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Westlake Chemical Corporation Reports Second Quarter 2019 Results

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HOUSTON–(BUSINESS WIRE)–Westlake Chemical Corporation (NYSE: WLK) (the “Company” or “Westlake”) today reported net income attributable to Westlake for the three months ended June 30, 2019 of $119 million, or $0.92 per diluted share, on net sales of $2,144 million. Net income in the second quarter of 2019 decreased by $159 million, or $1.20 per share, compared to second quarter 2018 net income of $278 million, or $2.12 per share, on net sales of $2,235 million. Income from operations for the second quarter of 2019 of $194 million decreased by $210 million from income from operations of $404 million for the second quarter of 2018. The decreases in net income and income from operations versus the prior-year period were primarily due to lower sales prices for our major products resulting from the ongoing international trade uncertainties and slower global economic growth. The decreases in sales prices for our major products were partially offset by lower feedstock and purchased ethylene costs, lower fuel costs and higher polyethylene sales volumes.

Second quarter 2019 net income of $119 million, or $0.92 per diluted share, increased by $47 million from first quarter 2019 net income of $72 million, or $0.55 per share. Income from operations for the second quarter of 2019 of $194 million increased by $60 million from income from operations of $134 million for the first quarter of 2019. The increases in net income and income from operations versus the prior quarter were primarily due to higher margins in our Olefins segment, seasonally higher earnings in our downstream building products businesses and lower restructuring, transaction and integration-related costs.

For the first six months of 2019, net income of $191 million, or $1.47 per share, decreased by $374 million from the first six months of 2018 net income of $565 million, or $4.31 per share. Income from operations of $328 million for the first six months of 2019 decreased by $477 million from income from operations of $805 million for the first six months of 2018. The decreases in net income and income from operations were primarily due to lower margins resulting from lower sales prices for our major products, partially offset by lower feedstock and purchased ethylene costs and higher polyethylene sales volumes. Restructuring, transaction and integration-related costs for the first six months of 2019 were $24 million, or $0.17 per diluted share.

“We continued to face several challenges in the second quarter, including a lower commodity price environment resulting from slowing global growth and industrial activity, record flooding through the continental United States creating logistics constraints and delaying shipments of our key products, and a slow start of the construction season due to extended winter weather in much of North America,” said Albert Chao, President and Chief Executive Officer. “Although it’s been a difficult start to the year, we have seen some improvements in industry fundamentals that we expect will continue into the second half of the year.”

Net cash provided by operating activities was $320 million for the second quarter of 2019 and $467 million for the first six months of 2019. Capital expenditures for the second quarter of 2019 and for the first six months of 2019 were $208 million and $411 million, respectively. As of June 30, 2019, cash and cash equivalents were $409 million and long-term debt was $2,669 million.

EBITDA (earnings before interest expense, income taxes, depreciation and amortization) of $372 million for the second quarter of 2019 decreased $196 million compared to second quarter 2018 EBITDA of $568 million. Second quarter 2019 EBITDA of $372 million increased by $58 million compared to first quarter 2019 EBITDA of $314 million. For the first six months of 2019, EBITDA of $686 million was $461 million lower than EBITDA for the first six months of 2018 of $1,147 million. A reconciliation of EBITDA to net income, income from operations and net cash provided by operating activities can be found in the financial schedules at the end of this press release.

OLEFINS SEGMENT

Second quarter 2019 income from operations for the Olefins segment of $82 million decreased by $76 million from second quarter 2018 income from operations of $158 million. This decrease in income from operations was primarily due to lower sales prices and margins for our major products as a result of increased olefins production from new industry capacity. Higher polyethylene sales volumes, lower feedstock and fuel costs and lower impacts from turnaround activity partially offset the lower sales prices.

Olefins income from operations of $82 million in the second quarter of 2019 increased by $45 million from first quarter 2019 income from operations of $37 million. This increase in income from operations was primarily due to higher margins for our major products as a result of lower feedstock and fuel costs.

For the first six months of 2019, Olefins income from operations of $119 million decreased by $202 million from income from operations of $321 million for the first six months of 2018. This decrease in income from operations was primarily due to the lower sales prices and margins for our major products, partially offset by higher polyethylene sales volumes and lower feedstock costs.

VINYLS SEGMENT

Second quarter 2019 income from operations for the Vinyls segment of $129 million decreased by $142 million from second quarter 2018 income from operations of $271 million. This decrease in income from operations was primarily due to lower sales prices for caustic soda and lower margins for PVC resin resulting from slower global economic growth and ongoing international trade uncertainties.

Vinyls income from operations for the second quarter of 2019 of $129 million increased by $28 million from first quarter 2019 income from operations of $101 million. The increase in income from operations was primarily due to higher earnings from our downstream building products businesses, lower ethylene and fuel costs and lower restructuring, transaction and integration-related costs, partially offset by lower caustic soda sales prices.

For the first six months of 2019, Vinyls income from operations of $230 million decreased by $307 million from income from operations of $537 million for the first six months of 2018. This decrease in income from operations was primarily due to lower caustic soda sales prices and lower margins for PVC resin.

The statements in this release and the related teleconference relating to matters that are not historical facts, including improvements in industry fundamentals, are forward-looking statements. These forward-looking statements are subject to significant risks and uncertainties. Actual results could differ materially, based on factors including, but not limited to: general economic and business conditions; the cyclical nature of the chemical industry; availability, cost and volatility of raw materials and utilities, including natural gas and natural gas liquids from shale production; the price of crude oil; uncertainties associated with the United States and worldwide economies, including those due to global economic and financial conditions; governmental regulatory actions, including environmental regulation and changes in trade policies; political unrest; industry production capacity and operating rates; the supply/demand balance for Westlake’s products; competitive products and pricing pressures; access to capital markets; technological developments; the effect and results of litigation and settlements of litigation; operating interruptions; and other risk factors. For more detailed information about the factors that could cause actual results to differ materially, please refer to Westlake’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC in February 2019.

Use of Non-GAAP Financial Measures

This release makes reference to certain “non-GAAP” financial measures, such as EBITDA, as defined in Regulation G of the U.S. Securities Exchange Act of 1934, as amended. We report our financial results in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), but believe that certain non-GAAP financial measures, such as EBITDA, provide useful supplemental information to investors regarding the underlying business trends and performance of the company’s ongoing operations and are useful for period-over-period comparisons of such operations. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the financial measures prepared in accordance with U.S. GAAP. A reconciliation of EBITDA to net income, income from operations and net cash provided by operating activities can be found in the financial schedules at the end of this press release.

Westlake Chemical Corporation

Westlake Chemical Corporation is an international manufacturer and supplier of chemicals, polymers and building products with headquarters in Houston. The Company’s range of products includes: ethylene, polyethylene, styrene, propylene, chlor-alkali and derivative products, PVC suspension and specialty resins, PVC compounds, and building products including siding, pipe, fittings and specialty components, windows, fence, roofing, deck and film. For more information, visit the Company’s web site at www.westlake.com.

Westlake Chemical Corporation Conference Call Information:

A conference call to discuss Westlake Chemical Corporation’s second quarter 2019 results will be held Tuesday, August 6, 2019 at 11:00 AM Eastern Time (10:00 AM Central Time). To access the conference call, dial (855) 760-8160 or (704) 288-0624 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 3583409.

A replay of the conference call will be available beginning two hours after its conclusion until 11:59 p.m. Eastern Time on August 13, 2019. To hear a replay, dial (855) 859-2056 or (404) 537-3406 for international callers. The replay passcode is 3583409.

The conference call will also be available via webcast at: https://edge.media-server.com/mmc/p/wq4ujcq5 and the earnings release can be obtained via the company’s web page at: http://www.westlake.com/investor-relations.

WESTLAKE CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

(In millions of dollars, except per share data)

Net sales

 

$

2,144

 

 

$

2,235

 

 

$

4,169

 

 

$

4,385

 

Cost of sales

 

1,804

 

 

1,683

 

 

3,530

 

 

3,291

 

Gross profit

 

340

 

 

552

 

 

639

 

 

1,094

 

Selling, general and administrative expenses

 

117

 

 

115

 

 

233

 

 

223

 

Amortization of intangibles

 

27

 

 

25

 

 

54

 

 

51

 

Restructuring, transaction and integration-related costs

 

2

 

 

8

 

 

24

 

 

15

 

Income from operations

 

194

 

 

404

 

 

328

 

 

805

 

Interest expense

 

(28

)

 

(31

)

 

(58

)

 

(68

)

Other income, net

 

2

 

 

8

 

 

11

 

 

30

 

Income before income taxes

 

168

 

 

381

 

 

281

 

 

767

 

Provision for income taxes

 

39

 

 

93

 

 

70

 

 

182

 

Net income

 

129

 

 

288

 

 

211

 

 

585

 

Net income attributable to noncontrolling interests

 

10

 

 

10

 

 

20

 

 

20

 

Net income attributable to Westlake Chemical Corporation

 

$

119

 

 

$

278

 

 

$

191

 

 

$

565

 

Earnings per common share attributable to Westlake Chemical Corporation:

 

 

 

 

 

 

 

 

Basic

 

$

0.92

 

 

$

2.13

 

 

$

1.48

 

 

$

4.34

 

Diluted

 

$

0.92

 

 

$

2.12

 

 

$

1.47

 

 

$

4.31

 

WESTLAKE CHEMICAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

June 30,

2019

 

December 31,

2018

 

 

(In millions of dollars)

ASSETS

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

409

 

 

$

753

 

Accounts receivable, net

 

1,213

 

 

1,037

 

Inventories

 

925

 

 

1,014

 

Prepaid expenses and other current assets

 

48

 

 

38

 

Total current assets

 

2,595

 

 

2,842

 

Property, plant and equipment, net

 

6,832

 

 

6,595

 

Other assets, net

 

2,789

 

 

2,165

 

Total assets

 

$

12,216

 

 

$

11,602

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities (accounts and notes payable and accrued and other liabilities)

 

$

1,254

 

 

$

1,183

 

Long-term debt, net

 

2,669

 

 

2,668

 

Other liabilities

 

2,034

 

 

1,675

 

Total liabilities

 

5,957

 

 

5,526

 

Total Westlake Chemical Corporation stockholders’ equity

 

5,719

 

 

5,590

 

Noncontrolling interests

 

540

 

 

486

 

Total equity

 

6,259

 

 

6,076

 

Total liabilities and equity

 

$

12,216

 

 

$

11,602

 

WESTLAKE CHEMICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

2019

 

2018

 

 

(In millions of dollars)

Cash flows from operating activities

 

 

 

 

Net income

 

$

211

 

 

$

585

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

347

 

 

312

 

Deferred income taxes

 

15

 

 

45

 

Net loss on disposition and others

 

56

 

 

26

 

Other balance sheet changes

 

(162

)

 

(419

)

Net cash provided by operating activities

 

467

 

 

549

 

Cash flows from investing activities

 

 

 

 

Acquisition of businesses, net of cash acquired

 

(314

)

 

 

Additions to property, plant and equipment

 

(411

)

 

(312

)

Additions to investments in unconsolidated subsidiaries

 

(42

)

 

(45

)

Other, net

 

4

 

 

3

 

Net cash used for investing activities

 

(763

)

 

(354

)

Cash flows from financing activities

 

 

 

 

Dividends paid

 

(65

)

 

(54

)

Distributions to noncontrolling interests

 

(30

)

 

(29

)

Proceeds from notes payable

 

7

 

 

6

 

Proceeds from issuance of Westlake Chemical Partners LP common units

 

63

 

 

 

Redemption and repayment of notes payable

 

(5

)

 

(1,173

)

Repurchase of common stock for treasury

 

(20

)

 

 

Other

 

2

 

 

8

 

Net cash used for financing activities

 

(48

)

 

(1,242

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

 

(2

)

Net decrease in cash, cash equivalents and restricted cash

 

(344

)

 

(1,049

)

Cash, cash equivalents and restricted cash at beginning of period

 

775

 

 

1,554

 

Cash, cash equivalents and restricted cash at end of period

 

$

431

 

 

$

505

 

WESTLAKE CHEMICAL CORPORATION

SEGMENT INFORMATION

(Unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

(In millions of dollars)

Net external sales

 

 

 

 

 

 

 

 

Olefins

 

$

477

 

 

$

482

 

 

$

936

 

 

$

985

 

Vinyls

 

1,667

 

 

1,753

 

 

3,233

 

 

3,400

 

 

 

$

2,144

 

 

$

2,235

 

 

$

4,169

 

 

$

4,385

 

Income (loss) from operations

 

 

 

 

 

 

 

 

Olefins

 

$

82

 

 

$

158

 

 

$

119

 

 

$

321

 

Vinyls

 

129

 

 

271

 

 

230

 

 

537

 

Corporate and other

 

(17

)

 

(25

)

 

(21

)

 

(53

)

 

 

$

194

 

 

$

404

 

 

$

328

 

 

$

805

 

Depreciation and amortization

 

 

 

 

 

 

 

 

Olefins

 

$

36

 

 

$

33

 

 

$

71

 

 

$

67

 

Vinyls

 

138

 

 

120

 

 

272

 

 

238

 

Corporate and other

 

2

 

 

3

 

 

4

 

 

7

 

 

 

$

176

 

 

$

156

 

 

$

347

 

 

$

312

 

Other income (loss), net

 

 

 

 

 

 

 

 

Olefins

 

$

1

 

 

$

1

 

 

$

3

 

 

$

3

 

Vinyls

 

2

 

 

4

 

 

6

 

 

16

 

Corporate and other

 

(1

)

 

3

 

 

2

 

 

11

 

 

 

$

2

 

 

$

8

 

 

$

11

 

 

$

30

 

WESTLAKE CHEMICAL CORPORATION

RECONCILIATION OF EBITDA TO NET INCOME, INCOME FROM OPERATIONS AND

NET CASH PROVIDED BY OPERATING ACTIVITIES

(Unaudited)

 

 

 

Three Months

Ended March 31,

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2019

 

2019

 

2018

 

2019

 

2018

 

 

(In millions of dollars)

Net cash provided by operating activities

 

$

147

 

 

$

320

 

 

$

324

 

 

$

467

 

 

$

549

 

Changes in operating assets and liabilities and other

 

(50

)

 

(191

)

 

(7

)

 

(241

)

 

81

 

Deferred income taxes

 

(15

)

 

 

 

(29

)

 

(15

)

 

(45

)

Net income

 

82

 

 

129

 

 

288

 

 

211

 

 

585

 

Less:

 

 

 

 

 

 

 

 

 

 

Other income, net

 

9

 

 

2

 

 

8

 

 

11

 

 

30

 

Interest expense

 

(30

)

 

(28

)

 

(31

)

 

(58

)

 

(68

)

Provision for income taxes

 

(31

)

 

(39

)

 

(93

)

 

(70

)

 

(182

)

Income from operations

 

134

 

 

194

 

 

404

 

 

328

 

 

805

 

Add:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

171

 

 

176

 

 

156

 

 

347

 

 

312

 

Other income, net

 

9

 

 

2

 

 

8

 

 

11

 

 

30

 

EBITDA

 

$

314

 

 

$

372

 

 

$

568

 

 

$

686

 

 

$

1,147

 

WESTLAKE CHEMICAL CORPORATION

SUPPLEMENTAL INFORMATION

Product Sales Price and Volume Variance by Operating Segments

 

 

 

Second Quarter 2019 vs.

Second Quarter 2018

 

Second Quarter 2019 vs.

First Quarter 2019

 

 

Average

Sales Price

 

Volume

 

Average

Sales Price

 

Volume

Olefins

 

-21.2

%

 

+20.1

%

 

+0.5

%

 

+3.4

%

Vinyls

 

-8.3

%

 

+3.5

%

 

-1.9

%

 

+8.3

%

Company

 

-11.1

%

 

+7.0

%

 

-1.3

%

 

+7.2

%

Average Quarterly Industry Prices (1)

 

 

Quarter Ended

 

 

June 30,

2018

 

September 30,

2018

 

December 31,

2018

 

March 31,

2019

 

June 30,

2019

Average domestic prices

 

 

 

 

 

 

 

 

 

 

Ethane (cents/lb) (2)

 

9.7

 

14.3

 

11.6

 

10.0

 

7.1

Propane (cents/lb) (3)

 

20.7

 

23.5

 

18.7

 

15.7

 

12.8

Ethylene (cents/lb) (4)

 

14.8

 

17.3

 

20.2

 

17.0

 

13.7

Polyethylene (cents/lb) (5)

 

73.7

 

70.0

 

68.0

 

60.0

 

63.0

Styrene (cents/lb) (6)

 

93.0

 

90.3

 

84.3

 

78.8

 

80.8

Caustic soda ($/short ton) (7)

 

795

 

782

 

748

 

717

 

697

Chlorine ($/short ton) (8)

 

175

 

175

 

175

 

175

 

175

PVC (cents/lb) (9)

 

67.5

 

67.5

 

67.5

 

68.8

 

68.2

 

 

 

 

 

 

 

 

 

 

 

Average export prices

 

 

 

 

 

 

 

 

 

 

Polyethylene (cents/lb) (10)

 

59.0

 

53.5

 

49.0

 

44.0

 

42.8

Caustic soda ($/short ton) (11)

 

661

 

564

 

424

 

382

 

344

PVC (cents/lb) (12)

 

37.4

 

36.5

 

34.3

 

36.0

 

35.0

________________

(1)

Industry pricing data was obtained through IHS Markit (“IHS”). We have not independently verified the data.

(2)

Average Mont Belvieu spot prices of purity ethane over the period.

(3)

Average Mont Belvieu spot prices of non-TET propane over the period.

(4)

Average North American spot prices of ethylene over the period.

(5)

Average North American Net Transaction prices of polyethylene low density GP-Film grade over the period.

(6)

Average North American contract prices of styrene over the period.

(7)

Average USGC-CSLi index values for caustic soda over the period. As stated by IHS, “the caustic soda price listing represents the USGC-CSLi values. USGC-CSLi does not reflect contract price discounts, implementation lags, caps or other adjustments factors. Additionally, it is not intended to represent a simple arithmetic average of all market transactions occurring during the month. Rather, the USGC-CSLi is most representative of the month-to-month caustic soda price movement for contract volumes of liquid 50% caustic soda rather than the absolute value of contract prices at a particular point in time. It is intended to serve only as a benchmark.”

(8)

Average North American contract prices of chlorine over the period. Effective January 1, 2019, IHS made a non-market average downward adjustment of $172.50 per short ton to chlorine prices. For comparability, we adjusted the prior period’s chlorine price downward by $172.50 per short ton consistent with the IHS non-market adjustment.

(9)

Average North American contract prices of pipe grade polyvinyl chloride (“PVC”) over the period. As stated by IHS, “the contract resin prices posted reflect an “index” or “market” for prices before discounts, rebates, incentives, etc.”

(10)

Average North American export price for low density polyethylene GP-Film grade over the period.

(11)

Average North American low spot export prices of caustic soda over the period.

(12)

Average North American spot export prices of PVC over the period.

 

Contacts

Investors—Steve Bender—(713) 960-9111

Media— L. Benjamin Ederington—(713) 960-9111

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Business Wire

Shortages of Low-Skill, Middle-Skill, and High-Skill Workers Causing Revenue Declines and Other Headaches for Employers, TrueBlue’s Latest Study Finds

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TACOMA, Wash.–(BUSINESS WIRE)–While there has been a lot of discourse around the shortage of high-skill workers in the U.S., a new study by staffing giant TrueBlue shows a significant percentage of employers are also struggling with deficits in low-skill and middle-skill workers – and dealing with a host of business challenges as a result.

According to TrueBlue’s nationwide survey, which included nearly 1,500 managers (HR, operational, and business), skills shortages are widening across skills categories:

  • 32% of managers can’t find workers to fill low-skill positions (generally classified as those that may or may not require a high school diploma and require little to no experience)
  • 46% can’t find workers for middle-skill jobs (typically require some experience and continuing education such as college courses, an apprenticeship or certification, but don’t necessarily require a four-year college degree)
  • 35% can’t find workers for high-skill jobs (typically require a four-year degree or higher and specialized experience)

Low unemployment coupled with globalization, accelerated technology advancement, and evolving work models are creating talent deficits across all skill levels within organizations,” said Patrick Beharelle, CEO of TrueBlue. “The skills supply is not keeping up with demand, which is fueling a greater intensity in an already competitive labor market and adversely impacting productivity, service quality, and revenue growth for businesses.”

Impact of Talent Shortages on Businesses

The top three business challenges managers are experiencing due to prolonged job vacancies within their organizations include:

  • Quality – More than a third of managers (35%) reported that extended job vacancies have caused lower product or service quality.
  • Turnover – 25% have seen higher employee turnover.
  • Revenue – 23% said their companies experienced a decline in revenue.

To address talent shortages and minimize associated business impact, 2 in 5 companies (41 percent) reported that they plan to raise compensation for entry-level workers and nearly half (46 percent) plan to train and hire the long-term unemployed in the coming year.

Survey Methodology

This SurveyMonkey survey was conducted online in the U.S. by TrueBlue between September 23 and October 15, 2019. It included 1,499 managers (HR, operations and general). The survey was across regions, industries, and company sizes.

About TrueBlue

TrueBlue (NYSE: TBI) is a global leader in specialized workforce solutions that help clients achieve business growth and improve productivity. In 2018, the company connected approximately 730,000 people with work. TrueBlue’s PeopleReady segment offers on-demand industrial staffing services, PeopleManagement offers contingent and productivity-based, on-site industrial staffing and driver staffing services, and PeopleScout offers recruitment process outsourcing (RPO) and managed service provider (MSP) solutions to a wide variety of industries. Learn more at www.trueblue.com.

Contacts

Jennifer Grasz

Vice President, Corporate Communications

jgrasz@trueblue.com
(312) 840-6327

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Law Firm of Estey & Bomberger Reports: Uber Says Nearly 6,000 Rapes, Sexual Assaults Occurred in Two-year Period

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SAN DIEGO–(BUSINESS WIRE)–The law firm of Estey & Bomberger reported today that Uber’s long-awaited sexual assault report was released Dec. 5, with the ride-hailing company admitting that 5,981* passengers and drivers were raped or sexually assaulted between 2017-2018.

“I applaud Uber for releasing the data that acknowledges there is a problem with sexual assaults occurring in rideshare. While we believe these assaults were preventable, Uber’s report represents a tremendous step for ride-hailing safety,” said Estey & Bomberger attorney Mike Bomberger. “I think there are many positive measures Uber is taking. However, Uber still has an obligation to help the victims who have been raped and assaulted and facing a lifetime of emotional pain. They will need ongoing therapy.”

Estey & Bomberger represents more than 100 ride-hailing sexual assault victims.

“It’s important to remember when reading this report that only one in three women report their sexual assault,” Bomberger said. “Therefore, the number of women who have been sexually assaulted is certainly much higher than reported here.”

Bomberger reiterated his call for all ride-hailing trips to be digitally recorded.

“We’re pleased that Uber is now testing cameras in Texas. That’s the real solution to this problem – if drivers know they’re being recorded they won’t rape and assault,” Bomberger said.

Estey & Bomberger is asking Lyft and Uber sexual assault victims, along with former employees of the ride-sharing firms, to contact its office by calling 866-964-1708 or emailing info@lyftsexualassaultlawyers.com.

*statistic courtesy NPR “Uber Received Nearly 6,000 U.S. Sexual Assault Claims in Past 2 Years,” Dec. 5, 2019.

Contacts

for Estey & Bomberger

Ed Vasquez, 408-420-6558

ed@ejvcommunications.com

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Business Wire

Best’s Market Segment Report: AM Best Maintains Global Reinsurance Market Outlook at Stable

Business Wire

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OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has maintained a market segment outlook of stable on the global reinsurance industry for 2020, citing a stabilized pricing environment — albeit at levels below long-term adequacy — the continuing alignment between traditional and third-party capital and ongoing stability in the global life reinsurance segment.

A new Best’s Market Segment Report, titled, “Market Segment Outlook: Global Reinsurance,” states that although rates in the non-life reinsurance market have improved modestly, pricing has not kept adequate pace with the changing risk dynamics, as illustrated by loss development from events such as hurricanes Irma and Maria and Typhoon Jebi, and potential losses from more-recent events (e.g., Hurricane Dorian). Property catastrophe pricing still is being driven by the availability of third-party capital; however, the increasing interdependence between traditional capacity and third-party capital through joint ventures, retrocession and direct ownership should serve to more closely align return objectives for the market overall. Third-party capital also represents a benefit in the form of stabilized earnings of rated balance sheets, due to tail risk being assumed by this capital.

Overall market conditions are improving, but AM Best remains concerned about insufficient rate adequacy relating to certain U.S. casualty lines, a steady decline in the benefit of favorable reserve releases and the pervasive low interest rate environment. The collective effect of these factors requires underwriting discipline, and failure to react to these pressures could adversely affect the segment.

The report outlines other factors that are driving the stable market segment outlook, including:

  • AM Best believes alternative third-party capital will hold the line on future return expectations following the recent heavy catastrophe loss years;
  • A decline in capital consumption and earnings volatility, due in part to the increased utilization of third-party capital in retrocessionaire programs;
  • Greater emphasis on underwriting discipline due to pressure on interest rates and potential slower economic growth globally;
  • Improving pricing momentum driven by higher loss costs, coupled with lower loss reserve redundancies;
  • Increased demand for non-life reinsurance due to primary companies’ recent loss experience, as well as new risk transfer opportunities and mergers and acquisitions;
  • Stable operating performance among life reinsurers, which continue to maintain defensible market positions and offer services beyond risk transfer that create hurdles for new entrants.

To access the full copy of the overall global reinsurance briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=292334.

Separate briefings on the non-life and life reinsurance segments can be viewed at:

To view a video with AM Best Associate Director Scott Mangan about the global reinsurance market segment outlook, please visit http://www.ambest.com/v.asp?v=globalreoutlook1219.

AM Best is a global credit rating agency, news publisher and data provider specializing in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2019 by A.M. Best Company, Inc. and/or its affiliates.

ALL RIGHTS RESERVED.

Contacts

Robert DeRose
Senior Director
+1 908 439 2200, ext. 5435
robert.derose@ambest.com

Greg Carter
Managing Director
+44 20 7397 0288
greg.carter@ambest.com

Michael Porcelli, FSA
Director
+1 908 439 2200, ext. 5548
michael.porcelli@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com

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