==========
Diluted $ 0.87 0.61 $ 2.49 1.89
=========== =========== =========== ==========
Average shares
outstanding: (1)
Basic 191,415 190,794 191,130 189,620
Diluted 201,295 200,630 201,276 199,187
(1) Per share amounts reflect the 3-for-2 common stock split effected
on April 4, 2006.
Operating Results by Segment
(Amounts in thousands, except ratios (1))
Third Quarter Nine Months
------------------- -----------------------
2006 2005 2006 2005
--------- --------- ----------- -----------
Specialty: (2)(3)
Gross premiums written $454,835 $460,317 $1,450,961 $1,417,087
Net premiums written 432,760 435,535 1,376,340 1,342,031
Premiums earned 446,453 425,980 1,307,910 1,204,202
Pre-tax income 119,498 87,420 338,716 247,978
Loss ratio 59.3% 63.3% 60.0% 62.5%
Expense ratio 25.2% 24.7% 25.2% 25.0%
GAAP combined ratio 84.5% 88.0% 85.2% 87.5%
Regional: (3)
Gross premiums written $349,353 $337,790 $1,086,500 $1,061,654
Net premiums written 309,414 291,339 943,705 910,169
Premiums earned 308,263 298,250 897,838 870,586
Pre-tax income 51,061 49,538 149,621 157,193
Loss ratio 59.7% 57.8% 59.5% 56.2%
Expense ratio 30.6% 30.7% 30.6% 30.5%
GAAP combined ratio 90.3% 88.5% 90.1% 86.7%
Alternative Markets: (2)
Gross premiums written $209,674 $196,290 $ 606,965 $ 623,254
Net premiums written 190,555 178,482 531,686 527,930
Premiums earned 166,879 166,004 491,648 482,300
Pre-tax income 76,693 60,435 218,335 157,559
Loss ratio 51.3% 58.6% 52.8% 62.3%
Expense ratio 22.6% 21.0% 22.3% 20.8%
GAAP combined ratio 73.9% 79.6% 75.1% 83.1%
Reinsurance: (2)(3)
Gross premiums written $233,419 $195,702 $ 739,080 $ 590,222
Net premiums written 221,163 182,261 699,929 552,334
Premiums earned 215,028 192,396 666,577 566,163
Pre-tax income (loss) 31,191 (6,313) 95,287 39,323
Loss ratio 73.3% 89.1% 73.5% 75.2%
Expense ratio 27.7% 27.5% 26.7% 30.1%
GAAP combined ratio 101.0% 116.6% 100.2% 105.3%
International: (2)
Gross premiums written $ 58,909 $ 49,015 $ 174,866 $ 139,799
Net premiums written 55,014 43,511 153,762 121,843
Premiums earned 57,234 48,542 162,941 139,769
Pre-tax income 5,039 5,014 21,771 15,616
Loss ratio 71.0% 65.2% 66.5% 64.8%
Expense ratio 32.1% 28.9% 31.9% 30.1%
GAAP combined ratio 103.1% 94.1% 98.4% 94.9%
(Continued)
Operating Results by Segment (continued)
(Amounts in thousands, except ratios (1))
Third Quarter Nine Months
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Corporate and
Eliminations:
Realized investment
gains $ 1,734 $ 8,120 $ 3,736 $ 13,885
Interest and other,
net (40,253) (36,873) (121,252) (98,660)
Pre-tax loss (38,519) (28,753) (117,516) (84,775)
Total:
Gross premiums
written $1,306,190 $1,239,114 $4,058,372 $3,832,016
Net premiums written 1,208,906 1,131,128 3,705,422 3,454,307
Premiums earned 1,193,857 1,131,172 3,526,914 3,263,020
Pre-tax income 244,963 167,341 706,214 532,894
Loss ratio 61.3% 65.6% 61.7% 63.1%
Expense ratio 27.2% 26.5% 26.9% 27.1%
GAAP combined ratio 88.5% 92.1% 88.6% 90.2%
(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. Underwriting expenses
do not include expenses related to insurance services or unallocated
corporate expenses. For the international segment, the loss and
expense ratios do not include life insurance business. GAAP combined
ratio is the sum of the loss ratio and the expense ratio.
(2) Prior period operating results by segment have been reclassified
to reflect a change in the segment designation for the following
companies: Berkley Underwriting Partners, LLC from reinsurance to
specialty; W. R. Berkley Insurance (Europe), Limited from specialty
to international; and Berkley Medical Excess Underwriters, LLC from
specialty to alternative markets.
(3) Weather-related losses were $7 million in the third quarter of
2006 compared with $56 million in the third quarter of 2005. The 2005
weather-related losses were $35 million for reinsurance, $16 million
for regional and $5 million for specialty and included $50 million
attributable to hurricanes Katrina and Rita. For the first nine
months of 2006 and 2005, weather-related losses were $32 million and
$74 million, respectively.
Selected Balance Sheet Information
(Amounts in thousands, except per share data)
September 30, December 31,
2006 2005
------------- ------------
Total investments (1) $11,695,709 $10,378,250
Total assets 15,444,238 13,896,287
Reserves for losses and loss expenses 7,574,891 6,711,760
Senior notes and other debt 868,848 967,818
Junior subordinated debentures 451,659 450,634
Stockholders' equity (2) 3,097,587 2,567,077
Shares outstanding 191,571 191,265
Stockholders' equity per share 16.17 13.42
(1) Total investments include 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 $89 million and
$25 million as of September 30, 2006 and December 31, 2005,
respectively.
Supplemental Information
(Amounts in thousands)
Third Quarter Nine Months
------------------- -----------------------
Reconciliation of net
operating income to net
income: 2006 2005 2006 2005
--------- --------- ----------- -----------
Net operating income (1) $172,803 $117,321 $498,738 $368,595
Realized investment
gains, net of taxes 1,505 5,197 2,724 8,873
--------- --------- ----------- -----------
Net income $174,308 $122,518 $501,462 $377,468
========= ========= =========== ===========
Return on equity:
Net Income (2) 27.2% 23.2% 26.0% 23.9%
Net operating income (2) 26.9% 22.2% 25.9% 23.3%
Cash flow:
Cash flow from
operations before cash
transfers to/from
trading account (3) $567,816 $618,108 $1,354,840 $1,435,102
Trading account
transfers - (5,027) (225,000) (80,027)
--------- --------- ----------- -----------
Cash flow from
operations $567,816 $613,081 $1,129,840 $1,355,075
========= ========= =========== ===========
(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.
SOURCE: W. R. Berkley Corporation
W. R. Berkley Corporation
Karen A. Horvath, 203-629-3000
Vice President - External Financial Communications