01—Abstract
Summary
Summary of the 10-K filed March 13, 2006. Cited figures are marked; the original filing is the authoritative source.
W.
R. Berkley Corporation, a Delaware insurance holding company, reports in its 2005 Form 10-K that it is among the largest commercial lines writers in the United States, operating in five segments: specialty, regional, alternative markets, reinsurance and international. Net premiums written rose to $4,604,574 thousanda in 2005 from $4,266,361 thousand in 2004, and net income increased to $544,892 thousand, or $4.08 per diluted share, from $438,105 thousand, or $3.31 per diluted share.
Total revenues were $4,996,839 thousandb and the consolidated combined ratio was 89.3%, compared with 90.4% in 2004. The filing states that net investment income rose to $403,962 thousand from $291,295 thousand, reflecting a 28% increase in average invested assets. Reserves are a key focus for investors.
Gross reserves for losses and loss expenses reached $6,711,760 thousandc at December 31, 2005, up from $5,449,611 thousand. The company increased its estimates for claims occurring in prior years by $186,728 thousand in 2005, compared with $294,931 thousand in 2004, and the filing cites higher than expected losses on certain business written from 1998 to 2001. The filing also notes softening pricing, with renewal price levels declining approximately 1% in 2005, and states that a 3-for-2 stock split was approved on March 7, 2006, with shares expected to be issued April 4, 2006.
Balance sheet and capital metrics show stockholders' equity of $2,567,077 thousandd and total investments of $10,378,250 thousand at year-end 2005. Senior notes and other debt were $967,818 thousand and junior subordinated debentures were $450,634 thousand, with the company citing dependence on insurance subsidiary dividends, with approximately $311 million permitted to be paid without regulatory approval during 2006.
02—Key points
Key Highlights
- Net premiums written increased to $4.60 billion in 2005 from $4.27 billion in 2004, and gross premiums written were $5.1 billion, up 8%.
- Net income rose to $544.9 million, or $4.08 per diluted share, versus $438.1 million, or $3.31 per diluted share, in 2004.
- Consolidated combined ratio improved to 89.3% from 90.4%; the specialty segment posted an 87.5% combined ratio and reinsurance rose to 104.2%.
- Net investment income increased 39% to $404 million, driven by a 28% increase in average invested assets to $9.2 billion.
- Gross loss and loss expense reserves reached $6.71 billion, with prior-year reserve strengthening of $187 million in 2005 versus $295 million in 2004.
- Renewal pricing declined approximately 1% in 2005, reflecting increased price competition that began in 2004.
- A 3-for-2 common stock split was approved March 7, 2006, with additional shares expected to be issued April 4, 2006.
03—Questions
Frequently Asked Questions
How did W. R. Berkley's profitability change in 2005?
Net income increased to $544,892 thousand, or $4.08 per diluted share, from $438,105 thousand, or $3.31 per diluted share, in 2004. The filing attributes the increase to higher investment income and higher underwriting profits, with earned premiums up 10% and the loss ratio down 0.6 percentage points.
What is the company's exposure to reserve adequacy risk?
The filing states that gross reserves for losses and loss expenses were approximately $6.7 billion at December 31, 2005. The company increased its estimates for prior-year claims by $187 million in 2005, $295 million in 2004 and $245 million in 2003, and cautions it cannot assure that current reserves will prove adequate.
How exposed is the company to terrorism losses and catastrophes?
The filing states that under TRIA, the company's deductible for 2006 will increase to approximately $548 million based on 2005 earned premiums, with the federal government paying 90% of losses above that deductible in 2006. Weather-related losses were $99 million in 2005 and $60 million in 2004.
What are the main risks to the company's investment portfolio?
Fixed income securities were about $8.5 billion, or 82% of total investments, at December 31, 2005. A 100 basis point increase in interest rates would decrease the fair value of investments by approximately $352 million. Equity securities were about $1.3 billion, or 13% of investments, including merger arbitrage positions.
How much can the company's insurance subsidiaries pay in dividends to the holding company?
The filing states that during 2006, the maximum amount of dividends that can be paid by insurance subsidiaries without regulatory approval is approximately $311 million. The holding company relies on these dividends to service its debt and pay stockholder dividends.
04—Continue