01—Abstract
Summary
Summary of the 10-K filed February 28, 2017. 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 $601.9 milliona, or $4.68 per diluted share, for 2016, compared with $503.7 million, or $3.87 per diluted share, in 2015. The filing attributes the increase mainly to higher after-tax net investment gains, net investment income and foreign currency gains, partially offset by lower underwriting income.
Net premiums written rose 4% to $6.42 billionb and net premiums earned rose 4% to $6.29 billion. The consolidated GAAP combined ratio was 94.3% in 2016 versus 93.7% in 2015, and net investment income increased 10% to $564 million, with a 3.4% annualized yield. The company operates in two segments: Insurance (89.9% of 2016 net premiums written) and Reinsurance (10.1%).
Insurance's combined ratio was 93.6%, while Reinsurance's rose to 100.6% from 96.6%, driven by a higher expense ratio and loss ratio. Favorable prior-year reserve development was $59 millionc. Gross reserves for losses and loss expenses reached $11.20 billion, and total investments were $16.65 billion, of which fixed maturity securities were 75.6%.
Shareholders' equity per share rose to $41.65d from $37.31. Capital and financing activity included $387 million of new subordinated debentures issued in 2016 (5.9% due 2056 and 5.75% due 2056), a $240 million increase in dividends paid to $184 million including special dividends of $0.50 per share in both the third and fourth quarters, and $132 million of share repurchases. The filing notes that catastrophe losses net of reinsurance were $105 million in 2016, and that management expects continued pricing pressure, as the rate of premium increase declined and accelerated its decline in 2016.
02—Key points
Key Highlights
- Net income to common stockholders rose 20% to $601.9 million ($4.68 per diluted share) in 2016 from $503.7 million ($3.87 per diluted share) in 2015, driven by higher after-tax net investment gains and net investment income.
- Gross premiums written grew 4% to $7.54 billion, with Insurance up 3% to $6.84 billion and Reinsurance up 10% to $709 million.
- Consolidated GAAP combined ratio was 94.3% in 2016 versus 93.7% in 2015; Reinsurance's combined ratio deteriorated to 100.6% from 96.6%, while Insurance held at 93.6%.
- Net investment income increased 10% to $564 million, and net realized investment gains reached $285 million, including a $134.9 million gain on the sale of Aero Precision Industries.
- Average renewal premium rates increased only 0.3% in 2016, down from 1.2% in 2015 and 3.4% in 2014, and the filing states that the rate of price increases declined further in 2016.
- Net reserves for losses and loss expenses totaled $9.59 billion, with favorable prior-year development of $59 million; total gross reserves were $11.20 billion.
- Book value per share rose to $41.65 from $37.31, and the company paid $1.51 in cash dividends per share, including two $0.50 special dividends in 2016.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 28, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $7.65B$7.21B | +6.2% |
| Interest Expense | $140.90M$130.95M | +7.6% |
| Net Income | $601.92M$503.69M | +19.5% |
| EPS (Basic) | $4.91$4.06 | +20.9% |
| EPS (Diluted) | $4.68$3.87 | +20.9% |
| Shares Outstanding (Basic) | 122.65M124.04M | −1.1% |
| Shares Outstanding (Diluted) | 128.55M130.19M | −1.3% |
05—Questions
Frequently Asked Questions
How did W. R. Berkley's profitability change in 2016?
Net income to common stockholders was $601.9 million, or $4.68 per diluted share, compared with $503.7 million, or $3.87 per diluted share, in 2015. The filing attributes the increase mainly to after-tax net investment gains of $114 million higher and after-tax net investment income of $34 million higher, partially offset by lower after-tax underwriting income of $13 million.
What drove the rise in the Reinsurance segment's combined ratio?
The Reinsurance combined ratio rose to 100.6% in 2016 from 96.6% in 2015. The loss ratio increased to 61.8% from 58.4%, and the expense ratio increased to 38.8% from 38.2%. Catastrophe losses in Reinsurance were $16 million in 2016 compared with $3 million in 2015.
Is pricing still supporting the company's return objectives?
The filing says that although insurance prices have generally increased since 2011, the rate of increase has declined in recent years and that decline accelerated in 2016. It states that with low interest rates, current price levels for certain lines remain below the prices required to achieve long-term return objectives, and that loss costs have also increased.
What did the company do with its capital in 2016?
The company issued $110 million of 5.9% subordinated debentures due 2056 in February 2016 and $290 million of 5.75% subordinated debentures due 2056 in May 2016. It repurchased shares totaling $132 million, paid $184 million in cash dividends, and sold Aero Precision Industries for $253.1 million.
How much capacity does the insurance subsidiary have to pay dividends without regulatory approval?
The filing states that during 2017 the maximum amount of dividends that can be paid without regulatory approval is approximately $580 million. Its lead insurer, Berkley Insurance Company, had statutory capital and surplus of $5.49 billion at December 31, 2016.
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