W.R. Berkley Corp.’s chairman and CEO slammed the surge of merger and acquisition activity hitting the property/casualty industry in recent months as something driven more by “management ego” than true business needs.
“Consolidation that is happening now is frequently about management ego or management rewards and less than it is about what you need to run your business,” William R. Berkley said during the company’s July 27 second-quarter earnings call.
Berkley said there are exceptions to the rule, especially when the M&As involve global companies. He did not cite any company names.
“To be a global company of scale is certainly of value, but that is a small part of dollars in the marketplace,” Berkley said. “There are a few companies that need to be global to serve customers. Our global ambitions have to do with serving great customers wherever they are located.”
Creates Opportunities
Berkley’s son, President and Chief Operating Officer W. Robert Berkley, Jr., said the consolidation going on in the marketplace right now creates opportunity for W.R. Berkley and other carriers “on multiple levels.”
He said that carriers involved in the mergers end up being distracted, dealing with challenges their distribution system. Large mergers also leave uncertainty about how much distribution channels the combined company wants to handle, Robert Berkley added. He also said that customers with companies pursuing mergers can end up “disenchanted with their future and looking for an alternative.”
As for W.R. Berkley Corp. becoming a buyer or seller in the current wave of M&A activity, William R. Berkley said the company remains big enough to deal with today’s regulatory pressures. At the same time, he said he is not ruling out anything if shareholders want it.
“If it is good for our shareholders it is good for us,” the elder Berkley said during the call. “In the meantime, we are big enough that we think there is not much we cannot do.”
Succession Plan
On Oct. 31, as part of a succession plan, the elder Berkley will retire as chairman and his son will replace him as chairman.
“On Oct. 31 I step down as CEO and Rob is going to take over, then I will be chairman and then I get to harass everybody else,” William Berkley said.
W. Robert Berkley, Jr. has been president and chief operating officer since 2009. He has been with the company his father helped found in 1967 for 17 years, according to the Berkley website.
Financial Results
Breaking down the 2015 second quarter numbers, W.R. Berkley Corp. saw real gains in premiums written. But declines in investment income led to a drop in net income.
William R. Berkley said that the insurer held its own even as competition and investment challenges continued to increase.
“It was an interesting quarter, exciting in many ways, and challenging in many ways,” Berkley said. He added in prepared remarks that Berkley continues to target a return of 15 percent or better over the long-term.
Net income during the 2015 second quarter landed at $123 million, or $0.95 per diluted share. That’s down from more than $179.9 million, or $1.35 per diluted share over the same period in 2014. Investment income came in at $127.58 million during the quarter, versus $138.7 million in the 2014 second quarter. Net investment gains are down drastically, at more than $27.5 million, compared to $109.16 million last year.
Consolidated gross written premiums are booked at $1.8 billion in Q2, up from $1.77 billion in the 2014 second quarter. Net written premiums are at $1.54 billion for Q2, an increase over nearly $1.49 billion in the same-year-ago period. Net premiums earned are at $1.49 billion, compared to $1.4 billion in the 2014 second quarter.
Berkley’s combined ratio for the quarter was 94.2, essentially flat over the same period in 2014. Its return on equity was 10.7 percent, however, down from 16.6 percent last year. During the conference call, Berkley said he expects the company can keep its return on equity at the mid-teens in the long run.
Broken down, Berkley experienced big gains in its domestic insurance business, though execs during the company’s investor call on July 27 said commercial auto, aviation and marine remain challenging.
At the same time, Berkley experienced declines in both its international insurance and global reinsurance arms. Berkley’s international insurance combined ratio hit 101.1 during Q2, compared to 99.5 over the same period last year.
During Q2, Berkley bought back 2.6 million shares of common stock, for $127 million.
This article is an edited version of the original published on CarrierManagement.com.
Related:
- Capital Ownership, Cost a Challenge for Insurance Industry: Berkley CEO
- W.R. Berkley: Still Smart, Successful and Smiling After 40 Years of Decisions
- Willis Group, Towers Watson Agree to $18 Billion Merger
- Big ACE-Chubb Deal Triggers ‘Feverish’ Merger Speculation
- Brit Chief Says Excess Capital Will Spark More Mergers & Acquisitions
- AIG Names Schreiber Chief Strategy Officer, Eyes M&A Deals
- Re/insurance Market Conditions Will Lead to More M&A Activity: A.M. Best
Topics Mergers & Acquisitions
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