01—Abstract
Summary
Summary of the 10-K filed February 20, 2020. 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 $681.9 milliona in 2019, up from $640.7 million in 2018, and diluted EPS of $3.52 versus $3.33. Net premiums written grew to $6.86 billion from $6.43 billion, and gross premiums written rose 7% to $8.26 billion.
The company operates two segments, Insurance and Reinsurance & Monoline Excess. The Insurance segment's GAAP combined ratio improved to 93.5%b from 95.1%, while the Reinsurance & Monoline Excess combined ratio was 96.5% versus 96.8%. Consolidated combined ratio was 93.8% compared with 95.3% in 2018.
Average renewal premium rates for insurance and facultative reinsurance rose 4.8% in 2019, and 6.9% excluding workers' compensation. Investment income declined to $645.6 millionc from $674.2 million, mainly because investment fund income fell, while the fixed maturity portfolio, which made up 72.6% of total investments, carried an effective duration of 2.8 years. Total revenues were $7.90 billion.
Stockholders' equity reached $6.07 billiond, or $33.12 per share, up from $29.72. Cash dividends declared rose to $1.73 per share from $1.39, including special dividends of $0.50 and $0.75. Gross reserves for losses and loss expenses were $12.58 billion, with net favorable prior-year development of $19 million.
The filing also flags risks including Brexit (the U.K. formally left the EU on January 31, 2020, with a transition period ending December 31, 2020), catastrophe exposure ($90 million net catastrophe losses in 2019), reserve adequacy, competitive pricing pressure, and regulatory changes such as the NAIC group capital tool and the California Consumer Privacy Act. KPMG issued an unqualified opinion on the financial statements and on internal control over financial reporting.
02—Key points
Key Highlights
- Net income to common stockholders rose to $681.9 million in 2019 from $640.7 million in 2018; diluted EPS was $3.52 versus $3.33.
- Gross premiums written increased 7% to $8.26 billion, and net premiums written reached $6.86 billion.
- The consolidated GAAP combined ratio improved to 93.8% from 95.3%, with the Insurance segment at 93.5% and Reinsurance & Monoline Excess at 96.5%.
- Stockholders' equity grew to $6.07 billion ($33.12 per share) from $5.44 billion, and dividends declared rose to $1.73 per share including special dividends.
- Net investment income fell 4% to $645.6 million, mainly due to lower investment fund income, while the fixed maturity portfolio's effective duration was 2.8 years.
- Gross loss reserves were $12.58 billion, with favorable net prior-year development of $19 million.
- Key risks disclosed include Brexit, catastrophe losses ($90 million net in 2019), reserve adequacy, competitive pressure and evolving insurance regulation.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 20, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $7.90B$7.69B | +2.7% |
| Interest Expense | $153.41M$157.19M | −2.4% |
| Net Income | $681.94M$640.75M | +6.4% |
| EPS (Basic) | $3.58$3.37 | +6.2% |
| EPS (Diluted) | $3.52$3.33 | +5.7% |
| Shares Outstanding (Basic) | 191K190K | +0.4% |
| Shares Outstanding (Diluted) | 194K192K | +0.6% |
05—Questions
Frequently Asked Questions
How did W. R. Berkley's underwriting profitability change in 2019?
The consolidated GAAP combined ratio improved to 93.8% in 2019 from 95.3% in 2018. The Insurance segment's combined ratio was 93.5% (95.1% in 2018), and the Reinsurance & Monoline Excess segment's was 96.5% (96.8% in 2018). A combined ratio below 100 indicates an underwriting profit.
What drove the increase in premiums and pricing?
Gross premiums written grew 7% to $8.26 billion. Average renewal premium rates for insurance and facultative reinsurance rose 4.8% in 2019, and 6.9% excluding workers' compensation, after adjusting for exposure changes. Insurance gross premiums grew 6%, and Reinsurance & Monoline Excess gross premiums grew 20%.
Why did investment income decline in 2019?
Net investment income decreased 4% to $645.6 million from $674.2 million, primarily due to a $40 million decrease in investment fund income. Fixed maturity income also dipped slightly as the average annualized yield fell to 3.4% from 3.6%, mainly due to lower interest rates.
What are the main risks flagged in the filing?
The filing highlights reserve estimation uncertainty (gross reserves of $12.58 billion), catastrophe exposure, competitive pricing pressure, reinsurer credit risk, ratings-downgrade risk, Brexit effects on the U.K. business, and potential changes to insurance regulation. It also notes that the parent company depends on dividends from subsidiaries, with up to about $601 million payable without regulatory approval in 2020.
06—Continue