W.R. Berkley Is Worth Betting On - Barron's

Sep.28.08 | About: W.R. Berkley (WRB)

W.R. Berkley (NYSE:WRB), an insurance holding company, is what Berkshire Hathaway might look like if it were a smaller company with a less iconic leader, says Barron's Andrew Bary. With one of the industry's best records since going public in 1973, W.R. Berkley is worth taking a look at.

Berkley focuses on insuring niche property and casualty markets. Much like Warren Buffett, founder and CEO William R. Berkley gives the heads of the company's 34 insurance units considerable independence, manages overall risk and is willing to turn away business when pricing is poor. The results have been 17% compound annual total returns in Berkley's stock over the last 25 years. Trading in the low- to- mid-twenties, the stock is especially attractive now at only 8 times projected 2008 EPS of $3.27 and 1.5 times the company's book value.

Investors buying in now need to be patient, since weak pricing in most commercial-insurance lines is hurting profits industry-wide, and may continue to cause pain through the end of next year. However, Berkley expects a turnaround by 2010 which could send the stock up to the low- to- mid-thirties in 2009, and the company aims to generate 15% return on equity or better. Berkley also stands to gain from AIG's recent troubles, opening up the possibility for the company to capture additional market share.

A sign of confidence in itself, Berkley has bought back 19M shares this year, after buying back 16M in 2007. With a great record and an engaged CEO, Berkley's current price makes it a strong investment.

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  • W.R. Berkley (WRB): Q2 EPS of $0.77 misses by $0.07. Revenue of $1.2B (-13.5%) vs. $1.3B. [PR]
  • Berkley had approximately $217M in combined exposure to Fannie Mae and Freddie Mac equity, most of which will likely be written off in the near future. Despite this, Fitch Ratings left Berkley's ratings unchanged, judging Berkley to have enough capital on hand to withstand write-downs of this size.