What drove the increase in net income in 2006?

The filing attributes the increase to higher investment income, which rose 45% to $586 million on higher average invested assets and a higher average yield, as well as higher underwriting profits. Underwriting improved mainly because of lower prior-year loss reserve development ($27 million versus $187 million) and lower weather-related losses ($39 million versus $99 million).

Which segments performed best and which weakened?

Alternative markets (combined ratio 75.6%) and specialty (84.1%) were the strongest. Regional deteriorated to a 90.3% combined ratio from 86.4%, mainly because of an increase in the expected loss ratio for accident year 2006 due to declining average prices. Reinsurance improved to 99.8% from 104.2%.

What risks does the filing highlight for future results?

Key risks include cyclical pricing in the property casualty industry, uncertainty in reserve estimates (gross reserves of $7.8 billion), catastrophe losses, competitive pricing pressure, and reliance on reinsurers and insurance subsidiary dividends. The filing also notes that the federal terrorism program (TRIA) is scheduled to terminate on December 31, 2007, and that the company's 2007 TRIA deductible will rise to approximately $618 million.

How much capital can the insurance subsidiaries pay to the parent company without regulatory approval?

During 2007, the maximum amount of dividends that can be paid by the insurance subsidiaries without regulatory approval is approximately $603 million. The filing notes that the holding company depends on these dividends to service debt and pay stockholder dividends.

What changed in the company's debt and capital structure?

In 2006, the company repaid $100 million of 6.25% senior notes and redeemed $210 million of 8.197% junior subordinated debentures. In February 2007, it issued $250 million of 6.25% senior notes due 2037. Senior notes, junior subordinated debentures and other debt were 25% of total capitalization at December 31, 2006, down from 36% a year earlier.

W. R. Berkley 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 1, 2007. Cited figures are marked; the original filing is the authoritative source.

R. Berkley Corporation, a Delaware insurance holding company, reported record results for 2006, with net income of $699.5 million^a, or $3.46 per diluted share, up from $544.9 million, or $2.72 per diluted share, in 2005. Net premiums written rose to $4.82 billion from $4.60 billion, and total revenues reached $5.39 billion.

Income before income taxes was $988.6 million^b. The increase in net income reflected higher investment income, which rose to $586.2 million from $404.0 million, and higher underwriting profits. The consolidated loss ratio improved to 61.0% from 62.4%, and the combined ratio improved to 88.0% from 89.3%.

Lower prior-year reserve development ($27 million^c in 2006 versus $187 million in 2005) and lower weather-related losses ($39 million versus $99 million) contributed to the improvement. Segment results were mixed. Specialty and alternative markets posted the strongest combined ratios at 84.1% and 75.6%, while regional property casualty deteriorated to a 90.3% combined ratio from 86.4%, and reinsurance was roughly break-even at 99.8% versus 104.2% in 2005.

Gross premiums written grew about 4% to $5.3 billion^d. Stockholders' equity increased to $3.34 billion, or $17.30 per share, from $2.57 billion, and the company's investment portfolio totaled $11.11 billion at year-end, of which fixed income securities were about 82%. The filing also flags risks that investors should weigh.

These include the cyclical nature of property casualty pricing, reserve adequacy uncertainty (gross loss reserves of $7.8 billion), catastrophe exposure, the expiration of federal terrorism reinsurance (TRIA) after December 31, 2007, and the dependence of the holding company on dividends from insurance subsidiaries, with approximately $603 million available for dividends without regulatory approval in 2007. In February 2007, the company issued $250 million of 6.25% senior notes due 2037.

02—Key points

Key Highlights

Net income rose to $699.5 million ($3.46 per diluted share) in 2006, compared with $544.9 million ($2.72 per diluted share) in 2005.
Net premiums written grew to $4.82 billion from $4.60 billion, and total revenues reached $5.39 billion.
Net investment income increased to $586.2 million from $404.0 million, with the average gross yield rising to 5.3% from 4.4%.
The consolidated combined ratio improved to 88.0% from 89.3%, with the loss ratio falling to 61.0% from 62.4%.
Regional segment combined ratio worsened to 90.3% from 86.4%, while the specialty segment improved to 84.1% from 87.5%.
Stockholders' equity increased to $3.34 billion ($17.30 per share) from $2.57 billion at year-end 2005.
Net reserves for losses and loss expenses were $6.95 billion, and the company increased prior-year loss estimates by $27 million in 2006 versus $187 million in 2005.

03—Questions

Frequently Asked Questions

What drove the increase in net income in 2006?
The filing attributes the increase to higher investment income, which rose 45% to $586 million on higher average invested assets and a higher average yield, as well as higher underwriting profits. Underwriting improved mainly because of lower prior-year loss reserve development ($27 million versus $187 million) and lower weather-related losses ($39 million versus $99 million).
Which segments performed best and which weakened?
Alternative markets (combined ratio 75.6%) and specialty (84.1%) were the strongest. Regional deteriorated to a 90.3% combined ratio from 86.4%, mainly because of an increase in the expected loss ratio for accident year 2006 due to declining average prices. Reinsurance improved to 99.8% from 104.2%.
What risks does the filing highlight for future results?
Key risks include cyclical pricing in the property casualty industry, uncertainty in reserve estimates (gross reserves of $7.8 billion), catastrophe losses, competitive pricing pressure, and reliance on reinsurers and insurance subsidiary dividends. The filing also notes that the federal terrorism program (TRIA) is scheduled to terminate on December 31, 2007, and that the company's 2007 TRIA deductible will rise to approximately $618 million.
How much capital can the insurance subsidiaries pay to the parent company without regulatory approval?
During 2007, the maximum amount of dividends that can be paid by the insurance subsidiaries without regulatory approval is approximately $603 million. The filing notes that the holding company depends on these dividends to service debt and pay stockholder dividends.
What changed in the company's debt and capital structure?
In 2006, the company repaid $100 million of 6.25% senior notes and redeemed $210 million of 8.197% junior subordinated debentures. In February 2007, it issued $250 million of 6.25% senior notes due 2037. Senior notes, junior subordinated debentures and other debt were 25% of total capitalization at December 31, 2006, down from 36% a year earlier.

04—Continue

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