EXHIBIT 99.1
W. R. BERKLEY CORPORATION NEWS RELEASE
475 STEAMBOAT ROAD
GREENWICH, CONNECTICUT 06830
(203) 629-3000
FOR IMMEDIATE RELEASE CONTACT: Eugene G. Ballard
Chief Financial Officer
(203)629-3000
W. R. BERKLEY CORPORATION REPORTS 61% INCREASE
IN FIRST QUARTER NET INCOME TO $115 MILLION
GREENWICH, CT, APRIL 27, 2004 -- W. R. BERKLEY CORPORATION (NYSE: BER)
today reported net income for the first quarter of 2004 of $115 million, or
$1.32 per share, a 61% increase from $72 million, or $.83 per share, a year ago.
Net operating income for the first quarter of 2004 was $97 million, or $1.11 per
share, compared with $63 million, or $.73 per share, for the first quarter of
2003. Net operating income is a non-GAAP financial measure defined by the
Company as net income excluding gains and losses on investments and foreign
currencies and the effects of changes in accounting principles.
SUMMARY FINANCIAL DATA
(Amounts in thousands, except per share data)
First Quarter
-------------
2004 2003
---- ----
Gross premiums written ....................... $1,216,724 $1,066,473
Net premiums written ......................... 1,086,702 892,059
Net income ................................... 115,428 71,703
Net income per diluted share (1) ............. 1.32 0.83
Net operating income ......................... 96,807 62,836
Net operating income per diluted share (1) ... $ 1.11 $ 0.73
(1) Per share amounts for 2003 have been adjusted to reflect the 3-for-2
common stock split effected on August 27, 2003.
W. R. Berkley Corporation Page 2
First quarter highlights included:
- Net income increased 61% to $115 million compared with $72 million
in the year-earlier period.
- Net premiums written rose to $1,087 million, an increase of 22% from
the comparable quarter of 2003.
- GAAP combined ratio improved by 1.6 percentage points to 90.2% from
91.8% in the prior year period.
- The paid loss ratio decreased to 35.6% from 39.8% in the prior year
quarter.
- Investment income increased 32% to $68 million.
Commenting on the Company's performance, William R. Berkley, chairman and
chief executive officer, said: "We continue to be pleased with our results.
Using almost any performance metric, we are meeting or exceeding our objectives
in terms of return on equity, profitability and growth. Our direct premiums grew
by 21% year-over-year, with more than half a result of increased prices. The
overall growth in gross premiums was somewhat less due to the planned reduction
of premiums written under qualifying quota share reinsurance agreements. On an
annualized basis, we had an overall return on equity of over 27% and an
operating return on equity of 23%.
"The investment side of our business is focused on managing the balance
between capital exposed to interest rate volatility and adequate investment
returns. We have managed these risks by maintaining our cash and short-term
securities at a high level and reducing the duration of our portfolio to less
than four years. We continue to search for opportunities to increase the
portfolio's overall return.
"We believe the Company will continue to produce record results for the
next two years," Mr. Berkley concluded.
Founded in 1967, W. R. Berkley Corporation is an insurance holding
company that operates in five segments of the property casualty insurance
business: specialty insurance, regional property casualty insurance,
alternative markets, reinsurance and international.
W. R. Berkley Corporation Page 3
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 2004 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,
increases in the 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 risks, including those
relating to fixed income securities, merger arbitrage investments, and other
equity securities, exchange rate and political risks relating to our
international operations, legislative and regulatory developments, 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
2004 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)
FIRST QUARTER
-------------
2004 2003
----------- -----------
Revenues:
Net premiums written ..................... $ 1,086,702 $ 892,059
Change in unearned premiums .............. (135,170) (191,933)
----------- -----------
Premiums earned ........................ 951,532 700,126
Net investment income .................... 68,489 51,760
Service fees ............................. 28,239 25,469
Realized investment gains ................ 29,903 14,604
Foreign currency gains (losses) .......... 4 (1,238)
Other income ............................. 538 692
----------- -----------
Total revenues ......................... 1,078,705 791,413
Expenses:
Losses and loss expenses ................. 600,505 443,886
Other operating expenses ................. 291,778 230,853
Interest expense ......................... 15,771 12,095
----------- -----------
Total expenses ......................... 908,054 686,834
Income before income taxes
and minority interest ................ 170,651 104,579
Income tax expense ......................... (54,026) (32,986)
Minority interest .......................... (470) 110
----------- -----------
Net income before change in accounting
principle .............................. 116,155 71,703
Cumulative effect of change in accounting
principle, net of taxes .................. (727) --
----------- -----------
Net income ............................... $ 115,428 $ 71,703
=========== ===========
Net income per share:
Basic .................................... $ 1.38 $ 0.87
Diluted .................................. $ 1.32 $ 0.83
Average shares outstanding:
Basic .................................... 83,674 82,874
Diluted .................................. 87,589 85,992
W. R. Berkley Corporation Page 5
Operating Results by Segment
(Amounts in thousands, except ratios (1))
First Quarter
-------------
2004 2003
-------- --------
Specialty:
Gross premiums written .. $366,553 $321,306
Net premiums written .... 344,755 286,701
Premiums earned ......... 343,105 241,627
Pre-tax income .......... 65,183 48,541
Loss ratio .............. 62.9% 61.7%
Expense ratio ........... 25.2% 24.9%
GAAP combined ratio ..... 88.1% 86.6%
Regional (2):
Gross premiums written .. $336,543 $295,858
Net premiums written .... 290,638 237,754
Premiums earned ......... 247,971 198,205
Pre-tax income .......... 45,794 32,195
Loss ratio .............. 55.0% 57.9%
Expense ratio ........... 30.9% 31.5%
GAAP combined ratio ..... 85.9% 89.4%
Alternative Markets:
Gross premiums written .. $246,461 $170,181
Net premiums written .... 213,151 137,182
Premiums earned ......... 132,134 82,974
Pre-tax income .......... 31,688 21,949
Loss ratio .............. 71.2% 67.3%
Expense ratio ........... 19.2% 24.6%
GAAP combined ratio ..... 90.4% 91.9%
Reinsurance:
Gross premiums written .. $246,637 $262,392
Net premiums written .... 219,683 214,799
Premiums earned ......... 210,646 162,477
Pre-tax income .......... 21,315 9,714
Loss ratio .............. 69.0% 71.9%
Expense ratio ........... 29.7% 30.4%
GAAP combined ratio ..... 98.7% 102.3%
International:
Gross premiums written .. $ 20,530 $ 16,736
Net premiums written .... 18,475 15,623
Premiums earned ......... 17,676 14,843
Pre-tax income .......... 1,591 1,235
Loss ratio .............. 49.7% 49.2%
Expense ratio ........... 40.1% 45.4%
GAAP combined ratio ..... 89.8% 94.6%
(Continued)
W. R. Berkley Corporation Page 6
Operating Results by Segment (continued)
(Amounts in thousands, except ratios (1))
First Quarter
-------------
2004 2003
---- ----
Corporate and Eliminations:
Realized investment and foreign currency gains $ 29,907 $ 13,366
Interest and other, net (24,827) (22,421)
Pre-tax income (loss) 5,080 (9,055)
Total:
Gross premiums written $ 1,216,724 $ 1,066,473
Net premiums written 1,086,702 892,059
Premiums earned 951,532 700,126
Pre-tax income 170,651 104,579
Loss ratio 63.1% 63.4%
Expense ratio 27.1% 28.4%
GAAP combined ratio 90.2% 91.8%
(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.
Combined ratio is the sum of loss ratio and expense ratio.
(2) Weather-related losses for the regional segment were $4 million in the
first quarter of both 2004 and 2003.
W. R. Berkley Corporation Page 7
Supplemental Information
(Amounts in thousands, except per share data)
First Quarter
-------------
Reconciliation of net operating income to net income 2004 2003
---- ----
Net operating income (1) $ 96,807 $ 62,836
Realized investment and currency gain 19,348 8,867
Cumulative effect of change in accounting principle (2) (727) --
--------- ---------
Net income $ 115,428 $ 71,703
========= =========
Return on equity (3) 27.4% 21.5%
Cash flow from operations before cash transfers
to trading account (4) $ 379,524 $ 255,597
March 31, December 31,
Selected balance sheet information 2004 2003
---- ----
Total investments (5) $ 6,916,089 $ 6,480,713
Total assets 10,072,309 9,334,685
Reserves for losses 4,466,113 4,192,091
Debt 659,492 659,208
Junior subordinated debentures 208,252 193,336
Stockholders' equity (6) 1,811,494 1,682,562
Shares outstanding 83,802 83,538
Stockholders' equity per share 21.62 20.14
(1) Net operating income is a non-GAAP financial measure defined by the
Company as net income excluding gains and losses on investments and
foreign currencies and the effects of changes in accounting principles.
Management believes that excluding investment and foreign currency gains,
which result primarily from changes in general economic conditions,
provides a useful indicator of trends in the Company's underlying
operations.
(2) In the first quarter of 2004, the Company adopted the consolidation
principles of FASB Interpretation No. 46R, "Consolidation of Variable
Interest Entities." As a result of adopting FIN 46R, the Company
deconsolidated the W. R. Berkley Capital Trust (the "Trust"). The Company
owns preferred securities of the Trust that were previously accounted for
at the date of purchase as an extinguishment of debt and eliminated in
consolidation. The impact of de-consolidating the Trust was to increase
fixed maturity securities by $13,787,000 and to increase junior
subordinated debentures by $14,906,000. The difference between these two
amounts, which was $727,000 after income taxes, was reported on the
Company's consolidated statement of operations as a cumulative effect of
change in accounting principle.
(3) Return on equity represents net income expressed on an annualized basis as
a percentage of beginning of year stockholders' equity.
(4) Cash flow from operations before cash transfers to 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 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. Cash transferred to the
arbitrage trading account was $100 million in the first quarter of 2004.
Cash flow from operations after transfers to trading account was
$279,524,000 and $255,597,000 in the first quarter of 2004 and 2003,
respectively.
(5) Investments include accounts receivable from brokers and clearing
organizations and securities sold but not yet purchased.
W. R. Berkley Corporation Page 8
(6) Stockholders' equity includes after-tax unrealized gains from investments
and foreign exchange of $135 million and $120 million as of March 31, 2004
and December 31, 2003, respectively.