01—Abstract
Summary
Summary of the 10-K filed February 23, 2018. Cited figures are marked; the original filing is the authoritative source.
W.
R. Berkley Corporation is an insurance holding company and one of the largest commercial lines writers in the United States, operating in two property casualty segments: Insurance and Reinsurance. For 2017, net income to common stockholders was $549 milliona, or $4.26 per diluted share, compared with $602 million, or $4.68 per diluted share, in 2016.
Total revenues rose to $7.68 billionb from $7.65 billion. The filing attributes the decline in net income mainly to increased catastrophe losses from hurricanes Harvey, Irma and Maria, two earthquakes in Mexico and California wildfires, which totaled $184 million in 2017 versus $105 million in 2016. Net premiums written fell 3% to $6.26 billion, with the Reinsurance segment reporting a GAAP combined ratio of 117.6%, compared with 100.6% in 2016.
The Insurance segment remained the core earnings driver, with a combined ratio of 94.5% and pre-tax income of $756 millionc, while Reinsurance posted a pre-tax loss of $15 million, reflecting catastrophe losses and $31 million of adverse prior-year reserve development tied to U.K. Ogden discount rate changes. Net favorable prior-year reserve development totaled $37 million.
The Tax Cuts and Jobs Act produced a net 2017 tax benefit of $20.7 milliond, which the Company describes as provisional. Total assets were $24.30 billion and common stockholders' equity reached $5.41 billion, or $44.53 per share, up from $41.65 a year earlier.
Capital management included $188 million of dividends to common stockholders in 2017, including $0.50 special dividends paid in July and December, and share repurchases of $48 million. Management reports that fixed maturity securities represented 73.6% of total investments, that the portfolio had an effective duration of 3.0 years, and that the Company's insurance subsidiaries face a 2018 dividend capacity without regulatory approval of approximately $699 million.
02—Key points
Key Highlights
- Net income to common stockholders was $549 million ($4.26 per diluted share) in 2017, down 9% from $602 million ($4.68 per diluted share) in 2016.
- Catastrophe losses, net of reinsurance recoveries, were $184 million in 2017 versus $105 million in 2016, mainly from hurricanes Harvey, Irma and Maria, two Mexico earthquakes and California wildfires.
- Net premiums written were $6.26 billion in 2017, a decrease of 3% from $6.42 billion in 2016; gross premiums written decreased 1% to $7.48 billion.
- The Reinsurance segment's GAAP combined ratio rose to 117.6% in 2017 from 100.6% in 2016, while the Insurance segment's combined ratio was 94.5% versus 93.5%.
- Net favorable prior-year reserve development was $37 million in 2017, with Reinsurance reserves developing unfavorably by $31 million, largely due to the U.K. Ogden discount rate change.
- The Tax Cuts and Jobs Act produced a net 2017 tax benefit of $20.7 million, which the Company describes as based on provisional estimates; the effective tax rate fell to 28% from 33%.
- Common stockholders' equity rose to $5.41 billion ($44.53 per share) at December 31, 2017, and the Company paid $188 million in dividends including $0.50 special dividends in July and December 2017.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 23, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $7.68B$7.65B | +0.4% |
| Interest Expense | $147.30M$140.90M | +4.5% |
| Net Income | $549.09M$601.92M | −8.8% |
| EPS (Basic) | $2.93$4.91 | −40.3% |
| EPS (Diluted) | $2.84$4.68 | −39.3% |
| Shares Outstanding (Basic) | 187K122.65M | −99.8% |
| Shares Outstanding (Diluted) | 194K128.55M | −99.8% |
05—Questions
Frequently Asked Questions
What drove the decline in W. R. Berkley's 2017 net income?
The filing attributes the 9% decline in net income primarily to a decrease in after-tax underwriting income of $98 million, mainly from increased catastrophe losses from hurricanes Harvey, Irma and Maria, two earthquakes in Mexico and California wildfires. Net foreign currency losses, lower income from non-insurance businesses and higher interest and other expenses also contributed, partly offset by higher net investment gains and a $21 million benefit from tax reform.
How did the Reinsurance segment perform in 2017?
Reinsurance had a pre-tax loss of $15.3 million in 2017, compared with pre-tax income of $98.3 million in 2016. Its loss ratio rose to 80.2% from 61.6%, and its GAAP combined ratio reached 117.6% versus 100.6%. The filing cites catastrophe losses of $77 million and $31 million of adverse prior-year development, including reserve strengthening tied to the U.K. Ogden discount rate change.
What is the Company's exposure to terrorism losses and how does TRIPRA affect it?
The filing states that under TRIPRA, the federal government pays 83% of covered losses above the insurer's deductible, and that the Company's aggregate deductible for 2018 is approximately $948 million based on 2017 earned premiums. TRIPRA is in effect through December 31, 2020, and does not apply to the Company's reinsurance business.
How much could the insurance subsidiaries pay in dividends without regulatory approval?
The filing states that during 2018, the maximum amount of dividends that can be paid without regulatory approval is approximately $699 million, with Berkley Insurance Company as the lead insurer. The Company notes that this limit could restrict its ability to pay dividends or repurchase shares if subsidiary earnings or surplus decline.
What is the composition of the Company's investment portfolio?
Fixed maturity securities were $13.55 billion, or 73.6% of total investments of $18.40 billion including cash, at December 31, 2017, with an effective duration of 3.0 years. Other holdings included real estate of $1.47 billion (8.0%), investment funds of $1.16 billion (6.3%), cash and cash equivalents of $950 million (5.2%) and equity securities of $577 million (3.1%).
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