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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 30, 1999
W.R. BERKLEY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-7849 22-1867895
(State or Other Jurisdiction of (Commission File No.) (IRS Employer
Incorporation) Identification Number)
165 Mason Street, P.O. Box 2518, Greenwich, CT 06836-2518
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 629-3000
Not Applicable
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
Reference is made to the press release of Registrant, issued on July
30, 1999, which is incorporated herein by this reference. A copy of the press
release is attached to this Form 8-K as Exhibit 99.1
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SIGNATURES
Pursuant to the requirements of the Securities and 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
(Registrant)
July 30, 1999 By: /s/ Cornelius T. Finnegan, III
Cornelius T. Finnegan, III
Senior Vice President,
General Counsel and Secretary
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EXHIBIT INDEX
Exhibits:
99.1 Press Release dated July 30, 1999
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W. R. BERKLEY CORPORATION NEWS
165 MASON STREET, P.O. BOX 2518 RELEASE
GREENWICH, CONNECTICUT 06836-2518
(203) 629-3000
FOR IMMEDIATE RELEASE CONTACT: Eugene G. Ballard
Senior Vice President,
Chief Financial Officer and
Treasurer
203-629-3000
W. R. BERKLEY CORPORATION ANNOUNCES
RESULTS OF OPERATIONS FOR THE SECOND QUARTER OF 1999
Greenwich, CT, July 29, 1999 -- W.R. Berkley Corporation (NASDAQ:
BKLY), a property casualty insurance holding company, today announced results of
operations for the second quarter and six months ended June 30, 1999.
Second quarter 1999 operating income (net income before realized
investment gains, restructuring charges, a change in an accounting principle,
and extraordinary loss) was $5.4 million, or 21 cents per diluted share,
compared with $16.2 million, or 55 cents per diluted share, for the second
quarter of 1998. For the first half of 1999, operating income was $14.2 million,
or 54 cents per diluted share, compared with $37.8 million, or $1.25 per diluted
share, for the same period a year ago.
Second quarter catastrophe losses, including the tornadoes in Oklahoma
City in May, were $16.4 million, or 63 cents per diluted share, compared with
$11.2 million, or 38 cents per diluted share, for the same period last year.
Catastrophe losses for the first half were $23.3 million, or 88 cents per
diluted share, compared with last year's $20.4 million, or 67 cents per diluted
share.
Gross premiums written increased 5 percent in the second quarter and 9
percent in the first six months of 1999. The increase in premium growth was
partially offset by the purchase of additional reinsurance
more. . . . . . . . .
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W.R. Berkley Corporation Page 2
protection. As a result, net premiums written in the second quarter increased 2
percent to $345.2 million, while total second-quarter revenues rose 5 percent to
$416.3 million, up from $396.9 million for the same quarter a year ago. For the
first six months of 1999, net premiums written and total revenues rose 8 percent
and 6 percent, respectively, compared with the first half of 1998.
Second quarter net income attributable to common shareholders was $5.6
million, or 22 cents per diluted share, compared with net income of $18.3
million, or 61 cents per diluted share, for the same period a year ago. For the
first half, net income attributable to common shareholders was $4.3 million, or
17 cents per diluted share, versus $39.6 million, or $1.31 per diluted share,
for the first six months of last year.
First-half results include an after-tax restructuring charge in the
first quarter of $7.3 million, or 28 cents per diluted share, related to the
Company's previously announced restructuring of certain of its operating units.
Under generally accepted accounting principles, the restructuring charge does
not include costs related to systems changes, financial incentives and other
activities, although they are directly related to the restructuring plan.
Accordingly, in 1999 and 2000 the Company will incur additional after-tax
charges of approximately $4.0 million related to these costs. Through the first
half of 1999, the Company has incurred approximately $1.5 million of such
after-tax charges. The restructuring, which should be substantially complete by
the end of 1999, is expected to result in annual after-tax savings of
approximately $12.4 million.
As previously disclosed in the Company's 1998 Annual Report and Form
10-K, in the first quarter of 1999 the Company adopted AICPA Statement of
more. . . . . . . . .
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W.R. Berkley Corporation Page 3
Position 97-3, Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments. A non-cash, after-tax charge of $3.3 million, or
12 cents per diluted share, was recorded during the first quarter and is
reflected in the financial statements as a cumulative effect of a change in
accounting principle.
Second quarter 1999 net income includes capital gains, net of taxes, of
$200,000, or 1 cent per diluted share, compared with capital gains of $4.6
million, or 15 cents per diluted share, for the same period a year ago. For the
first half of 1999, capital gains totaled $700,000, or 3 cents per diluted
share, versus capital gains a year earlier of $6.8 million, or 23 cents per
diluted share.
A year ago, the repurchase and retirement of $34.7 million of long-term
debt produced an extraordinary loss of $2.6 million for the second quarter and
$5.0 million for the first six months of 1998. There was no comparable
extraordinary item in 1999.
Thus far in 1999, the Company has repurchased 730,000 shares of its
common stock, leaving a balance of 1,270,000 shares available for repurchase
under its current share repurchase authorization.
Although market conditions remain very competitive, the specialty and
alternative markets segments reported strong revenue growth and combined ratios
under 100 percent for the first six months of 1999. Net premiums written for the
specialty segment rose 7 percent to $137.9 million, with a combined ratio of
99.7 percent for the six months of 1999. Alternative markets revenues grew 10
percent, to $110.3 million, for the six-month period, with a combined ratio of
98.9 percent. The reinsurance segment reported net premiums written of $153.9
million, an increase of 22 percent for the first six months of 1999. The
combined ratio for the reinsurance
more. . . . . . . . .
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W.R. Berkley Corporation Page 4
segment, including losses related to the January 1999 earthquake in Columbia,
was 109.3 percent for the first half of 1999. International operations reported
an operating profit of $1.2 million on a 15 percent increase in first half
revenues to $44.0 million.
The Company's consolidation of its regional insurance units is proceeding
on target. Of the $12.4 million in anticipated annual savings, management
estimates that as of June 30, 1999 the Company has achieved personnel reductions
and other consolidation-related benefits, on an annualized basis, of
approximately 50 percent of the targeted savings, although the full impact of
these and other initiatives will not be felt until calendar year 2000.
Gross premiums written for the regional segment increased 5 percent to
$391.1 million for the first six months of 1999, in part due to higher premium
rates. Net premiums written for the regional segment increased 1 percent to
$332.5 million for the six-month period, as the growth in gross premiums written
was offset by the purchase of additional reinsurance coverage. The combined
ratio for the six-month period was 110.7 percent. Storm losses for the regional
companies were $30.2 million, or 9.4 points on the combined ratio. Storm losses
were partially offset by aggregate reinsurance recoveries (net of additional
premiums paid) of $9.5 million, or 2.6 points on the combined ratio. The
regional companies' expense ratio was 36.9 percent for the second quarter and
36.1 percent for the first half of 1999. The expense ratio was impacted by the
purchase of additional reinsurance coverage and by costs related to the
restructuring. After adjusting for these items, the expense ratio would have
been 33.2 percent for the second quarter and 34.1 percent for the first six
months of 1999,
more. . . . . . . . .
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W.R. Berkley Corporation Page 5
an improvement of 0.6 points and 0.3 points, respectively, compared with 1998.
Commenting on the second-quarter results, William R. Berkley, chairman
and chief executive officer, said "A weak pricing environment continued to
adversely affect our overall results. This, along with a high level of
catastrophe losses, produced combined ratios for our regional and reinsurance
businesses that were well below our expectations.
"Poor results in these two segments, however, were in sharp contrast to
the excellent returns reported by our core specialty and alternative markets
businesses. These knowledge-driven businesses, which have been good, consistent
performers, hold excellent long-term opportunities for future growth.
"At present, the ongoing challenge continues to be one of reshaping our
business in a way that strengthens returns and builds long-term value for our
shareholders. This process, which began in January with the restructuring of our
regional business, will ultimately yield significant positive changes in our
cost structure. But because of a variety of related transitional costs and
obligations, most of these benefits will not be reflected until calendar 2000.
"Pricing pressures are likely to remain a serious drag on performance
for the balance of this year. While we have begun to see some signs of price
stabilization and modest price increases in certain lines of business, it would
be premature to declare a turn in the cycle. Our focus is not on waiting for the
environment to change but on reshaping the business to yield better real
returns."
more. . . . . . . . .
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W.R. Berkley Corporation Page 6
W.R. Berkley Corporation is a holding company which, through its
subsidiaries, operates in all segments of the property casualty insurance
business. The operating units are grouped for management purposes into five
segments according to market served: Regional Property Casualty Insurance,
Reinsurance, Specialty Insurance, Alternative Markets and International.
This is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995. Any forward-looking statements contained herein
are based upon the Company's historical performance. They are subject to various
risks and uncertainties, including but not limited to the impact of competition,
product demand, catastrophe and storm losses, investment results and other risks
detailed from time to time in the Company's filings with the Securities and
Exchange Commission. These risks could cause the Company's actual results for
the 1999 fiscal year and beyond to differ materially from those expressed in any
forward- looking statement made by, or on behalf of, the Company.
(See accompanying financial tables)
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W.R. Berkley Corporation Page 7
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Revenues: (Amounts in thousands except per share data)
<S> <C> <C> <C> <C>
Gross premiums written $ 428,609 $ 407,442 $ 882,676 $ 806,656
--------- --------- --------- ---------
Net premiums written 345,187 339,826 725,771 673,658
Change in unearned premiums 1,195 (20,838) (37,417) (52,037)
--------- --------- --------- ---------
Premiums earned 346,382 318,988 688,354 621,621
Net investment income 51,181 52,384 97,175 108,778
Management fees and
Commissions 17,852 17,775 36,248 36,363
Realized gains on investments 285 7,090 1,013 10,507
Other income 550 673 1,173 2,916
--------- --------- --------- ---------
Total revenues 416,250 396,910 823,963 780,185
Operating costs and expenses:
Losses and loss expenses (249,258) (217,578) (492,097) (422,780)
Other operating costs
And expenses (152,133) (139,043) (296,358) (272,223)
Interest expense (13,017) (12,158) (25,822) (24,331)
Restructuring charge -- -- (11,505) --
--------- --------- --------- ---------
Income (loss) before income taxes
And minority interest 1,842 28,131 (1,819) 60,851
Federal income tax (expense) benefit 4,450 (6,503) 9,623 (13,700)
--------- --------- --------- ---------
Income before minority interest 6,292 21,628 7,804 47,151
Minority interest (668) 1,115 292 1,265
--------- --------- --------- ---------
Net income before preferred
Dividends 5,624 22,743 8,096 48,416
Preferred dividends -- (1,887) (497) (3,774)
--------- --------- --------- ---------
Net income attributable to common
Stockholders before change in
Accounting and extraordinary loss 5,624 20,856 7,599 44,642
Cumulative effect of change in
Accounting principle (net of taxes) -- -- (3,250) --
Extraordinary loss on early
Extinquishment of long-term debt
(net of taxes) -- (2,582) -- (5,017)
--------- --------- --------- ---------
Net income attributable to common
Stockholders $ 5,624 $ 18,274 $ 4,349 $ 39,625
========= ========= ========= =========
Earnings per share:
Basic $ .22 $ .64 $ .17 $ 1.37
========= ========= ========= =========
Diluted $ .22 $ .61 $ .17 $ 1.31
========= ========= ========= =========
Average shares outstanding:
Basic 25,955 28,469 26,139 29,024
========= ========= ========= =========
Diluted 26,095 29,734 26,304 30,271
========= ========= ========= =========
</TABLE>
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W.R. Berkley Corporation Page 8
ADDENDUM #1 TO PRESS RELEASE DATED July 29, 1999
Operating Statistics by Insurance Industry Segment
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Regional Insurance:
<S> <C> <C> <C> <C>
Net premiums written $ 163,351 $ 170,536 $ 332,456 $ 327,855
Total revenues 167,801 176,466 346,475 344,909
Pre-tax operating income (loss) (1) (8,640) (191) (9,209) 5,356
Loss ratio 76.1% 73.1% 73.8% 71.3%
Expense ratio 36.9% 33.8% 36.1% 34.4%
Policyholders' dividend ratio .8% .8% .8% .7%
Combined ratio (2) 113.8% 107.7% 110.7% 106.4%
Reinsurance:
Net premiums written $ 75,486 $ 65,378 $ 153,878 $ 126,488
Total revenues 87,421 73,841 165,969 142,611
Pre-tax operating income (1) 6,551 10,188 9,764 21,666
Loss ratio 73.4% 71.5% 75.6% 70.3%
Expense ratio 33.2% 30.7% 33.7% 31.5%
Combined ratio (2) 106.6% 102.2% 109.3% 101.8%
Specialty Insurance:
Net premiums written $ 68,312 $ 68,162 $ 137,931 $ 129,179
Total revenues 82,169 76,888 154,555 151,426
Pre-tax operating income (1) 10,251 21,531 23,330 41,248
Loss ratio 70.6% 56.3% 68.3% 59.0%
Expense ratio 33.8% 30.9% 31.4% 31.6%
Policyholders' dividend ratio .1% .3% -- .1%
Combined ratio (2) 104.5% 87.5% 99.7% 90.7%
Alternative Markets:
Net premiums written $ 17,935 $ 16,156 $ 63,409 $ 54,131
Total revenues 56,339 49,753 110,250 100,436
Pre-tax operating income (1) 8,958 9,402 16,986 18,373
Loss ratio 63.7% 57.0% 66.8% 64.4%
Expense ratio 46.4% 48.7% 32.1% 34.4%
Combined ratio (2) 110.1% 105.7% 98.9% 98.8%
International:
Net premiums written $ 20,103 $ 19,594 $ 38,097 $ 36,005
Total revenues 22,970 19,136 44,034 38,471
Pre-tax operating income (loss)(1)(3) 1,857 (2,669) 1,231 (3,755)
Loss ratio 45.0% 59.0% 50.8% 59.6%
Expense ratio 49.3% 51.2% 51.3% 52.1%
Combined ratio (2) 94.3% 110.2% 102.1% 111.7%
Combined:
Net premiums written $ 345,187 $ 339,826 $ 725,771 $ 673,658
Total revenues 416,700 396,084 821,283 777,853
Pre-tax operating income (1) 18,977 38,261 42,102 82,888
Loss ratio 71.5% 67.8% 71.2% 67.8%
Expense ratio 36.7% 34.3% 35.2% 34.3%
Policyholders' dividend ratio .4% .5% .4% .4%
Combined ratio (2) 108.6% 102.6% 106.8% 102.5%
</TABLE>
(1) Pre-tax operating income (loss) represents earnings before the effects
of realized investment gains.
(2) Based on statutory accounting practices.
(3) Represents results before minority interest.
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W.R. Berkley Corporation Page 9
W. R. BERKLEY CORPORATION
ADDENDUM #2 TO PRESS RELEASE DATED July 29, 1999
Supplementary Information
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
After-tax earnings amounts:
<S> <C> <C> <C> <C>
Operating income $ 5,439 $ 16,247 $ 14,235 $ 37,812
Restructuring charge (net of
minority interest) -- -- (7,294) --
Extraordinary loss -- (2,582) -- (5,017)
Cumulative effect of change in
Accounting principle -- -- (3,250) --
Realized investment gains 185 4,609 658 6,830
---------- ---------- ---------- ----------
Net income $ 5,624 $ 18,274 $ 4,349 $ 39,625
========== ========== ========== ==========
After-tax diluted earnings per share:
Operating income $ .21 $ .55 $ .54 1.25
Restructuring charge (net of
minority interest) -- -- (.28) --
Extraordinary loss -- (.09) -- (.17)
Cumulative effect of change in
Accounting principle -- -- (.12) --
Realized investment gains .01 .15 .03 .23
---------- ---------- ---------- ----------
Net income $ .22 $ .61 $ .17 $ 1.31
========== ========== ========== ==========
Cash flow from(used in) operations (13,824) 30,478 5,916 55,819
Return on Common Stockholders' equity (1):
Net income 3.3% 9.3% 1.2% 10.0%
Operating income 3.2% 8.2% 4.1% 9.6%
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
Balance sheet information:
<S> <C> <C>
Total investments (2) $3,042,306 $3,233,458
Total assets 4,798,603 4,983,431
Reserves for losses and loss expenses 2,174,680 2,126,566
Long-term debt 394,618 394,444
Capital Trust Securities 208,010 207,988
Preferred equity -- 98,093
Common Stockholders' equity 680,175 763,188
Common shares outstanding 25,786 26,504
Common stockholders' equity per share (3) 26.38 28.80
</TABLE>
(1) Excluding the effect of fixed maturity unrealized gains.
(2) Including trading account receivable from broker and clearing
organizations and trading securities sold but not yet purchased.
(3) Included in the calculation of common stockholders' equity per share are
after-tax unrealized investment losses of $8.1 million and unrealized
investment gains of $54.7 million as of June 30, 1999 and December 31,
1998, respectively.
