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 SECOND QUARTER RESULTS
NET OPERATING INCOME UP 26% TO $130 MILLION
GREENWICH, CT, JULY 25, 2005 -- W. R. BERKLEY CORPORATION (NYSE: BER)
today reported net income for the second quarter of 2005 of $134 million, or
$1.01 per share, a 22% increase from $109 million, or 83 cents per share, a year
ago. Net operating income for the second quarter of 2005 increased 26% to $130
million, or 98 cents per share, compared with $103 million, or 78 cents per
share, for the second quarter of 2004. 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. All per share amounts in this release reflect the 3-for-2 common stock
split effected on April 8, 2005.
W. R. Berkley Corporation Page 2
Summary Financial Data
(Amounts in thousands, except per share data)
Second Quarter Six Months
-------------- ----------
2005 2004 2005 2004
---- ---- ---- ----
Gross premiums written $1,249,812 $1,130,696 $2,592,902 $2,347,420
Net premiums written 1,135,011 1,016,177 2,323,179 2,102,879
Net income 134,079 109,484 254,950 224,912
Net income per diluted share 1.01 0.83 1.91 1.71
Net operating income 130,310 103,084 251,274 199,891
Net operating income per diluted share $ 0.98 $ 0.78 $ 1.89 $ 1.52
W. R. Berkley Corporation Page 3
Second quarter highlights included:
- Gross premiums written rose to $1.25 billion, an increase of 11%
from the comparable quarter of 2004.
- Net investment income increased 36% to $94 million.
- GAAP combined ratio improved to 89.2% from 89.8% in the prior year
period.
- The paid loss ratio continued to be excellent at 35.6%.
Commenting on the Company's performance, William R. Berkley, chairman and
chief executive officer, said: "The company had an outstanding quarter. We
continued to have premium growth in excess of 10% and our profitability was
outstanding. On an annualized basis, our return on equity exceeded 24%.
"We believe that while market conditions are no longer improving, our
results continue to reflect the current level of adequate pricing. Each segment
of our business recorded an underwriting profit as well as an increase in the
level of premiums written.
"We are enthusiastic about our ability to deliver returns in excess of
20%, not just through the balance of this year, but into next year. While the
current operating environment lacks the robust expansion opportunities of the
prior years, we believe that outstanding returns should continue to be
available," 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 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 2005 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, natural and man-made catastrophic losses, including 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 ("TRIA") and the expected expiration of
TRIA on December 31, 2005, 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 2005 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 5
Consolidated Financial Summary
(Amounts in thousands, except per share data)
Second Quarter Six Months
-------------- ----------
2005 2004 2005 2004
---- ---- ---- ----
Revenues:
Net premiums written $ 1,135,011 $ 1,016,177 $ 2,323,179 $ 2,102,879
Change in unearned premiums (43,138) (11,794) (191,331) (146,964)
----------- ----------- ----------- -----------
Premiums earned 1,091,873 1,004,383 2,131,848 1,955,915
Net investment income 93,622 68,798 183,180 137,287
Service fees 28,662 27,707 58,961 55,946
Realized investment gains 6,126 9,860 5,765 39,767
Other income 501 6 1,018 544
----------- ----------- ----------- -----------
Total revenues 1,220,784 1,110,754 2,380,772 2,189,459
----------- ----------- ----------- -----------
Expenses:
Losses and loss expenses 675,326 626,578 1,316,472 1,227,083
Other operating expenses 334,600 310,476 661,405 602,254
Interest expense 19,217 15,754 37,342 31,525
----------- ----------- ----------- -----------
Total expenses 1,029,143 952,808 2,015,219 1,860,862
----------- ----------- ----------- -----------
Income before income taxes
and minority interest 191,641 157,946 365,553 328,597
Income tax expense (56,095) (48,166) (108,824) (102,192)
Minority interest (1,467) (296) (1,779) (766)
----------- ----------- ----------- -----------
Net income before change in accounting
principle 134,079 109,484 254,950 225,639
Cumulative effect of change in accounting
principle, net of taxes -- -- -- (727)
----------- ----------- ----------- -----------
Net income $ 134,079 $ 109,484 $ 254,950 $ 224,912
=========== =========== =========== ===========
Net income per share:
Basic (1) $ 1.06 $ 0.87 $ 2.01 $ 1.79
Diluted (1) $ 1.01 $ 0.83 $ 1.91 $ 1.71
Average shares outstanding:
Basic (1) 126,867 125,843 126,713 125,678
Diluted (1) 133,368 131,820 133,277 131,888
(1) Per share amounts reflect the 3-for-2 common stock split effected on
April 8, 2005.
W. R. Berkley Corporation Page 6
Operating Results by Segment
(Amounts in thousands, except ratios (1))
Second Quarter Six Months
-------------- ----------
2005 2004 2005 2004
---- ---- ---- ----
Specialty:
Gross premiums written $499,125 $411,111 $940,331 $777,664
Net premiums written 477,441 389,914 890,856 734,669
Premiums earned 414,573 357,184 803,972 700,289
Pre-tax income 82,781 74,769 164,686 139,952
Loss ratio 62.9% 60.5% 62.4% 61.7%
Expense ratio 25.1% 25.4% 25.0% 25.3%
GAAP combined ratio 88.0% 85.9% 87.4% 87.0%
Regional (2):
Gross premiums written $356,491 $331,474 $723,864 $668,017
Net premiums written 305,005 287,906 618,830 578,544
Premiums earned 292,037 263,996 572,336 511,967
Pre-tax income 48,592 37,405 107,655 83,199
Loss ratio 57.6% 58.7% 55.4% 56.9%
Expense ratio 30.4% 31.1% 30.4% 31.0%
GAAP combined ratio 88.0% 89.8% 85.8% 87.9%
Alternative Markets:
Gross premiums written $135,081 $133,279 $408,605 $379,740
Net premiums written 112,705 111,816 340,725 324,967
Premiums earned 155,408 143,641 304,908 275,775
Pre-tax income 52,553 32,821 93,336 64,509
Loss ratio 60.7% 68.4% 64.2% 69.7%
Expense ratio 21.0% 22.8% 21.0% 21.1%
GAAP combined ratio 81.7% 91.2% 85.2% 90.8%
Reinsurance:
Gross premiums written $236,907 $235,184 $475,888 $481,821
Net premiums written 219,660 208,700 432,777 428,383
Premiums earned 210,571 221,869 411,584 432,515
Pre-tax income 29,208 30,122 51,240 51,437
Loss ratio 66.8% 66.6% 67.7% 67.8%
Expense ratio 30.3% 28.3% 31.0% 29.0%
GAAP combined ratio 97.1% 94.9% 98.7% 96.8%
International:
Gross premiums written $ 22,208 $ 19,648 $ 44,214 $ 40,178
Net premiums written 20,200 17,841 39,991 36,316
Premiums earned 19,284 17,693 39,048 35,369
Pre-tax income 2,530 666 4,658 2,257
Loss ratio 56.9% 51.9% 58.2% 51.6%
Expense ratio 35.6% 36.2% 35.5% 35.8%
GAAP combined ratio 92.5% 88.1% 93.7% 87.4%
(Continued)
W. R. Berkley Corporation Page 7
Operating Results by Segment (continued)
(Amounts in thousands, except ratios (1))
Second Quarter Six Months
-------------- ----------
2005 2004 2005 2004
---- ---- ---- ----
Corporate and Eliminations:
Realized investment gains $ 6,126 $ 9,860 $ 5,765 $ 39,767
Interest and other, net (30,149) (27,697) (61,787) (52,524)
Pre-tax loss (24,023) (17,837) (56,022) (12,757)
Total:
Gross premiums written $ 1,249,812 $ 1,130,696 $ 2,592,902 $ 2,347,420
Net premiums written 1,135,011 1,016,177 2,323,179 2,102,879
Premiums earned 1,091,873 1,004,383 2,131,848 1,955,915
Pre-tax income 191,641 157,946 365,553 328,597
Loss ratio 61.9% 62.4% 61.8% 62.7%
Expense ratio 27.3% 27.4% 27.4% 27.3%
GAAP combined ratio 89.2% 89.8% 89.2% 90.0%
(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. Combined ratio is the
sum of loss ratio and expense ratio.
(2) For the second quarters of 2005 and 2004, weather-related losses were
$12 million and $15 million, respectively. For the first six months of
2005 and 2004, weather-related losses were $18 million and $19 million,
respectively.
W. R. Berkley Corporation Page 8
Selected Balance Sheet Information
(Amounts in thousands, except per share data)
June 30, December 31,
2005 2004
---- ----
Total investments (1) $ 9,283,923 $ 8,341,944
Total assets 12,841,736 11,451,033
Reserves for losses 6,045,690 5,449,611
Senior notes and other debt 967,090 808,264
Junior subordinated debentures 208,308 208,286
Stockholders' equity (2) 2,361,266 2,109,702
Shares outstanding 126,987 126,409
Stockholders' equity per share 18.59 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 foreign exchange of $110 million and $112 million as of
June 30, 2005 and December 31, 2004, respectively.
W. R. Berkley Corporation Page 9
Supplemental Information
(Amounts in thousands)
Second Quarter Six Months
-------------- ----------
Reconciliation of net operating
income to net income: 2005 2004 2005 2004
---- ---- ---- ----
Net operating income (1) $ 130,310 $ 103,084 $ 251,274 $ 199,891
Realized investment gains, net of taxes 3,769 6,400 3,676 25,748
Cumulative effect of change
in accounting principle -- -- -- (727)
--------- --------- --------- ---------
Net income $ 134,079 $ 109,484 $ 254,950 $ 224,912
========= ========= ========= =========
Return on equity:
Net Income (2) 25.4% 26.0% 24.2% 26.7%
Net operating income (2) 24.7% 24.5% 23.8% 23.8%
Cash flow:
Cash flow from operations $ 318,387 $ 391,146 $ 741,994 $ 669,636
Cash flow from operations before cash transfers
to/from trading account (3) $ 368,387 $ 341,146 $ 816,994 $ 719,636
(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 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.