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W.R. Berkley (WRB) Banks on Strong Premiums & Cash Flows

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·4 min read
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W.R. Berkley Corporation WRB has been raising investor optimism on the back of its rate increases, high retention, non-cat property losses and a growing cash balance.

Growth Projections

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $3.98 and $4.51, indicating year-over-year increase of 71.5% and 13.6%, respectively.

Estimate Revision

Over the past 60 days, the company has witnessed its 2021 earnings estimates move north 13.7%.

Zacks Rank & Price Performance

W.R. Berkley currently carries a Zacks Rank #2 (Buy). In the past year, the stock has rallied 18.2% compared with the industry’s increase of 30.6%.

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Zacks Investment Research

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Style Score

It has an impressive Value Score of B, which reflects an attractive valuation of the stock. Back-tested results show that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space.

Return on Equity (ROE)

The company’s trailing 12-month return on equity (ROE) of 8.2% reflects its growth potential. It compares favorably with the industry average of 5.6%.
Moreover, in the first quarter, its ROE of 14.5% compared favorably with the prior-year quarter’s negative ROE of 0.3%. ROE reflects its efficiency in using its shareholders’ funds.

Business Tailwinds

Higher premiums at other liability, professional liability, short-tail lines, commercial auto and workers' compensation, rate increase, benefits derived from market dislocations, and high retention should drive the Insurance business of the property and casualty insurer.

Underwriting income should continue to benefit from compounding rate improvement in excess of loss cost trends, lower claims frequency and non-cat property losses, along with growth in lines of business that are generating the best risk adjusted returns.

Moreover, expense ratio is likely to benefit from reduced costs due to lower travel and entertainment expenses owing to the pandemic. Moreover, higher premiums earned overriding underwriting expenses by a margin of nearly 7% in the first quarter was also beneficial for the expense ratio of the insurer.

Despite witnessing above average catastrophe losses combined ratio improved 680 basis points (bps) year over year owing to disciplined management to cat exposure and improved loss ratio in the first quarter of 2021. The cat loss declined 54.5% year over year.

Further, improvement of combined ratio is expected as compounding rate increases in excess of loss cost trends are fully reflected in underwriting profits.

Rate increases are expected to continue in 2021 on the back of social inflation and above-average industry catastrophe losses in the recent quarters.

Despite the effects of COVID-led turmoil, this insurer’s financial position and liquidity continued to improve. In the first quarter of 2021, its operating cash flow doubled year over year. It exited the quarter with cash of $2 billion. Its investment portfolio is highly liquid, with nearly 79% invested in cash, cash equivalents and marketable fixed maturity securities as of Mar 31, 2021.

Its solid balance sheet with flexible liquidity enables efficient deployment of capital. In the first quarter, it repurchased shares for $30 million. Its current dividend yield of 0.6% is better than the industry average of 0.3%, which makes the stock an attractive pick for yield-seeking investors.

Other Stocks to Consider

Some other top-ranked insurance stocks from the same space are HCI Group, Inc. HCI, Cincinnati Financial Corporation CINF and Alleghany Corporation Y, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The bottom line of HCI Group surpassed estimates in three of the last four quarters and missed in the other one, the average being 42.91%.

Cincinnati Financial surpassed estimates in three of the last four quarters and missed in the other one, the average earnings surprise being 17.63%.

Alleghany’s earnings surpassed estimates in each of the last four quarters, the average being 128.63%.

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W.R. Berkley Corporation (WRB) : Free Stock Analysis Report

Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report

HCI Group, Inc. (HCI) : Free Stock Analysis Report

Alleghany Corporation (Y) : Free Stock Analysis Report

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