Property and casualty insurer W.R. Berkley Corp. (WRB) announced the formation of a new unit called Berkley Re UK Ltd. in London, which will focus on underwriting casualty and property treaty reinsurance.
Berkley Re UK is expected to start writing business from the fourth quarter of 2011. Its business model will closely resemble Berkley’s other reinsurance units – Berkley Re America, Berkley Re Asia and Berkley Re Australia. Berkley’s reinsurance units, which contributed 10.4% to the company’s total premium written, write reinsurance on a facultative and treaty basis. In addition, the company participates in business written through Lloyd's and in several specialty niches.
Richard Fothergill, carrying an experience of 25 years in the property and casualty reinsurance industry, will be appointed as the president of Berkley Re UK.
Berkley has started 19 businesses since 2006 (when the soft market cycle started) to strengthen its position and take advantage of the eventual market turn. These newer units concentrate on important parts of the U.S economy, including healthcare, energy and agriculture, and also on the growing international markets such as Australia, Southeast Asia and South America.
We believe the new ventures are bearing fruit and offsetting losses from the old businesses. It is especially testified by the steady year-over-year growth in net premiums written since 2006. These new businesses are eventually expected to benefit from a turn in the insurance cycle. Besides, share buybacks and dividend payments would add value to shareholders’ wealth. Strong financial strength ratings also contribute to the positives.
We maintain our Neutral recommendation on W.R. Berkley Corporation over the long term. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates a downward pressure on the stock over the near term.
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