01—Abstract
Summary
Summary of the 10-K filed February 22, 2019. 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 segments: Insurance and Reinsurance. In 2018, net premiums written were $6.43 billiona, up from $6.26 billion in 2017, and gross premiums written rose 3% to $7.70 billion.
The Insurance segment produced a GAAP combined ratio of 94.3% and the Reinsurance segment 106.4%, for a consolidated combined ratio of 95.3% versus 96.7% in 2017. Net income to common stockholders was $640.7 millionb, or $5.00 per diluted share, compared with $549.1 million, or $4.26 per diluted share, in 2017. The filing attributes the increase mainly to higher after-tax net investment income, better underwriting income, and a lower tax expense from the reduced federal corporate tax rate, partly offset by lower after-tax net investment gains.
The balance sheet remained substantial, with total assets of $24.90 billionc, total investments of $17.72 billion, and common stockholders' equity of $5.44 billion, or $44.57 per share. Fixed maturity securities were $13.61 billion, or 73.5% of total investments including cash. Net reserves for losses and loss expenses were $10.25 billion, and the filing notes that favorable prior year development was $39 million in 2018.
Senior notes and other debt totaled $1.88 billiond, and subordinated debentures $907.5 million. Operating cash flow was $620.2 million in 2018, down from $710.9 million in 2017.
Looking ahead, the Board approved a 3-for-2 common stock split on February 21, 2019, payable as a stock dividend with additional shares expected to be issued on April 2, 2019. The company also reported that dividends of $2.09 per share were declared in 2018, including three special dividends of $0.50 each, and that the maximum dividend its lead insurer can pay without regulatory approval in 2019 is approximately $1.1 billion.
02—Key points
Key Highlights
- Net income to common stockholders rose to $640.7 million ($5.00 per diluted share) in 2018 from $549.1 million ($4.26 per diluted share) in 2017.
- Gross premiums written increased 3% to $7.70 billion, with Insurance gross premiums up 4% to $7.16 billion and Reinsurance gross premiums down 10% to $545 million.
- Consolidated GAAP combined ratio improved to 95.3% in 2018 from 96.7% in 2017; Insurance was 94.3% and Reinsurance was 106.4%.
- Net investment income increased 17% to $674 million, reflecting a larger portfolio and higher interest rates; the fixed maturity portfolio yield was 3.6%.
- Net prior year reserve development was favorable at $39 million, driven by workers' compensation, partly offset by professional liability adverse development.
- Board approved a 3-for-2 common stock split on February 21, 2019, with additional shares expected to be issued on April 2, 2019.
- Cash dividends declared were $2.09 per share in 2018, including three special dividends of $0.50 each; the Company repurchased shares for $25 million in 2018.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 22, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $7.69B$7.68B | +0.1% |
| Interest Expense | $157.19M$147.30M | +6.7% |
| Net Income | $640.75M$549.09M | +16.7% |
| EPS (Basic) | $3.37$2.93 | +15.0% |
| EPS (Diluted) | $3.33$2.84 | +17.3% |
| Shares Outstanding (Basic) | 190K187K | +1.5% |
| Shares Outstanding (Diluted) | 192K194K | −0.6% |
05—Questions
Frequently Asked Questions
Why did W. R. Berkley's net income rise in 2018?
The filing attributes the $91.7 million increase in net income mainly to an after-tax increase in net investment income of $79 million, an after-tax increase in underwriting income of $72 million, and a $60 million decrease in tax expense largely due to the reduction of the federal corporate tax rate from 35% to 21%. These were partly offset by a decrease in after-tax net investment gains of $145 million.
How did the Reinsurance segment perform in 2018?
Reinsurance net premiums written were $480 million, down from $545 million in 2017, and its GAAP combined ratio was 106.4%, compared with 117.6% in 2017. Its loss ratio improved to 68.7% from 80.2%, mainly because 2017 included larger catastrophe losses from hurricanes Harvey, Irma and Maria and the Ogden discount rate change.
What are the main risks the filing highlights for investors?
The filing highlights cyclical pricing in the property casualty industry, intense competition including from new capital entrants, reserve estimation uncertainty, catastrophe and terrorism exposure, and investment risk, with fixed maturity securities at 73.5% of total investments. It also cites the United Kingdom's withdrawal from the EU, regulatory changes, and its dependence on dividends from insurance subsidiaries, which can pay about $1.1 billion in 2019 without regulatory approval.
What is the company's capital and debt position?
At December 31, 2018, common stockholders' equity was $5.44 billion, or $44.57 per share, and total capitalization was $8.2 billion. Senior notes and other debt were $1.88 billion and subordinated debentures were $907.5 million. Debt represented 34% of capital at year-end 2018, up from 32% at year-end 2017. The company issued $175 million of 5.70% subordinated debentures in March 2018 and a further $10 million in April 2018.
What happens with the stock split and dividends?
On February 21, 2019, the Board approved a 3-for-2 common stock split payable as a stock dividend to holders of record on March 14, 2019, with additional shares expected to be issued on April 2, 2019. The Board expects to continue regular quarterly cash dividends, which were $0.14 per share in the first quarter of 2018 and $0.15 per share in each remaining quarter, along with three special dividends of $0.50 per share each.
06—Continue