Q3 Earnings Report: Transatlantic, W.R. Berkley Post Lower Profits

October 28, 2011

New York-headquartered international reinsurer Transatlantic Holdings reported third-quarter net income of $68 million, down significantly from $134 million one year ago.

The earnings were hurt by $71 million of pre-tax net catastrophe costs (net of reinsurance and net reinstatement premiums) that were partially offset by related tax benefits of $25 million. CAT costs consisted mostly of $33 million for current quarter floods in Denmark and Hurricane Irene and $34 million from net changes in estimated costs from earlier CAT events this year. The results were released on Wednesday.

Also hurting the third-quarter results was the $57 million in costs for the termination of its merger deal with Allied World Assurance Co. Holdings. Third-quarter results included $57 million of pre-tax costs associated with the terminated merger agreement and other strategic review activities. Of that amount, $48 million resulted from termination fees and expense reimbursements paid to Allied World during the quarter.

Other highlights include:

• Net premiums written of $956 million, decreasing 6.6 percent from the prior-year quarter, excluding the impact of foreign exchange

• Net investment income of $118 million, 4.8 percent less than the year-ago period, principally as a result of a decline in income from alternative investments

• Combined ratio of 94.3 percent

• Realized net capital gains of $13 million

“As we look to the January 1 renewals, rate trends remain consistent with what we have seen develop during the year,” said CEO Robert Orlich. “Catastrophe rates continue to move higher, particularly in loss-affected areas. Casualty market conditions are mixed, but we are beginning to see some modest rate improvement in certain domestic general casualty classes.”

W.R. Berkley Profit Down 18 Percent

W.R. Berkley, a Greenwich, Conn.-based commercial lines p/c insurer, reported third-quarter net profit of $77 million, down 18 percent from $94 million reported one year ago. The decline was largely caused by catastrophe losses. The insurer released the results on Wednesday.

CAT losses took a big bite out of the insurer’s profitability. Its third-quarter CAT losses were $51 million, more the double the $22 million reported one year ago.

For the first nine months of 2011, the insurer reported $276.9 million in net profit, down 14 percent from the year-ago period. CAT losses for the first nine months were $139 million, up from $75 million for the same period last year.

The third-quarter net investment income was $114 million, down slightly from $119 million one year ago. For net investment income for the first nine months was $409 million, up from $392 reported during the same period last year.

Other earnings highlights include:

• Premiums written increased 14 percent on a net basis and 16 percent on a gross basis.

• Average premium rates increased 3 percent

• GAAP combined ratio was 99.1 percent including catastrophe losses and 94.3 percent excluding catastrophe losses.

Commenting on results, CEO William Berkley said the visibility of a cycle change was “even more evident.” He said he believes prices increases will continue.

“We are pleased with our third quarter results, especially given the level of catastrophe activity, the difficult economic environment and historically low interest rates,” he said.

“Our net written premiums increased by more than 14 percent in the quarter as our operating units found opportunities to grow profitably. The visibility of a cycle change is even more evident, with prices for the quarter up three percent over last year. We believe that price increases and premium volume growth will continue.”

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