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With the prospects of higher rates in the future when the Fed no longer has as accommodative monetary policy, I decided to recommend a preferred stock that I feel could withstand higher rates better than the alternatives.

W.R. Berkley Corp. (NYSE:WRB) is an insurance holding company. It is focused on the property and casualty insurance business. The company operates its business through the following segments: Specialty, Regional, Alternative Markets, Reinsurance and International and is headquartered in Greenwich, CT. The company has been consistently profitable, even during challenging years for financial companies such as 2008. The stock bottomed at about 17 in 2009 and currently is around 42.

In 7/05, W.R. Berkley issued W.R. Berkley Capital Trust II, 6.75% TOPrS Trust Originated Preferred Securities at par, $25.00. They are a rare breed these days, a non bank rated investment grade at Baa3 by Moody's and BBB- by S&P and priced around par, currently $25.25. This works out to a current yield of 6.68%. Banks called a lot of their high coupon preferred stocks especially in recent months, because their trust preferred securities no longer qualify as Tier 1 capital under the Dodd-Frank act.

This W.R. Berkley preferred stock is callable at any time and has a 7/26/45 maturity date. Its next X Dividend date is 2 months away (4/25) and the dividend is .42. As a result, even if this preferred stock was called tomorrow (unlikely), you could expect to receive a minimum of 1 month's interest (.14) plus interest to actual call date. Add this to the $25.00 par value you'd receive on the call date and the downside risk seems fairly limited. Also, there are very limited choices of no bank investment grade preferred stocks yielding in the 6.68% range and not selling at a premium. When you buy preferred stocks past their call date like W.R. Berkeley at a large premium, you could get hit with a big loss when they are redeemed at par.

I also like W.R. Berkley preferred stock since it could provide a layer of protection if the Fed stops easing and rates begin to rise. Investment grade preferred stocks such as recently issued ones from JPMorgan Chase (NYSE:JPM) and Vornado Realty Trust (NYSE:VNO) could drop further in a rate increase with 5.3 to 5.4% coupons. Also, it is possible W.R. Berkley may not redeem this preferred stock quickly since its coupon is probably no more than 1% higher than where it would come to market today if they redeemed the W.R. Berkley Capital Trust II, 6.75% TOPrS Trust using the proceeds of a newly issued preferred stock.

Source: W.R. Berkley, Rare 6.7% Yield On Investment Grade Preferred Stock With Downside Protection

Additional disclosure: I own WRB preferred A