W. R. Berkley Corporation NEWS
475 Steamboat Road RELEASE
Greenwich, Connecticut 06830
(203) 629-3000
FOR IMMEDIATE RELEASE CONTACT: Eugene G. Ballard
Chief Financial Officer
(203)-629-3000
W. R. BERKLEY CORPORATION REPORTS SHARPLY HIGHER
FOURTH QUARTER EARNINGS
Greenwich, CT, February 10, 2003 -- W. R. Berkley Corporation (NYSE: BER)
today reported fourth quarter 2002 operating income of $53 million, or 96 cents
per share, compared with an operating loss of $15 million, or 32 cents per
share, a year ago. For full year 2002, operating income was $161 million, or
$3.04 per share, compared with break-even operating results for 2001.
The following table summarizes the fourth quarter and year-to-date
financial performance (amounts in thousands, except per share data):
For the Quarter For the Year
Ended December 31, Ended December 31,
2002 2001 2002 2001
---- ---- ---- ----
Gross premiums written $ 881,404 $ 593,928 $ 3,208,227 $ 2,208,466
Net premiums written 787,412 503,070 2,710,490 1,858,096
Earnings (loss) amounts after
taxes and minority interest:
Operating income (loss)(a) 53,040 (15,342) 160,655 180
Realized investment gains (losses) 11,924 (10,606) 12,223 (3,207)
Foreign currency gains 9,552 61 9,110 320
Discontinued business (1,785) (38,277) (6,943) (88,839)
----------- ----------- ----------- ----------
Net income (loss) $ 72,731 $ (64,164) $ 175,045 $ (91,546)
=========== =========== =========== ==========
Per share amounts (b):
Operating income (loss) (a) $ 0.96 $ (0.32) $ 3.04 $ --
Net income (loss) $ 1.32 $ (1.36) $ 3.31 $ (2.09)
(a) Operating income (loss) represents net income (loss) before discontinued
business, realized investment gains and losses and foreign currency gains.
W.R. Berkley Corporation Page 2
(b) Per share amounts reflect 4,715,000 shares issued on November 22, 2002 and
the 3-for-2 common stock split affected on July 2, 2002.
Highlights for the 2002 fourth quarter and full year compared with the
prior year periods:
o Gross premiums written for continuing business grew 56% in the fourth
quarter to $885 million.
o GAAP combined ratio for continuing business was 93.3% in the fourth
quarter compared with a combined ratio of 112.4% in the prior year
quarter.
o The paid loss ratio for continuing business decreased to 43.5% in the
fourth quarter from 61.0% in the prior year quarter, and the
paid-to-incurred loss ratio decreased to 67.8% in 2002 from 76.8% in
2001.
o Cash flow from operations increased to $223 million in the fourth
quarter compared with $81 million in the prior year quarter. For the
full year, cash flow from operations increased to $766 million from
$210 million in 2001.
Commenting on the Company's results, William R. Berkley, chairman and chief
executive officer, said: "Our excellent results continue to reflect strategic
decisions made over the past several years to consolidate our operations and
focus on our most profitable lines of business. This focus also resulted in the
early recognition of past reserve deficiencies, and thus, we are able to reflect
in our current results the benefits of higher prices and improved terms and
conditions.
W.R. Berkley Corporation Page 3
"We are continuing our cautious reserving practices to guard against the
possibility of future adverse reserve development. We believe our current
financial statements reflect a prudent view in an uncertain world. The earned
premiums reported on our 2002 financial statements only partially reflect the
increased pricing that was in effect in 2002. If in fact year-end price levels
had been in effect for the full year and earned in that year, our 2002 results
would have been substantially better than those reported. As a result, we expect
significantly better results in 2003.
"This year, even with lower investment returns, we achieved a return on
beginning capital of over 18%, and a return of 17% on an operating basis. We
look ahead with continued enthusiasm and believe overall industry problems will
result in a continuation of the current pricing environment of increasing rates
at least through 2004," 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.
W.R. Berkley Corporation Page 4
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 2003 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 2003 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
(Amounts in thousands, except per share data)
For the Quarter For the Year
Ended December 31, Ended December 31,
---------------------------- ----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Net premiums written $ 787,412 $ 503,070 $ 2,710,490 $ 1,858,096
Change in unearned premiums (94,510) (44,991) (457,963) (177,627)
----------- ----------- ----------- -----------
Premiums earned 692,902 458,079 2,252,527 1,680,469
Net investment income 50,843 47,421 187,875 195,021
Service fees 23,328 19,219 86,095 75,771
Realized investment gains (losses) 17,026 (23,420) 15,214 (12,252)
Foreign currency gains 22,902 144 21,856 758
Other income 1,191 132 2,517 2,030
----------- ----------- ----------- -----------
Total revenues 808,192 501,575 2,566,084 1,941,797
Expenses:
Losses and loss expenses 448,092 420,902 1,463,971 1,380,500
Other operating expenses 236,697 170,970 797,205 663,776
Interest expense 11,417 11,287 45,475 45,719
Restructuring charge -- 3,196 -- 3,196
----------- ----------- ----------- -----------
Total expenses 696,206 606,355 2,306,651 2,093,191
Income (loss) before income taxes
and minority interest 111,986 (104,780) 259,433 (151,394)
Income tax (expense) benefit (32,884) 35,102 (84,139) 56,661
Minority interest (6,371) 5,514 (249) 3,187
----------- ----------- ----------- -----------
Net income (loss) $ 72,731 $ (64,164) $ 175,045 $ (91,546)
=========== =========== =========== ===========
Net income (loss) per share:
Basic $ 1.37 $ (1.36) $ 3.44 $ (2.09)
Diluted 1.32 $ (1.36) $ 3.31 $ (2.09)
Average shares outstanding:
Basic 53,273 47,276 50,885 43,708
Diluted 55,062 49,665 52,923 45,833
W.R. Berkley Corporation Page 6
Supplemental After-Tax Earnings
(Amounts in thousands, except per share data)
For the Quarter For the Year
Ended December 31, Ended December 31,
------------------------ ------------------------
2002 2001 2002 2001
---- ---- ---- ----
Earnings (loss) amounts after taxes
and minority interest:
Operating income (loss) (1) (2) $ 53,040 $ (15,342) $ 160,655 $ 180
Realized investment gains (losses) 11,924 (10,606) 12,223 (3,207)
Foreign currency gains (3) 9,552 61 9,110 320
Discontinued business (4) (1,785) (38,277) (6,943) (88,839)
--------- --------- --------- ---------
Net income (loss) $ 72,731 $ (64,164) $ 175,045 $ (91,546)
========= ========= ========= =========
Earnings (loss) per diluted share:
Operating income (loss) (1) (2) $ 0.96 $ (0.32) $ 3.04 $ --
Realized investment gains (losses) 0.22 (0.23) 0.23 (0.07)
Foreign currency gains (3) 0.17 -- 0.17 0.01
Discontinued business (4) (0.03) (0.81) (0.13) (2.03)
--------- --------- --------- ---------
Net income (loss) $ 1.32 $ (1.36) $ 3.31 $ (2.09)
========= ========= ========= =========
Cash flow from operations before
change in trading account $ 223,108 $ 81,013 $ 766,024 $ 209,917
(1) Operating income reflects weather-related losses of $6.1 million pre-tax, or 7 cents per
share after-tax, for the quarter ended December 31, 2002 compared with $5.2 million
pre-tax, or 7 cents per share after-tax, in the year-earlier period. For full year 2002,
operating income reflects weather-related losses of $41.2 million pre-tax, or 51 cents per
share after-tax, compared with $37.1 million pre-tax, or 55 cents per share after-tax, in
the year-earlier period.
(2) Fourth quarter 2001 operating income reflects an increase in treaty reinsurance reserves of
$32.8 million pre-tax, or 45 cents per share after-tax, and losses related to the Enron
bankruptcy of $18.5 million pre-tax, or 25 cents per share after-tax. Full year 2001
operating income also reflects World Trade Center losses of $35.0 million pre-tax, or 52
cents per share after-tax.
(3) Foreign currency gains represent net gains reported by the company's foreign subsidiaries
and result primarily from translating into Argentine pesos, invested assets and life
insurance liabilities denominated in US dollars, and of settling certain life insurance
contracts for less than their stated value following the devaluation of the Argentine peso.
The company also reported an unrealized foreign exchange loss of $15.2 million (net of
minority interest) as a result of the translation of the net assets of its Argentine
subsidiary to US dollars. Under generally accepted accounting principles, unrealized
foreign exchange losses are reported directly to stockholders' equity.
(4) The 2001 results for the discontinued business reflect loss reserve increases of $52.5
million pre-tax, or 72 cents per share after-tax, in the fourth quarter and $102.5 million
pre-tax, or $1.52 per share after-tax, for the full year. The 2001 results for the
discontinued business also include a fourth quarter restructuring charge of $2.1 million
after-tax, or 4 cents per share.
W.R. Berkley Corporation Page 7
Operating Results by Segment
(Amounts in thousands, except ratios)
For the Quarter For the Year
Ended December 31, Ended December 31,
------------------------ -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Specialty Insurance (1):
Gross premiums written $ 255,188 $ 184,007 $ 939,324 $ 611,364
Net premiums written 256,804 160,870 861,693 527,502
Premiums earned 224,190 125,716 711,577 401,611
Pre-tax operating income (loss) 37,460 11,170 119,417 30,185
Loss ratio 66.5% 70.1% 64.0% 71.4%
Expense ratio 23.3% 28.8% 26.3% 31.1%
GAAP combined ratio 89.8% 98.9% 90.3% 102.5%
Alternative Markets:
Gross premiums written $ 100,151 $ 42,074 $ 348,954 $ 169,439
Net premiums written 89,586 38,667 305,357 151,942
Premiums earned 77,657 38,322 235,558 123,173
Pre-tax operating income 17,842 6,246 62,703 34,255
Loss ratio 66.2% 80.0% 66.7% 76.5%
Expense ratio 28.1% 31.3% 29.6% 32.9%
GAAP combined ratio 94.3% 111.3% 96.3% 109.4%
Reinsurance (2):
Gross premiums written $ 271,233 $ 98,087 $ 858,179 $ 332,382
Net premiums written 221,822 69,610 680,205 236,784
Premiums earned 175,614 69,142 459,406 236,385
Pre-tax operating income (loss) 6,106 (44,334) 31,676 (57,034)
Loss ratio 75.1% 146.3% 73.0% 104.4%
Expense ratio 28.5% 31.0% 29.9% 36.8%
GAAP combined ratio 103.6% 177.3% 102.9% 141.2%
Regional Insurance:
Gross premiums written $ 243,933 $ 193,833 $ 955,150 $ 705,001
Net premiums written 200,861 165,271 776,577 598,149
Premiums earned 193,318 154,573 705,385 555,750
Pre-tax operating income 36,349 18,636 104,085 40,399
Loss ratio 53.6% 61.6% 59.1% 67.2%
Expense ratio 33.5% 34.8% 32.4% 35.0%
GAAP combined ratio 87.1% 96.4% 91.5% 102.2%
International:
Gross premiums written $ 14,029 $ 47,419 $ 87,265 $ 170,600
Net premiums written 13,954 42,554 79,313 150,090
Premiums earned 14,927 38,874 89,284 140,909
Pre-tax operating income (loss) 1,018 3,020 (1,757) 12,149
Loss ratio 28.6% 62.1% 54.2% 61.4%
Expense ratio 70.6% 43.2% 51.3% 40.6%
GAAP combined ratio 99.2% 105.3% 105.5% 102.0%
W.R. Berkley Corporation Page 8
Operating Results by Segment (continued)
(Amounts in thousands, except ratios)
For the Quarter For the Year
Ended December 31, Ended December 31,
------------------------ -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Total Continuing Segments:
Gross premiums written $ 884,534 $ 565,420 $3,188,872 $1,988,786
Net premiums written 783,027 476,972 2,703,145 1,664,467
Premiums earned 685,706 426,627 2,201,210 1,457,828
Pre-tax operating income (loss) 98,775 (5,262) 316,124 59,954
Loss ratio 64.2% 79.5% 64.2% 74.6%
Expense ratio 29.1% 32.9% 30.4% 34.6%
GAAP combined ratio 93.3% 112.4% 94.6% 109.2%
Discontinued Business (3):
Gross premiums written $ (3,130) $28,508 $ 19,355 $ 219,680
Net premiums written 4,385 26,098 7,345 193,629
Premiums earned 7,196 31,452 51,317 222,641
Pre-tax segment loss (2,746) (55,692) (10,682) (133,480)
Loss ratio 110.4% 259.8% 98.7% 131.4%
Expense ratio 36.7% 24.4% 30.8% 33.0%
GAAP combined ratio 147.1% 284.2% 129.5% 164.4%
Total Segments:
Gross premiums written $ 881,404 $ 593,928 $3,208,227 $2,208,466
Net premiums written 787,412 503,070 2,710,490 1,858,096
Premiums earned 692,902 458,079 2,252,527 1,680,469
Pre-tax segment income (loss) 96,029 (60,954) 305,442 (73,526)
Loss ratio 64.7% 91.9% 65.0% 82.1%
Expense ratio 29.2% 32.3% 30.4% 34.4%
GAAP combined ratio 93.9% 124.2% 95.4% 116.5%
(1) Full year 2001 pre-tax operating income for the specialty segment reflects World Trade
Center losses of $9.0 million.
(2) In the fourth quarter of 2002, the company changed its presentation of reinsurance premiums
assumed from Lloyd's syndicates to reflect the company's proportionate share of the
syndicates' reinsurance costs as ceded premiums and its share of the syndicates' brokerage
cost as underwriting expenses. Previously, this business was presented similar to the
manner it is reported by the syndicates, with reinsurance and brokerage costs netted
against premiums. Amounts reported in prior quarters of 2002 were reclassified to reflect
this change. The change had no effect on underwriting profits or net income for the current
or prior quarters.
Fourth quarter 2001 pre-tax operating income for the reinsurance segment reflects an
increase in reinsurance reserves of $32.8 million and losses related to the Enron
W.R. Berkley Corporation Page 9
bankruptcy of $18.5 million. Full year 2001 pre-tax operating income for the reinsurance
segment also reflects World Trade Center losses of $26.0 million.
(3) Pre-tax results in 2001 for the discontinued business segment reflect loss reserve
increases of $52.5 million in the fourth quarter and $102.5 million for full year.
Balance Sheet Information
(Amounts in thousands, except per share data)
December 31, December 31,
2002 2001
---- ----
Total investments (1) $4,607,853 $3,598,053
Total assets 7,031,323 5,633,509
Reserves for losses and loss expenses 3,210,632 2,817,682
Long-term debt 362,985 370,554
Trust preferred securities 198,251 198,210
Stockholders' equity (2)(3) 1,335,199 931,595
Shares outstanding 55,223 49,862
Stockholders' equity per share 24.18 18.68
(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 and
unrealized foreign exchange losses of $105 million and $37.3 million as of
December 31, 2002 and December 31, 2001, respectively.
(3) Stockholders' equity reflects proceeds of $167 million from the issuance of
4,715,000 shares of common stock on November 22, 2002.