W. R. Berkley Corporation Reports Second Quarter Results

Nachrichtenquelle: Business Wire (engl.)
21.07.2020, 22:10  |  113   |   |   

W. R. Berkley Corporation (NYSE: WRB) today reported its second quarter 2020 results.

Summary Financial Data

(Amounts in thousands, except per share data)

 

 

Second Quarter

 

Six Months

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

2,132,246

 

 

$

2,089,861

 

 

$

4,363,618

 

 

$

4,136,090

 

Net premiums written

 

1,739,818

 

 

1,743,464

 

 

3,585,664

 

 

3,453,065

 

 

 

 

 

 

 

 

 

 

Net income to common stockholders

 

71,260

 

 

216,709

 

 

66,842

 

 

397,431

 

Net income per diluted share

 

0.38

 

 

1.12

 

 

0.35

 

 

2.06

 

 

 

 

 

 

 

 

 

 

Operating income (1)

 

11,552

 

 

158,798

 

 

144,064

 

 

287,773

 

Operating income per diluted share

 

0.06

 

 

0.82

 

 

0.76

 

 

1.49

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

 

4.7

%

 

15.9

%

 

2.2

%

 

14.6

%

  1. Operating income is a non-GAAP financial measure defined by the Company as net income excluding after-tax net investment gains (losses) and related expenses.
  2. Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity.

Second quarter highlights included:

  • Average rate increases excluding workers' compensation were approximately 13.0%.
  • The accident year combined ratio before catastrophe losses was 90.2%. The reported combined ratio was 98.7%.
  • Catastrophes added 8.7 loss ratio points to the reported combined ratio, including 5.1 loss ratio points for COVID-19 related losses.
  • Book value per share grew 7.7%, before dividends and share repurchases.
  • Total capital returned to stockholders was $117 million, including $96 million of share repurchases and $21 million of ordinary dividends.
  • Cash and liquid investments of more than $1.5 billion at the holding company.

The Company commented:

The second quarter of 2020 was most notably characterized by the COVID-19 pandemic and its impact on the U.S. and global economies. As previously announced, the Company incurred $85 million of net COVID-19 related losses during the period. The losses reflect newly available information and legal and regulatory developments that arose during the quarter. The total represents our best estimate of ultimate losses based on currently available information. Total catastrophe losses also included $20 million for losses related to civil unrest and $40 million primarily attributable to severe weather-related events in the U.S. Notwithstanding, inclusive of all these events, the Company reported a 98.7% combined ratio.

In spite of the current challenges, positive rate momentum persisted. The primary impetus for this continued momentum is the growing industry concern over the low interest rate environment and social inflation, which has shown no signs of abating. We believe that the current environment has heightened risk awareness and further reinforced this trend. Average rate increases excluding workers' compensation in the second quarter of 2020 of approximately 13% mitigated the top-line impact of the shrinking economy. Consequently, gross premiums written grew despite the current economic environment. While re-opening the global economy is unlikely to be a smooth process, we anticipate that it will have a meaningful favorable impact on our future growth.

Net investment income was adversely impacted by a $58 million loss from investment funds, which are reported on a one-quarter lag. The loss was driven by the first quarter downturn in the financial markets resulting from the COVID-19 related economic shutdown. We continue to manage our portfolio for total return in light of low interest rates and maintain a conservative fixed-maturity portfolio with an average rating of AA- and a duration of 2.4 years. Given the uncertainty in the financial markets and the economy, we have taken a defensive position to enhance our liquidity by investing in high-quality shorter-term assets, including cash and cash equivalents.

The first half of 2020 has been highly unusual in many regards. Our Company has performed relatively well and our people have demonstrated tremendous resiliency. Much remains unknown as we move into the second half of the year, yet often the best opportunities for the market to correct itself and provide an appropriate risk-adjusted return arise from periods of the greatest uncertainty. We see this as one of those moments, and we are well positioned to realize these opportunities as the economy improves.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on July 21, 2020, at 5:00 p.m. eastern time. The conference call will be webcast live on the Company's website at https://ir.berkley.com/news-and-events/events-and-presentations/defaul .... Please log on at least ten minutes early to register and download and install any necessary software. A replay of the webcast will be available on the Company's website approximately two hours after the end of the conference call. Additional financial information can be found on the Company's website at https://ir.berkley.com/investor-relations/financial-information/annual ....

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 worldwide in two segments of the property casualty business: Insurance and Reinsurance & Monoline Excess.

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 2020 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 ongoing COVID-19 pandemic, including the related impact on the U.S. and global economies; 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, epidemics or pandemics, such as COVID-19; the impact of climate change, which may increase the frequency and severity of catastrophe events; 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, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's withdrawal from the European Union, or "Brexit") 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 Program Reauthorization Act of 2015; the ability or willingness 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 cyber security issues; 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 2020 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)

 

 

Second Quarter

 

Six Months

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Net premiums written

 

$

1,739,818

 

 

 

$

1,743,464

 

 

 

$

3,585,664

 

 

 

$

3,453,065

 

 

Change in unearned premiums

 

(62,903

)

 

 

(96,623

)

 

 

(217,331

)

 

 

(213,368

)

 

Net premiums earned

 

1,676,915

 

 

 

1,646,841

 

 

 

3,368,333

 

 

 

3,239,697

 

 

Net investment income

 

85,431

 

 

 

188,333

 

 

 

260,194

 

 

 

346,587

 

 

Net investment gains (losses):

 

 

 

 

 

 

 

 

Net realized and unrealized gains (losses) on investments

 

61,653

 

 

 

73,574

 

 

 

(81,632

)

 

 

142,226

 

 

Change in allowance for credit losses on investments (1)

 

16,232

 

 

 

 

 

 

(17,657

)

 

 

 

 

Net investment gains (losses)

 

77,885

 

 

 

73,574

 

 

 

(99,289

)

 

 

142,226

 

 

Revenues from non-insurance businesses

 

75,742

 

 

 

89,297

 

 

 

169,471

 

 

 

181,124

 

 

Insurance service fees

 

19,870

 

 

 

22,446

 

 

 

45,621

 

 

 

47,759

 

 

Other income

 

183

 

 

 

2,893

 

 

 

2,305

 

 

 

3,013

 

 

Total revenues

 

1,936,026

 

 

 

2,023,384

 

 

 

3,746,635

 

 

 

3,960,406

 

 

Expenses:

 

 

 

 

 

 

 

 

Losses and loss expenses

 

1,135,126

 

 

 

1,028,830

 

 

 

2,242,379

 

 

 

2,017,479

 

 

Other operating costs and expenses

 

580,840

 

 

 

591,828

 

 

 

1,159,173

 

 

 

1,179,916

 

 

Expenses from non-insurance businesses

 

76,238

 

 

 

88,272

 

 

 

170,996

 

 

 

178,397

 

 

Interest expense

 

38,373

 

 

 

40,718

 

 

 

75,105

 

 

 

81,439

 

 

Total expenses

 

1,830,577

 

 

 

1,749,648

 

 

 

3,647,653

 

 

 

3,457,231

 

 

Income before income taxes

 

105,449

 

 

 

273,736

 

 

 

98,982

 

 

 

503,175

 

 

Income tax expense

 

(33,793

)

 

 

(56,309

)

 

 

(30,852

)

 

 

(104,134

)

 

Net income before noncontrolling interests

 

71,656

 

 

 

217,427

 

 

 

68,130

 

 

 

399,041

 

 

Noncontrolling interests

 

(396

)

 

 

(718

)

 

 

(1,288

)

 

 

(1,610

)

 

Net income to common stockholders

 

$

71,260

 

 

 

$

216,709

 

 

 

$

66,842

 

 

 

$

397,431

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.38

 

 

 

$

1.14

 

 

 

$

0.36

 

 

 

$

2.09

 

 

Diluted

 

$

0.38

 

 

 

$

1.12

 

 

 

$

0.35

 

 

 

$

2.06

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding (2):

 

 

 

 

 

 

 

 

Basic

 

185,979

 

 

 

190,512

 

 

188,133

 

 

 

190,456

 

Diluted

 

187,862

 

 

 

193,059

 

 

190,078

 

 

 

192,804

 

  1. The inclusion of the allowance for credit losses on investments commenced January 1, 2020 due to the adoption of ASU 2016-13.
  2. Basic shares outstanding consist of the weighted average number of common shares outstanding during the period (including shares held in a grantor trust). Diluted shares outstanding consist of the weighted average number of basic and common equivalent shares outstanding during the period.

Business Segment Operating Results

(Amounts in thousands, except ratios) (1)

 

 

Second Quarter

 

Six Months

 

 

2020

 

2019

 

2020

 

2019

Insurance:

 

 

 

 

 

 

 

 

Gross premiums written

 

$

1,917,702

 

 

$

1,905,367

 

 

$

3,859,511

 

 

$

3,715,850

 

Net premiums written

 

1,543,157

 

 

1,574,585

 

 

3,126,475

 

 

3,071,964

 

Premiums earned

 

1,465,044

 

 

1,475,184

 

 

2,949,999

 

 

2,902,218

 

Pre-tax income

 

76,546

 

 

225,871

 

 

252,493

 

 

410,387

 

Loss ratio

 

67.0

%

 

62.9

%

 

66.1

%

 

62.5

%

Expense ratio

 

30.7

%

 

30.9

%

 

31.0

%

 

31.4

%

GAAP combined ratio

 

97.7

%

 

93.8

%

 

97.1

%

 

93.9

%

 

 

 

 

 

 

 

 

 

Reinsurance & Monoline Excess:

 

 

 

 

 

 

 

 

Gross premiums written

 

$

214,544

 

 

$

184,494

 

 

$

504,107

 

 

$

420,240

 

Net premiums written

 

196,661

 

 

168,879

 

 

459,189

 

 

381,101

 

Premiums earned

 

211,871

 

 

171,657

 

 

418,334

 

 

337,479

 

Pre-tax income

 

12,566

 

 

52,635

 

 

49,080

 

 

97,490

 

Loss ratio

 

72.2

%

 

59.2

%

 

70.3

%

 

60.0

%

Expense ratio

 

32.9

%

 

36.0

%

 

32.6

%

 

36.0

%

GAAP combined ratio

 

105.1

%

 

95.2

%

 

102.9

%

 

96.0

%

 

 

 

 

 

 

 

 

 

Corporate and Eliminations:

 

 

 

 

 

 

 

 

Net investment gains (losses)

 

$

77,885

 

 

$

73,574

 

 

$

(99,289)

 

 

$

142,226

 

Interest expense

 

(38,373)

 

 

(40,718)

 

 

(75,105)

 

 

(81,439)

 

Other revenues and expenses

 

(23,175)

 

 

(37,626)

 

 

(28,197)

 

 

(65,489)

 

Pre-tax income (loss)

 

16,337

 

 

(4,770)

 

 

(202,591)

 

 

(4,702)

 

 

 

 

 

 

 

 

 

 

Consolidated:

 

 

 

 

 

 

 

 

Gross premiums written

 

$

2,132,246

 

 

$

2,089,861

 

 

$

4,363,618

 

 

$

4,136,090

 

Net premiums written

 

1,739,818

 

 

1,743,464

 

 

3,585,664

 

 

3,453,065

 

Premiums earned

 

1,676,915

 

 

1,646,841

 

 

3,368,333

 

 

3,239,697

 

Pre-tax income

 

105,449

 

 

273,736

 

 

98,982

 

 

503,175

 

Loss ratio

 

67.7

%

 

62.4

%

 

66.6

%

 

62.2

%

Expense ratio

 

31.0

%

 

31.5

%

 

31.2

%

 

31.9

%

GAAP combined ratio

 

98.7

%

 

93.9

%

 

97.8

%

 

94.1

%

  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)

 

 

Second Quarter

 

Six Months

 

 

2020

 

2019

 

2020

 

2019

Net premiums written:

 

 

 

 

 

 

 

 

Other liability

 

$

559,727

 

 

$

546,861

 

 

$

1,141,371

 

 

$

1,053,811

 

Short-tail lines (1)

 

323,164

 

 

337,611

 

 

631,053

 

 

616,447

 

Workers' compensation

 

273,036

 

 

340,430

 

 

600,322

 

 

694,617

 

Commercial automobile

 

213,063

 

 

198,728

 

 

418,490

 

 

411,683

 

Professional liability

 

174,167

 

 

150,955

 

 

335,239

 

 

295,406

 

Total Insurance

 

1,543,157

 

 

1,574,585

 

 

3,126,475

 

 

3,071,964

 

Casualty reinsurance

 

132,927

 

 

106,690

 

 

276,388

 

 

211,206

 

Monoline excess

 

19,571

 

 

23,929

 

 

94,838

 

 

91,721

 

Property reinsurance

 

44,163

 

 

38,260

 

 

87,963

 

 

78,174

 

Total Reinsurance & Monoline Excess

 

196,661

 

 

168,879

 

 

459,189

 

 

381,101

 

Total

 

$

1,739,818

 

 

$

1,743,464

 

 

$

3,585,664

 

 

$

3,453,065

 

 

 

 

 

 

 

 

 

 

Losses from catastrophes (including COVID-19 related losses):

 

 

 

 

 

 

Insurance

 

$

114,038

 

 

$

25,446

 

 

$

170,619

 

 

$

38,064

 

Reinsurance & Monoline Excess

 

31,822

 

 

57

 

 

54,015

 

 

99

 

Total

 

$

145,860

 

 

$

25,503

 

 

$

224,634

 

 

$

38,163

 

 

 

 

 

 

 

 

 

 

Net investment income:

 

 

 

 

 

 

 

 

Core portfolio (2)

 

$

111,679

 

 

$

134,294

 

 

$

244,727

 

 

$

270,552

 

Investment funds

 

(57,552)

 

 

46,840

 

 

(16,975)

 

 

58,251

 

Arbitrage trading account

 

31,304

 

 

7,199

 

 

32,442

 

 

17,784

 

Total

 

$

85,431

 

 

$

188,333

 

 

$

260,194

 

 

$

346,587

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains (losses) on investments:

 

 

 

 

 

 

 

 

Net realized (losses) gains on investments

 

$

(261)

 

 

$

4,156

 

 

$

10,921

 

 

$

30,730

 

Change in unrealized gains (losses) on equity securities

 

61,914

 

 

69,418

 

 

(92,553)

 

 

111,496

 

Total

 

$

61,653

 

 

$

73,574

 

 

$

(81,632)

 

 

$

142,226

 

 

 

 

 

 

 

 

 

 

Other operating costs and expenses:

 

 

 

 

 

 

 

 

Policy acquisition and insurance operating expenses

 

$

519,234

 

 

$

518,160

 

 

$

1,051,158

 

 

$

1,031,951

 

Insurance service expenses

 

20,423

 

 

25,386

 

 

42,995

 

 

51,343

 

Net foreign currency (gains) losses

 

(7,382)

 

 

470

 

 

(28,923)

 

 

(6,494)

 

Other costs and expenses

 

48,565

 

 

47,812

 

 

93,943

 

 

103,116

 

Total

 

$

580,840

 

 

$

591,828

 

 

$

1,159,173

 

 

$

1,179,916

 

 

 

 

 

 

 

 

 

 

Cash flow from operations

 

$

427,282

 

 

$

324,316

 

 

$

579,851

 

 

$

402,646

 

 

 

 

 

 

 

 

 

 

Reconciliation of net income to operating income:

 

 

 

 

 

 

 

 

Net income

 

$

71,260

 

 

$

216,709

 

 

$

66,842

 

 

$

397,431

 

Pre-tax investment (gains) losses, net of related expenses

 

(77,785)

 

 

(73,375)

 

 

99,807

 

 

(139,245)

 

Income tax expense (benefit)

 

18,077

 

 

15,464

 

 

(22,585)

 

 

29,587

 

Operating income after-tax (3)

 

$

11,552

 

 

$

158,798

 

 

$

144,064

 

 

$

287,773

 

  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 (losses). Net investment gains (losses) are computed net of related expenses, including performance-based compensatory costs associated with realized investment gains. Management believes this measurement provides a useful indicator of trends in the Company’s underlying operations.

Selected Balance Sheet Information

(Amounts in thousands, except per share data)

 

June 30,
2020

 

December 31,
2019

 

 

 

 

Net invested assets (1)

$

20,202,785

 

 

$

19,856,776

 

Total assets

27,322,349

 

 

26,630,030

 

Reserves for losses and loss expenses

13,088,904

 

 

12,583,249

 

Senior notes and other debt

1,725,449

 

 

1,427,575

 

Subordinated debentures

1,199,198

 

 

1,198,704

 

Common stockholders’ equity (2)

5,801,116

 

 

6,074,939

 

Common stock outstanding (3)

177,931

 

 

183,412

 

Book value per share (4)

32.60

 

 

33.12

 

Tangible book value per share (4)

31.33

 

 

31.87

 

  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. As of June 30, 2020, reflected in common stockholders' equity are after-tax unrealized investment gains of $209 million and unrealized currency translation losses of $459 million. As of December 31, 2019, after-tax unrealized investment gains were $125 million and unrealized currency translation losses were $382 million.
  3. During the three months ended June 30, 2020, the Company repurchased 1,953,344 shares of its common stock for $96 million. During the six months ended June 30, 2020, the Company repurchased 5,604,103 shares of its common stock for $299 million. The number of shares of common stock outstanding excludes shares held in a grantor trust.
  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

June 30, 2020

(Amounts in thousands)

 

 

Carrying
Value

 

Percent
of Total

Fixed maturity securities:

 

 

 

 

United States government and government agencies

 

$

693,767

 

 

3.4

%

State and municipal:

 

 

 

 

Special revenue

 

$

2,253,542

 

 

11.2

%

Local general obligation

 

441,919

 

 

2.2

%

State general obligation

 

421,765

 

 

2.1

%

Pre-refunded

 

325,431

 

 

1.6

%

Corporate backed

 

232,730

 

 

1.2

%

Total state and municipal

 

3,675,387

 

 

18.2

%

Mortgage-backed securities:

 

 

 

 

Agency

 

622,965

 

 

3.1

%

Residential - Prime

 

319,371

 

 

1.6

%

Commercial

 

217,558

 

 

1.1

%

Residential - Alt A

 

9,336

 

 

%

Total mortgage-backed securities

 

1,169,230

 

 

5.8

%

Asset-backed securities

 

3,098,198

 

 

15.3

%

Corporate:

 

 

 

 

Industrial

 

1,999,122

 

 

9.9

%

Financial

 

1,431,704

 

 

7.1

%

Utilities

 

322,715

 

 

1.6

%

Other

 

19,040

 

 

0.1

%

Total corporate

 

3,772,581

 

 

18.7

%

Foreign government

 

871,922

 

 

4.3

%

Total fixed maturity securities (1)

 

13,281,085

 

 

65.7

%

Equity securities available for sale:

 

 

 

 

Preferred stocks

 

245,297

 

 

1.2

%

Common stocks

 

116,968

 

 

0.6

%

Total equity securities available for sale

 

362,265

 

 

1.8

%

Cash and cash equivalents (2)

 

2,665,235

 

 

13.2

%

Real estate

 

2,072,772

 

 

10.3

%

Investment funds (3)

 

1,158,344

 

 

5.7

%

Arbitrage trading account

 

580,950

 

 

2.9

%

Loans receivable

 

82,134

 

 

0.4

%

Net invested assets

 

$

20,202,785

 

 

100.0

%

  1. Total fixed maturity securities had an average rating of AA- and an average duration of 2.4 years, including cash and cash equivalents.
  2. Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.
  3. Investment funds are net of related liabilities of $0.9 million.

 

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