Yesterday, property and casualty insurer W R Berkley (WRB) declared a 14% increase in annual dividend to 32 cents. The dividend will be paid on July 1, 2011 to stockholders of record at the close of business on June 14, 2011.
Berkley has maintained a steady track record of dividend increase, with the recent hike representing the seventh straight increase from 12 cents paid in 2005. The company has grown its annual dividend by an average of more than 18% annually over the past six years. The most recent increase of 14% is almost in line with the average, with the annualized dividend yield being 1.00%.
Like all the property and casualty insurers, Berkley too has been a victim of soft insurance market conditions. Increasing competition and deteriorated pricing, along with management’s disciplined approach towards underwriting, have restricted top-line growth since 2007.
Nevertheless, Berkley’s selectiveness with respect to writing profitable business has helped the company build a solid capital that poisitions it to benefit from a turn in the insurance cycle.
Berkley has also started 19 new specialty units since early 2006 in order to gear itself up for any improvement in the insurance cycle. The company benefited from these units as they caused a 0.5% improvement in net premiums written in 2010, a year marked by soft market conditions.
Over the past six years, Berkley’s stock price, as well as dividend, has witnessed a CAGR of 15% compared with a return of 2.3% for S&P 500 index. We are fairly optimistic about Berkley at this moment. Shareholder returns will continue to be positive owing to dividend payouts, share repurchases and business growth.
It is true that the company was hit hard by the soft insurance market. Yet, with its high return on equity, few intangibles, low leverage, sound underwriting and limited exposure to volatility, Berkley is all set to benefit from a turn in the cycle.
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