01—Abstract
Summary
Summary of the 10-K filed February 22, 2016. Cited figures are marked; the original filing is the authoritative source.
W.
R. Berkley Corporation, an insurance holding company among the largest commercial lines writers in the United States, reported net income to common stockholders of $503.7 milliona in 2015, down from $648.9 million in 2014, and diluted EPS of $3.87 versus $4.86. The filing attributes the decline primarily to lower after-tax net investment gains ($106 million decrease) and lower after-tax net investment income ($60 million decrease), partially offset by a $14 million increase in after-tax underwriting income.
Total revenues rose to $7.21 billionb from $7.13 billion, and gross premiums written grew 3% to $7.25 billion, with net premiums earned up 5% to $6.04 billion. Underwriting profitability was steady. The consolidated GAAP combined ratio was 93.7% in 2015 versus 93.8% in 2014, with the Insurance-Domestic segment at 92.4%, Insurance-International at 99.6% and Reinsurance-Global at 96.6%.
Net favorable prior-year reserve development was $63 millionc, compared with $85 million in 2014. Net investment income fell 15% to $513 million as income from energy-related investment funds declined, and the average annualized yield on fixed maturities slipped to 3.2% from 3.4%. Book value per share rose to $37.31 from $36.21, and the company repurchased $224 million of common stock while paying $58 million in dividends.
The balance sheet remained large relative to equity: total assets were $21.73 billiond, reserves for losses and loss expenses were $10.67 billion, and the fixed maturity portfolio was $12.44 billion, or 77.3% of total investments. The filing flags sensitivity to interest rates, catastrophe losses ($58 million in 2015), and reliance on dividends from insurance subsidiaries, of which up to $684 million can be paid in 2016 without regulatory approval.
02—Key points
Key Highlights
- Net income to common stockholders fell 22% to $503.7 million ($3.87 diluted EPS) from $648.9 million ($4.86) in 2014, driven mainly by lower net investment gains and investment income.
- Gross premiums written rose 3% to $7.25 billion; net premiums written reached $6.19 billion and net premiums earned $6.04 billion, up 5%.
- Consolidated GAAP combined ratio was 93.7% in 2015 versus 93.8% in 2014; Insurance-Domestic posted 92.4%, Insurance-International 99.6% and Reinsurance-Global 96.6%.
- Net investment income decreased 15% to $513 million, reflecting lower income from energy investment funds and a fixed maturity yield of 3.2% versus 3.4%.
- Net favorable prior-year reserve development was $63 million in 2015, compared with $85 million in 2014.
- Common stockholders' equity reached $4.60 billion, or $37.31 per share, up from $36.21; the company repurchased $224 million of stock in 2015.
- Twenty-seven of twenty-eight A.M. Best-rated insurance subsidiaries carry an A+ (Superior) rating; up to $684 million of subsidiary dividends can be paid in 2016 without regulatory approval.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 22, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $7.21B$7.13B | +1.1% |
| Interest Expense | $130.95M$128.17M | +2.2% |
| Net Income | $503.69M$648.88M | −22.4% |
| EPS (Basic) | $4.06$5.07 | −19.9% |
| EPS (Diluted) | $3.87$4.86 | −20.4% |
| Shares Outstanding (Basic) | 124.04M127.87M | −3.0% |
| Shares Outstanding (Diluted) | 130.19M133.65M | −2.6% |
05—Questions
Frequently Asked Questions
What drove the decline in net income in 2015?
The filing attributes the 22% decrease in net income to a decrease in after-tax net investment gains of $106 million and after-tax net investment income of $60 million, partially offset by a $14 million increase in after-tax underwriting income. Net investment gains fell to $92.3 million from $254.9 million, and net investment income fell to $512.6 million from $600.9 million, mainly due to lower income from energy investment funds.
How profitable was the core underwriting business?
The consolidated GAAP combined ratio was 93.7% in 2015 compared with 93.8% in 2014, indicating an underwriting profit excluding investment income. Insurance-Domestic had a 92.4% combined ratio, Insurance-International 99.6% and Reinsurance-Global 96.6%. The consolidated loss ratio was 60.5%, and catastrophe losses were $58 million.
What are the company's main risks highlighted in the filing?
The filing cites cyclical pricing in the property casualty industry, intense competition that has reduced premium rates in some areas, reserve adequacy uncertainty (gross reserves of about $10.7 billion), catastrophe and terrorism exposure, investment risk from a portfolio that is 77.3% fixed maturity securities, and dependence on dividends from insurance subsidiaries. It also notes that current prices for certain lines remain below the levels needed to achieve long-term return objectives.
How did premium growth and pricing trend?
Gross premiums written grew 3% to $7.25 billion in 2015, driven by increased exposures and higher rates. Average renewal premium rates, adjusted for exposure changes, increased 1.2% in 2015, down from 3.4% in 2014 and 6.5% in 2013. Policy renewal retention was about 77%, compared with 79% in 2014.
06—Continue