W. R. Berkley Corporation Reports Fourth Quarter Results

GREENWICH, Conn.--(BUSINESS WIRE)--

W. R. Berkley Corporation WRB today reported operating income for the fourth quarter of 2015 of $115 million, or $0.89 per share.

Summary Financial Data (Amounts in thousands, except per share data)
		Fourth Quarter								Full Year
		2015				2014				2015				2014
Gross premiums written		$	1,764,209			$	1,705,814			$	7,249,993			$	7,062,838
Net premiums written		1,499,151				1,455,909				6,189,515				5,996,947
Net income		109,745				110,711				503,694				648,884
Net income per diluted share		0.85				0.83				3.87				4.86
Operating income (1)		115,062				97,274				443,683				483,230
Operating income per diluted share		0.89				0.73				3.41				3.62
Net income return on equity (2)		9.6		%		10.2		%		11.0		%		15.0		%
Operating income return on equity (2)		10.0		%		9.0		%		9.7		%		11.1		%

(1) Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains.

(2) Return on equity represents net income and operating income expressed on an annualized basis as a percentage of beginning of year stockholders' equity.

Fourth quarter highlights included:

• Operating income per share increased 22%.
• Insurance-Domestic net premiums written grew 8%.
• Investment income was up 12%.
• GAAP combined ratio was 93.1%.
• Pre-tax return on equity was 13.6%.

The Company commented: We were pleased with our operating results in both the fourth quarter and full year 2015. Our combined ratio for the quarter was 93.1% and our investment results were more than satisfactory given the conservative risk profile of our portfolio. We continue to focus on managing risk and volatility throughout the business. Maintaining a consistent and stable risk-adjusted return has enabled us to deliver superior value creation to our shareholders over the long term.

Written premium growth in the domestic insurance segment was strong, especially in the fourth quarter. Overall, due to the strong dollar, foreign currency translations reduced our total premium growth by 1.5% for both the quarter and the year. We are confident our unique specialist approach and various market dislocations will provide us with greater opportunities in the coming year.

We maintain a cautious approach to reserves due to the potential for inflation. Consequently, our loss reserves continue to develop favorably and our accident-year loss ratio, excluding catastrophes, has been stable. The domestic insurance expense ratio is generally satisfactory, and there are opportunities for further improvement in our international expense ratio.

Our investment portfolio is very high quality, with an average rating of AA-, and ample liquidity. We have modest exposure to the oil industry, the vast majority of which is in investment grade securities. The after-tax exposure to the oil industry for our investment funds is less than half of one percent of our invested assets.

We believe we are well positioned for the current environment and have the flexibility to manage whatever the future presents. In spite of the various uncertainties in the insurance and investment markets, we are positive about our future and foresee better returns for 2016.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on Tuesday, February 2, 2016 at 5:00 p.m. eastern time. The conference call will be webcast live on the Company's website at www.wrberkley.com. A replay of the webcast 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 three segments of the property casualty business: Insurance-Domestic, Insurance-International and Reinsurance-Global.

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 2016 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 impact of significant competition, including new alternative entrants to the industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, including real estate, merger arbitrage, energy related and private equity investments; the effects of emerging claim and coverage issues; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the conditions in the financial markets and the global economy, and the potential effect of legislative, regulatory, accounting or other initiatives taken in response to it, on our results and financial condition; foreign currency and political risks relating to our international operations; our ability to attract and retain key personnel and qualified employees; continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; 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; other legislative and regulatory developments, including those related to business practices in the insurance industry; credit risk related to our policyholders, independent agents and brokers; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; potential difficulties with technology and/or data security; the effectiveness of our controls to ensure compliance with guidelines, policies and legal and regulatory standards; and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties could cause our actual results for the year 2016 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. 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.

Consolidated Financial Summary (Amounts in thousands, except per share data)
		Fourth Quarter								Full Year
		2015				2014				2015				2014
Revenues:
Net premiums written		$	1,499,151			$	1,455,909			$	6,189,515			$	5,996,947
Change in unearned premiums		44,846				46,448				(148,906		)		(252,529		)
Net premiums earned		1,543,997				1,502,357				6,040,609				5,744,418
Investment income		127,609				114,220				512,645				600,885
Insurance service fees		31,788				35,473				139,440				117,443
Net realized gains on investment sales		12,613				20,672				125,633				254,852
Other-than-temporary impairments		(20,794		)		—				(33,309		)		—
Revenues from wholly-owned investees		115,841				111,329				421,102				410,022
Other income		2				377				337				1,308
Total revenues		1,811,056				1,784,428				7,206,457				7,128,928
Expenses:
Losses and loss expenses		922,972				913,571				3,656,270				3,490,567
Other operating costs and expenses		591,581				563,837				2,289,750				2,157,456
Expenses from wholly-owned investees		108,561				109,712				397,461				400,535
Interest expense		31,736				34,604				130,946				128,174
Total expenses		1,654,850				1,621,724				6,474,427				6,176,732
Income before income taxes		156,206				162,704				732,030				952,196
Income tax expense		(46,328		)		(51,753		)		(227,923		)		(302,593		)
Net income before noncontrolling interests		109,878				110,951				504,107				649,603
Noncontrolling interests		(133		)		(240		)		(413		)		(719		)
Net income to common stockholders		$	109,745			$	110,711			$	503,694			$	648,884
Net income per share:
Basic		$	0.89			$	0.87			$	4.06			$	5.07
Diluted		$	0.85			$	0.83			$	3.87			$	4.86
Average shares outstanding:
Basic		123,287				126,830				124,040				127,874
Diluted		129,016				132,879				130,189				133,652

Business Segment Operating Results (Amounts in thousands, except ratios) (1)
		Fourth Quarter								Full Year
		2015				2014				2015				2014
Insurance-Domestic:
Gross premiums written		$	1,395,146			$	1,295,927			$	5,684,188			$	5,383,679
Net premiums written		1,167,871				1,084,784				4,812,830				4,517,587
Net premiums earned		1,200,241				1,133,127				4,659,359				4,271,933
Pre-tax income		190,266				188,910				724,667				796,309
Loss ratio		60.4		%		60.2		%		61.2		%		60.2		%
Expense ratio		31.2		%		30.4		%		31.2		%		31.6		%
GAAP combined ratio		91.6		%		90.6		%		92.4		%		91.8		%
Insurance-International:
Gross premiums written		$	209,743			$	236,632			$	923,304			$	984,271
Net premiums written		184,982				208,051				778,567				828,076
Net premiums earned		189,100				209,654				772,141				802,375
Pre-tax income (loss)		10,579				(12,081		)		51,926				29,779
Loss ratio		58.2		%		68.2		%		58.2		%		62.8		%
Expense ratio		41.5		%		40.2		%		41.4		%		40.0		%
GAAP combined ratio		99.7		%		108.4		%		99.6		%		102.8		%
Reinsurance-Global:
Gross premiums written		$	159,320			$	173,255			$	642,501			$	694,888
Net premiums written		146,298				163,074				598,118				651,284
Net premiums earned		154,656				159,576				609,109				670,110
Pre-tax income		25,055				28,732				94,852				115,677
Loss ratio		57.1		%		55.2		%		58.4		%		62.0		%
Expense ratio		39.4		%		37.3		%		38.2		%		34.0		%
GAAP combined ratio		96.5		%		92.5		%		96.6		%		96.0		%
Corporate and Eliminations:
Net investment gains (losses)		$	(8,181	)		$	20,672			$	92,324			$	254,852
Interest expense		(31,736		)		(34,604		)		(130,946		)		(128,174		)
Other revenues and expenses		(29,777		)		(28,925		)		(100,793		)		(116,247		)
Pre-tax gain (loss)		(69,694		)		(42,857		)		(139,415		)		10,431
Consolidated:
Gross premiums written		$	1,764,209			$	1,705,814			$	7,249,993			$	7,062,838
Net premiums written		1,499,151				1,455,909				6,189,515				5,996,947
Net premiums earned		1,543,997				1,502,357				6,040,609				5,744,418
Pre-tax income		156,206				162,704				732,030				952,196
Loss ratio		59.8		%		60.8		%		60.5		%		60.8		%
Expense ratio		33.3		%		32.5		%		33.2		%		33.0		%
GAAP combined ratio		93.1		%		93.3		%		93.7		%		93.8		%

(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. GAAP combined ratio is the sum of the loss ratio and the expense ratio.

Supplemental Information (Amounts in thousands)
		Fourth Quarter								Full Year
		2015				2014				2015				2014
Insurance-Domestic net premiums written:
Other liability		$	411,691			$	378,009			$	1,623,710			$	1,536,105
Workers' compensation		297,936				263,844				1,311,303				1,193,493
Short-tail lines (1)		221,103				217,915				933,726				913,258
Commercial automobile		129,426				141,293				541,426				547,128
Professional liability		107,715				83,723				402,665				327,603
Total		$	1,167,871			$	1,084,784			$	4,812,830			$	4,517,587
Losses from catastrophes:
Insurance-Domestic		$	8,662			$	6,392			$	49,880			$	64,937
Insurance-International		1,904				11,495				4,385				20,062
Reinsurance-Global		587				528				3,343				2,076
Total		$	11,153			$	18,415			$	57,608			$	87,075
Investment income:
Core portfolio (2)		$	110,798			$	107,937			$	433,526			$	446,862
Investment funds		11,390				(3,647		)		62,228				131,585
Arbitrage trading account		5,421				9,930				16,891				22,438
Total		$	127,609			$	114,220			$	512,645			$	600,885
Other operating costs and expenses:
Underwriting expenses		$	514,389			$	488,920			$	2,005,498			$	1,896,528
Service expenses		34,051				33,597				127,365				102,727
Net foreign currency losses (gains)		3,634				991				400				(27		)
Other costs and expenses		39,507				40,329				156,487				158,228
Total		$	591,581			$	563,837			$	2,289,750			$	2,157,456
Cash flow from operations		$	260,969			$	89,061			$	881,304			$	734,847
Reconciliation of operating and net income:
Operating income (3)		$	115,062			$	97,274			$	443,683			$	483,230
After-tax investment (losses) gains		(5,317		)		13,437				60,011				165,654
Net income		$	109,745			$	110,711			$	503,694			$	648,884

(1) Short-tail lines include commercial multi-peril (non-liability), inland marine, accident and health, fidelity and surety, boiler and machinery and other lines.

(2) Core portfolio includes fixed maturity securities, equity securities, cash and cash equivalents, real estate and loans receivable.

(3) Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains. Management believes that excluding net investment gains provides a useful indicator of trends in the Company's underlying operations.

Selected Balance Sheet Information (Amounts in thousands, except per share data)
		December 31, 2015				December 31, 2014
Net invested assets (1)		$	16,460,690			$	16,508,087
Total assets		21,730,967				21,716,691
Reserves for losses and loss expenses		10,669,150				10,369,701
Senior notes and other debt		1,844,621				2,115,527
Subordinated debentures		340,320				340,060
Common stockholders' equity (2)		4,600,246				4,589,945
Common stock outstanding (3)		123,308				126,749
Book value per share (4)		37.31				36.21
Tangible book value per share (4)		35.78				34.79

(1) Net invested assets include investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases, net of related liabilities.

(2) After-tax unrealized investment gains were $181 million and $306 million as of December 31, 2015 and December 31, 2014, respectively. Unrealized currency translation losses were $247 million and $123 million as of December 31, 2015 and December 31, 2014, respectively.

(3) During the full year 2015, the Company repurchased 4,502,025 shares of its common stock for $224 million.

(4) Book value per share is total common stockholders' equity divided by the number of common shares outstanding. Tangible book value per share is total common stockholders' equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding.

Investment Portfolio December 31, 2015 (Amounts in thousands)
		Carrying Value				Percent of Total
Fixed maturity securities:
United States government and government agencies		$	670,419			4.1	%
State and municipal:
Special revenue		2,632,626				16.0	%
State general obligation		641,790				3.9	%
Pre-refunded		472,697				2.9	%
Corporate backed		402,541				2.4	%
Local general obligation		387,654				2.3	%
Total state and municipal		4,537,308				27.5	%
Mortgage-backed securities:
Agency		855,195				5.2	%
Residential - Prime		245,611				1.5	%
Commercial		65,722				0.4	%
Residential - Alt A		52,469				0.3	%
Total mortgage-backed securities		1,218,997				7.4	%
Asset-backed securities		1,705,172				10.4	%
Corporate:
Industrial		2,021,534				12.3	%
Financial		1,173,021				7.1	%
Utilities		198,651				1.2	%
Other		81,832				0.5	%
Total corporate		3,475,038				21.1	%
Foreign government		837,460				5.1	%
Total fixed maturity securities (1)		12,444,394				75.6	%
Equity securities available for sale:
Preferred stocks		113,593				0.7	%
Common stocks		37,273				0.2	%
Total equity securities available for sale		150,866				0.9	%
Investment funds (2)		1,167,839				7.1	%
Arbitrage trading account		376,697				2.3	%
Real estate		936,367				5.7	%
Cash and cash equivalents (3)		1,111,424				6.7	%
Loans receivable		273,103				1.7	%
Net invested assets		$	16,460,690			100.0	%

(1) Total fixed maturity securities had an average rating of AA- and an average duration of 3.3 years, including cash and cash equivalents.

(2) Investment funds include an investment in publicly traded common stock of HealthEquity, Inc. (HQY), which is carried on the equity method of accounting. At December 31, 2015, the investment in HQY had a carrying value of $45.4 million and a fair value of $300.1 million. Investment funds are reported net of related liabilities of $2.2 million.

(3) Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.

Foreign Government Fixed Maturity Securities December 31, 2015 (Amounts in thousands)
		Carrying Value
Australia		$	230,036
United Kingdom		165,114
Canada		150,501
Argentina		105,428
Germany		51,759
Brazil		51,405
Supranational (1)		36,090
Norway		31,656
Singapore		6,101
Colombia		5,502
Uruguay		3,868
Total		$	837,460

(1) Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development

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