W.R. Berkley Corporation (WRB) reported third-quarter 2014 operating income of $1.06 per share, outperforming the Zacks Consensus Estimate by 16.5% and improving 37.7% year over year. The earnings beat came on the back of growth in premiums written, investment income and capital gains.
On a GAAP basis, the company’s net income increased 46.4% year over year to $1.42 per share.
Revenues in the reported quarter came in at $1.8 billion, up 12.6% year over year and higher than the Zacks Consensus Estimate of $1.6 billion by 11.3%. The year-over-year increase is attributable to rise in premiums (up 9.9%) earned, investment income (up 42.6%) and net investment gains (up 64.7%).
W.R. Berkley’s net written premium for the reported quarter was approximately $1.52 billion, reflecting a year-over-year increase of 7.1%. The company saw growth in its domestic and international insurance operations, partly offset by a decline in the reinsurance segment.
Total expense also increased 8.8% year over year to $1.56 billion, due to a rise in loss and loss expenses (up 11.1%) as well as other operating costs and interest expenses (up 7.9%). These were partially offset by reduced expenses from wholly-owned investees (down 5.2%).
Consolidated combined ratio (a measure of underwriting profitability) improved 40 basis points year over year to 93.5%.
Segment Details
Net premiums written in W.R. Berkley Corp.'s Domestic Insurance segment increased 12.1% year over year to $1.18 billion. All lines of business, namely Other liability, Workers Compensation, Short-tail lines, commercial automobile as well as professional liability led to the rise. Combined ratio improved 160 basis points (bps) year over year to 90.9% in the quarter. The segment incurred catastrophe loss of $7.4 million, compared with $5.6 million in the year-ago quarter.
Net premiums written in the International Insurance segment increased 3.3% year over year to $171.6 million. Combined ratio deteriorated 600 bps year over year to 103.4%. Catastrophe loss in the segment was $7.2 million, up from $3.5 million in the year-ago quarter.
Global Reinsurance reported a 15.7% decline in net premiums written to $171.2 million in the quarter. Combined ratio deteriorated by 120 bps year over year to 98.7%. Catastrophe loss in the segment was $0.3 million, narrower than $3.7 million in the year-earlier quarter.
Financial Update
W.R. Berkley Corp.'s return on equity improved to 17.4% from 12.7% in the year-ago quarter.
Book value per share was $37.10 as of Sep 30, 2014, up 13.1% from year-end 2013.
Our Take
W.R. Berkley Corp.’s third-quarter earnings marks its fifth consecutive earnings beat. We expect the company to keep delivering strong results, given the improving industry fundamentals.
The company has positioned itself well to capitalize on hardening in the insurance market, thanks to several new units formed over the past few years. The company has also been expanding its presence in regions with more attractive underwriting margins.
W.R. Berkley Corp.’s balance sheet, which is adequately capitalized, is a key strength. Hence, in our view, the company is well poised for growth over the long term.
At present, W.R. Berkley Corp. carries a Zacks Rank #2 (Buy)
Other Stocks to Consider
Other players in the same industry, which look attractive at current levels, include Alleghany Corporation (Y), Allied World Assurance Company Holdings, AG (AWH) and AmTrust Financial Services, Inc. (AFSI). All of these stocks hold a Zacks Rank #1 (Strong Buy).
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