W. R. Berkley Corporation
475 Steamboat Road NEWS
Greenwich, Connecticut 06830 RELEASE
(203) 629-3000
FOR IMMEDIATE RELEASE CONTACT: Eugene G. Ballard
Chief Financial Officer
(203)629-3000
W. R. BERKLEY CORPORATION REPORTS
RECORD NET INCOME OF $545 MILLION FOR 2005
Fourth Quarter 2005 Net Income Up 44% to $167 Million
Greenwich, CT, February 13, 2006 -- W. R. Berkley Corporation (NYSE: BER)
today reported net income for 2005 of $545 million, or $4.08 per share, a 24%
increase from $438 million, or $3.31 cents per share, for 2004. Net operating
income for 2005 increased 31% to $534 million, or $4.00 per share, compared with
$408 million, or $3.08 per share, for 2004. Net operating income is a non-GAAP
financial measure defined by the Company as net income excluding realized
investment gains and losses and the effect of a change in accounting principle
in 2004. All per share amounts in this release reflect the 3-for-2 common stock
split effected on April 8, 2005.
Net income for the fourth quarter of 2005 was $167 million, or $1.25 per
share, a 44% increase from $116 million, or $0.88 per share, a year ago. Net
operating income for the fourth quarter of 2005 increased 45% to $165 million,
or $1.23 per share, compared with $114 million, or $0.86 per share, for the
fourth quarter of 2004.
W. R. Berkley Corporation Page 2
Summary Financial Data
(Amounts in thousands, except per share data)
Fourth Quarter Full Year
--------------------------- ---------------------------
2005 2004 2005 2004
---- ---- ---- ----
Gross premiums written $1,255,967 $1,202,993 $5,087,983 $4,724,128
Net premiums written 1,150,267 1,104,902 4,604,574 4,266,361
Net income 167,424 116,121 544,892 438,105
Net income per diluted share 1.25 0.88 4.08 3.31
Net operating income 165,294 113,710 533,889 407,526
Net operating income per diluted share $ 1.23 $ 0.86 $ 4.00 $ 3.08
Full year 2005 highlights included:
o Return on equity was 25.8%.
o GAAP combined ratio improved to 89.3% from 90.4% in the prior year.
o Net premiums written rose to $4.6 billion, an increase of 8% compared with
2004.
o Cash flow from operations increased to $1.7 billion.
o Net investment income grew 39% to $404 million.
o The paid loss ratio, at 36.7%, was below 40% for the third consecutive
year.
o The Company formed four new operating companies: Berkley Aviation, LLC;
Watch Hill Fac Management, LLC; Berkley Accident and Health, LLC; and
Berkley Net Underwriters, LLC, as well as expanded its operations into
Spain, Brazil and Hong Kong.
Commenting on the Company's activities, William R. Berkley, chairman and
chief executive officer, said: "The Company had another outstanding year. Our
return on equity was 25.8%, while cash flow, underwriting profits and premium
volume all reached record levels. The strength of our balance sheet positions us
to take advantage of opportunities and to deal with any uncertainties. Our
consistently strong performance is a reflection of the effort and commitment of
our people.
"We have started several new units which we expect to have a meaningful
impact on our business by the end of 2006. We anticipate the Company's overall
growth in 2006 to be 6% - 12%, with our new units gaining further traction in
2007. The current environment is rationally competitive and satisfactory returns
are available in most of our lines of business.
W. R. Berkley Corporation Page 3
"We continue to believe returns in excess of 20% will be obtainable in 2006
and have become more optimistic in our view that returns in the area of 20% will
be available in 2007," 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 Monday, February 13,
2006 at 2:00 p.m. ET. 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 2006 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 increased level of our retention, natural and man-made catastrophic losses,
including hurricanes and as a result of terrorist activities, the impact of
competition, the availability of reinsurance, exposure as to coverage for
terrorist acts, our retention under The Terrorism Risk Insurance Act of 2002, as
amended ("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 these 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 2006 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.
# # #
W. R. Berkley Corporation Page 4
Consolidated Financial Summary
(Amounts in thousands, except per share data)
Fourth Quarter Full Year
------------------------------ ------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Revenues:
Net premiums written $ 1,150,267 $ 1,104,902 $ 4,604,574 $ 4,266,361
Change in unearned premiums 47,648 (33,805) (143,639) (205,269)
----------- ----------- ----------- -----------
Premiums earned 1,197,915 1,071,097 4,460,935 4,061,092
Net investment income 113,280 82,286 403,962 291,295
Service fees 26,672 25,378 110,697 109,344
Realized investment gains 3,324 3,709 17,209 48,268
Other income 2,699 770 4,036 2,236
----------- ----------- ----------- -----------
Total revenues 1,343,890 1,183,240 4,996,839 4,512,235
----------- ----------- ----------- -----------
Expenses:
Losses and loss expenses 723,088 657,693 2,781,802 2,559,310
Other operating expenses 358,207 336,343 1,358,574 1,247,989
Interest expense 24,952 18,191 85,926 66,423
----------- ----------- ----------- -----------
Total expenses 1,106,247 1,012,227 4,226,302 3,873,722
----------- ----------- ----------- -----------
Income before income taxes
and minority interest 237,643 171,013 770,537 638,513
Income tax expense (69,157) (53,398) (222,521) (196,235)
Minority interest (1,062) (1,494) (3,124) (3,446)
----------- ----------- ----------- -----------
Net income before change in accounting
principle 167,424 116,121 544,892 438,832
----------- ----------- ----------- -----------
Cumulative effect of change in accounting
principle, net of taxes -- -- -- (727)
----------- ----------- ----------- -----------
Net income $ 167,424 $ 116,121 $ 544,892 $ 438,105
=========== =========== =========== ===========
Net income per share:
Basic (1) $ 1.31 $ 0.92 $ 4.29 $ 3.48
=========== =========== =========== ===========
Diluted (1) $ 1.25 $ 0.88 $ 4.08 $ 3.31
=========== =========== =========== ===========
Average shares outstanding:
Basic (1) 127,456 126,285 127,022 125,941
Diluted (1) 134,302 132,621 133,617 132,272
(1) Per share amounts reflect the 3-for-2 common stock split effected on April
8, 2005.
W. R. Berkley Corporation Page 5
Operating Results by Segment
(Amounts in thousands, except ratios (1))
Fourth Quarter Full Year
---------------------------- ----------------------------
2005 2004 2005 2004
---- ---- ---- ----
Specialty (2)(3)(4):
Gross premiums written $ 515,734 $ 448,948 $1,932,821 $1,607,974
Net premiums written 485,834 421,343 1,827,865 1,497,567
Premiums earned 477,991 366,374 1,682,193 1,391,652
Pre-tax income 97,918 72,218 345,896 275,689
Loss ratio 62.1% 61.7% 62.4% 61.7%
Expense ratio 25.2% 26.1% 25.1% 25.6%
GAAP combined ratio 87.3% 87.8% 87.5% 87.3%
Regional (2):
Gross premiums written $ 322,920 $ 307,002 $1,384,574 $1,295,659
Net premiums written 286,318 273,768 1,196,487 1,128,800
Premiums earned 302,588 282,065 1,173,174 1,068,552
Pre-tax income 59,302 59,372 216,495 184,152
Loss ratio 54.7% 51.4% 55.8% 55.7%
Expense ratio 30.9% 31.8% 30.6% 31.2%
GAAP combined ratio 85.6% 83.2% 86.4% 86.9%
Alternative Markets (3)(4):
Gross premiums written $ 158,157 $ 157,947 $ 781,411 $ 756,349
Net premiums written 141,844 135,046 669,774 640,491
Premiums earned 181,178 164,903 663,478 605,996
Pre-tax income 80,903 34,006 238,462 133,438
Loss ratio 51.4% 70.9% 59.4% 70.6%
Expense ratio 18.4% 21.5% 20.1% 21.2%
GAAP combined ratio 69.8% 92.4% 79.5% 91.8%
Reinsurance (2)(3):
Gross premiums written $ 180,559 $ 213,361 $ 770,781 $ 868,208
Net premiums written 167,206 206,023 719,540 823,772
Premiums earned 187,934 212,280 754,097 841,451
Pre-tax income 24,283 21,433 63,606 85,995
Loss ratio 70.9% 65.9% 74.1% 69.5%
Expense ratio 30.1% 33.1% 30.1% 29.1%
GAAP combined ratio 101.0% 99.0% 104.2% 98.6%
International (3):
Gross premiums written $ 78,597 $ 75,735 $ 218,396 $ 195,938
Net premiums written 69,065 68,722 190,908 175,731
Premiums earned 48,224 45,475 187,993 153,441
Pre-tax income 5,274 7,078 20,890 18,790
Loss ratio 71.6% 66.1% 66.5% 61.0%
Expense ratio 28.1% 27.8% 29.6% 30.0%
GAAP combined ratio 99.7% 93.9% 96.1% 91.0%
W. R. Berkley Corporation Page 6
Operating Results by Segment (continued)
(Amounts in thousands, except ratios (1))
Fourth Quarter Full Year
------------------------------- -------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Corporate and Eliminations:
Realized investment gains $ 3,324 $ 3,709 $ 17,209 $ 48,268
Interest and other, net (33,361) (26,803) (132,021) (107,819)
Pre-tax loss (30,037) (23,094) (114,812) (59,551)
Total:
Gross premiums written $ 1,255,967 $ 1,202,993 $ 5,087,983 $ 4,724,128
Net premiums written $ 1,150,267 $ 1,104,902 $ 4,604,574 $ 4,266,361
Premiums earned $ 1,197,915 $ 1,071,097 $ 4,460,935 $ 4,061,092
Pre-tax income $ 237,643 $ 171,013 $ 770,537 $ 638,513
Loss ratio 60.4% 61.4% 62.4% 63.0%
Expense ratio 26.6% 28.5% 26.9% 27.4%
GAAP combined ratio 87.0% 89.9% 89.3% 90.4%
(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 fourth quarters of 2005 and 2004, weather-related losses were $26
million and $2 million, respectively, and included hurricane losses of $24
million and $2 million, respectively. Fourth quarter 2005 weather-related
losses by segment were $13 million for reinsurance, $8 million for
specialty and $5 million for regional. For the full year of 2005 and 2004,
weather-related losses were $99 million and $60 million, respectively, and
included hurricane losses of $74 million and $34 million, respectively.
(3) Prior period operating results by segment have been reclassified to reflect
a change in the segment designation for the following companies: Berkley
Underwriting Partners, LLC from reinsurance to specialty; W. R. Berkley
Insurance (Europe), Limited from specialty to international; and Berkley
Medical Excess Underwriters, LLC from specialty to alternative markets.
(4) As of December 31, 2005, the Company reported an accrual for earned but
unbilled audit premiums. The Company's policy is to recognize audit
premiums when they are reliably determinable. In prior periods, audit
premiums were not considered to be reliably determinable until such audits
were completed and billed. In 2005, the Company developed sufficient
information to begin recognizing unbilled audit premiums as such premiums
are earned. The accrual for earned but unbilled audit premiums increased
net premiums written and premiums earned by $45 million for specialty and
$12 million for alternative markets in the fourth quarter and for the full
year of 2005. The pre-tax income related to the additional premiums was
$6.4 million for specialty and $4.8 million for alternative markets during
such periods.
W. R. Berkley Corporation Page 7
Selected Balance Sheet Information
(Amounts in thousands, except per share data)
December 31, December 31,
2005 2004
------------ -----------
Total investments (1) $10,378,250 $ 8,341,944
Total assets 13,896,287 11,451,033
Reserves for losses and loss expenses 6,711,760 5,449,611
Senior notes and other debt 967,818 808,264
Junior subordinated debentures 450,634 208,286
Stockholders' equity (2) 2,567,077 2,109,702
Shares outstanding, net of treasury stock 127,510 126,409
Stockholders' equity per share 20.13 16.69
(1) Total investments include cash 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 $25 million and $112 million as of
December 31, 2005 and December 31, 2004, respectively.
W. R. Berkley Corporation Page 8
Supplemental Information
(Amounts in thousands)
Fourth Quarter Full Year
Reconciliation of net operating ------------------------------ ------------------------------
income to net income: 2005 2004 2005 2004
---- ---- ---- ----
Net operating income (1) $ 165,294 $ 113,710 $ 533,889 $ 407,526
Realized investment gains, net of taxes 2,130 2,411 11,003 31,306
Cumulative effect of change
in accounting principle -- -- -- (727)
----------- ----------- ----------- -----------
Net income $ 167,424 $ 116,121 $ 544,892 $ 438,105
=========== =========== =========== ===========
Return on equity:
Net income (2) 31.7% 27.6% 25.8% 26.0%
Net operating income (2) 31.3% 27.0% 25.3% 24.2%
Cash flow:
Cash flow from operations $ 364,676 $ 486,516 $ 1,719,751 $ 1,619,689
Cash flow from operations before cash transfers
to/from trading account (3) $ 364,676 $ 486,516 $ 1,799,778 $ 1,692,689
(1) Net operating income is a non-GAAP financial measure defined by the Company
as net income excluding gains and losses on investments and the effect of a
change in accounting principle in 2004. Management believes that excluding
investment gains and losses, which result primarily from changes in general
economic conditions, and the change in accounting principle in 2004
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 from operations before cash transfers to/from trading account 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.