W.R. Berkley Corporation (WRB) reported its first quarter 2011 operating earnings of 66 cents per share, comfortably surpassing the Zacks Consensus Estimate of 64 cents. Results, however, fell behind the year-ago earnings of 72 cents by 8%. Operating income declined 15% year over year to $97.8 million in the quarter.
The better-than-expected results were aided by premium growth.
Including investment gains of $18.8 million, the company reported net income of $116.5 million or 79 cents per share, compared with $118.6 million or 74 cents per share in first quarter 2010. The prior-year quarter included investment gains of $3.8 million.
Operational Update
Total revenue of $1.23 billion in the quarter under review was ahead of the Zacks Consensus Estimate of $1.1 billion and improved 5% from $1.15 billion in first quarter of 2010. The improvement was largely driven by higher premiums and higher investment gains.
During the quarter premiums written increased 10% year over year to $1.1 billion. Berkley maintained the trend of premium growth from the second quarter of 2010, which had marked the first time it had recorded a growth since the third quarter of 2006.
Net investment income decreased 5.2% year over year to $131.6 million.
Total expenses increased 4.5% year over year to $1.07 million mainly due to increase in losses and loss expenses, operating costs and interest expenses.
Combined ratio deteriorated 220 basis points from the prior-year quarter to 96.4%.
Cash flow from operations in the quarter declined 9% to gross $51.8 million in the quarter.
Segment Update
Specialty: The segment clocked a double-digit increase in net premiums written. It increased 18% year over year to $358 million.
Combined ratio improved 370 basis points to 87.8% in the quarter.
Regional: Net premiums written increased 3% year over year to $279 million in the first quarter.
Combined ratio deteriorated 580 basis points to 98.5% in the quarter.
Alternative Markets: The segment reported a decline of 5% in net premiums written to total $200 million in the quarter.
Combined ratio deteriorated 860 basis points to 98.7% in the quarter.
Reinsurance: Net premiums written improved 8% year over year to $106 million in the first quarter.
Combined ratio deteriorated 760 basis points to 101.8% in the quarter.
International: The segment recorded the highest growth in net premiums written during the quarter under review. Net premiums written increased a substantial 37% to $138 million.
Combined ratio improved 590 basis points to 105.6% in the quarter.
Peer Comparison
The Travelers Companies Inc. (TRV), which competes with W.R. Berkley, reported operating earnings of $1.89 per share in the first quarter, surpassing the Zacks Consensus Estimate of $1.55 by $0.34. Results were also ahead of $1.22 earned in the prior-year quarter. Operating income was $826 million, up 31% from $631 million in the first quarter of 2010.
Higher underwriting gains, favorable resolution of prior-year tax matters, lower catastrophe losses and lower outstanding shares helped the company to post improved results.
Our Take
We believe numerous new ventures are bearing fruit and offsetting loss from the old businesses, witnessed by continued year-over-year growth in net premium written since 2006. These new businesses are eventually expected to benefit from a turn in the insurance cycle. Besides, buybacks and dividend payments add value to shareholders’ wealth. Strong financial strength ratings are other positives.
We maintain our Neutral recommendation on W.R. Berkley Corporation. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the stock over the near term.
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