Company Reports

Narrow-moat W.R. Berkley’s second-quarter results were strong in an absolute sense and roughly in line with what we’ve seen from the company over the past few quarters. Management’s approach is designed to fully exploit favorable market periods, and we’re pleased to see the company executing on the current opportunity. Annualized ROE for the quarter came in at 20%. We will maintain our $49 fair value estimate and see shares as about fairly valued. While we think the near-term outlook remains bright, we believe the current market price fully reflects that.

W.R. Berkley's niche focus and strict underwriting discipline result in a business model that has historically earned outstanding returns during hard market pricing periods, but only modest excess returns during soft periods. Still, we think results over the long term have validated the company's approach.

Higher interest rates have boosted investment income and have had a material positive impact on overall returns for our domestic property-casualty insurance coverage. While insurers with low fixed-income duration have seen the largest impact, the effect has flowed through our coverage. Interest rates and investment income are only part of the story for insurers, but the outlook for underwriting is strong as well, in our view. Following a few years of solid price increases, commercial insurers have seen underwriting margins stabilize at an attractive level. Personal auto insurers have endured some difficulties recently, but strong pricing increases have improved combined ratios. With both sides of the profit picture already strong or improving, we expect our P&C insurers to generate unusually attractive results in the near term. However, we believe the market has overreacted to these tailwinds, and we see our coverage as generally overvalued. Investigating historical underwriting results for a P&C insurance peer group strongly suggests that underwriting results adjust over time to changes in interest rates, and underwriting margins have improved over the past few decades as interest rates fell. If interest rates stay high, we expect underwriting margins will compress, and returns will normalize. Our fair value estimates hinge on the idea that returns for our coverage will ultimately return to a level roughly in line with historical averages. If the industry does mean-revert over the next few years, investors will pay an overly rich price today for most of our coverage.

W.R. Berkley produced strong overall results in the first quarter as it continues to benefit from a hard underwriting market and higher investment income. The annualized return in the quarter for the narrow-moat company was a very impressive 24%, which was a solid sequential improvement. While we appreciate W.R. Berkley’s current strength, we think insurance markets are inherently mean-reverting over time, and the outsize returns that the company is enjoying now will dissipate. We think the market is overly focused on W.R. Berkley's near-term prospects and the shares are a bit overvalued as a result.

W.R. Berkley's niche focus and strict underwriting discipline result in a business model that has historically earned outstanding returns during hard market pricing periods, but only modest excess returns during soft periods.

Coming into the year, we thought narrow-moat W.R. Berkley was the best-positioned P&C insurer in our coverage, and we think the company’s fourth-quarter results further justify that opinion. The company continues to see strong underwriting results amid a hard market, and higher interest rates are boosting investment returns. The net result was an annualized ROE of 24% for the quarter and 21% for the full year. We will maintain our $65 per share fair value estimate and view the shares as modestly overvalued right now. We think the near-term strength is leading the market to an overly optimistic view from a long-term perspective, and the stock currently trades at a hefty premium to its average historical book multiple.

P&C insurers have had substantial pricing increases across lines recently, but otherwise, commercial and personal insurers are in very different places. For commercial insurers, an extended period of strong price increases has them in a hard market and realizing attractive underwriting margins. Underlying combined ratios have flattened out recently, and we don't expect any significant improvement. Still, this should leave commercial insurers in a strong position over the next couple of years. Personal auto insurers have endured a difficult period in the wake of the pandemic, due to a variety of negative claims trends, and have been pushing pricing to catch up. While they are not out of trouble yet, we think the third quarter could mark the start of a turn toward more normalized underwriting results.

Coming into the year, we thought W.R. Berkley was one of the best-positioned insurers, and the company’s third-quarter results further reinforce that opinion. On the underwriting side, W.R. Berkley is encountering ongoing benefits from a harder pricing market. On the investment side, management’s previous decision to lower fixed income duration has paid off this year. Finally, the company’s relatively low catastrophe exposure reduces a drag that some other insurers are seeing right now. The net result was an annualized return on equity of 19.8% for the third quarter. We think the narrow-moat company is built to exploit attractive market conditions, and W.R. Berkley seems to be seizing on the current opportunity. We will maintain our $65 per share fair value estimate and view the shares as roughly fairly valued right now.

W.R. Berkley's niche focus and strict underwriting discipline result in a business model that has historically earned outstanding returns during hard market pricing periods, but only modest excess returns during soft periods.

We believe disciplined underwriters such as W.R. Berkley have higher leverage to hard market conditions and think the second quarter provides further support for this idea. Attractive underwriting margins and better investment results led to a 21% annualized ROE for the quarter, highlighting the strong excess returns the narrow-moat company is capable of in a favorable environment. We will maintain our $63 fair value estimate and see shares as fairly valued.

Like its peers, W.R. Berkley 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.

W.R. Berkley's niche focus and strict underwriting discipline result in a business model that has historically earned outstanding returns during hard market pricing periods, but only slightly better than adequate returns during soft periods.

W.R. Berkley maintained the strong performance it has achieved this past year in the fourth quarter, as it continues to benefit from the harder pricing market in commercial property and casualty lines. We believe relatively disciplined insurers like W.R. Berkley have more leverage to this type of industry environment and think the company’s performance in 2022 supports this view.

W.R. Berkley's niche focus and strict underwriting discipline result in a business model that has historically earned outstanding returns during hard market pricing periods, but only slightly better than adequate returns during soft periods.

W.R. Berkley’s third-quarter results showed the company continuing to benefit from a hard market, but also that results might be starting to plateau. We think disciplined underwriters such as W.R. Berkley have more leverage to better market conditions, and that is reflected in the narrow-moat company’s annualized return on equity of 14% for the quarter (17% excluding mark-to-market investment losses).

Given the differing states of the pricing cycle across lines and recent capital market movements, property and casualty insurers have a variety of tailwinds and headwinds at the moment. Commercial line insurers have seen strong pricing increases over the past few years, and we think the outlook for that area is relatively bright, as attractive underlying combined ratios create a solid base for strong profitability. Conversely, following a burst of abnormally high profitability in the early stage of the pandemic, personal auto insurers have struggled with a number of headwinds more recently, which has pushed most players into significant underwriting losses. Higher interest rates have reduced carrying value for fixed-income investments but offer the possibility of better investment income going forward. Finally, the bear market creates issues for insurers with an equity-heavy investment approach.

W.R. Berkley's niche focus and strict underwriting discipline result in a business model that has historically earned outstanding returns during hard market pricing periods, but only slightly better than adequate returns during soft periods.

W.R. Berkley reported another strong quarter as the company continues to benefit from a harder pricing market. We think disciplined underwriters such as W.R. Berkley have more leverage to better market conditions, and that appears to be playing out. Investment losses dragged annualized ROE in the quarter down to 11%, but the 19% figure excluding investment losses shows the excellent returns the narrow-moat franchise is capable of. We will maintain our $53 fair value estimate. While we appreciate the strong near-term outlook for W.R. Berkley, we think the current market price implies a longer duration of current return levels than we believe is likely.

W.R. Berkley's niche focus and strict underwriting discipline result in a business model that has earned outstanding returns during hard market pricing periods, but only slightly better than adequate returns during soft periods.

W.R. Berkley’s first-quarter results were impressive, as the company continues to benefit from a hard insurance pricing market. Annualized return on equity, or ROE, for the quarter was 36%, however, this figure includes a large gain from the sale of a real estate property. Still, excluding investment gains, we estimate annualized ROE for the quarter was at a high-teens level, highlighting the strong returns the company is able to generate during favorable market periods. Within our coverage, we continue to believe W.R. Berkley has outsize leverage to current conditions given its model and underwriting discipline. We will maintain our $50.67 fair value estimate and narrow moat rating.