W. R. Berkley Corporation (NYSE:WRB) today reported net income for the fourth quarter of 2017 of $155 million, or $1.21 per share.

   
Summary Financial Data
(Amounts in thousands, except per share data)
 
Fourth Quarter Twelve Months
2017   2016 2017   2016
 
Gross premiums written $ 1,779,446 $ 1,779,791 $ 7,476,963 $ 7,543,701
Net premiums written 1,478,236 1,510,257 6,260,508 6,423,913
 
Net income to common stockholders 154,589 152,790 549,094 601,916
Net income per diluted share 1.21 1.20 4.26 4.68
 
Return on equity (1) 12.3 % 13.3 % 10.9 % 13.1 %
 
(1)   Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders’ equity.
 

Fourth quarter highlights included:

  • The accident year combined ratio excluding catastrophes during the quarter was 94.2%.
  • Investment income attributable to the core investment portfolio increased 12.4%.
  • Realized pre-tax gains of $57 million, net of performance-based compensatory costs.(1)
  • Estimated tax benefit from tax reform of $21 million, or $0.16 per share.
  • Total catastrophe losses were $18 million, including $8 million related to wildfires in California.

Full year highlights included:

  • Total capital returned to shareholders was $236 million, including $48 million of share repurchases and $188 million of ordinary and special dividends.
  • Before share repurchases and dividends, book value per share grew 10.9%. Book value per share grew 6.9% to $44.53.
  • Return on equity of 10.9%, despite record industry catastrophe losses.

The Company commented:

We are pleased with our 12.3% return on equity for the fourth quarter of 2017. While the industry experienced another period of heightened catastrophe losses due to the California wildfires, our results demonstrated characteristically low volatility.

Our accident year underwriting results before catastrophe losses were relatively stable, while gross premiums written were virtually unchanged. We achieved modest aggregate price increases even as competition persisted, and we maintained our discipline in both pricing and risk selection. Going forward, we anticipate opportunities will increase in select areas as the industry addresses the need for rate adequacy. At the same time, the recently enacted corporate tax reform has created improving prospects for a strengthening economy and a more level playing field for domestic insurers, while also lowering the corporate tax rate. With a strong balance sheet and exceptional expertise in our select markets, we are well positioned to benefit from these cyclical and secular changes. We anticipate premium volume will increase modestly beginning in 2018.

Net investment income in the core portfolio grew as strong operating cash flow provided additional monies to invest and the yield on our fixed income portfolio improved by 30 basis points compared to the fourth quarter of 2016. Net realized investment gains enhanced our pre-tax performance by $59 million, bringing total gains for the year to $336 million. Our investment strategy has enabled us to mitigate the impact of low interest rates on investment income, while providing a defensive position for inflation and opportunities to grow book value through realized investment gains. As investment income is an important component of our economic model, we anticipate improving returns in 2018 as interest rates move higher.

In a year characterized by record catastrophic losses for the industry, our focus on risk-adjusted returns has enabled us to produce excellent results with lower volatility, while returning $236 million to shareholders through dividends and share repurchases. We are enthusiastic that the market is moving in the right direction with respect to both opportunity and pricing, and we look forward to continuing to deliver superior long-term value to our shareholders in 2018.

(1)   Pre-tax gains excluding performance-based compensatory costs were $59 million.
 

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on January 30, 2018, at 5:00 p.m. eastern time. The conference call will be webcast live on the Company's website at http://www.wrberkley.com/investor-relations/events-and-presentations.aspx. 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.

About W. R. Berkley Corporation

Celebrating 50 years, 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.

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 2018 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, on our results and financial condition; foreign currency and political risks (including those associated with the United Kingdom's expected 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 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 2018 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
2017   2016 2017   2016
Revenues:
Net premiums written $ 1,478,236 $ 1,510,257 $ 6,260,508 $ 6,423,913
Change in unearned premiums 112,939   110,020   50,911   (130,565 )
Net premiums earned 1,591,175 1,620,277 6,311,419 6,293,348
Net investment income 149,186 159,313 575,788 564,163
Net realized investment gains 59,098 77,611 335,858 285,119
Other than temporary impairments — — — (18,114 )
Revenues from non-insurance businesses (1) 101,132 84,561 326,165 390,348
Insurance service fees 34,254 29,508 134,729 138,944
Other income 111   63   805   376  
Total revenues 1,934,956   1,971,333   7,684,764   7,654,184  
Expenses:
Losses and loss expenses 976,872 993,461 4,002,348 3,845,800
Other operating costs and expenses 615,778 624,857 2,436,932 2,395,619
Expenses from non-insurance businesses (1) 104,027 84,304 325,417 375,431
Interest expense 36,879   36,877   147,297   140,896  
Total expenses 1,733,556   1,739,499   6,911,994   6,757,746  
Income before income taxes 201,400 231,834 772,770 896,438
Income tax expense (2) (45,128 ) (78,164 ) (219,433 ) (292,953 )
Net income before noncontrolling interests 156,272 153,670 553,337 603,485
Noncontrolling interests (1,683 ) (880 ) (4,243 ) (1,569 )
Net income to common stockholders $ 154,589   $ 152,790   $ 549,094   $ 601,916  
 
Net income per share:
Basic $ 1.22 $ 1.26 $ 4.40 $ 4.91
Diluted $ 1.21 $ 1.20 $ 4.26 $ 4.68
 
Average shares outstanding (3):
Basic 126,269 121,313 124,843 122,651
Diluted 128,221 127,446 129,018 128,553
 
(1)   For the twelve months ended 2017 revenues and expenses from non-insurance businesses declined because of the sale of a wholly-owned investment, Aero Precision Industries, and certain related aviation services businesses in August 2016.
 
(2) The fourth quarter and full year 2017 income tax expense includes an estimated tax benefit from tax reform of $21 million.
 
(3)

Basic shares outstanding consist of the weighted average number of common shares outstanding during the period (including shares held in a grantor trust established in March 2017). 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) (2)
 
Fourth Quarter Full year
2017   2016 2017   2016
Insurance:
Gross premiums written $ 1,636,139 $ 1,611,473 $ 6,869,831 $ 6,795,506
Net premiums written 1,351,233 1,356,674 5,715,871 5,743,620
Premiums earned 1,443,958 1,437,858 5,706,443 5,618,842
Pre-tax income 198,547 212,487 756,153 799,138
Loss ratio 61.3 % 60.9 % 61.6 % 61.0 %
Expense ratio 33.1 % 32.9 % 32.9 % 32.5 %
GAAP combined ratio 94.4 % 93.8 % 94.5 % 93.5 %
 
Reinsurance:
Gross premiums written $ 143,307 $ 168,318 $ 607,132 $ 748,195
Net premiums written 127,003 153,583 544,637 680,293
Premiums earned 147,217 182,419 604,976 674,506
Pre-tax income (loss) 23,004 19,063 (15,276 ) 98,278
Loss ratio 61.9 % 64.7 % 80.2 % 61.6 %
Expense ratio 38.3 % 38.8 % 37.4 % 39.0 %
GAAP combined ratio 100.2 % 103.5 % 117.6 % 100.6 %
 
Corporate and Eliminations:
Net realized investment gains $ 59,098 $ 77,611 $ 335,858 $ 267,005
Interest expense (36,879 ) (36,877 ) (147,297 ) (140,896 )
Other revenues and expenses (42,370 ) (40,450 ) (156,668 ) (127,087 )
Pre-tax (loss) income (20,151 ) 284 31,893 (978 )
 
Consolidated:
Gross premiums written $ 1,779,446 $ 1,779,791 $ 7,476,963 $ 7,543,701
Net premiums written 1,478,236 1,510,257 6,260,508 6,423,913
Premiums earned 1,591,175 1,620,277 6,311,419 6,293,348
Pre-tax income 201,400 231,834 772,770 896,438
Loss ratio 61.4 % 61.3 % 63.4 % 61.1 %
Expense ratio 33.5 % 33.6 % 33.3 % 33.2 %
GAAP combined ratio 94.9 % 94.9 % 96.7 % 94.3 %
 
(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.
 
(2) Commencing with the first quarter of 2017, the Company reclassified two businesses from the Insurance segment to the Reinsurance segment. Reclassifications have been made to the Company's 2016 financial information to conform with this presentation.
 
       
Supplemental Information
(Amounts in thousands)
 
Fourth Quarter Full year
2017   2016 2017   2016
Net premiums written:
Other liability $ 446,236 $ 449,817 $ 1,831,039 $ 1,870,427
Workers' compensation 329,746 328,214 1,495,148 1,426,196
Short-tail lines (1) 273,399 292,964 1,163,009 1,254,404
Commercial automobile 164,557 147,216 675,366 642,313
Professional liability 137,295   138,463   551,309   550,280  
Total Insurance 1,351,233   1,356,674   5,715,871   5,743,620  
Casualty reinsurance 90,760 93,239 366,397 398,779
Property reinsurance 36,243   60,344   178,240   281,514  
Total Reinsurance 127,003   153,583   544,637   680,293  
Total $ 1,478,236   $ 1,510,257   $ 6,260,508   $ 6,423,913  
 
Losses from catastrophes:
Insurance $ 13,301 $ 30,796 $ 107,147 $ 88,850
Reinsurance 4,402   6,006   77,129   16,264  
Total $ 17,703   $ 36,802   $ 184,276   $ 105,114  
 
Net investment income:
Core portfolio (2) $ 128,851 $ 114,589 $ 488,474 $ 446,169
Investment funds 17,425 38,914 68,169 99,301
Arbitrage trading account 2,910   5,810   19,145   18,693  
Total $ 149,186   $ 159,313   $ 575,788   $ 564,163  
 
Other operating costs and expenses:
Policy acquisition and insurance

operating expenses

$ 533,665 $ 544,410 $ 2,101,024 $ 2,089,203
Insurance service expenses 32,469 35,041 129,776 138,908
Net foreign currency losses (gains) 1,012 (355 ) 15,267 (11,904 )
Other costs and expenses 48,632   45,761   190,865   179,412  
Total $ 615,778   $ 624,857   $ 2,436,932   $ 2,395,619  
 
Cash flow from operations $ 189,025   $ 121,866   $ 710,883   $ 848,376  
 
(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.
 
                   
Selected Balance Sheet Information
(Amounts in thousands, except per share data)
 
December 31,
2017

December 31,
2016

 
Net invested assets (1) $ 18,508,646 $ 17,857,006
Total assets 24,312,630 23,364,844
Reserves for losses and loss expenses 11,670,408 11,197,195
Senior notes and other debt 1,769,052 1,760,595
Subordinated debentures 728,218 727,630
Common stockholders’ equity (2) 5,411,344 5,047,208
Common stock outstanding (3) 121,515 121,194
Book value per share (4) 44.53 41.65
Tangible book value per share (4) 42.51 40.06
 
(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 $375 million and $427 million as of December 31, 2017 and December 31, 2016, respectively. Unrealized currency translation losses were $307 million and $372 million as of December 31, 2017 and December 31, 2016, respectively.
 
(3) During the three months ended December 31, 2017, the Company repurchased 289,884 shares of its common stock for $19.4 million. During the full year ended December 31, 2017, the Company repurchased 731,003 shares of its common stock for $47.8 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
December 31, 2017
(Amounts in thousands)
 
Carrying

Value

Percent

of Total

Fixed maturity securities:
United States government and government agencies $ 377,740 2.0 %
State and municipal:
Special revenue 2,725,833 14.7 %
State general obligation 490,890 2.7 %
Pre-refunded 464,802 2.5 %
Local general obligation 444,984 2.4 %
Corporate backed 384,467 2.1 %
Total state and municipal 4,510,976 24.4 %
Mortgage-backed securities:
Agency 821,815 4.4 %
Commercial 260,545 1.4 %
Residential - Prime 211,363 1.1 %
Residential - Alt A 19,658 0.2 %
Total mortgage-backed securities 1,313,381 7.1 %
Asset-backed securities 2,111,544 11.4 %
Corporate:
Industrial 2,618,892 14.1 %
Financial 1,434,767 7.8 %
Utilities 294,954 1.6 %
Other 40,499 0.2 %
Total corporate 4,389,112 23.7 %
Foreign government 848,497 4.6 %
Total fixed maturity securities (1) 13,551,250 73.2 %
Equity securities available for sale:
Common stocks 352,204 1.9 %
Preferred stocks 224,443 1.2 %
Total equity securities available for sale 576,647 3.1 %
Real estate 1,469,601 7.9 %
Investment funds (2) 1,154,342 6.2 %
Cash and cash equivalents (3) 1,059,473 5.7 %
Arbitrage trading account 617,649 3.3 %
Loans receivable 79,684 0.6 %
Net invested assets $ 18,508,646 100.0 %
 
(1)   Total fixed maturity securities had an average rating of AA- and an average duration of 3.0 years, including cash and cash equivalents.
 
(2) Investment funds are net of related liabilities of $1.3 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, 2017
(Amounts in thousands)
 
Carrying Value
Australia $ 212,821
Argentina 179,581
Canada 169,222
United Kingdom 85,109
Brazil 60,693
Germany 39,520
Singapore 36,450
Supranational (1) 31,322
Norway 9,589
Mexico 9,107
Colombia 7,690
Uruguay 7,393
Total $ 848,497
 
(1)   Supranational represents investments in the North American Development Bank, European Investment Bank and International Bank for Reconstruction & Development.