Property and casualty insurer W.R. Berkley Corp. (WRB) reported fourth quarter core operating earnings of 58 cents per share, 10 cents ahead of the Zacks Consensus Estimate of 48 cents. The earnings outperformance came on the back of higher net premium written, partially offset by lower investment income. Earnings, however, declined 17% year over year.
On a GAAP basis, net income dropped 3.5% to $118 million from $127 million reported in the year-ago quarter, while earnings per share declined year over year to $0.82 per share from $0.85.
The total revenue of $1.37 billion was up 11.4% year over year due to higher premiums earned, investment gains and insurance fee service, partly offset by lower investment income.
Berkley’s net written premium for the quarter was approximately $1.09 billion, an increase of 19% year over year. The company saw a broad-based growth with each of its operating segments reporting increased premium.
Net investment income was $117 million in the quarter, down 15% from $138 million a year ago.
Total expenses also increased 15.1% year over year to $1.22 billion, led by an increase in all its components - loss and loss expenses, other operating costs, expenses from wholly-owned subsidiaries and interest expense.
Berkley recorded a combined ratio of 96.8% for the quarter, up 270 basis points from the year-ago quarter, stemming from higher catastrophe losses.
Book value per share, a measure of net worth, increased to $29.15 from $26.26 as of December 31, 2010.
For the full year 2011, Berkley reported operating EPS of $2.71, significantly higher than the Zacks Consensus Estimate of $2.04 per share. Full year revenues were $5.2 billion, up 11% year over year.
Segment Details
The Specialty segment’s net premium written clocked a double-digit increase of 21.3% year over year to $408.4 million. Combined ratio deteriorated 670 basis points to 95.7% in the quarter due to higher loss ratio, partially offset by a decrease in expense ratio.
Net premiums written in the Regional segment inched up 2% year over year to $247.1 million. Combined ratio plunged 440 basis points to 93.3% in the quarter, owing to a decline in loss as well as expense ratio.
The Alternative Markets reported a 19% increase in net premiums written to $122 million in the quarter. Combined ratio deteriorated 220 bps to 99.8% in the quarter, led by a considerably higher loss ratio and a slight increase in expense ratio.
The Reinsurance segment’s net premiums written increased 15% year over year to $110.8 million. Combined ratio deteriorated to 103.1% in the quarter from 90% in the year-ago quarter, led by a significantly higher loss ratio.
The International segment recorded the highest growth in net premiums written among all other segments. Net premiums written surged 43% year over year to $202 million. Combined ratio deteriorated by 10 basis points to 98.4%.
Our Take
Berkley has registered favorable performance in the fourth quarter and also in the full year 2011. The company has positioned itself well for the period ahead by forming several new units over the past 3-4 years. Premiums written for its core business has begun to grow again, and the newer units are growing at an increasing pace. Average renewal rates are on the rise and so is the price trend.
Also, Berkley played smart by limiting its exposure to large catastrophic events. Despite a high cat loss experience faced by the property and casualty insurers across the industry, Berkley was better positioned than its peers – The Travelers Companies, Inc. (NYSE:TRV - News), Hartford Financial Services Group Inc. (NYSE:HIG - News), and XL Group Plc (NYSE:XL - News) – due to its selective underwriting strategy.
Berkley’s balance sheet is one of its major strong points. The company has continued to maintain a practice of increasing yearly dividends over the years. In our view, Berkley is well poised to return value to its shareholders over the long term.
Berkley currently retains a Zacks # 3 Rank, which translates into a short-term ‘Hold’ rating. Considering the fundamentals, we are also maintaining our long-term “Neutral” recommendation on the shares.
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