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W. R. Berkley Corporation
475 Steamboat Road NEWS
Greenwich, Connecticut 06830 RELEASE
(203) 629-3000
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FOR IMMEDIATE RELEASE CONTACT: Eugene G. Ballard
Chief Financial Officer
203-629-3000
W. R. BERKLEY CORPORATION REPORTS SHARPLY HIGHER
THIRD QUARTER EARNINGS
Greenwich, CT, October 29, 2002 -- W. R. Berkley Corporation (NYSE: BER)
today reported third quarter operating income of $42 million, or 81 cents per
share, compared with an operating loss of $12 million, or 28 cents per share, a
year ago. For the first nine months of 2002, operating income was $108 million,
or $2.06 per share, up from $16 million, or 37 cents per share, a year ago. Per
share amounts have been adjusted to reflect the 3-for-2 common stock split
effected on July 2, 2002.
The following table summarizes the third quarter and year-to-date financial
performance (amounts in thousands, except per share data):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Gross premiums written $801,612 $ 560,104 $2,268,823 $ 1,614,538
Net premiums written 678,990 469,227 1,897,078 1,355,026
Net income (loss) 40,544 (47,246) 102,314 (27,382)
Operating income (loss)(a) 41,944 (12,163) 107,616 15,522
Operating income excluding
WTC losses (b) 41,944 10,587 107,616 38,272
Per share amounts:
Net income (loss) $ 0.78 $ (1.08) $ 1.96 $ (0.64)
Operating income (loss)(a) 0.81 (0.28) 2.06 0.37
Operating income excluding
WTC losses (b) 0.81 0.24 2.06 0.89
(a) Operating income (loss) represents net income (loss) before discontinued
businesses and realized investment gains and losses.
(b) Adjusted to exclude World Trade Center losses of $23 million, or 52 cents
per share, in the third quarter and first nine months of 2001.
W. R. Berkley Corporation Page 2
Highlights for the 2002 third quarter compared with the prior year quarter:
o Gross premiums written for continuing business segments grew 58% to
$789 million.
o Gross premiums written increased 91% for facultative reinsurance and
81% for treaty reinsurance in the US. In addition, $35 million of new
business was written as a result of our quota share reinsurance with
Lloyd's.
o Gross premiums written for specialty insurance grew 62% to $249
million.
o GAAP combined ratio for continuing operations was 94.7% compared with
a combined ratio in 2001 of 104.0% (excluding World Trade Center
losses).
o GAAP combined ratio for the regional segment improved 13.2 points to
91.8%.
o The continuing operations paid loss ratio decreased to 45.0% in 2002
from 59.8% in 2001, and the paid-to-incurred ratio decreased to 69.4%
in 2002 from 85.9% (excluding World Trade Center losses) in 2001.
o Cash flow from operations increased to $303 million compared with $86
million in the third quarter of 2001.
Commenting on the Company's results, William R. Berkley, chairman and chief
executive officer, said: "We are extremely pleased with the continued excellent
performance of our business. We are on track to meet or exceed a 15% return on
stockholders' equity this year and anticipate achieving at least an 18% return
next year in spite of the current interest rate environment.
"Our latest financial results are only a partial reflection of the
profitability of the 2002 underwriting year. As a result of how earned premiums
are reported, each financial year is a blend of underwriting
W. R. Berkley Corporation Page 3
results from the current year and prior years. Our underwriting year results
have improved substantially from 2000 through the current period. Therefore, we
believe that the next twelve months financial results will show continued
improvement over the 2002 period.
"There are many inherent uncertainties in predicting financial results for
an insurance company. First, one can never be certain of loss reserves, which
are by their nature based on judgment. We believe our reserves are adequate.
Second, we cannot predict natural and man-made catastrophes or their impact on
our financial results. A third issue is the level of investment returns that
will be available in the future.
"Prices of new business in every segment of the Company are approaching
levels that should give us adequate returns. Fortunately, we have limited
exposure to many of the insurance industry's significant problems. The Company
has had no material asbestos-related problems. Due to the structure of our
business, we are not purchasing large amounts of reinsurance and, consequently,
are not negatively impacted by increasing reinsurance costs. In addition, we
generally started increasing prices before our competition and are
well-positioned to take advantage of the improving market conditions. We are
also fortunate to have outstanding people who are fully capable of optimizing
our results. We have every reason to continue to be enthusiastic about our
future," Mr. Berkley concluded.
W. R. Berkley Corporation Page 4
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
statements related to our outlook for the industry and for our performance for
the year 2002 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 ultimate results of the various pending arbitration proceedings, the
increased level of our retention, natural and man-made catastrophic losses,
including as a result of terrorist activities, the impact of competition, the
availability of reinsurance, the ability of our reinsurers to pay reinsurance
recoverables owed to us, investment results and potential impairment of invested
assets, exchange rate and political risks, legislative and regulatory
developments, changes in the ratings assigned to us by ratings agencies,
uncertainty as to our reinsurance coverage for terrorist acts, the availability
of dividends from our insurance company subsidiaries, our successful integration
of acquired companies or investment 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 2002 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 5
Consolidated Financial Summary
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ----
(Amounts in thousands, except per share data)
Revenues:
Net premiums written $ 678,990 $ 469,227 $ 1,897,078 $ 1,355,026
Change in unearned premiums (116,519) (43,832) (347,453) (132,636)
--------- --------- ----------- -----------
Premiums earned 562,471 425,395 1,549,625 1,222,390
Net investment income 48,316 46,802 137,032 147,600
Service fees 21,650 19,849 62,767 56,552
Realized investment gains (losses) 628 7,385 (2,858) 11,782
Other income 1,006 641 1,326 1,898
--------- --------- ----------- -----------
Total revenues 634,071 500,072 1,747,892 1,440,222
Expenses:
Losses and loss expenses 368,763 391,477 1,015,879 959,598
Other operating expenses 194,182 170,864 550,508 492,806
Interest expense 11,593 11,570 34,058 34,432
--------- --------- ----------- -----------
Total expenses 574,538 573,911 1,600,445 1,486,836
Income (loss) before income
taxes and minority interest 59,533 (73,839) 147,447 (46,614)
Income tax (expense) benefit (19,470) 27,117 (51,255) 21,559
Minority interest 481 (524) 6,122 (2,327)
--------- --------- ----------- -----------
Net income (loss) $ 40,544 $ (47,246) $ 102,314 $ (27,382)
========= ========= =========== ===========
Net income (loss) per share:
Basic $ 0.81 $ (1.08) $ 2.04 $ (0.64)
Diluted 0.78 (1.08) 1.96 (0.64)
Average shares outstanding:
Basic 50,196 43,574 50,080 42,506
Diluted 51,990 45,080 52,328 44,405
Supplemental Information:
Operating income (loss) (1) $ 41,944 $ (12,163) $ 107,616 $ 15,522
Operating income (loss) per share (1) 0.81 (0.28) 2.06 0.37
(1) Operating income (loss) represents net income (loss) before discontinued businesses and
realized investment gains and losses.
W. R. Berkley Corporation Page 6
Supplemental After-Tax Earnings
(Amounts in thousands, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- -----------------------
2002 2001 2002 2001
---- ---- ---- ----
After-tax earnings (loss) amounts:
- ----------------------------------
Operating income (loss) (1)(2) $ 41,944 $(12,163) $ 107,616 $ 15,522
Discontinued businesses (3) (2,133) (39,883) (5,158) (50,562)
Realized investment gains (losses),
net of minority interest 733 4,800 (144) 7,658
--------- -------- --------- ---------
Net income (loss) $ 40,544 $(47,246) $ 102,314 $ (27,382)
========= ======== ========= =========
Earnings (loss) per diluted share:
- ----------------------------------
Operating income (loss)(1)(2) $ 0.81 $ (0.28) $ 2.06 $ 0.37
Discontinued businesses (3) (0.04) (0.91) (0.10) (1.19)
Realized investment gains, net of
minority interest 0.01 .11 -- 0.18
--------- -------- --------- ---------
Net income (loss) $ 0.78 $ (1.08) $ 1.96 $ (0.64)
========= ======== ========= =========
Cash flow from operations before
change in trading account $ 303,462 $ 85,756 $ 542,916 $ 128,904
(1) Operating income (loss) represents net income (loss) before discontinued businesses and
realized investment gains and losses.
(2) For the third quarter of 2002, weather-related losses for continuing business segments were $12
million pre-tax, or 15 cents per share after-tax, compared with $10 million pre-tax, or 14
cents per share after-tax, in the year-earlier period. For the first nine months of 2002,
weather-related losses for continuing business segments were $35 million pre-tax, or 43 cents
per share after-tax, compared with $32 million pre-tax, or 47 cents per share after-tax, in
the year-earlier period. World Trade Center losses were $35 million pre-tax, or 52 cents per
share after-tax, in the third quarter of 2001.
(3) Represents after-tax loss from discontinued personal lines and alternative markets reinsurance
businesses. For the third quarter of 2002, weather-related losses for discontinued business
segment were $3 million pre-tax, or 4 cents per share after-tax, compared with $7 million
pre-tax, or 11 cents per share after-tax, in the year-earlier period. For the first nine
months of 2002, weather-related losses for discontinued business segment were $8 million
pre-tax, or 10 cents per share after-tax, compared with $25 million pre-tax, or 38 cents per
share after-tax, in the year-earlier period. The third quarter of 2001 also reflects an
increase in loss reserves for the discontinued alternative markets reinsurance business of
$35 million, after-tax.
W. R. Berkley Corporation Page 7
Operating Results by Segment
(Amounts in thousands, except ratios)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Specialty Insurance (2):
Gross premiums written $ 249,098 $ 153,693 $ 684,136 $ 427,357
Net premiums written 222,064 134,901 604,889 366,632
Premiums earned 185,189 108,662 487,387 275,895
Pre-tax operating income (loss) 30,686 (1,151) 81,957 19,015
Loss ratio 64.2% 79.4% 62.9% 72.1%
Expense ratio 26.2% 30.3% 27.6% 32.2%
GAAP combined ratio 90.4% 109.7% 90.5% 104.3%
Alternative Markets:
Gross premiums written $ 102,763 $ 48,451 $ 248,803 $ 127,365
Net premiums written 89,134 42,877 215,771 113,275
Premiums earned 61,077 31,481 157,901 84,851
Pre-tax operating income 16,880 8,095 44,861 28,009
Loss ratio 66.2% 79.2% 67.0% 75.0%
Expense ratio 31.9% 29.1% 30.3% 31.8%
GAAP combined ratio 98.1% 108.3% 97.3% 106.8%
Reinsurance (1)(2):
Gross premiums written $ 188,321 $ 82,592 $ 528,946 $ 234,295
Net premiums written 155,316 56,119 432,383 167,174
Premiums earned 108,677 53,341 273,792 167,243
Pre-tax operating income (loss) 10,140 (20,227) 25,570 (12,700)
Loss ratio 75.8% 117.9% 74.3% 87.0%
Expense ratio 25.3% 38.0% 28.2% 39.2%
GAAP combined ratio 101.1% 155.9% 102.5% 126.2%
Regional Insurance (1):
Gross premiums written $ 236,212 $ 173,471 $ 711,217 $ 511,168
Net premiums written 199,358 147,170 575,716 432,878
Premiums earned 183,424 137,809 512,067 401,177
Pre-tax operating income 26,736 5,799 67,736 21,763
Loss ratio 58.8% 69.2% 61.2% 69.4%
Expense ratio 33.0% 35.8% 32.0% 35.1%
GAAP combined ratio 91.8% 105.0% 93.2% 104.5%
International:
Gross premiums written $ 13,045 $ 42,484 $ 73,236 $ 123,181
Net premiums written 13,103 36,895 65,359 107,536
Premiums earned 14,967 36,286 74,357 102,036
Pre-tax operating income (loss) (2,241) 2,824 (2,775) 9,130
Loss ratio 62.1% 59.2% 59.4% 61.2%
Expense ratio 59.4% 40.9% 47.4% 39.6%
GAAP combined ratio 121.5% 100.1% 106.8% 100.8%
Total Continuing Segments (1):
Gross premiums written $ 789,439 $ 500,691 $ 2,246,338 $ 1,423,366
Net premiums written 678,975 417,962 1,894,118 1,187,495
Premiums earned 553,334 367,579 1,505,504 1,031,202
Pre-tax operating income (loss) 82,201 (4,660) 217,349 65,217
Loss ratio 64.9% 79.2% 64.6% 72.6%
Expense ratio 29.8% 34.4% 30.5% 35.1%
GAAP combined ratio 94.7% 113.6% 95.1% 107.7%
W. R. Berkley Corporation Page 8
(1) Segment information for 2001 has been restated to reflect the
discontinuance of the personal lines and alternative markets reinsurance
businesses.
(2) 2001 World Trade Center losses were $9 million for the specialty segment
and $26 million for the reinsurance segment.
W. R. Berkley Corporation Page 9
Operating Results by Segment (Continued)
(Amounts in thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- ----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Discontinued business:
Gross premiums written $ 12,173 $ 59,413 $ 22,485 $ 191,172
Net premiums written 15 51,265 2,960 167,531
Premiums earned 9,137 57,816 44,121 191,188
Pre-tax loss (3,282) (61,358) (7,936) (77,789)
Loss ratio 107.5% 173.8% 96.8% 110.2%
Expense ratio 37.2% 36.5% 29.8% 34.4%
GAAP combined ratio 144.7% 210.3% 126.6% 144.6%
Total Segments:
Gross premiums written $ 801,612 $ 560,104 $2,268,823 $ 1,614,538
Net premiums written 678,990 469,227 1,897,078 1,355,026
Premiums earned 562,471 425,395 1,549,625 1,222,390
Pre-tax segment income (loss) (1) 78,919 (66,018) 209,413 (12,572)
Loss ratio 65.6% 92.0% 65.6% 78.5%
Expense ratio 29.9% 34.7% 30.5% 35.0%
GAAP combined ratio 95.5% 126.7% 96.1% 113.5%
Balance Sheet Information
(Amounts in thousands, except per share data)
September 30, December 31,
2002 2001
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Total investments (2) $ 4,227,909 $ 3,598,053
Total assets 6,488,714 5,633,509
Reserves for losses and loss expenses 3,003,247 2,817,682
Long-term debt 362,877 370,554
Trust preferred securities 198,241 198,210
Stockholders' equity (3) 1,110,829 931,595
Shares outstanding 50,216 49,862
Stockholders' equity per share 22.12 18.68
(1) Pre-tax segment income (loss) represents net income (loss) before income
taxes, realized investment gains and losses and corporate expenses.
(2) Investments include trading account receivable from brokers and clearing
organizations and trading securities sold but not yet purchased.
(3) Stockholders' equity includes after-tax unrealized gains from investments
and foreign exchange of $120 million and $37 million as of September 30,
2002 and December 31, 2001, respectively.