<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period. . . . . . . .
September 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the Transition Period from ____ to ____.
Commission File Number 0-7849
W. R. BERKLEY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-1867895
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
165 Mason Street, Greenwich, Connecticut 06836-2518
(Address of principal executive offices) (Zip Code)
(203) 629-3000
(Registrant's telephone number, including area code)
None
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 November 3,
2000: 25,500,847.
<PAGE> 2
Part I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
W. R. Berkley Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Assets (Unaudited)
Investments:
Invested cash $ 271,258 $ 295,423
Fixed maturity securities:
Held to maturity, at cost (fair value $157,878 and $150,465) 155,514 152,657
Available for sale, at fair value (cost $2,099,323
And $2,180,509) 2,068,463 2,110,411
Equity securities, at fair value:
Available for sale (cost $85,894 and $54,437) 94,028 61,380
Trading account (cost $385,348 and $236,453) 385,015 253,430
Cash 16,006 20,051
Premiums and fees receivable 410,481 380,887
Due from reinsurers 653,732 620,446
Accrued investment income 30,003 36,925
Prepaid reinsurance premiums 102,599 91,005
Deferred policy acquisition costs 195,377 182,348
Real estate, furniture & equipment at cost, less accumulated depreciation 123,537 128,735
Excess of cost over net assets acquired 72,709 76,523
Trading account receivable from brokers and clearing organizations 193,208 258,454
Deferred Federal income taxes 80,535 81,976
Other assets 32,439 34,140
----------- -----------
$ 4,884,904 $ 4,784,791
=========== ===========
Liabilities, Reserves, Debt and Stockholders' Equity
Liabilities and reserves:
Reserves for losses and loss expenses $ 2,462,114 $ 2,361,238
Unearned premiums 721,724 689,826
Due to reinsurers 137,119 144,712
Short-term debt 10,000 35,000
Trading securities sold but not yet purchased, at fair value
(proceeds $139,571 and $137,801) 137,216 155,826
Other liabilities 196,113 183,218
----------- -----------
3,664,286 3,569,820
----------- -----------
Long-term debt 370,068 394,792
Company-obligated manditorily redeemable capital securities of a
Subsidiary trust holding solely 8.197% junior subordinated
Debentures of the Corporation due December 15, 2045 198,158 198,126
Minority interest 31,609 30,275
Stockholders' equity:
Preferred stock, par value $.10 per share:
Authorized 5,000,000 shares; no shares issued
Common stock, par value $.20 per share:
Authorized 80,000,000 shares, issued and outstanding, -- --
Net of treasury shares, 25,413,619 and 25,616,578 shares 7,281 7,281
Additional paid-in capital 331,620 331,640
Retained earnings 559,513 551,401
Accumulated other comprehensive income (18,250) (44,500)
Treasury stock, at cost, 10,990,448 and 10,787,489 shares (259,381) (254,044)
----------- -----------
620,783 591,778
----------- -----------
$ 4,884,904 $ 4,784,791
=========== ===========
</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 For the Nine Months
Ended September 30, Ended September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net premiums written $ 376,084 $ 359,881 $ 1,111,926 $ 1,085,652
Change in net unearned premiums (5,252) 3,657 (20,243) (33,760)
----------- ----------- ----------- -----------
Premiums earned 370,832 363,538 1,091,683 1,051,892
Net investment income 56,513 48,090 153,025 145,265
Management fees and commission income 15,818 19,099 51,535 55,347
Realized gains (losses) on investments 1,092 (3,417) 1,885 (2,404)
Other income 1,702 513 3,086 1,686
----------- ----------- ----------- -----------
Total revenues 445,957 427,823 1,301,214 1,251,786
Operating costs and expenses:
Losses and loss expenses 276,344 272,819 803,596 764,916
Other operating costs and expenses 150,829 151,792 444,406 448,150
Interest expense 11,670 12,246 35,954 38,068
Restructuring charge -- -- 1,850 11,505
----------- ----------- ----------- -----------
Income (loss) before income taxes 7,114 (9,034) 15,408 (10,853)
Federal income tax benefit 869 8,145 4,085 17,768
----------- ----------- ----------- -----------
Net Income (loss) before minority interest
and preferred dividends 7,983 (889) 19,493 6,915
Minority interest (891) (467) (1,419) (175)
Preferred dividends -- -- -- (497)
----------- ----------- ----------- -----------
Net income (loss) before change in accounting
principle and extraordinary gain 7,092 (1,356) 18,074 6,243
Cumulative effect of change in accounting
principle (net of taxes of $1,750) -- -- -- (3,250)
Extraordinary gain on early extinguishment -- 735 -- 735
of long-term debt (net of taxes of $396) ----------- ----------- ----------- -----------
Net income (loss)attributable to common stockholders $ 7,092 $ (621) $ 18,074 $ 3,728
=========== =========== =========== ===========
Earning per share:
Basic:
Net income (loss) before change in accounting
principle and extraordinary gain $ .28 $ (.05) $ .71 $ .23
Cumulative effect of change in accounting principle -- -- -- (.12)
Extraordinary gain on early extinguishment of
long-term debt -- .03 -- .03
----------- ----------- ----------- -----------
Net income (loss)attributable to common stockholders $ .28 $ (.02) $ .71 $ .14
=========== =========== =========== ===========
Diluted:
Net income (loss) before change in accounting
principle and extraordinary gain $ .27 $ (.05) $ .70 $ .23
Cumulative effect of change in accounting principle -- -- -- (.12)
Extraordinary gain on early extinguishment of
long-term debt -- .03 -- .03
----------- ----------- ----------- -----------
Net income (loss)attributable to common stockholders $ .27 $ (.02) $ .70 $ .14
=========== =========== =========== ===========
Average shares outstanding:
Basic 25,476 25,723 25,571 25,999
=========== =========== =========== ===========
Diluted 25,807 25,822 25,769 26,133
=========== =========== =========== ===========
</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 Nine Months
Ended September 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income before preferred dividends and extraordinary items $ 18,074 $ 3,490
Adjustments to reconcile net income to cash
flows from operating activities:
Minority interest 1,419 175
Increase in reserves for losses
and loss expenses, net of due to/from reinsurers 61,872 62,118
Depreciation and amortization 15,594 17,344
Change in unearned premiums and
prepaid reinsurance premiums 20,304 33,825
Increase in premiums and fees receivable (29,594) (27,376)
Change in Federal income taxes 5,338 (5,875)
Change in deferred acquisition cost (13,029) (16,365)
Realized gains on investments (1,885) 2,404
Other, net (26,643) (42,675)
--------- ---------
Net cash flows from operating activities
before trading account 51,450 27,065
Net Trading account sales (purchases), net (55,034) 950
--------- ---------
Net cash flows from (used in) operating activities (3,584) 28,015
--------- ---------
Cash flows from (used in) investing activities:
Proceeds from sales, excluding trading account:
Fixed maturity securities available for sale 616,430 432,791
Equity securities 19,847 9,533
Proceeds from maturities and prepayments of
fixed maturity securities 117,320 117,726
Cost of purchases, excluding trading account:
Fixed maturity securities available for sale (649,662) (574,047)
Fixed maturity securities held to maturity --
Equity securities (59,212) (5,457)
Change in balances due to/from security brokers (636) 6,609
Proceeds from the sale of a subsidiary 2,532 --
Other, net (6,514) 2,006
--------- ---------
Net cash flows from (used in) investing activities 40,105 (10,839)
--------- ---------
Cash flows used in financing activities:
Repurchase of preferred stock -- (98,092)
Proceeds from (repayment of) short-term debt (25,000) (20,500)
Purchase of treasury shares (7,020) (22,119)
Retirement of long-term debt and Capital Securities (25,000) (9,171)
Cash dividends to common stockholders (9,399) (9,968)
Cash dividends to preferred stockholders -- (2,001)
Other, net 1,688 8,585
--------- ---------
Net cash flows used in financing activities (64,731) (153,266)
--------- ---------
Net decrease in cash and invested cash (28,210) (136,090)
Cash and invested cash at beginning of year 315,474 386,278
--------- ---------
Cash and invested cash at end of period $ 287,264 $ 250,188
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 31,351 $ 33,247
========= =========
Federal income taxes received, net $ (9,806) $ (13,544)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
W. R. Berkley Corporation and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2000
(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, 1999.
1. 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.
2. 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 For the Nine Months
Ended September 30, Ended September 30,
--------------------------- --------------------------
2000 1999 2000 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Ceded premiums written $ 77,606 $ 77,575 $238,432 $234,480
========= ======== ======== ========
Ceded premiums earned $ 79,618 $ 72,416 $225,962 $223,440
========= ======== ======== ========
Ceded losses and loss expenses $ 76,458 $ 73,474 $178,253 $198,735
========= ======== ======== ========
</TABLE>
3. COMPREHENSIVE INCOME
The differences between comprehensive income (loss) and net income
(loss) are unrealized foreign exchange gains (losses) as well as unrealized
gains (losses) on securities. The following is a reconciliation of comprehensive
income (amounts in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) attributable to common stockholders $ 7,092 $ (621) $ 18,074 $ 3,728
Other comprehensive income:
Unrealized holding gains(losses) on investment
securities arising during the period, net of tax 17,526 (12,527) 25,426 (76,635)
Less: Reclassification adjustment for gains (losses)
included in net income (loss), net of tax 709 (2,221) 1,224 (1,563)
-------- -------- -------- --------
Net change in unrealized gains (losses) during
the period 18,235 (14,748) 26,650 (78,198)
Change in unrealized foreign exchange gains (losses) (357) 124 (400) 835
-------- -------- -------- --------
Comprehensive income (loss) $ 24,970 $(15,245) $ 44,324 $(73,635)
======== ======== ======== ========
</TABLE>
4
<PAGE> 6
4. INDUSTRY SEGMENTS
The Company's operations are presently conducted through five basic
segments: regional property casualty insurance; reinsurance; specialty lines of
insurance; alternative markets operations and international. The regional
property casualty insurance segment writes standard commercial and personal
lines insurance for such risks as automobiles, homes and businesses. The
Company's reinsurance segment specializes in underwriting property, casualty and
surety reinsurance on both a treaty and facultative basis. The specialty lines
of insurance consist primarily of excess and surplus lines, commercial
transportation, professional liability, directors and officers liability and
surety. The Company's alternative markets segment specializes in insuring,
reinsuring, and administering self-insurance programs and other alternative risk
transfer mechanisms for public entities, private employers and associations.
Finally, the international operations represent the Company's joint venture (65%
owned by the Company) with Northwestern Mutual Life International, Inc., which
writes property and casualty insurance, as well as life insurance,
internationally. For the nine months ended September 30, 2000 and 1999, the
joint venture revenues include life insurance premiums of $24.7 million and
$16.7 million, respectively.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies; see the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 for a complete
description. Income tax expense (benefits) were calculated in accordance with
the Company's tax sharing agreements, which provide for the recognition of tax
loss carry-forwards only to the extent of taxes previously paid. Summary
financial information about the Company's operating segments is presented in the
following table. Income before income taxes by segment consists of revenues less
expenses related to the respective segment's operations. These amounts include
realized gains (losses) where applicable. Intersegment revenues consist
primarily of dividends, interest on inter-company debt and fees paid by
subsidiaries for portfolio management and other services to the Company.
Identifiable assets by segment are those assets used in the operation of each
segment.
<TABLE>
<CAPTION>
Income
Revenues (Loss) Income
---------------------------------------- Before Tax
Investment Unaffiliated Inter- Income (Expense)
(Dollars in thousands) Income Customers Segment Total Taxes Benefits
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the nine months ended September 30, 2000:
Regional $ 43,859 $ 534,262 $ 1,015 $ 535,277 $ (2,972) $ 2,257
Reinsurance 36,643 251,371 1,026 252,397 17,253 (4,312)
Specialty 35,844 236,347 1,724 238,071 16,860 (4,656)
Alternative Markets 31,555 190,257 171 190,428 24,488 (5,982)
International 6,882 84,319 -- 84,319 3,707 (396)
Corporate and other 755 4,658 41,170 45,828 (14,389) 4,482
Adjustments and
eliminations (2,513) -- (45,106) (45,106) (29,539) 12,692
-------------------------------------------------------------------------------------------------------------------------------
Consolidated $153,025 $1,301,214 -- $1,301,214 $ 15,408 $ 4,085
-------------------------------------------------------------------------------------------------------------------------------
For the nine months ended September 30, 1999:
Regional $ 39,167 $ 518,714 $ 1,266 $ 519,980 $(32,210) $ 9,169
Reinsurance 36,608 256,700 520 257,220 13,596 (2,737)
Specialty 38,918 235,194 (887) 234,307 34,713 (8,252)
Alternative Markets 27,564 167,959 351 168,310 19,628 (3,553)
International 4,935 68,556 -- 68,556 1,569 (956)
Corporate and other 846 4,663 45,851 50,514 (15,409) 18,725
Adjustments and
eliminations (2,773) -- (47,101) (47,101) (32,740) 5,372
---------------------------------------------------------------------------------------------------------------------------------
Consolidated $145,265 $1,251,786 $ -- $1,251,786 $(10,853) $17,768
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 7
Interest expense for reinsurance, alternative markets and corporate was
$1,745,000, $441,000 and $33,768,000, respectively, for the nine months ended
September 30, 2000 and $1,745,000, $445,000 and $35,878,000, respectively, for
the corresponding period in 1999.
Identifiable assets by segment are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------------------------
<S> <C> <C>
Regional $ 1,472,927 $ 1,436,575
Reinsurance 1,221,814 1,022,776
Specialty 1,374,216 1,370,837
Alternative Markets 930,111 878,125
International 211,334 177,675
Corporate and other 1,334,149 1,362,345
Elimination (1,659,647) (1,463,542)
-------------------------------------------------------------------------------
Consolidated $ 4,884,904 $ 4,784,791
===============================================================================
</TABLE>
5. SALE OF ASSETS
In the second quarter of 2000, the Company reported realized gains of
$3.2 million in connection with the sale of the assets of All American Agency
Facilities, Inc. ("All American"), a managing general agency. All American's
revenues and operating profits (losses) were $1.8 million and ($0.7) million,
respectively, for the first nine months of 2000 and $7.5 million and $0.4
million, respectively, for the year ended December 31, 1999.
6. RESTRUCTURING CHARGE
In the first quarter of 2000, the Company implemented a restructuring
plan for our reinsurance operations. Under the plan, the reinsurance segment has
withdrawn from the Latin American and Caribbean market, and the domestic
reinsurance operations are focusing on specialty reinsurance lines while
de-emphasizing certain commodity-type lines. The Company reduced its permanent
workforce by approximately 37 employees in connection with the plan. The Company
recognized $1,850,000 in expense in its statement of operations to reflect
charges related to the plan. These charges consisted mainly of severance
payments and contractual lease payments related to abandoned facilities. The
activities under the plan have been substantially completed.
7. RECENT ACCOUNTING PRONOUNCEMENTS
During 1999, the FASB issued FAS 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
133, and Amendment of FASB 133" which extended the effective date of FASB 133
to January 1, 2001. FAS 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes accounting and reporting standards for derivative
instruments. This statement will not have a material impact on the Company's
results of operations or financial condition.
8. OTHER MATTERS
6
<PAGE> 8
Reclassifications have been made in the 1999 financial statements as
originally reported to conform them to the presentation of the 2000 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. Seasonal
weather variations affect the severity and frequency of losses sustained by the
insurance and reinsurance subsidiaries. Although the effect on the Company's
business of such natural catastrophes as tornadoes, hurricanes, hailstorms and
earthquakes is mitigated by reinsurance, they nevertheless can have a
significant impact on the results of any one or more reporting periods.
9. SAFE HARBOR STATEMENT
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Any
forward-looking statements contained herein, including those related to the
Company's performance for the year 2000 and beyond, are based upon the Company's
historical performance and on current plans, estimates and expectations. They
are subject to various risks and uncertainties, including but not limited to the
impact of competition, product demand and pricing, claims development,
catastrophe and storm losses, investment results, legislative and regulatory
developments 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 2000 fiscal year and beyond to differ
materially from those expressed in any forward-looking statement made by or on
behalf of the Company. Forward-looking statements speak only as of the date on
which they are made, and the Company undertakes no obligation to update publicly
or revise any forward-looking statement, whether as a result of new information,
future developments or otherwise.
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Operating Results for the First Nine Months of 2000
as Compared to the First Nine Months of 1999
Net premiums written during the first nine months of 2000 increased by
2% to $1,112 million from $1,086 million written in the comparable 1999 period.
Net premiums written by the regional segment decreased by $7 million, or 2%, as
a decline in policy count more than offset price increases. Specialty net
premiums written increased by $8 million, or 4%, as increases in excess and
surplus and financial products lines were offset by a 43% decrease in commercial
transportation business. Net premiums written by the reinsurance operations
decreased by $31 million, or 14%, as a result of the business restructuring
implemented in the first quarter of 2000. (See Notes to Consolidated Financial
Statements.) Alternative markets net premiums written increased $35 million, or
35%, due to an increase in excess and reinsured workers' compensation business.
International net premiums written increased $22 million, or 37%, due to growth
in both Argentina and the Philippines.
Pre-tax investment income increased by 5% to $153 million in 2000. The
average gross yield earned on the portfolio increased from 6.6% to 7.1% due
primarily to a decrease in the portion of the portfolio invested in municipal
securities. (See "Liquidity and Capital Resources.")
Management fees and commission income ("Management fees") consist
primarily of revenues earned by the alternative markets segment. Management fees
decreased
7
<PAGE> 9
$3.8 million to $51.5 million in 2000, principally due to the sale of All
American Agency Facilities, Inc. (See Notes to Consolidated Financial
Statements.)
Realized gains were $1.9 million in 2000 compared with a loss of $2.4
million earned in 1999. Realized gains and losses relate primarily to sales of
fixed income and equity securities, sales or disposals of other assets and
adjustments to the carrying value of permanently impaired securities. Realized
gains and losses on fixed income securities result primarily from the Company's
strategy of maintaining an appropriate balance between the duration of its fixed
income portfolio and the duration of its liabilities; realized gains on equity
securities arise primarily as a result of a variety of factors which influence
the Company's valuation criteria.
The combined ratio (on a statutory basis) of the Company's insurance
operations increased to 108.0% for the first nine months of 2000 from 107.7% for
the comparable 1999 period. The consolidated loss ratio (losses and loss
expenses incurred expressed as a percentage of premiums earned) increased to
73.5% in 2000 from 72.4% in 1999 due to an increase in loss ratios for the
alternative markets and specialty segments, which was partially offset by lower
loss ratios for the regional and reinsurance segments. The increase in the
alternative markets loss ratio reflects higher estimated losses on reinsured
workers' compensation business and a decrease in favorable reserve development
for excess workers' compensation business. The decrease in the regional loss
ratio was due to the impact of price increases. The decrease in the reinsurance
loss ratio reflects the change in business relating to the restructuring
implemented in the first quarter of 2000. (See Notes to Consolidated Financial
Statements.) The increase in the specialty loss ratio reflects lower prior year
reserve redundancies. During 2000, the specialty segment has experienced
increased claims activity arising from policies issued to nursing home and
assisted care facilities by Admiral Insurance Company, primarily in 1998 and
1999. Admiral ceased issuing policies to such facilities in early 2000 and is
continuing to monitor developments and evaluate claims reserves with respect to
this coverage.
Other operating costs and expenses, which consist of the expenses of
the Company's insurance and alternative markets operations as well as the
Company's corporate and investment expenses, decreased by 1% to $444 million.
The decrease in other operating costs and expenses is primarily due to a decline
in corporate expenses and service company expenses. The consolidated expense
ratio (underwriting expenses expressed as a percentage of premiums written)
decreased to 34.2% from 34.9% as a result of savings from the restructuring of
the regional segment in 1999.
The Federal income tax benefit in 2000 was $4 million as compared to
$18 million for the comparable 1999 period. The effective tax rate differs from
the Federal tax rate of 35% principally because of tax-exempt investment income.
(See "Liquidity and Capital Resources.")
First quarter 2000 results include an after-tax restructuring charge
of $1.2 million, or 5 cents per diluted share, related to the Company's
reinsurance operations. (See Notes to Consolidated Financial Statements.) The
restructuring, which has been substantially completed, is expected to result in
annual after-tax savings of approximately $2.5 million. The first quarter 1999
results include an after-tax restructuring charge of $7.3 million, or 28 cents
per diluted share, primarily related to the restructuring of the Company's
regional property casualty business
Operating Results for the Third Quarter of
2000 as Compared to the Third Quarter of 1999
8
<PAGE> 10
For the third quarter of 2000 as compared to the corresponding 1999
period, net premiums written increased 5% and net investment income increased
18%, generally for the reasons discussed above.
The combined ratio (on a statutory basis) of the Company's insurance
operations for the third quarter of 2000 increased to 110.2% from 109.4% for the
comparable 1999 period due to an increase in the consolidated loss ratio. The
consolidated loss ratio (losses and loss expense incurred expressed as a
percentage of premiums earned) increased to 74.9% in 2000 from 74.0% in 1999 for
the reasons discussed above.
Other operating costs and expenses decreased 1% to $151 million and the
consolidated expense ratio of the Company's insurance operations (underwriting
expenses expressed as a percentage of premiums written)remained at 35.0%.
Liquidity and Capital Resources
Cash flow from operating activities before trading account activities
was $51 million for the first nine months of 2000 compared with $27 million for
the same period in 1999. Cash and investments (including trading account
receivable from brokers and clearing organizations and trading securities sold
but not yet purchased), on a cost basis, increased by $7 million to $3,067
million at September 30, 2000 from $3,060 million at December 31, 1999. The
increase in cash and investments reflects cash flow from operations, which was
partially offset by cash used for the repayment of debt and other financing
activities.
At September 30, 2000, as compared to December 31, 1999, the
composition of the investment portfolio was as follows: state and municipal
securities were 20% (36% in 1999); U.S. Government securities and cash
equivalents were 24% (21% in 1999); mortgage-backed securities were 19% (15% in
1999); corporate fixed maturity securities were 20% (14% in 1999); and the
balance of 17% (14% in 1999) was invested in equity securities.
The Company had net trading assets (trading account equity securities plus
trading account receivables from brokers and clearing organizations less trading
account securities sold but not yet purchased) of $441 million as of September
30, 2000, as compared to $356 million as of December 31, 1999. The net trading
account represented approximately 14% and 12% of the Company's net invested
assets as of September 30, 2000 and December 31, 1999, respectively.
In the first nine months of 2000, the Company retired $25 million of
6.31% senior notes and repaid $25 million of borrowings under a line of credit.
The debt repayments were financed by distributions from the Company's insurance
subsidiaries.
For the first nine months of 2000, stockholders' equity increased by
approximately $29 million to $621 million. At September 30, 2000 the Company's
total capitalization was $1,189 million and the percentage of the Company's
capital attributable to long-term debt was 31%, compared with 33% at December
31, 1999.
9
<PAGE> 11
For background information concerning discussion of the Company's
Liquidity and Capital Resources, see the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company's market risk generally represents the risk of
gain or loss that may result from the potential change in the fair value of the
Company's investment portfolio as a result of fluctuations in prices, interest
rates and currency exchange rates. The Company attempts to manage its interest
rate risk by maintaining an appropriate relationship between the average
duration of the investment portfolio and the approximate duration of its
liabilities, i.e., policy claims and debt obligations.
The Company has maintained approximately the same duration of its
investment portfolio to its liabilities from December 31, 1999 to September 30,
2000, and the overall market risk relating to the Company's portfolio has
remained similar to the risk at December 31, 1999.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
During the quarter ended September 30, 2000, the Company filed
the following Reports on Form 8-K:
Report dated August 1, 2000 with respect to a press release
announcing results of Operations of the Company for the second
quarter of 2000 (Under Item 5 of Form 8-K.)
Report dated September 26, 2000 with respect to a press release
announcing the realignment of insurance companies (Under Item 5
of Form 8-K.)
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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
Date: November 7, 2000 /s/ WILLIAM R. BERKLEY
------------------------------
William R. Berkley
Chairman of the Board and
President
Date: November 7, 2000 /s/ EUGENE G. BALLARD
------------------------------
Eugene G. Ballard
Senior Vice President,
Chief Financial Officer
and Treasurer
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