W. R. Berkley Corporation (NYSE: WRB) today reported net income for the fourth quarter of 2011 of $118 million, or 82 cents per share, compared with $127 million, or 85 cents per share, for the fourth quarter of 2010.

Summary Financial Data
(Amounts in thousands, except per share data)
       
Fourth Quarter Full Year
2011 2010 2011 2010
 
Gross premiums written $1,255,879 $1,055,093 $5,077,313 $4,416,077
Net premiums written 1,090,511 918,916 4,357,368 3,850,926
 
Net income 117,926 126,851 394,803 449,287
Net income per diluted share 0.82 0.85 2.71 2.90
 
Operating income (1) 83,189 104,633 313,156 412,413
Operating income per diluted share 0.58 0.70 2.15 2.66

(1) Operating income is a non-GAAP financial measure defined by the Company as net income excluding net investment gains and losses.

Fourth quarter highlights included:

  • Book value per share increased 14% on an annualized basis.
  • Average renewal rates increased 4.2%.
  • GAAP combined ratio was 96.8%.
  • Net premiums written increased 19%.

Commenting on the Company's performance, William R. Berkley, chairman and chief executive officer, said: "We are pleased with our results for the quarter, but more importantly, with how we have positioned our company for the period ahead. Premiums written for our core business are beginning to grow again, and the newer units are growing at an increasing pace. Average renewal rates were up 4.2% during the quarter with the upward pricing trend accelerating. Our operating units' priority is to remain focused on price.

"Our balance sheet is one of our strengths. We continue to establish our reserves with a recognition of increasing loss cost trends and the possibility of inflation. Our results benefitted again this quarter from our underwriting strategy, which limits our exposure to large catastrophic events.

"Our investment portfolio, which has had more volatility in recent periods, continues to provide attractive overall returns. As interest rates declined, we shifted a portion of our fixed-income portfolio to an array of other investment alternatives, ranging from common stock to commercial real estate. We are beginning to see the benefits of this change. We continue to maintain the quality of our fixed income portfolio, but we are willing to forgo immediate liquidity for a portion of the portfolio to achieve improved returns. Thus, we maintain a substantial amount of short-term marketable securities, which provides more than adequate liquidity.

"Our confidence in the cyclical turn is becoming greater as time passes. We continue to see recognition by the industry of the need for further rate increases and greater underwriting discipline. We anticipate 2012 will be a better year, although it will primarily be recognized in the second half when the benefits of price increases will be realized. We are excited about the opportunities currently before us," Mr. Berkley concluded.

Webcast Conference Call

The Company will hold its quarterly conference call with analysts and investors to discuss its earnings and other information on February 1, 2012 at 9:30 a.m. eastern time. The conference call will be webcast live on the Company's website at www.wrberkley.com. A recording of the call will be available on the Company's website approximately two hours after the end of the conference call.

About W. R. Berkley Corporation

Founded in 1967, W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates in five segments of the property casualty insurance business: specialty insurance, regional property casualty insurance, alternative markets, reinsurance and international.

Forward Looking Information

This is a "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein, including statements related to our outlook for the industry and for our performance for the year 2012 and beyond, are based upon the Company's historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. They are subject to various risks and uncertainties, including but not limited to: the cyclical nature of the property casualty industry; the long-tail and potentially volatile nature of the insurance and reinsurance business; product demand and pricing; claims development and the process of estimating reserves; investment risks, including those of our portfolio of fixed maturity securities and investments in equity securities, including investments in financial institutions, municipal bonds, mortgage-backed securities, loans receivable, investment funds, real estate, merger arbitrage and private equity investments; the impact of significant competition; the uncertain nature of damage theories and loss amounts; natural and man-made catastrophic losses, including as a result of terrorist activities; general economic and market activities, including inflation, interest rates, and volatility in the credit and capital markets; the impact of the economic downturn, and the potential effect of any legislative, regulatory, accounting or other initiatives taken in response to it, on our results and financial condition; the continued availability of capital and financing; the success of our new ventures or acquisitions and the availability of other opportunities; the availability of reinsurance; our retention under the Terrorism Risk Insurance Programs Reauthorization Act of 2007; the ability of our reinsurers to pay reinsurance recoverables owed to us; foreign currency and political risks relating to our international operations; other legislative and regulatory developments, including those related to business practices in the insurance industry; changes in the ratings assigned to us or our insurance company subsidiaries by rating agencies; the availability of dividends from our insurance company subsidiaries; our ability to attract and retain key personnel and qualified employees; and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties could cause our actual results for the year 2012 and beyond to differ materially from those expressed in any forward-looking statement we make. Any projections of growth in our revenues would not necessarily result in commensurate levels of earnings. 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.

Consolidated Financial Summary
(Amounts in thousands, except per share data)
 
  Fourth Quarter   Full Year
2011     2010   2011     2010  
Revenues:
Net premiums written $ 1,090,511 $ 918,916 $ 4,357,368 $ 3,850,926
Change in unearned premiums   14,792     70,680     (196,501 )   (15,344 )
Net premiums earned 1,105,303 989,596 4,160,867 3,835,582
Net investment income 117,090 138,090 526,351 530,525
Insurance service fees 23,356 21,355 92,843 85,405
Net investment gains:
Net realized gains on sales 52,069 39,431 125,881 65,786
Other-than-temporary impairments   -     (5,500 )   (400 )   (9,205 )
Net investment gains   52,069     33,931     125,481     56,581  
Revenues from wholly-owned investees 72,735 47,966 248,678 214,454
Other income   400     404     1,764     1,522  
Total revenues   1,370,953     1,231,342     5,155,984     4,724,069  
 
Expenses:
Losses and loss expenses 693,014 591,512 2,658,365 2,309,867
Other operating costs and expenses 428,289 388,355 1,621,329 1,496,362
Expenses from wholly-owned investees 71,436 47,695 245,495 207,566
Interest expense   28,195     28,189     112,512     106,969  
Total expenses   1,220,934     1,055,751     4,637,701     4,120,764  
 
Income before income taxes 150,019 175,591 518,283 603,305
Income tax expense   (32,065 )   (48,699 )   (123,550 )   (153,739 )
Net income before
noncontrolling interests 117,954 126,892 394,733 449,566
Noncontrolling interests   (28 )   (41 )   70     (279 )
Net income to common stockholders $ 117,926   $ 126,851   $ 394,803   $ 449,287  
 
Net income per share:
Basic $ 0.86   $ 0.88   $ 2.83   $ 3.02  
Diluted $ 0.82   $ 0.85   $ 2.71   $ 2.90  
 
Average shares outstanding:
Basic 137,174 143,400 139,688 148,752
Diluted 143,016 150,033 145,672 155,081

Operating Results by Segment
(Amounts in thousands, except ratios (1)(2))
 
  Fourth Quarter   Full Year
2011     2010   2011     2010  
Specialty:
Gross premiums written $ 474,205 $ 394,640 $ 1,818,344 $ 1,525,856
Net premiums written 408,425 336,643 1,554,516 1,311,831
Premiums earned 395,181 332,668 1,442,748 1,288,373
Operating income 53,780 83,809 292,759 296,645
Loss ratio 63.8 % 56.3 % 59.4 % 58.3 %
Expense ratio 31.9 % 32.7 % 32.5 % 32.7 %
GAAP combined ratio 95.7 % 89.0 % 91.9 % 91.0 %
 
Regional:
Gross premiums written $ 268,138 $ 270,774 $ 1,149,362 $ 1,160,136
Net premiums written 247,127 241,656 1,064,507 1,044,347
Premiums earned 270,552 268,535 1,065,975 1,066,922
Operating income 33,763 26,938 32,382 117,353
Loss ratio 57.9 % 60.9 % 68.0 % 60.7 %
Expense ratio 35.4 % 36.8 % 35.9 % 35.9 %
GAAP combined ratio 93.3 % 97.7 % 103.9 % 96.6 %
 
Alternative Markets:
Gross premiums written $ 171,094 $ 130,199 $ 827,156 $ 702,717
Net premiums written 121,980 102,480 619,097 582,045
Premiums earned 158,402 149,349 612,558 608,191
Operating income 29,745 40,044 146,030 178,607
Loss ratio 73.3 % 72.7 % 72.3 % 67.6 %
Expense ratio 26.5 % 24.9 % 26.7 % 25.6 %
GAAP combined ratio 99.8 % 97.6 % 99.0 % 93.2 %
 
Reinsurance:
Gross premiums written $ 115,474 $ 101,497 $ 453,170 $ 425,297
Net premiums written 110,805 96,407 430,329 401,239
Premiums earned 110,788 111,040 426,008 419,356
Operating income 16,394 38,837 83,251 129,922
Loss ratio 63.4 % 50.3 % 61.6 % 52.5 %
Expense ratio 39.7 % 39.7 % 40.4 % 41.0 %
GAAP combined ratio 103.1 % 90.0 % 102.0 % 93.5 %
 
International:
Gross premiums written $ 226,968 $ 157,983 $ 829,281 $ 602,071
Net premiums written 202,174 141,730 688,919 511,464
Premiums earned 170,380 128,004 613,578 452,740
Operating income 11,876 1,503 40,084 21,174
Loss ratio 57.5 % 59.4 % 60.5 % 61.8 %
Expense ratio 40.9 % 39.1 % 40.0 % 40.4 %
GAAP combined ratio 98.4 % 98.5 % 100.5 % 102.2 %

Operating Results by Segment (Continued)
(Amounts in thousands, except ratios (1)(2))
 
  Fourth Quarter   Full Year
2011   2010   2011     2010  
Corporate and Eliminations:
Net investment gains $ 52,069 $ 33,931 $ 125,481 $ 56,581
Interest expense (28,195 ) (28,189 ) (112,512 ) (106,969 )
Other revenues and expenses (3) (19,413 ) (21,282 ) (89,192 ) (90,008 )
Pre-tax gain (loss) 4,461 (15,540 ) (76,223 ) (140,396 )
 
Consolidated:
Gross premiums written $ 1,255,879 $ 1,055,093 $ 5,077,313 $ 4,416,077
Net premiums written 1,090,511 918,916 4,357,368 3,850,926
Premiums earned 1,105,303 989,596 4,160,867 3,835,582
Pre-tax income 150,019 175,591 518,283 603,305
Loss ratio 62.7 % 59.8 % 63.9 % 60.2 %
Expense ratio 34.1 % 34.3 % 34.4 % 34.3 %
GAAP combined ratio 96.8 % 94.1 % 98.3 % 94.5 %

(1) Loss ratio is losses and loss expenses incurred expressed as a percentage of premiums earned. Expense ratio is underwriting expenses expressed as a percentage of premiums earned. Underwriting expenses do not include expenses related to insurance services or unallocated corporate expenses. GAAP combined ratio is the sum of the loss ratio and the expense ratio.

(2) For the fourth quarters of 2011 and 2010, catastrophe losses were $15 million and $6 million, respectively. For the full years of 2011 and 2010, catastrophe losses were $153 million and $81 million, respectively. These amounts are net of reinsurance coverage and reinstatement premiums.

(3) Other revenues and expenses include corporate investment income, expenses not allocated to the business segments and revenues and expenses from investments in wholly-owned, non-insurance subsidiaries that are consolidated for financial reporting purposes.

Selected Balance Sheet Information
(Amounts in thousands, except per share data)
 
December 31, 2011 December 31, 2010
 
Net invested assets (1) $ 14,559,781 $ 13,918,768
Total assets 18,487,731 17,528,547
Reserves for losses and loss expenses 9,337,134 9,016,549
Senior notes and other debt 1,500,503 1,500,419
Junior subordinated debentures 242,997 242,784
Common stockholders' equity (2)(3) 4,008,426 3,702,876
Common stock outstanding (3) 137,520 141,010
Book value per share (4) 29.15 26.26
Tangible book value per share (4) 28.44 25.56

(1) Net invested assets include investments, cash and cash equivalents, trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases.

(2) After-tax unrealized investment gains were $430 million and $335 million as of December 31, 2011 and 2010, respectively. Unrealized currency translation losses were $61 million and $42 million as of December 31, 2011 and 2010, respectively.

(3) During 2011, the Company repurchased 5.2 million shares of common stock at an average cost of $30.12 per share and an aggregate cost of $157 million.

(4) Book value per share is total common stockholders' equity divided by the number of common shares outstanding. Tangible book value per share is total common stockholders' equity excluding the after-tax value of goodwill and other intangible assets divided by the number of common shares outstanding.

Supplemental Information
(Amounts in thousands)
 
Fourth Quarter   Full Year
2011   2010   2011   2010  
 
Reconciliation of operating
income to net income:
Operating income (1) $ 83,189 $ 104,633 $ 313,156 $ 412,413
Investment gains, net of tax   34,737     22,218     81,647     36,874  
Net income $ 117,926   $ 126,851   $ 394,803   $ 449,287  
 
Return on equity (2) 12.7 % 14.1 % 10.7 % 12.5 %
 
Cash flow from operations $ 185,036 $ 60,600 $ 670,279 $ 451,316
 
Other operating costs and expenses:
Underwriting expenses $ 377,343 $ 338,941 $ 1,432,932 $ 1,314,483
Service expenses 19,467 17,930 75,231 72,372
Net foreign currency losses (gains) 287 7,753 (1,884 ) 2,126
Other costs and expenses   31,192     23,731     115,050     107,381  
Total $ 428,289   $ 388,355   $ 1,621,329   $ 1,496,362  

(1) Operating income is a non-GAAP financial measure defined by the Company as net income excluding net investment gains and losses. Management believes that excluding net investment gains and losses, which are often discretionary and frequently relate to economic factors, provides a useful indicator of trends in the Company's underlying operations.

In 2011, the Company modified its definition of operating income to include income and losses from investment funds, which had previously been excluded. Operating income for prior periods has been modified to conform to this definition. For the fourth quarters of 2011 and 2010, income (losses) from investment funds were ($13 million) and $5 million, respectively. For the full years of 2011 and 2010, income (losses) from investment funds were $11 million and ($8 million), respectively.

(2) Return on equity represents net income expressed on an annualized basis as a percentage of beginning of year stockholders' equity.

Investment Portfolio
December 31, 2011
(Amounts in thousands)
    Carrying   Percent
Value of Total
Fixed maturity securities:
United States government and government agencies $ 976,493 6.7 %
 
State and municipal:
Special revenue 2,150,746 14.8 %
Pre-refunded 1,334,500 9.2 %
State general obligation 975,576 6.7 %
Corporate backed 476,273 3.3 %
Local general obligation   460,329 3.2 %
Total state and municipal (1)   5,397,424 37.1 %
 
Mortgage-backed securities:
Agency 1,200,848 8.2 %
Residential - Prime 228,893 1.6 %
Residential - Alt A 82,186 0.6 %
Commercial   108,419 0.7 %
Total mortgage-backed securities   1,620,346 11.1 %
 
Corporate:
Industrial 1,232,553 8.5 %
Financial 573,495 3.9 %
Asset-backed 315,738 2.2 %
Utilities 193,423 1.3 %
Other   114,211 0.8 %
Total corporate   2,429,420 16.7 %
 
Foreign government and corporate securities   888,354 6.1 %
Total fixed maturity securities (1)   11,312,037 77.7 %
 
Equity securities available for sale:
Common stocks 319,982 2.2 %
Preferred stocks
Financial 66,469 0.5 %
Utilities 44,685 0.3 %
Real estate   12,303 0.1 %
Total equity securities available for sale   443,439 3.1 %
 
Cash and cash equivalents (2) 1,178,343 8.1 %
Investment funds (2) 564,551 3.9 %
Real estate 342,905 2.4 %
Arbitrage trading account 397,312 2.7 %
Loans receivable 263,187 1.8 %
Investment in arbitrage funds   58,007 0.4 %
Net invested assets $ 14,559,781 100.0 %

(1) Total fixed maturity securities had an average rating of AA- and an average duration of 3.6 years.

(2) Cash and cash equivalents includes trading accounts receivable from brokers and clearing organizations, trading account securities sold but not yet purchased and unsettled purchases. Investment funds are net of related liabilities of $58 million.

Foreign Fixed Maturity Securities
December 31, 2011
(Amounts in thousands)
 
Government   Corporate   Total
 
Australia $ 143,767 $ 81,527 $ 225,294
United Kingdom 171,828 40,983 212,811
Germany 95,277 27,593 122,870
Canada 64,479 33,274 97,753
Argentina 64,312 - 64,312
Brazil 43,939 - 43,939
Supranational (1) 37,806 - 37,806
Switzerland - 28,668 28,668
Norway 25,833 - 25,833
Finland - 11,605 11,605
France - 4,611 4,611
Singapore 4,609 - 4,609
Chile 3,672 - 3,672
Uruguay 3,155 - 3,155
New Zealand   1,416   -   1,416
Total $ 660,093 $ 228,261 $ 888,354

(1) Supranational represents investments in the North American Development Bank, European Investment Bank and Inter-American Development Bank.

W. R. Berkley Corporation
Karen A. Horvath
Vice President - External
Financial Communications
(203)629-3000