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GREENWICH, Conn.--(BUSINESS WIRE)--July 23, 2007--W. R. Berkley Corporation (NYSE: BER) today reported net income for the second quarter of 2007 of $191 million, or 93 cents per share, a 15% increase from $165 million, or 82 cents per share, for the second quarter of 2006. Net operating income for the second quarter of 2007 increased 13% to $187 million, or 92 cents per share, compared with $166 million, or 82 cents per share, for the corresponding quarter of 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)
Second Quarter Six Months
--------------------- ---------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Gross premiums written $1,265,679 $1,341,347 $2,649,041 $2,752,182
Net premiums written 1,136,764 1,217,985 2,391,536 2,496,516
Net income 190,633 165,452 379,059 327,154
Net income per diluted
share 0.93 0.82 1.86 1.62
Net operating income 187,216 165,986 370,846 325,935
Net operating income per
diluted share 0.92 0.82 1.82 1.61
Second quarter highlights included:
-- Return on equity was 22.9% on an annualized basis.
-- GAAP combined ratio was 87.9%.
-- Net investment income grew 16% to $169 million.
-- Paid loss ratio was 42%.
Commenting on the Company's activities, William R. Berkley, chairman and chief executive officer, said: "We've completed another excellent quarter. Our underwriting results continue to be strong. The strength of our balance sheet is outstanding and our assets have not been adversely impacted by the various uncertainties in the current environment.
"Investment income increased as a result of our growing asset base and higher interest rates. While we have a significant portfolio of mortgage backed securities, they contain virtually no sub-prime element. Our direct real estate participation continues to perform well as has our portfolio of equity investments. There are a significant number of capital gains embedded in our portfolio that should become realized over the next several years.
"The insurance pricing environment is continuing its downward trend with modest acceleration. On average, year over year prices were down approximately five percent for the quarter. While it takes five quarters for these prices to be fully reflected in our financial statements, it is very likely that over time our underwriting profitability will decline. There are still some attractive opportunities but they are fewer and harder to find.
"We continue to manage our capital and expect to deliver an after tax return in excess of twenty percent again this year. We believe that our Company has the ability to deliver outstanding returns for our shareholders throughout the cycle," 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 Tuesday, July 24, 2007 at 9:00 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 2007 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 Act of 2002, as amended ("TRIA"), and the potential expiration of 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 successfully acquire and integrate companies and invest in new insurance ventures, 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 2007 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)
Second Quarter Six Months
--------------------- ---------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Revenues:
Net premiums written $1,136,764 $1,217,985 $2,391,536 $2,496,516
Change in unearned
premiums 34,876 (31,305) (64,963) (163,459)
---------- ---------- ---------- ----------
Premiums earned 1,171,640 1,186,680 2,326,573 2,333,057
Net investment income 168,943 145,067 334,364 276,564
Service fees 25,343 26,966 51,336 53,560
Realized investment
gains (losses) 5,280 (673) 12,670 2,002
Other income 15,377 306 20,661 697
---------- ---------- ---------- ----------
Total revenues 1,386,583 1,358,346 2,745,604 2,665,880
---------- ---------- ---------- ----------
Expenses:
Losses and loss expenses 703,669 742,110 1,388,816 1,443,308
Other operating expenses 389,791 358,926 775,022 714,580
Interest expense 22,700 23,272 43,400 46,741
---------- ---------- ---------- ----------
Total expenses 1,116,160 1,124,308 2,207,238 2,204,629
---------- ---------- ---------- ----------
Income before income
taxes and minority
interest 270,423 234,038 538,366 461,251
Income tax expense (79,376) (67,883) (158,511) (132,806)
Minority interest (414) (703) (796) (1,291)
---------- ---------- ---------- ----------
Net income $ 190,633 $ 165,452 $ 379,059 $ 327,154
========== ========== ========== ==========
Net income per share:
Basic $ 0.98 $ 0.86 $ 1.96 $ 1.70
========== ========== ========== ==========
Diluted $ 0.93 $ 0.82 $ 1.86 $ 1.62
========== ========== ========== ==========
Average shares
outstanding:
Basic 194,345 192,337 193,775 192,041
Diluted 203,922 202,450 203,930 202,450
Operating Results by Segment
(Amounts in thousands, except ratios (1))
Second Quarter Six Months
-------------------- ---------------------
2007 2006 2007 2006
---------- --------- ---------- ----------
Specialty:
Gross premiums written $ 480,674 $ 521,825 $ 938,526 $ 996,126
Net premiums written 452,610 496,017 886,585 943,580
Premiums earned 442,110 443,212 885,565 861,457
Pre-tax income 136,843 112,732 264,555 219,218
Loss ratio 55.7% 60.7% 56.9% 60.3%
Expense ratio 26.4% 25.0% 26.2% 25.2%
GAAP combined ratio 82.1% 85.7% 83.1% 85.5%
Regional (2):
Gross premiums written $ 371,879 $ 372,481 $ 749,297 $ 737,147
Net premiums written 330,057 322,910 655,430 634,291
Premiums earned 309,812 299,613 614,179 589,575
Pre-tax income 51,903 43,930 107,224 98,560
Loss ratio 60.1% 62.0% 59.3% 59.4%
Expense ratio 31.0% 30.2% 31.0% 30.6%
GAAP combined ratio 91.1% 92.2% 90.3% 90.0%
Alternative Markets:
Gross premiums written $ 123,906 $ 123,843 $ 404,334 $ 397,291
Net premiums written 100,808 102,709 351,331 341,131
Premiums earned 159,266 162,028 321,930 324,769
Pre-tax income 63,592 74,520 131,310 141,642
Loss ratio 57.2% 51.8% 56.7% 53.6%
Expense ratio 24.2% 23.1% 23.4% 22.2%
GAAP combined ratio 81.4% 74.9% 80.1% 75.8%
Reinsurance:
Gross premiums written $ 210,053 $ 258,628 $ 415,235 $ 505,661
Net premiums written 190,705 242,957 381,566 478,766
Premiums earned 196,986 226,307 382,264 451,549
Pre-tax income 45,892 34,037 92,299 64,096
Loss ratio 70.2% 74.5% 67.5% 73.6%
Expense ratio 26.9% 25.1% 29.5% 26.3%
GAAP combined ratio 97.1% 99.6% 97.0% 99.9%
International:
Gross premiums written $ 79,167 $ 64,570 $ 141,649 $ 115,957
Net premiums written 62,584 53,392 116,624 98,748
Premiums earned 63,466 55,520 122,635 105,707
Pre-tax income 7,900 10,820 15,271 16,732
Loss ratio 65.8% 62.4% 65.5% 64.0%
Expense ratio 33.3% 30.1% 32.5% 31.7%
GAAP combined ratio 99.1% 92.5% 98.0% 95.7%
Operating Results by Segment (continued)
(Amounts in thousands, except ratios (1))
Second Quarter Six Months
--------------------- ---------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Corporate and
Eliminations:
Realized investment
gains (losses) $ 5,280 $ (673) $ 12,670 $ 2,002
Interest and other, net (40,987) (41,328) (84,963) (80,999)
Pre-tax loss (35,707) (42,001) (72,293) (78,997)
Total:
Gross premiums written $1,265,679 $1,341,347 $2,649,041 $2,752,182
Net premiums written 1,136,764 1,217,985 2,391,536 2,496,516
Premiums earned 1,171,640 1,186,680 2,326,573 2,333,057
Pre-tax income 270,423 234,038 538,366 461,251
Loss ratio 60.1% 62.5% 59.7% 61.9%
Expense ratio 27.8% 26.4% 28.0% 26.7%
GAAP combined ratio 87.9% 88.9% 87.7% 88.6%
(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) For the second quarters of 2007 and 2006, weather-related losses
were $16 million and $20 million, respectively. For the first six
months of 2007 and 2006, weather-related losses were $22 million
and $25 million, respectively.
Selected Balance Sheet Information
(Amounts in thousands, except per share data)
June 30, December 31,
2007 2006
------------ ------------
Net invested assets (1) $ 12,656,927 $ 12,012,298
Total assets 16,626,837 15,656,489
Reserves for losses and loss expenses 8,207,877 7,784,269
Senior notes and other debt 1,121,653 869,187
Junior subordinated debentures 242,056 241,953
Stockholders' equity (2) 3,571,177 3,335,159
Shares outstanding 192,876 192,772
Stockholders' equity per share 18.52 17.30
(1) Net invested assets include investments, cash investments 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 $46 million
and $126 million as of June 30, 2007 and December 31, 2006,
respectively.
Supplemental Information
(Amounts in thousands)
Second Quarter Six Months
------------------- --------------------
Reconciliation of net
operating income to net
income: 2007 2006 2007 2006
--------- --------- --------- ----------
Net operating income (1) $ 187,216 $ 165,986 $ 370,846 $ 325,935
Realized investment gains
(losses), net of taxes 3,417 (534) 8,213 1,219
--------- --------- --------- ----------
Net income $ 190,633 $ 165,452 $ 379,059 $ 327,154
========= ========= ========= ==========
Return on equity:
Net Income (2) 22.9% 25.8% 22.7% 25.5%
Net operating income (2) 22.5% 25.9% 22.2% 25.4%
Cash flow:
Cash flow from operations
before cash transfers
to/from trading account
(3) $ 279,993 $ 341,364 $ 637,214 $ 777,530
Trading account transfers - (25,000) - (225,000)
--------- --------- --------- ----------
Cash flow from operations $ 279,993 $ 316,364 $ 637,214 $ 552,530
========= ========= ========= ==========
(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. Reclassifications have been made to the 2006
cash flow amounts to conform with the presentation in 2007.
CONTACT: W. R. Berkley Corporation
Karen A. Horvath, 203-629-3000
Vice President - External Financial Communications
SOURCE: W. R. Berkley Corporation