W.R. Berkley Earnings: Hard Market Continues to Drive Good Results

Like its peers, W.R. Berkley WRB has benefited from the hard commercial insurance market in recent quarters, and we continue to believe the company’s underwriting discipline gives it more leverage to the current situation. We think the annualized return on equity of 17% for the quarter supports this view, and that the narrow-moat company remains well positioned given current industry trends. We will maintain our $63 fair value estimate and see shares as fairly valued.

While W.R. Berkley had been very aggressive in the earlier stages of the hard market, results in the quarter suggest the company is now seeing fewer attractive growth opportunities. In the quarter, net written premiums grew 7% year over year in primary lines. With management stating that average rate increases, excluding workers’ compensation, were 8%, it appears the growth in premiums was almost entirely driven by rate changes, as opposed to an increase in activity.

The combined ratio for the quarter in primary lines increased to 91.5% from 87.6%. Last year’s result was particularly strong, and this quarter featured relatively high catastrophe losses. Still, it appears that underwriting margins have flattened in recent quarters and may actually be moving up a bit. With underwriting margins at an attractive level on an absolute basis, this is not particularly worrisome, and we’ve seen a similar trend at peers. However, we think at this stage of the cycle, investors shouldn’t expect further improvements in underwriting results.