W. R. Berkley Corp Continues to Gain Strength on New Units

On Sep 8, 2014, we issued an updated research report on W.R. Berkley Corporation (WRB). The reinsurer/insurer reported second-quarter 2014 core operating earnings of 82 cents per share, beating the Zacks Consensus Estimate by 5.1%. Earnings also surged 17.1% year over year led by growth in premiums written, pricing increases and cost control along with a lower share count.

Revenues came in at $1.80 billion, up 14.4% year over year and significantly above the Zacks Consensus Estimate of $1.62 billion. The year-over-year increase was attributable to higher premiums earned, increased net investment gains and higher income from wholly owned investees, partly offset by lower investment income.

W.R. Berkley Corp., one of the nation’s premier commercial lines property and casualty insurance providers has been maintaining the trend of premium growth over the past several quarters. The company has positioned itself well to take advantage of hardening in the insurance market by forming several new units over the past few years.

W.R. Berkley Corp. is witnessing an increase in premium rates in its core business. Also, new units are accretive to earnings. Average renewal rates are on the rise and so is the price trend. With new units continuing to grow and established businesses no longer losing volume (retention rate was 80% for past many quarters), overall growth is visible.

W.R. Berkley Corp.’s international business is also showing impressive growth. Premium accrual in the international unit is mainly from the emerging markets of Asia, South America and the Nordic region of Europe. We expect the company’s international segment to post increasing premium going forward.

The company also maintains a solid balance sheet with sufficient liquidity. W.R. Berkley’s dividend track record also remains commendable, which makes it a favored stock among investors.

However, low interest rates which lead to reduced investment yields are producing weaker returns on float, thereby hampering results.

W.R. Berkley currently retains a Zacks Rank #3 (Hold).

Other companies in the same industry worth considering include AmTrust Financial Services, Inc. (AFSI), Endurance Specialty Holdings Ltd. (ENH) and Federated National Holding Company (FNHC). All these stocks sport a Zacks Rank #1 (Strong Buy).