We are maintaining our 'Neutral' recommendation on the shares
W.R. Berkley Corporation
). Though the company is expected to perform favorably over the
longer term it is expected to see a depressed fourth quarter
earnings due to the impact of hurricane Sandy.
Berkley has maintained the trend of premium growth since the past
several quarters, mainly due to start-up units. The company
started several new units since 2006 (when the soft market cycle
commenced) to position itself for taking advantage of the
eventual market turn. The company is also witnessing rate
With new units continuing to grow and established businesses no
longer losing volume (retention rate was 80% for the last six
successive quarters), overall growth is visible. We expect price
rise to accelerate going forward as the new start-ups go into
full swing coupled with rate improvement.
Berkley's International unit is also showing impressive growth,
which is surpassing the growth of other segments. Premium growth
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 in
Berkley's dividend track record also remains commendable.
Moreover, the company maintains a solid balance sheet with
However, rising loss costs, low interest environment, and an
increase in combined ratio are some of the negatives.
We remain concerned over the rising loss costs and believe that
the loss claims may accelerate over time. An increase in claim
cost will offset the premium rate improvement seen lately,
thereby pressuring the underwriting margins.
Further, the low interest rate environment, expected to continue
through 2013, will pressure investment income as funds get
reinvested at lower yields.
Also, Berkley's combined ratio has increased over the past five
years, indicating that claims payments and expenses grew faster
than revenue from writing new premiums. We anticipate a moderate
increase in 2012, mainly because of the lower base (written
premium is expected to be modest), coupled with high catastrophe
Berkley retains a Zacks #3 Rank, which translates into a
short-term Hold rating. It competes closely with a host of
property and casualty carriers, such as
The Chubb Corp.
The Travelers Companies
XL Group plc
The Allstate Corp.
BERKLEY (WR) CP (WRB): Free Stock Analysis
XL GROUP PLC (XL): Free Stock Analysis Report
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