W. R. Berkley Corporation
165 Mason Street, P.O. Box 2518 NEWS
Greenwich, Connecticut 06836-2518 RELEASE
(203) 629-3000
FOR IMMEDIATE RELEASE CONTACT:
Eugene G. Ballard
Senior Vice President-
Chief Financial Officer
and Treasurer
203-629-3000
W. R. BERKLEY CORPORATION ANNOUNCES THIRD QUARTER RESULTS
Greenwich, CT, October 25, 2001 -- W. R. Berkley Corporation (NYSE: BER)
today reported that operating income, excluding losses related to the September
11th event, was $11 million, or 36 cents per diluted share, for the third
quarter ended September 30, 2001 compared with $9 million, or 34 cents per
diluted share, for the same period in 2000. For the first nine months, operating
income, excluding losses related to the September 11th event, was $38 million,
or $1.35 per diluted share, in 2001, compared with operating income of $25
million, or 96 cents per diluted share, in 2000. Operating income represents net
income excluding discontinued businesses, realized investment gains and
restructuring charges.
After-tax losses related to the September 11th event were $23 million, or
78 cents per diluted share. Pretax losses from the September 11th event are
estimated to be $35 million, net of reinsurance recoveries. This represents the
company's maximum retention for property and business interruption coverages and
its estimated policy limits on risks exposed to casualty losses.
The company also announced plans to discontinue two lines of business that
are not likely to achieve a satisfactory return on capital. The company is
withdrawing from the personal lines business, both homeowners and private
passenger automobile. The company will stop writing new personal
W. R. Berkley Corporation Page 2
--------------------------------------------------------------------------------
lines policies immediately and will not renew existing policies, subject to all
regulatory requirements. In addition, the company is discontinuing the
alternative market division of its reinsurance business. The after-tax loss
related to the discontinued businesses was $40 million, or $1.37 per diluted
share, in the third quarter of 2001.
The net loss for the third quarter of 2001 was $47 million, or $1.63 per
diluted share, compared with net income of $7 million, or 27 cents per diluted
share, for the third quarter of 2000. The company reported a net loss of $27
million, or 97 cents per diluted share, for the first nine months of 2001,
compared with net income of $18 million, or 70 cents per diluted share, in the
first nine months of 2000.
Net premiums written for on-going business increased 31 percent to $418
million for the third quarter of 2001 from $319 million for the year-earlier
period. The premium growth was led by the company's specialty business, which
reported a 92 percent increase in net premiums written for the quarter. Net
premiums written for on-going business increased 25 percent in the first nine
months of 2001 to $1,187 million.
Due to lower returns available for the merger arbitrage business as well as
lower returns on investment of new cash flow, net investment income decreased by
$10 million to $47 million in the third quarter of 2001. For the first nine
months net investment income was $148 million in 2001 compared with $153 million
in the year-earlier period.
Commenting on the company's results, William R. Berkley, chairman and chief
executive officer, said: "We continue to examine each area of our business as we
seek to achieve a 15 percent rate of return on capital. As part of this
strategy, we have decided to eliminate our personal lines business and the
alternative markets division of our reinsurance business. As a result, we expect
our regional and reinsurance segments to be in a better position to achieve our
targeted returns as well as to substantially reduce our weather-related
volatility.
W. R. Berkley Corporation Page 3
--------------------------------------------------------------------------------
"These changes should substantially improve our returns in 2002 and beyond.
Our specialty and facultative reinsurance businesses are generating price
increases in excess of 30 percent. Our regional business continues to generate
price increases for commercial lines in the low double digits, and we are
finally seeing significant price increases in the treaty reinsurance
marketplace. Our alternative markets segment continues to deliver exceptional
results, and our international unit is still delivering solid returns, in spite
of local economic conditions. We expect to show an underwriting profit next
year.
"We expect 2002 to be the first year in many that we approach our targeted
15 percent after tax return while at the same time producing substantial premium
growth. Based on the current marketplace, we would expect 2003 to be
substantially better," Mr. Berkley concluded.
Founded in 1967, W.R. Berkley Corporation is an insurance holding company
that operates in five segments of property casualty insurance business:
specialty insurance, alternative markets, reinsurance, regional property
casualty insurance and international.
This is a "Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995. Any forward-looking statements contained herein, including
those related to the Company's performance for the year 2001 and beyond, are
based upon the Company's historical performance and on current plans, estimates
and expectations. 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, the
impact of competition, product demand and pricing, claims development and the
process of estimating reserves, catastrophe and storm losses, the preliminary
nature of the World Trade Center related losses and the complexity involved, the
impact of the company's withdrawal from personal lines business, legislative and
regulatory developments, investment results, availability and use of
reinsurance, and other risks detailed from time to time in the Company's filings
with the Securities and Exchange Commission. These risks could cause the
Company's actual results for the year 2001 and beyond to differ materially from
those expressed in any forward-looking statement made by or on behalf of the
Company. 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.
W. R. Berkley Corporation Page 4
--------------------------------------------------------------------------------
Operating Results Before September 11th Loss
On-going Business Segments
(Amounts in thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
Specialty Insurance:
Gross premiums written $ 153,693 $ 98,601 $ 427,357 $ 302,990
Net premiums written 134,901 70,239 366,632 207,930
Premiums earned 108,662 66,739 275,895 198,887
Pre-tax operating income 7,849 5,942 28,015 17,691
Loss ratio 71.1% 73.7% 68.8% 74.6%
Expense ratio 30.3% 37.0% 32.2% 34.8%
GAAP combined ratio 101.4% 110.7% 101.0% 109.4%
Alternative Markets:
Gross premiums written $ 48,451 $ 31,794 $ 127,365 $ 86,601
Net premiums written 42,877 28,407 113,275 77,987
Premiums earned 31,481 22,927 84,851 62,656
Pre-tax operating income 8,095 10,139 28,009 24,392
Loss ratio 79.2% 69.0% 75.0% 69.3%
Expense ratio 29.1% 41.4% 31.8% 40.6%
GAAP combined ratio 108.3% 110.4% 106.8% 109.9%
Reinsurance (1):
Gross premiums written $ 82,592 $ 80,802 $ 234,295 $ 236,613
Net premiums written 56,119 66,963 167,174 200,606
Premiums earned 53,341 72,855 167,243 216,190
Pre-tax operating income 5,773 6,876 13,300 19,498
Loss ratio 69.2% 74.3% 71.5% 72.8%
Expense ratio 38.0% 33.5% 39.2% 34.3%
GAAP combined ratio 107.2% 107.8% 110.7% 107.1%
Regional Insurance (1):
Gross premiums written $ 173,471 $ 145,568 $ 511,168 $ 447,033
Net premiums written 147,170 124,181 432,878 382,231
Premiums earned 137,809 128,382 401,177 382,666
Pre-tax operating income (loss) 5,799 (548) 21,763 5,327
Loss ratio 69.2% 78.9% 69.4% 75.8%
Expense ratio 35.8% 33.6% 35.1% 33.9%
GAAP combined ratio 105.0% 112.5% 104.5% 109.7%
International:
Gross premiums written $ 42,484 $ 35,241 $ 123,181 $ 102,038
Net premiums written 36,895 28,798 107,536 82,557
Premiums earned 36,286 27,110 102,036 76,355
Pre-tax operating income 2,824 1,499 9,130 3,508
Loss ratio 59.2% 58.8% 61.2% 62.1%
Expense ratio 40.9% 48.7% 39.6% 43.5%
GAAP combined ratio 100.1% 107.5% 100.8% 105.6%
Total:
Gross premiums written $ 500,691 $ 392,006 $1,423,366 $1,175,275
Net premiums written 417,962 318,588 1,187,495 951,311
Premiums earned 367,579 318,013 1,031,202 936,754
Pre-tax operating income 30,340 23,908 100,217 70,416
Loss ratio 69.6% 74.3% 69.2% 73.3%
Expense ratio 34.4% 36.2% 35.1% 35.4%
GAAP combined ratio 104.0% 110.5% 104.3% 108.7%
(1) In the third quarter of 2001, the Company re-aligned the operating segments to reflect the
discontinuance of the personal lines and alternative markets reinsurance businesses.
W. R. Berkley Corporation Page 5
--------------------------------------------------------------------------------
Operating Results Including September 11th Loss
(Amounts in thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
On-going business segments:
Gross premiums written $ 500,691 $ 392,006 $1,423,366 $1,175,275
Net premiums written 417,962 318,588 1,187,495 951,311
Premiums earned 367,579 318,013 1,031,202 936,754
Pre-tax operating income (loss) (4,660) 23,908 65,217 70,416
Loss ratio 79.2% 74.3% 72.6% 73.3%
Expense ratio 34.4% 36.2% 35.1% 35.4%
GAAP combined ratio 113.6% 110.5% 107.7% 108.7%
Discontinued businesses:
-----------------------
Personal lines:
Gross premiums written $ 38,507 $ 36,570 $ 112,065 $ 110,308
Net premiums written 34,729 34,199 101,828 102,667
Premiums earned 33,442 34,250 102,091 106,966
Pre-tax operating loss (2,874) (2,557) (14,640) (9,307)
Loss ratio 86.7% 75.5% 88.7% 75.4%
Expense ratio 24.1% 34.1% 27.8% 35.4%
GAAP combined ratio 110.8% 109.6% 116.5% 110.8%
Alternative markets reinsurance:
Gross premiums written $ 20,906 $ 25,114 $ 79,107 $ 64,775
Net premiums written 16,536 23,297 65,703 57,948
Premiums earned 24,374 18,569 89,097 47,963
Pre-tax operating loss (58,484) (1,150) (63,149) (1,157)
Loss ratio 293.3% 75.8% 134.9% 75.3%
Expense ratio 53.6% 39.8% 41.9% 37.1%
GAAP combined ratio 346.9% 115.6% 176.8% 112.4%
Total
Gross premiums written $ 560,104 $ 453,690 $1,614,538 $1,350,358
Net premiums written 469,227 376,084 1,355,026 1,111,926
Premiums earned 425,395 370,832 1,222,390 1,091,683
Pre-tax operating income (loss) (66,018) 20,201 (12,572) 59,952
Loss ratio 92.0% 74.5% 78.5% 73.6%
Expense ratio 34.7% 36.1% 35.0% 35.5%
GAAP combined ratio 126.7% 110.6% 113.5% 109.1%
W. R. Berkley Corporation Page 6
--------------------------------------------------------------------------------
After Tax Earnings
(Amounts in thousands except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
After Tax Earnings: 2001 2000 2001 2000
------------------ ---- ---- ---- ----
Operating income before September 11th
loss (1) $ 10,587 $ 8,793 $ 38,272 $ 24,855
September 11th loss (22,750) -- (22,750) --
---------- ---------- ---------- ----------
Operating income (loss) (2) (12,163) 8,793 15,522 24,855
Discontinued businesses (3) (39,883) (2,410) (50,562) (6,802)
Restructuring charge -- -- -- (1,203)
Realized gains 4,800 709 7,658 1,224
---------- ---------- ---------- ----------
Net income (loss) $ (47,246) $ 7,092 $ (27,382) $ 18,074
========== ========== ========== ==========
Earnings (loss) per diluted shares:
-----------------------------------
Operating income before September 11th
loss $ 0.36 $ 0.34 $ 1.35 $ 0.96
September 11th loss (0.78) -- (0.80) --
---------- ---------- ---------- ----------
Operating income (loss) (0.42) 0.34 0.55 0.96
Discontinued businesses (1.37) (.09) (1.78) (0.26)
Restructuring charge -- -- -- (0.05)
Realized gains 0.16 0.02 0.26 0.05
---------- ---------- ---------- ----------
Net income (loss) $ (1.63) $ 0.27 $ (0.97) $ 0.70
========== ========== ========== ==========
Cash flow from operations before change in
trading account $ 85,756 $ 65,185 $ 128,904 $ 79,429
========== ========== ========== ==========
(1) Catastrophe losses for ongoing business, excluding losses related to the September 11th event, were
$10 million pretax, or 21 cents per diluted share after-tax, in the third quarter of 2001 compared
with $12 million pretax, or 29 cents per diluted share after-tax, in the year-earlier period.
Catastrophe losses for on-going business, excluding losses related to the September 11th event, were
$32 million pretax, or 70 cents per diluted share after-tax, in the first nine months of 2001
compared with $26 million pretax, or 66 cents per diluted share after-tax, in the year-earlier
period.
(2) Operating income represents net income before discontinued businesses, realized investment gains and
restructuring charges.
(3) Catastrophe losses for the discontinued businesses were $7 million pre-tax, or 16 cents per diluted
share after-tax, in the third quarter of 2001 compared with $8 million pre-tax, or 21 cents per
diluted share after-tax, in the year-earlier period. Catastrophe losses for the discontinued
businesses were $25 million pre-tax, or 55 cents per diluted share after-tax, in the first nine
months of 2001 compared with $17 million pre-tax, or 44 cents per diluted share after-tax, in the
year-earlier period.
W. R. Berkley Corporation Page 7
--------------------------------------------------------------------------------
Balance Sheet Information
(Amounts in thousands except per share data)
September 30, December 31,
2001 2000
------------- -------------
Total investments (1) $ 3,441,418 $ 3,111,602
Total assets 5,481,312 5,022,070
Reserves for losses 2,701,487 2,533,917
Long-term debt 370,456 370,158
Trust preferred securities 198,199 198,169
Stockholders' equity (2) 809,535 680,896
Shares outstanding 29,070 25,656
Stockholders' equity per share 27.85 26.54
(1) Investments include trading account receivable from brokers and clearing
organizations and trading securities sold but not yet purchased.
(2) Stockholders' equity includes after-tax unrealized investment gains of
$57.4 million and $19.4 million as of September 30, 2001 and December 31,
2000, respectively.
W. R. Berkley Corporation Page 8
--------------------------------------------------------------------------------
Consolidated Financial Summary
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
(Amounts in thousands except per share data)
Revenues:
Net premiums written $ 469,227 $ 376,084 $1,355,026 $1,111,926
Change in unearned premiums (43,832) (5,252) (132,636) (20,243)
---------- ---------- ---------- ----------
Premiums earned 425,395 370,832 1,222,390 1,091,683
Net investment income 46,802 56,513 147,600 153,025
Service fees 19,849 15,818 56,552 51,535
Realized investment gains 7,385 1,092 11,782 1,885
Other income 641 1,702 1,898 3,086
---------- ---------- ---------- ----------
Total revenues 500,072 445,957 1,440,222 1,301,214
Expenses:
Losses and loss expenses 391,477 276,344 959,598 803,596
Other operating expenses 170,864 150,829 492,806 444,406
Interest expense 11,570 11,670 34,432 35,954
Restructuring charge -- -- -- 1,850
---------- ---------- ---------- ----------
Total expenses 573,911 438,843 1,486,836 1,285,806
Income (loss) before income taxes
And minority interest (73,839) 7,114 (46,614) 15,408
Income tax benefit 27,117 869 21,559 4,085
Minority interest (524) (891) (2,327) (1,419)
---------- ---------- ---------- ----------
Net income (loss) $ (47,246) $ 7,092 $ (27,382) $ 18,074
========== ========== ========== ==========
Earnings (loss) per share:
Basic $ (1.63) $ .28 $ (.97) $ .71
========== ========== ========== ==========
Diluted $ (1.63) $ .27 $ (.97) $ .70
========== ========== ========== ==========
Average shares outstanding:
Basic 29,049 25,476 28,337 25,571
========== ========== ========== ==========
Diluted 30,053 25,807 29,603 25,769
========== ========== ========== ==========
Supplemental after-tax earnings information:
--------------------------------------------
Operating income before September
11th loss............................. $ 10,587 $ 8,793 $ 38,272 $ 24,855
September 11th loss..................... (22,750) -- (22,750) --
---------- ---------- ---------- ----------
Operating income (loss) (1)........... (12,163) 8,793 15,522 24,855
Discontinued businesses................. (39,883) (2,410) (50,562) (6,802)
Restructuring charge.................... -- -- -- (1,203)
Realized gains.......................... 4,800 709 7,658 1,224
---------- ---------- ---------- ----------
Net income (loss)..................... $ (47,246) $ 7,092 $ (27,382) $ 18,074
========== ========== ========== ==========
(1) Operating income represents net income before discontinued businesses, realized investment gains and
restructuring charges.