<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended. . . . . . . . March 31, 1996
Commission File Number 0-7849
W. R. BERKLEY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 22-1867895
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
165 Mason Street, Greenwich, Connecticut 06836-2518
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(Address of principal executive offices) (Zip Code)
(203) 629-3000
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(Registrant's telephone number, including area code)
None
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Former name, former address and former fiscal year, if
changed since last report.
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Number of shares of common stock, $.20 par value, outstanding as of May 3, 1996:
19,660,485.
<PAGE> 2
W. R. Berkley Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Invested cash $ 205,441 $ 196,732
Fixed maturity securities:
Held to maturity, at cost (fair value
$192,872 and $176,193) 191,098 169,078
Available for sale at fair value (cost $1,944,512
and $1,894,451) 1,960,792 1,959,910
Equity securities, at fair value:
Available for sale (cost $92,327 and $92,472) 102,121 101,551
Trading account (cost $145,764 and $155,301) 150,946 161,075
Cash 15,262 10,185
Premiums and fees receivable 248,528 231,093
Due from reinsurers 431,047 423,626
Accrued investment income 32,394 34,373
Prepaid reinsurance premiums 75,616 77,656
Deferred policy acquisition costs 96,965 89,517
Excess of cost over net assets acquired 71,020 69,600
Deferred Federal income taxes 2,228 --
Other assets 101,803 94,288
----------- -----------
$ 3,685,261 $ 3,618,684
=========== ===========
Liabilities, Reserves, Debt and
Stockholders' Equity
Liabilities and reserves:
Reserves for losses and loss expenses $ 1,694,493 $ 1,660,020
Unearned premiums 468,552 450,522
Due to reinsurers 71,097 65,798
Deferred Federal income taxes -- 14,363
Other liabilities 165,719 169,080
----------- -----------
2,399,861 2,359,783
----------- -----------
Long-term debt 389,899 290,981
Notes payable to Banks -- 28,306
Minority interest 9,853 9,799
Stockholders' equity:
Preferred stock, par value $.10 per share:
Authorized 5,000,000 shares:
7 3/8% Series A Cumulative Redeemable Preferred
Stock 1,000,000 shares issued and outstanding 100 100
Series B Cumulative Redeemable Preferred Stock
266,667 and 458,667 shares issued and outstanding 27 46
Common stock, par value $.20 per share:
Authorized 40,000,000 shares, issued and
outstanding, net of treasury shares,
20,183,998 and 20,168,167 shares 4,854 4,854
Additional paid-in capital 520,993 547,068
Retained earnings 437,321 424,261
Net unrealized investment gains,
net of taxes 16,950 48,450
Treasury stock, at cost, 4,085,380 and
4,101,211 shares (94,597) (94,964)
----------- -----------
885,648 929,815
----------- -----------
$ 3,685,261 $ 3,618,684
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
W. R. Berkley Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Net premiums written $ 249,208 $ 190,576
Increase in unearned premiums (20,069) (10,951)
--------- ---------
Premiums earned 229,139 179,625
Net investment income 39,619 30,843
Management fees and commissions 18,562 16,754
Realized gains on investments 311 997
Other income 643 713
--------- ---------
Total revenues 288,274 228,932
Operating costs and expenses:
Losses and loss expenses (160,763) (125,097)
Other operating costs and expenses (95,393) (78,749)
Interest expense (7,787) (7,025)
--------- ---------
Income before income taxes and
minority interest 24,331 18,061
Federal income tax expense (4,809) (3,455)
--------- ---------
Income before minority interest 19,522 14,606
Minority interest -- (1,033)
--------- ---------
Net income before preferred dividends 19,522 13,573
Preferred dividends (3,838) (2,766)
--------- ---------
Net income attributable to common stockholders $ 15,684 $ 10,807
========= =========
Net income per share $ .78 $ .65
========= =========
Average shares outstanding 20,178 16,749
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
W. R. Berkley Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 19,522 $ 13,573
Adjustments to reconcile net income to cash
flows from operating activities:
Minority interest -- 1,033
Increase in reserves for losses
and loss expenses, net of due to/from reinsurers 32,351 29,370
Depreciation and amortization 2,889 3,062
Change in unearned premiums and
prepaid reinsurance premiums 20,069 10,951
Increase in premiums and fees receivable (17,435) (13,967)
Change in Federal income taxes 4,400 2,654
Change in deferred acquisition cost (7,448) (2,759)
Realized gains on investments (311) (997)
Other (13,231) (8,144)
--------- ---------
Net cash flows from operating activities
before trading account sales 40,806 34,776
Trading account sales 13,335 (6,679)
--------- ---------
Net cash flows from operating activities 54,141 28,097
--------- ---------
Cash flows from investing activities:
Proceeds from sales, excluding trading account:
Fixed maturity securities available for sale 96,627 91,585
Equity securities 2,197 478
Proceeds from maturities and prepayments of
fixed maturity securities 52,087 26,396
Cost of purchases, excluding trading account:
Fixed maturity securities available for sale (191,618) (166,373)
Fixed maturity securities held to maturity (28,448) --
Equity securities (2,080) (1,284)
Change in balances due to/from security brokers 946 (128)
Other (9,481) (3,159)
--------- ---------
Net cash flows from investing activities (79,770) (52,485)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of long-term debt 98,850 --
Repayment of preferred stock (27,351) --
Repayment of subsidiary debt (27,225) (2,971)
Cash dividends to common stockholders (2,419) (1,842)
Cash dividends to preferred stockholders (2,856) (2,766)
Purchase of treasury shares -- (4,095)
Other 416 61
--------- ---------
Net cash flows from financing activities 39,415 (11,613)
--------- ---------
Net decrease in cash and invested cash 13,786 (36,001)
Cash and invested cash at beginning of year 206,917 219,629
--------- ---------
Cash and invested cash at end of period $ 220,703 $ 183,628
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 4,531 $ 4,945
========= =========
Federal income taxes paid, net $ 408 $ 800
========= =========
</TABLE>
3
<PAGE> 5
W. R. Berkley Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1996
(Unaudited)
The accompanying consolidated financial statements should be read in
conjunction with the following notes and with the Notes to Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
A. FEDERAL INCOME TAXES
The Federal income tax provision has been computed based on the
Company's estimated annual effective tax rate which differs from the Federal
income tax rate of 35% principally because of tax-exempt investment income.
B. REINSURANCE CEDED
The amounts of ceded reinsurance included in the statements of
operations are as follows (amounts in thousands):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Ceded premiums written $ 50,874 $ 50,797
======== ========
Ceded premiums earned $ 52,760 $ 49,883
======== ========
Ceded losses and loss expenses $ 31,066 $ 27,963
======== ========
</TABLE>
C. PER SHARE DATA
Per share amounts have been computed based on net income less preferred
dividends divided by the weighted average number of common shares outstanding.
Incremental shares arising from the assumed issuance of employee stock options,
which are considered common stock equivalents, were not included in the
computations because the assumed dilutive effect was not material.
4
<PAGE> 6
D. OTHER MATTERS
Net unrealized investment gains decreased by $31,500,000 (net of
Federal income taxes of $16,962,000) during the three months ended March 31,
1996. Of this amount, $465,000 was attributable to a increase in unrealized
gains on equity securities and $31,965,000 was attributable to a decrease in
unrealized gains on fixed maturities available for sale.
Reclassifications have been made in the 1995 financial statements as
originally reported to conform them to the presentation of the 1996 financial
statements.
In the opinion of management, the summarized financial information
reflects all adjustments which are necessary for a fair presentation of
financial position and results of operations for the interim periods. The
Company's results of operations are affected by seasonal weather variations.
Accordingly, results reflected for any interim period are not necessarily
indicative of those to be expected for the entire year.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net income attributable to common stockholders ("net income") was $15.7
million, ($.78 per share) for the first quarter of 1996, in comparison with
$10.8 million, ($.65 per share), for the 1995 period. Operating income, which is
net income before realized investment gains, was $15.5 million, ($.77 per
share), in the first quarter of 1996 in comparison with $10.2 million, ($.61 per
share), earned in the corresponding 1995 period.
Net premiums written during the first quarter of 1996 increased by 31%
to $249.2 million from $190.6 million written in the comparable 1995 period.
Alternative markets net premiums increased $20.6 million in the first quarter of
1996 due to the acquisition of MECC, Inc. in November 1995. Regional net
premiums written increased by $16.8 million or 17%; two-thirds of this increase
is due to business units which were added in past four years. Specialty net
premiums written increased by $9.9 million or 25% due primarily to decreases in
the amounts of business ceded to unaffiliated reinsurers. Net premiums written
by our reinsurance operation increased by $5.9 million or 13% due to growth in
treaty and fidelity and surety business.
For the three months ended March 31, 1996, pre-tax investment income
increased by 29% to $39.6 million primarily due to the acquisition of MECC, Inc.
In addition, the higher level of investment earnings reflects the increase in
average investable assets due to cash flow from operations, an increase in
investment yields available in the financial markets and the net effects of the
financing transactions discussed below (See "Liquidity and Capital Resources").
Management fees and commission income ("Management fees") consist
primarily of revenues earned by the Alternative Markets segment. During the
first quarter of 1996, management fees increased 11%. The increase in management
fees resulted principally from an increase in business serviced by our third
party administrators.
The combined ratio (on a statutory basis) of the Company's insurance
operations increased to 103.0% for the quarter ended March 31, 1996 from 101.5%
in the comparable 1995 period due to increases in the consolidated loss ratio
and the expense ratio. The consolidated loss ratio (losses and loss expenses
incurred expressed as a percentage of premiums earned) increased to 70.4% in
1996 from 69.1% in 1995 due to an increase in weather related losses.
Other operating costs and expenses, which consists of the expenses of
the Company's insurance and alternative markets segments as well as the
Company's corporate and investment expenses, increased by 21% to $95.4 million.
The increase in other operating costs and expenses is primarily due to the
acquisition of MECC, Inc. In addition, substantial growth in premium volume in
all segments of the Company's business, which in turn results in an increase in
underwriting expense contributed to the increase. The consolidated expense ratio
(underwriting expenses expressed as a percentage of premiums written) increased
to 32.2% from 31.8% primarily due to an increase in expenses relating to the
international operations.
Interest expense increased due to the January 1996 issuance of $100
million of 6.25%, ten year notes which was partially offset by the redemption of
Notes payable to Banks. Preferred dividends increased as a result of the
December 1995 issuance of $68.8 million Series B Cumulative Redeemable Preferred
Stock. (See "Liquidity and Capital Resources").
The Federal income tax expense in 1996 was $4.8 million (20% effective
rate) as compared to a $3.5 million (19% effective rate) for the comparable 1995
period. The increase in the effective tax rate in 1996 is due primarily to a
decrease in the percentage of pre-tax income that is tax-exempt. (See "Liquidity
and Capital Resources").
6
<PAGE> 8
Liquidity and Capital Resources
Cash flow from operating activities before trading account, increased
to $40.8 million in the first quarter of 1996 from $34.8 million in the same
period in 1995 primarily due to the acquisition of MECC, Inc. The investment
portfolio, on a cost basis, increased $71.1 million to $2,579.1 million at March
31, 1996 from $2,508.0 million at December 31, 1995 due to cash flow from
operations and the net financing activities discussed below.
The change in the Company's investment portfolio distribution at March
31, 1996 compared with December 31, 1995 was: tax-exempt securities decreased to
32% from 35%; U.S. Government securities increased to 13% from 12%; corporate
bonds decreased to 15% from 19% mortgage-backed securities increased to 22% from
18%; cash equivalents increased to 9% from 6% and equity securities decreased to
9% from 10%.
On January 19, 1996, the Company issued $100 million of 6.25%, ten-year
notes which are not redeemable until maturity and utilized a portion of the
proceeds to retire $28.4 million of Signet Star's bank debt. On March 29, 1996
the Company repurchased 192,000 shares of the Series B Cumulative Redeemable
Preferred Stock for $27.2 million.
For the first quarter of 1996, Stockholders' equity decreased by
approximately $44.2 million. The decrease in stockholders' equity is
attributable to the repurchase of the Series B Cumulative Redeemable Preferred
Stock and a decrease in unrealized investment gains which was partially offset
by an increase in retained earnings. As a result of the financing transactions
discussed above, the Company's total capitalization, grew to $1,275.5 million at
March 31, 1996 and the percentage of the Company's capital attributable to debt
increased to 31% from 26% at December 31, 1995.
The Company purchased 525,000 shares of common stock in April and May
of 1996. As authorized by the Board of Directors, up to 809,000 additional
shares may be purchased from time to time.
For background information concerning a further discussion of the
Company's Liquidity and Capital Resources, see the Company's Annual Report on
Form 10-K.
7
<PAGE> 9
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
8
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
W. R. BERKLEY CORPORATION
By /s/ William R. Berkley
-------------------------
William R. Berkley
Chairman of the Board and
Chief Executive Officer
By /s/ Anthony J. DelTufo
-------------------------
Anthony J. Del Tufo
Senior Vice President,
Chief Financial Officer
and Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 1,960,792
<DEBT-CARRYING-VALUE> 191,098
<DEBT-MARKET-VALUE> 192,872
<EQUITIES> 253,067
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,404,957
<CASH> 220,703
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 96,965
<TOTAL-ASSETS> 3,685,261
<POLICY-LOSSES> 1,694,493
<UNEARNED-PREMIUMS> 468,552
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 389,899
0
127
<COMMON> 4,854
<OTHER-SE> 880,667
<TOTAL-LIABILITY-AND-EQUITY> 3,685,261
229,139
<INVESTMENT-INCOME> 39,619
<INVESTMENT-GAINS> 311
<OTHER-INCOME> 643
<BENEFITS> 160,763
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 24,331
<INCOME-TAX> 4,809
<INCOME-CONTINUING> 19,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,684
<EPS-PRIMARY> .78
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
