W.R.Berkley Grows Through Rate Increases & New Units

On Nov 28, we issued an updated research report on W.R. Berkley Corporation (WRB). The reinsurer/insurer reported third-quarter core operating earnings of $1.06 per share beating the Zacks Consensus Estimate by a substantial 16.5%. Earnings also surged 37.7% year over year led by growth in premiums written, investment income and capital gains.

Revenues came in at $1.84 billion, up 12.6% year over year and significantly above the Zacks Consensus Estimate of $1.60 billion.

The year-over-year increase was attributable to a rise in premiums (up 9.9%) earned, investment income (up 42.6%) and net investment gains (up 64.7%).

W.R. Berkley qualifies as one of the nation’s premier commercial lines property and casualty insurance providers and has been maintaining the trend of premium growth over the past several quarters. The company has positioned itself well to take advantage of the hardening insurance market by forming several new units since 2006.

W.R. Berkley 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’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. Moreover, W.R. Berkley’s commendable dividend track record makes it a favored stock among investors. Its reserving discipline is praiseworthy given that the company has experienced a favorable reserve release for thirty one consecutive quarters.

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

A competitive reinsurance market will keep earnings from the reinsurance segment under pressure.

W.R. Berkley currently holds a Zacks Rank #2 (Buy).

Other companies in the same industry worth considering include AmTrust Financial Services, Inc. (AFSI), Arch Capital Group Ltd. (ACGL) and Selective Insurance Group Inc. (SIGI). All these stocks sport a Zacks Rank #1 (Strong Buy).