01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
W.
R. Berkley Corporation, a Delaware insurance holding company, is among the largest commercial lines writers in the United States, operating in five segments: specialty, regional, alternative markets, reinsurance and international. In 2008 net premiums written fell to $4.03 billiona from $4.58 billion in 2007, and net income dropped to $281.1 million, or $1.62 per diluted share, from $766.2 million, or $3.90 per diluted share.
The filing attributes the decline primarily to realized investment losses of $356.9 millionb, including $433.6 million of other-than-temporary impairment provisions, along with lower underwriting profits and investment income. The consolidated combined ratio rose to 93.1% from 88.1%, with the loss ratio at 62.7% and the expense ratio at 30.4%. Net favorable prior-year reserve development was $195.7 million, and the company's gross loss reserves totaled $9.0 billion at year end.
The filing describes a competitive pricing environment in which renewal prices declined roughly 5% and new business volume fell. Net investment income declined to $537.0 millionc from $634.4 million, reflecting lower arbitrage trading income and dividend deferrals on Fannie Mae and Freddie Mac preferred stock. Stockholders' equity declined to $3.05 billion, or $18.87 per share, from $3.59 billion, while the company repurchased 20,677,144 shares for $553 million during 2008.
Management also disclosed a $111 milliond pre-tax fourth-quarter 2008 loss from investment funds that will be recorded in the first quarter of 2009. Investors should weigh the company's large share repurchases and dividend capacity, which the filing limits to approximately $392 million during 2009 without regulatory approval, against the impairment losses and the continuing softness in pricing.
The filing states that 22 of 24 A.M. Best-rated insurance subsidiaries carry an A+ (Superior) rating.
02—Key points
Key Highlights
- Net premiums written declined to $4,033.9 million in 2008 from $4,575.989 million in 2007, with reinsurance premiums down most sharply in the segment table.
- Net income fell to $281.1 million ($1.62 per diluted share) from $766.2 million ($3.90 per diluted share), mainly due to $356.9 million in realized investment losses.
- Other-than-temporary impairment write-downs totaled $433.6 million in 2008, including $263 million on Fannie Mae and Freddie Mac preferred stock.
- Consolidated combined ratio rose to 93.1% in 2008 from 88.1% in 2007, with the loss ratio at 62.7% and the expense ratio at 30.4%.
- Net favorable development on prior-year loss reserves was $195.7 million in 2008, compared with $105.9 million in 2007.
- Net investment income fell to $537.0 million from $634.4 million, and the company repurchased 20,677,144 shares for $553 million.
- Maximum dividends payable from insurance subsidiaries without regulatory approval during 2009 are approximately $392 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
| Revenue | $4.71B |
| Interest Expense | $84.62M |
| Net Income | $281.14M |
| EPS (Basic) | $1.68 |
| EPS (Diluted) | $1.62 |
05—Questions
Frequently Asked Questions
Why did W. R. Berkley's net income decline sharply in 2008?
The filing attributes the decline primarily to realized investment losses of $356.9 million, which included $433.6 million of other-than-temporary impairment charges. Underwriting profits and investment income were also lower, with net investment income falling to $537.0 million from $634.4 million.
How did the company's underwriting performance change?
The consolidated combined ratio increased to 93.1% in 2008 from 88.1% in 2007. The loss ratio rose to 62.7% from 59.6%, and the expense ratio rose to 30.4% from 28.5%, primarily because earned premiums declined. Net premiums earned fell to $4,289.6 million from $4,663.7 million.
What pricing conditions does the company describe?
The filing states that increased competition and downward pressure on pricing have persisted since 2004. Renewal price levels declined approximately 5% in 2008, and new business volume was lower. The company expects this competition to continue in the first half of 2009, though it notes signs of easing in some lines.
What is the company's exposure to investment risk?
Fixed maturity securities were about $9.7 billion, or 77% of the total investment portfolio. Equity securities were about $1.2 billion, or 9% of the portfolio, and the filing reports $427.3 million of other-than-temporary impairments on equity securities in 2008. The company also disclosed a $111 million pre-tax loss from investment funds for the fourth quarter of 2008, to be recognized in the first quarter of 2009.
How did the company use its capital in 2008?
The company repurchased 20,677,144 shares of common stock for $553 million and declared cash dividends of $0.23 per share. Stockholders' equity declined to $3.05 billion, or $18.87 per share, from $3.59 billion a year earlier.
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