W.R. Berkley Corp.'s Q1 Earnings Gain on Higher Revs - Analyst Blog

W.R. Berkley Corp. WRB reported first-quarter 2014 core operating earnings of $1.00 per share, handily beating the Zacks Consensus Estimate of 79 cents. Earnings also surged 35.1% year over year. The earnings beat came on the back of growth in premiums written, pricing increases and cost control along with a lower share count.

 

On a GAAP basis, W.R. Berkley Corp.'s net income increased by a whopping 50.6% year over year to $1.25 per share.

 

Revenues came in at $1.70 billion, up 13.3% year over year and significantly above the Zacks Consensus Estimate of $1.58 billion. The year-over-year increase was attributable to higher premiums earned, higher investment income, increased net investment gains and higher income from wholly-owned investees.

 

W.R. Berkley Corp.'s net written premium for the quarter was approximately $1.53 billion, an increase of 10.8% year over year. The company saw growth in its domestic and international insurance operation partly offset by a decline in the reinsurance segment.  

 

W.R. Berkley Corp.'s total expense also increased 8.4% year over year to $1.50 billion, due to an increase in loss and loss expenses, other operating costs and higher expenses from wholly-owned investees, partly offset by lower interest expenses.

 

Consolidated combined ratio (a measure of underwriting profitability) improved 80 basis points (bps) year over year mainly led by lower expenses. 

 

Segment Details

 

Net premiums written in W.R. Berkley Corp.'s Domestic Insurance segment increased 14.2% year over year to $1.13 billion. The segment produced stellar results signified by an improvement in combined ratio by 330 bps year over year to 92.8% in the quarter.

 

Net premiums written in the International Insurance segment increased 10.1% year over year to $225.8 million. Bottom-line results for the segment, however, were lackluster, signified by deterioration in combined ratio by 550 bps year over year to 99.3%. Catastrophe loss of $1.2 million drained the segment's profitability. In the year-ago quarter, the segment incurred cat loss of $0.2 million.

 

The Global Reinsurance segment reported a 6.4% decline in net premiums written to $173.7 million in the quarter. Combined ratio fell by 610 bps year over year to 97.4%.

 

Financial Update

 

W.R. Berkley Corp.'s return on equity improved to 15.7% from 10.8% in the year-ago quarter.

 

Book value per share increased to $33.22 as of March 31, 2014, up 4.6% year over year.

 

During the reported quarter, W.R. Berkley Corp. spent $193 million on share buyback.

 

Our Take

 

W.R. Berkley Corp.'s positive earnings surprise of 27% is quite impressive. We expect the company to keep delivering strong results, given the improving industry fundamentals. The company has positioned itself well to take advantage of hardening in the insurance market by forming several new units over the past few years. Premiums written for its core business have increased and the new units are accruing to earnings. Average renewal rates are on the rise and so is the price trend.

 

W.R. Berkley Corp.'s balance sheet, which is adequately capitalized, is another major company strength. The company has also maintained its practice of increasing yearly dividends. In our view, the company is well poised to return value to its shareholders over the long term.

 

W.R. Berkley Corp. retains a Zacks Rank #3 (Hold). 

 

Other property & casualty insurers like The Chubb Corp. CB and Cincinnati Financial Corp. CINF are slated to release their first-quarter earnings on April 24. Both the stocks sport a positive Earnings ESP and a Zacks Rank #3 (Hold), and are likely to surpass the Zacks Consensus Estimate. Another player The Travelers Companies, Inc. TRV recently reported its first-quarter earnings significantly ahead of the Zacks Consensus Estimate throwing a positive earnings surprise of 38%.