<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 . . . . . . June 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 August 3,
2000
25,647,359:
<PAGE> 2
Part I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
W. R. Berkley Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Invested cash $ 277,602 $ 295,423
Fixed maturity securities:
Held to maturity, at cost (fair value $154,572 and $150,465) 154,152 152,657
Available for sale, at fair value (cost $2,103,941
And $2,180,509) 2,049,038 2,110,411
Equity securities, at fair value:
Available for sale (cost $76,556 and $54,437) 81,745 61,380
Trading account (cost $324,209 and $236,453) 321,973 253,430
Cash 12,867 20,051
Premiums and fees receivable 402,932 380,887
Due from reinsurers 633,758 620,446
Accrued investment income 32,096 36,925
Prepaid reinsurance premiums 104,353 91,005
Deferred policy acquisition costs 191,487 182,348
Real estate, furniture & equipment at cost, less accumulated depreciation 124,969 128,735
Excess of cost over net assets acquired 73,688 76,523
Trading account receivable from brokers and clearing organizations 186,226 258,454
Deferred Federal income taxes 83,585 81,976
Other assets 37,360 34,140
----------- -----------
$ 4,767,831 $ 4,784,791
=========== ===========
Liabilities, Reserves, Debt and Stockholders' Equity
Liabilities and reserves:
Reserves for losses and loss expenses $ 2,419,311 $ 2,361,238
Unearned premiums 718,052 689,826
Due to reinsurers 136,063 144,712
Short-term debt -- 35,000
Trading securities sold but not yet purchased, at market value
(proceeds $141,351 and $137,801) 134,361 155,826
Other liabilities 155,773 183,218
----------- -----------
3,563,560 3,569,820
----------- -----------
Long-term debt 369,978 394,792
Company-obligated mandatorily redeemable capital securities of a
Subsidiary trust holding solely 8.197% junior subordinated
Debentures of the Corporation due December 15, 2045 198,147 198,126
Minority interest 31,529 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, 25,624,859 and 25,616,578 shares 7,281 7,281
Additional paid-in capital 331,641 331,640
Retained earnings 555,724 551,401
Accumulated other comprehensive income (36,128) (44,500)
Treasury stock, at cost, 10,779,208 and 10,787,489 shares (253,901) (254,044)
----------- -----------
604,617 591,778
----------- -----------
$ 4,767,831 $ 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 Six Months
Ended June 30, Ended June 30
-------------------------- --------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net premiums written $ 350,081 $ 345,187 $ 735,842 $ 725,771
Change in net unearned premiums 12,026 1,195 (14,991) (37,417)
--------- --------- --------- ---------
Premiums earned 362,107 346,382 720,851 688,354
Net investment income 49,584 51,181 96,512 97,175
Management fees and commission income 19,191 17,852 35,717 36,248
Realized gains on investments 325 285 793 1,013
Other income 726 550 1,384 1,173
--------- --------- --------- ---------
Total revenues 431,933 416,250 855,257 823,963
Operating costs and expenses:
Losses and loss expenses 265,493 249,258 527,252 492,097
Other operating costs and expenses 148,220 152,133 293,577 296,358
Interest expense 11,791 13,017 24,284 25,822
Restructuring charge -- -- 1,850 11,505
--------- --------- --------- ---------
Income before income taxes and
minority interest 6,429 1,842 8,294 (1,819)
Federal and foreign income tax benefit 564 4,450 3,216 9,623
--------- --------- --------- ---------
Income before minority interest 6,993 6,292 11,510 7,804
Minority interest (357) (668) (528) 292
--------- --------- --------- ---------
Net income before preferred dividends 6,636 5,624 10,982 8,096
Preferred dividends -- -- -- (497)
--------- --------- --------- ---------
Net income before change in accounting principle
6,636 5,624 10,982 7,599
Cumulative effect of change in accounting
principle (net of taxes of $1,750) -- -- -- (3,250)
--------- --------- --------- ---------
Net income attributable to common stockholders $ 6,636 $ 5,624 $ 10,982 $ 4,349
========= ========= ========= =========
Earning per share:
Basic:
Net income before change in accounting principle
and extraordinary loss $ .26 $ .22 $ .43 $ .29
---------
Cumulative effect of change in accounting Principle -- -- -- (.12)
--------- --------- --------- ---------
Net income attributable to common stockholders $ .26 $ .22 $ .43 $ .17
========= ========= ========= =========
Diluted:
Net income before change in accounting principle
and extraordinary loss $ .26 $ .22 $ .43 $ .29
Cumulative effect of change in accounting principle -- -- -- (.12)
--------- --------- --------- ---------
Net income attributable to common stockholders $ .26 $ .22 $ .43 $ .17
========= ========= ========= =========
Average shares outstanding:
Basic 25,621 25,955 25,619 26,139
========= ========= ========= =========
Diluted 25,796 26,095 25,725 26,304
========= ========= ========= =========
</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 Six Months
Ended June 30,
--------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 10,982 $ 4,846
Adjustments to reconcile net income to cash
flows from operating activities:
Minority interest 528 (292)
Change in reserves for losses
and loss expenses, net of due to/from reinsurers 37,987 53,481
Depreciation and amortization 10,207 11,483
Change in unearned premiums and
prepaid reinsurance premiums 14,878 37,483
Change in premiums and fees receivable (22,045) (41,606)
Change in Federal income taxes (3,304) (11,364)
Change in deferred acquisition cost (9,139) (15,395)
Realized gains on investments (793) (1,013)
Other, net (41,966) (31,707)
--------- ---------
Net cash flows from (used in) operating activities
before trading account sales (2,665) 5,916
Trading account sales, net (636) (1,758)
--------- ---------
Net cash flows from (used in) operating activities (3,301) 4,158
--------- ---------
Cash flows from (used in) investing activities:
Proceeds from sales, excluding trading account:
Fixed maturity securities available for sale 752,816 300,540
Equity securities 29,884 433
Proceeds from maturities and prepayments of
fixed maturity securities 87,610 82,814
Cost of purchases, excluding trading account:
Fixed maturity securities available for sale (762,630) (407,546)
Equity securities (58,238) (3,841)
Change in balances due to/from security brokers (4,489) (15,287)
Net additions to real estate, furniture & equipment (4,389) (1,494)
Net proceeds from sale of subsidiary 2,532 --
Other, net 1,000 2,668
--------- ---------
Net cash flows from (used in) investing activities 44,096 (41,713)
--------- ---------
Cash flows used in financing activities:
Net proceeds (repayment) from short-term debt (35,000) 19,500
Purchase of treasury shares -- (18,072)
Cash dividends to common stockholders (6,067) (6,590)
Cash dividends to preferred stockholders -- (2,001)
Repurchase of preferred stock -- (98,092)
Retirement of long-term debt (25,000) --
Other, net 267 8,553
--------- ---------
Net cash flows used in financing activities (65,800) (96,702)
--------- ---------
Net decrease in cash and invested cash (25,005) (134,257)
Cash and invested cash at beginning of year 315,474 386,278
--------- ---------
Cash and invested cash at end of period 290,469 $ 252,021
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 24,532 $ 25,661
========= =========
Federal and foreign income taxes paid, net $ 218 $ --
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
W. R. Berkley Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 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 Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Ceded premiums written $ 84,196 $ 83,422 $160,826 $156,905
======== ======== ======== ========
Ceded premiums earned $ 76,304 $ 82,101 $146,344 $151,024
======== ======== ======== ========
Ceded losses and loss expenses $ 46,101 $ 81,685 $101,795 $125,261
======== ======== ======== ========
</TABLE>
3. COMPREHENSIVE INCOME
The differences between comprehensive income and net income 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 Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income attributable to common stockholders $ 6,636 $ 5,624 $ 10,982 $ 4,349
-------- -------- -------- --------
Other comprehensive income:
Change in unrealized foreign exchange gains (losses) (174) 2 (43) 711
Unrealized holding gains (losses) on investment
securities arising during the period 2,782 (40,708) 7,900 (64,108)
Less: Reclassification adjustment for gains
included in net income, net of tax 211 185 515 658
-------- -------- -------- --------
Net change in unrealized gains during the period 2,993 (40,523) 8,415 (63,450)
Other comprehensive income (loss) 2,819 (40,521) 8,372 (62,739)
-------- -------- -------- --------
Comprehensive income (loss) $ 9,455 $(34,897) $ 19,354 $(58,390)
======== ======== ======== ========
</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 six months ended June 30, 2000 and 1999, the joint
venture wrote life insurance premiums of $16.4 million and $9.3 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)
--------------------------------------- BEFORE INCOME TAX
INVESTMENT UNAFFILIATED INTER- INCOME (EXPENSE)
(DOLLARS IN THOUSANDS) INCOME CUSTOMERS SEGMENT TOTAL TAXES BENEFITS
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the six months
ended June 30, 2000:
Regional $ 27,878 $ 354,009 $ 881 $ 354,890 $ (1,317) $ 1,104
Reinsurance 23,480 166,327 399 166,726 10,714 (2,424)
Specialty 22,952 156,496 1,322 157,818 10,667 (2,447)
Alternative Markets 18,983 120,579 22 120,601 15,186 (3,298)
International 4,163 53,571 -- 53,571 2,107 (612)
Corporate and other 732 4,275 36,606 40,881 (33) 3,829
Adjustments and
eliminations (1,676) -- (39,230) (39,230) (29,030) 7,064
--------------------------------------------------------------------------------------------------------------------------------
Consolidated $ 96,512 $ 855,257 $ -- $ 855,257 $ 8,294 $ 3,216
--------------------------------------------------------------------------------------------------------------------------------
For the six months
ended June 30, 1999:
Regional $ 27,084 $ 345,527 $ 948 $ 346,475 $ (14,798) $ 6,850
Reinsurance 23,778 165,631 338 165,969 8,033 (1,060)
Specialty 26,324 155,766 (1,211) 154,555 21,374 (5,010)
Alternative Markets 17,993 110,046 204 110,250 15,462 (2,560)
International 3,341 44,034 -- 44,034 560 (879)
Corporate and other 721 2,959 37,754 40,713 (3,853) 10,503
Adjustments and
eliminations (2,066) -- (38,033) (38,033) (28,597) 1,779
--------------------------------------------------------------------------------------------------------------------------------
Consolidated $ 97,175 $ 823,963 $ -- $ 823,963 $ (1,819) $ 9,623
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest expense for reinsurance, alternative markets and corporate was
$1,163,000, $297,000 and $22,824,000, respectively, for the six months ended
June 30, 2000 and $1,163,000, $297,000 and $24,362,000, respectively, for the
corresponding period in 1999.
5
<PAGE> 7
Identifiable assets by segment are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------------------------
<S> <C> <C>
Regional $1,461,817 $ 1,436,575
Reinsurance 1,178,678 1,022,776
Specialty 1,355,224 1,370,837
Alternative Markets 869,297 878,125
International 204,771 177,675
Corporate and other 1,308,766 1,362,345
Elimination (1,610,722) (1,463,542)
------------------------------------------------------
Consolidated $4,767,831 $ 4,784,791
======================================================
</TABLE>
5. SALE OF ASSETS
For the first six months 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, and the sale of
certain equipment. All American's revenues and operating profits (losses) were
$1.8 million and ($0.6) million, respectively, for the six months ended June 30,
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. 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 are expected to be substantially completed in 2000.
7. OTHER MATTERS
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.
8. 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.
6
<PAGE> 8
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Operating Results for the First Six Months of 2000
as Compared to the First Six Months of 1999
Net premiums written during the first six months of 2000 increased by 1%
to $736 million from $726 million written in the comparable 1999 period. Net
premiums written by the regional segment decreased by $5.9 million, or 2%, due
to a decline in policy count. Specialty net premiums written increased by $1.4
million, or 1%, as increases in business written by the excess and surplus and
financial products lines were offset by a 39% decrease in commercial
transportation business. Net premiums written by the reinsurance operations
decreased by $20.2 million, or 13%, due to a decrease in treaty property
business which was partially offset by an increase in facultative business.
Alternative markets net premiums written increased $19.1 million, or 29%, due to
an increase in business written by Signet Star Reinsurance Company.
International net premiums written increased $15.7 million, or 41%, due to
growth in both Argentina and the Philippines.
Pre-tax investment income decreased by 1% to $96.5 million. The decrease
in investment income was due to a decrease in average investable assets as a
result of the repayment of short-term debt and the retirement of certain
long-term debt. The average yield earned on the portfolio increased from 6.5% to
6.7% due 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 $0.5 million from the comparable 1999 amount, principally due to the
sale of All American Agency Facilities, Inc. (See Notes to Consolidated
Financial Statements.)
Realized gains decreased to $0.8 million from $1.0 million earned in the
comparable 1999 period. Realized gains 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
majority of the 2000 and 1999 realized gains and losses resulted from the sale
of fixed income securities, and other assets. (See Notes to Consolidated
Financial Statements.)
The combined ratio (on a statutory basis) of the Company's insurance
operations increased to 107.4% for the first six months of 2000 from 106.8% for
the comparable 1999 period. The consolidated loss ratio (losses and loss
expenses incurred expressed as a percentage of premiums earned) increased to
73.3% in 2000 from 71.5% in 1999 due to an increase in loss ratios at the
alternative markets and specialty segments. The increase in the alternative
markets loss ratio reflects higher estimated losses on new business written by
Signet Star Reinsurance Company and a decrease in favorable reserve development
at Midwest Employers Casualty Company. The increase in the specialty loss ratio
reflects 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.
7
<PAGE> 9
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 $293.6 million. The
decrease in other operating costs and expenses is primarily due to a decline in
premium volume which in turn results in a decrease in underwriting expenses. The
consolidated expense ratio (underwriting expenses expressed as a percentage of
premiums written) decreased to 33.8% 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 $3.2 million as compared to
$9.6 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 4 cents per diluted share, related to the Company's reinsurance
operations. (See Notes to Consolidated Financial Statements.) The restructuring,
which should be substantially completed by the end of 2000, 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 Second Quarter of
2000 as Compared to the Second Quarter of 1999
For the second quarter of 2000 as compared to the corresponding 1999
period, net premiums written increased 1% and net investment income decreased
3%, generally for the reasons discussed above.
The combined ratio (on a statutory basis) of the Company's insurance
operations for the second quarter of 2000 decreased to 108.2% from 108.7% for
the comparable 1999 period due to an increase in the consolidated loss ratio and
a decrease in the consolidated expense ratio. The consolidated loss ratio
(losses and loss expense incurred expressed as a percentage of premiums earned)
increased to 73.1% in 2000 from 71.9% in 1999 for the reasons discussed above.
Other operating costs and expenses decreased 3% to $148.2 million and the
consolidated expense ratio of the Company's insurance operations (underwriting
expenses expressed as a percentage of premiums written) decreased to 34.7% for
the 2000 period from 36.4% for the comparable 1999 quarter for the reasons
discussed above.
Liquidity and Capital Resources
Cash flow used in operating activities before trading account activities
was $3 million for the first six months of 2000 compared with cash flow from
operating activities of $6 million for the same period in 1999. The investment
portfolio, excluding trading account securities, on a cost basis, decreased by
$71 million to $2,612 million at June 30, 2000 from $2,683 million at December
31, 1999. The decrease in the investment portfolio is primarily attributable to
the repayment of $60 million of corporate debt during the first six months of
2000.
At June 30, 2000, as compared to December 31, 1999, the investment
portfolio was as follows: state and municipal securities were 25% (36% in 1999);
U.S. Government securities and cash equivalents were 23% (21% in 1999);
mortgage-backed securities were 18% (15% in 1999); corporate fixed maturity
securities were 18% (14% in 1999); and the balance of 16% (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 $374 million as of June 30,
2000, as compared to $356 million as of December
8
<PAGE> 10
31, 1999. The net trading account represented approximately 13% (12% in 1999) of
the Company's net invested assets as of June 30, 2000 and December 31, 1999.
In the first six months of 2000, the Company retired $25 million of 6.31%
senior notes and repaid $35 million of borrowings under a line of credit. The
debt repayments were financed by distributions from the Company's insurance
subsidiaries and, as a result, the consolidated surplus of the insurance
subsidiaries decreased to approximately $801 million at June 30, 2000 from
approximately $851 million at December 31, 1999.
For the first six months of 2000, stockholders' equity increased by
approximately $13 million to $605 million. At June 30, 2000 the Company's total
capitalization was $1,173 million and the percentage of the Company's capital
attributable to long-term debt was 32%, compared with 33% at December 31, 1999.
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 June 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 2. Changes in Securities and Use of Proceeds
On May 9, 2000 the Company issued 346 shares of its Common Stock to
each of its eight directors (2,768 shares in the aggregate). The shares were
issued as payment of a portion of annual director's fees pursuant to the
Company's 1997 Director Stock Plan. The shares were not registered under the
Securities Act of 1933 in reliance on the exemption provided in Section 4(2)
thereof for transactions not involving a public offering.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
During the quarter ended June 30, 2000, the Company filed the
following Report on Form 8-K:
Report dated April 26, 2000 with respect to a press release
announcing results of operations of the Company for the first
quarter of 2000 (Under Item 5 of Form 8-K.)
9
<PAGE> 11
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: August 8, 2000 /s/ WILLIAM R. BERKLEY
------------------------------
William R. Berkley
Chairman of the Board and
Chief Executive Officer
Date: August 8, 2000 /s/ EUGENE G. BALLARD
------------------------------
Eugene G. Ballard
Senior Vice President,
Chief Financial Officer
and Treasurer
10
