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GREENWICH, Conn., Oct 28, 2008 (BUSINESS WIRE) -- W. R. Berkley Corporation (NYSE: WRB) today reported a net loss for the third quarter of 2008 of 17 cents per share, or $28 million, compared with net income of 93 cents per share, or $180 million, for the third quarter of 2007. Operating income for the third quarter of 2008 was 73 cents per share, or $123 million, compared with 93 cents per share, or $180 million, for the corresponding quarter of 2007. 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)
Third Quarter Nine Months
2008 2007 2008 2007
Gross premiums written $ 1,120,134 $ 1,244,109 $ 3,520,117 $ 3,893,150
Net premiums written 996,333 1,132,489 3,145,447 3,524,025
Net income (loss) (27,880 ) 180,463 240,815 559,522
Net income (loss) per share (0.17 ) 0.93 1.37 2.81
Operating income 122,733 179,946 409,736 550,792
Operating income per share 0.73 0.93 2.34 2.76
Third quarter highlights included:
-- Operating return on equity was 13.8% on an annualized basis, after weather-related losses.
-- GAAP combined ratio was 96.2%, inclusive of 5.8 points from weather-related losses.
-- The Company repurchased 1.9 million shares of its common stock.
Commenting on the Company's activities, William R. Berkley, Chairman and Chief Executive Officer, said: "Challenges stemming from the global investment environment and an unusual number of natural disasters had an adverse impact on third-quarter profits. Still, we remain very well-positioned to take advantage of what we see as an improving property casualty insurance marketplace. This quarter showed a modest reduction in the rate of price changes, as year-over-year price declines were less this quarter than in the previous quarter. While we have yet to see price increases, we believe the tide is showing signs of turning.
"Investment income for the quarter was in line with our expectations. Our investment portfolio continues to perform satisfactorily in light of market conditions. With an average duration of three and one-half years, our portfolio's high quality AA average rating will hold us in good stead should we experience an extended recession. Our cash flow from operations continues to be strong, and new funds are being invested in AAA securities with less than a three-year duration.
"We are pleased with the progress of our new units. The current industry turmoil is giving us better traction than originally anticipated.
"While the balance of 2008 and at least the first half of 2009 will have many challenges, we can now see the catalysts for the changing cycle. We feel more confident in our outlook for a better 2010 and believe 2009 may, in fact, be the point of inflection for the property casualty industry," 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 29, 2008 at 9:30 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 significant and increasing competition, the success of our new ventures or acquisitions and the availability of other opportunities, the availability of reinsurance, exposure to coverage for terrorist acts, our retention under the Terrorism Risk Insurance Program Reauthorization Act of 2007, the ability of our reinsurers to pay reinsurance recoverables owed to us, the potential impact of the current conditions in the financial markets on our results and financial condition, particularly if such conditions continue, the potential impact of current legislative, regulatory, accounting and other initiatives taken or which may be taken in response to the current conditions in the financial markets, investment risks, including those of our portfolio of fixed income securities and investments in equity securities, including investments in financial institutions and merger arbitrage and private equity investments, exchange rate and political risks relating to our international operations, other 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)
Third Quarter Nine Months
2008 2007 2008 2007
Revenues:
Net premiums written $ 996,333 $ 1,132,489 $ 3,145,447 $ 3,524,025
Change in unearned premiums 58,908 43,075 108,814 (21,888 )
Net premiums earned 1,055,241 1,175,564 3,254,261 3,502,137
Net investment income 153,402 165,790 451,838 500,154
Insurance service fees 25,628 23,690 77,501 75,026
Realized investment gains (losses) (220,030 ) 812 (248,167 ) 13,482
Revenues from wholly-owned investees 40,496 41,739 92,515 61,227
Other income 893 437 2,025 1,610
Total revenues 1,055,630 1,408,032 3,629,973 4,153,636
Operating costs and expenses:
Losses and loss expenses 694,254 706,374 2,056,998 2,095,190
Other operating costs and expenses 358,580 382,530 1,115,002 1,139,755
Expenses from wholly-owned investees 39,337 38,718 90,615 56,515
Interest expense 20,251 22,707 64,391 66,107
Total expenses 1,112,422 1,150,329 3,327,006 3,357,567
Income (loss) before income taxes and minority interest (56,792 ) 257,703 302,967 796,069
Income tax benefit (expense) 28,964 (76,344 ) (61,915 ) (234,855 )
Minority interest (52 ) (896 ) (237 ) (1,692 )
Net income (loss) $ (27,880 ) $ 180,463 $ 240,815 $ 559,522
Earnings (loss) per share:
Basic $ (0.17 ) $ 0.97 $ 1.43 $ 2.93
Diluted (1) $ (0.17 ) $ 0.93 $ 1.37 $ 2.81
Average shares outstanding:
Basic 162,675 186,601 168,826 190,659
Diluted (1) 162,675 193,719 175,369 199,247
(1) For the three months ended September 30, 2008, the anti-dilutive
effects of 6,086 potential common shares outstanding were excluded
from the outstanding diluted shares due to the third quarter net
loss.
Operating Results by Segment
(Amounts in thousands, except ratios (1))
Third Quarter Nine Months
2008 2007 2008 2007
Specialty (2):
Gross premiums written $ 373,078 $ 427,878 $ 1,207,800 $ 1,366,404
Net premiums written 335,782 402,332 1,109,508 1,288,917
Premiums earned 389,967 441,944 1,228,720 1,327,509
Pre-tax income 87,147 124,391 308,662 388,946
Loss ratio 62.9 % 57.8 % 59.9 % 57.2 %
Expense ratio 28.8 % 26.8 % 28.2 % 26.4 %
GAAP combined ratio 91.7 % 84.6 % 88.1 % 83.6 %
Regional (2):
Gross premiums written $ 343,016 $ 355,134 $ 1,077,644 $ 1,104,431
Net premiums written 299,504 312,716 938,368 968,146
Premiums earned 306,892 315,358 927,585 929,537
Pre-tax income 17,894 53,507 80,973 160,731
Loss ratio 69.3 % 58.7 % 66.8 % 59.1 %
Expense ratio 32.5 % 31.9 % 31.9 % 31.3 %
GAAP combined ratio 101.8 % 90.6 % 98.7 % 90.4 %
Alternative Markets:
Gross premiums written $ 201,347 $ 214,320 $ 590,592 $ 618,654
Net premiums written 178,634 190,247 517,447 541,578
Premiums earned 157,149 165,686 468,243 487,616
Pre-tax income 51,800 60,006 165,480 191,316
Loss ratio 64.8 % 60.3 % 62.2 % 57.9 %
Expense ratio 24.2 % 23.2 % 23.8 % 23.3 %
GAAP combined ratio 89.0 % 83.5 % 86.0 % 81.2 %
Reinsurance (2):
Gross premiums written $ 104,507 $ 177,198 $ 367,555 $ 592,433
Net premiums written 99,368 166,555 347,960 548,121
Premiums earned 124,710 190,559 408,911 572,823
Pre-tax income 29,540 44,894 96,473 137,193
Loss ratio 68.9 % 65.5 % 66.1 % 66.8 %
Expense ratio 33.7 % 29.9 % 34.3 % 29.6 %
GAAP combined ratio 102.6 % 95.4 % 100.4 % 96.4 %
International:
Gross premiums written $ 98,186 $ 69,579 $ 276,526 $ 211,228
Net premiums written 83,045 60,639 232,164 177,263
Premiums earned 76,523 62,017 220,802 184,652
Pre-tax income 13,440 11,306 31,365 26,577
Loss ratio 63.3 % 66.5 % 63.6 % 65.9 %
Expense ratio 38.0 % 30.0 % 38.2 % 31.6 %
GAAP combined ratio 101.3 % 96.5 % 101.8 % 97.5 %
Operating Results by Segment (continued)
(Amounts in thousands, except ratios (1))
Third Quarter Nine Months
2008 2007 2008 2007
Corporate and Eliminations:
Realized investment gains (losses) $ (220,030 ) $ 812 $ (248,167 ) $ 13,482
Interest expense (20,251 ) (22,707 ) (64,391 ) (66,107 )
Other revenues and expenses (3) (16,332 ) (14,506 ) (67,428 ) (56,069 )
Pre-tax loss (256,613 ) (36,401 ) (379,986 ) (108,694 )
Total:
Gross premiums written $ 1,120,134 $ 1,244,109 $ 3,520,117 $ 3,893,150
Net premiums written 996,333 1,132,489 3,145,447 3,524,025
Premiums earned 1,055,241 1,175,564 3,254,261 3,502,137
Pre-tax income (loss) (56,792 ) 257,703 302,967 796,069
Loss ratio 65.8 % 60.1 % 63.2 % 59.8 %
Expense ratio 30.4 % 28.4 % 30.0 % 28.1 %
GAAP combined ratio 96.2 % 88.5 % 93.2 % 87.9 %
(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. GAAP combined ratio is the sum of
the loss ratio and the expense ratio.
(2) Weather-related losses, including losses from Hurricanes Ike, Gustav
and Dolly as well as an unusually high number of wind and hail
storms in the Midwest, were $62 million for the third quarter of
2008 compared with $8 million for the third quarter of 2007.
Weather-related losses are net of reinsurance and include both
reinstatement premiums and estimated assessments from the Texas
Windstorm Insurance Association. Weather-related losses in the third
quarter were $39 million for the regional segment, $9 million for
the specialty segment and $14 for the reinsurance segment. For the
first nine months of 2008 and 2007, weather-related losses were $108
million and $30 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)
September 30, December 31,
2008 2007
Net invested assets (1) $ 12,585,708 $ 13,188,302
Total assets 16,417,710 16,832,170
Reserves for losses and loss expenses 9,076,876 8,678,034
Senior notes and other debt 1,024,758 1,121,793
Junior subordinated debentures 249,533 249,375
Stockholders' equity (2) 3,049,441 3,569,775
Shares outstanding 162,149 180,321
Stockholders' equity per share (3) 18.81 19.80
(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 is net of after-tax unrealized losses from
investments and currency translation adjustments of $165 million as
of September 30, 2008 and includes after-tax unrealized gains from
investments and currency translation adjustments of $71 million as
of December 31, 2007, respectively.
(3) During the third quarter, the Company purchased 1.9 million shares
of its common stock for $44 million. For the first nine months of
2008, the Company repurchased 19 million shares for $528 million.
Share repurchases in the first nine months of 2008 resulted in a
reduction of stockholders' equity per share of 90 cents.
Supplemental Information
(Amounts in thousands)
Third Quarter Nine Months
Reconciliation of net operating income to net income (loss): 2008 2007 2008 2007
Net operating income (1) $ 122,733 $ 179,946 $ 409,736 $ 550,792
Realized investment gains (losses), net of taxes (2) (143,020 ) 517 (161,328 ) 8,730
Effective tax rate adjustment (3) (7,593 ) - (7,593 ) -
Net income (loss) $ (27,880 ) $ 180,463 $ 240,815 $ 559,522
Return on equity:
Net income (4) N/M 21.6 % 9.0 % 22.4 %
Net operating income (4) 13.8 % 21.6 % 15.3 % 22.0 %
Cash flow:
Cash flow from operations before cash transfers to/from trading $ 374,525 $ 492,837 $ 729,852 $ 1,130,051
account (5)
Trading account transfers - - 50,000 -
Cash flow from operations $ 374,525 $ 492,837 $ 779,852 $ 1,130,051
(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. Operating income per share is based on
average diluted shares outstanding (168,761 and 175,369 for the
third quarter and first nine months of 2008, respectively).
(2) Realized losses include after-tax write-downs of securities
determined to have other-than-temporary declines in fair value of
$148 million and $214 million for the third quarter and first nine
months of 2008, respectively. These write-downs were related
primarily to preferred stocks of financial institutions, including
approximately $171 million (after-tax) of preferred stocks issued by
Fannie Mae and Freddie Mac.
(3) Income taxes are allocated to operating income and realized gains
and losses based on the actual year-to-date tax rate. For interim
periods, any difference between the actual year-to-date tax rate and
the projected full year effective tax rate is reported separately.
Any remaining differences are reversed in the fourth quarter.
(4) Return on equity represents net income and net operating income
expressed on an annualized basis as a percentage of beginning of
year stockholders' equity.
(5) 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.
Investment Portfolio Investment Allocation (based on carrying values) As of September 30, 2008 U.S. Government and agencies 9 % State and municipal 44 % Mortgage-backed securities, primarily U.S. government agencies 12 % Corporate 8 % Loans receivable, primarily mortgages 2 % Foreign governments and agencies 3 % Cash and cash equivalents (includes receivable from brokers and 11 % clearing organizations) Total fixed maturities 89 % Trading account equities 3 % Preferred stock 3 % Common stock 1 % Partnerships and affiliates 4 % Total invested assets 100 % Duration 3.6 years Average quality rating AA
SOURCE: W. R. Berkley Corporation
W. R. Berkley Corporation Karen A. Horvath, 203-629-3000 Vice President - External Financial Communications
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