Author Topic: WRB - WR Berkley  (Read 21233 times)

Myth465

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Re: WRB - WR Berkley
« Reply #10 on: February 02, 2011, 12:32:46 PM »
I agree. I just prefer deeper value in Insurance. I like AHL and the options have worked out well thus far. I am hoping they are bought for book by June, its unlikely though.


Viking

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Re: WRB - WR Berkley
« Reply #11 on: February 02, 2011, 02:25:42 PM »
WRB just released Q4 results: http://files.shareholder.com/downloads/BER/1154683497x0x438657/4ed2eedf-562c-404d-8169-3fb68de93b29/WRB_News_2011_2_2_General_Releases.pdf

Q4 net income increased $0.85/share
BV = $26.36 (was $26.26 at end of Q2)

Questions I have:
1.) impact of muni bonds on BV (given Q4 muni bond sell off): a non-event, likely given duration of muni holdings is only 4.1 yrs
2.) size of reserve releases in Q4: TBA

Bottom line is it looks to me that we are still in a soft pricing environment with no end in sight. I will be watching the trend in reserve releases as insurers release results as this should give some clarity as to when we will start to see a market turn.

Myth465, yes, the timing around B Berkley's prediction has not been right; I do buy into his logic and am appreciative he lays out his thoughts so well. Berkley is simply saying that the current pricing environment is not sustainable. He also understands that nobody can predict timing (yes, he seems to have fun trying). Well run insurers are trading at very attractive levels, especially compared to the poorly run companies (not much of a multiple difference). At some point we will get a hard market and the well run insurers will be ideally positioned. Investors will then get growing earnings and growing PE multiples.

J Grantham in his Q4 report makes a great comment about Bubbles: "saving your big bets for the outlying extremes is, in my opinion, easily the best way for a large pool of money to add value and reduce risk." My guess is we are getting close to one of those outlying extremes in insurance that only comes along once every 10 years or so...
« Last Edit: February 02, 2011, 02:27:13 PM by Viking »

omagh

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Re: WRB - WR Berkley
« Reply #12 on: February 02, 2011, 03:00:41 PM »
Thanks Viking.  Interesting comments on the Australian catastrophes in the Q&A on the conference call.  WRB has no dog in that fight, but Berkley indicates that there will be substantial, but not market-changing, losses to reinsurers.  Also, the typhoon will likely be considered a second event.  Not quite enough capital destruction to cause significant pricing changes.

WRB just released Q4 results: http://files.shareholder.com/downloads/BER/1154683497x0x438657/4ed2eedf-562c-404d-8169-3fb68de93b29/WRB_News_2011_2_2_General_Releases.pdf

Q4 net income increased $0.85/share
BV = $26.36 (was $26.26 at end of Q2)

Questions I have:
1.) impact of muni bonds on BV (given Q4 muni bond sell off): a non-event, likely given duration of muni holdings is only 4.1 yrs
2.) size of reserve releases in Q4: TBA

Bottom line is it looks to me that we are still in a soft pricing environment with no end in sight. I will be watching the trend in reserve releases as insurers release results as this should give some clarity as to when we will start to see a market turn.

Myth465, yes, the timing around B Berkley's prediction has not been right; I do buy into his logic and am appreciative he lays out his thoughts so well. Berkley is simply saying that the current pricing environment is not sustainable. He also understands that nobody can predict timing (yes, he seems to have fun trying). Well run insurers are trading at very attractive levels, especially compared to the poorly run companies (not much of a multiple difference). At some point we will get a hard market and the well run insurers will be ideally positioned. Investors will then get growing earnings and growing PE multiples.

J Grantham in his Q4 report makes a great comment about Bubbles: "saving your big bets for the outlying extremes is, in my opinion, easily the best way for a large pool of money to add value and reduce risk." My guess is we are getting close to one of those outlying extremes in insurance that only comes along once every 10 years or so...

onyx1

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Re: WRB - WR Berkley
« Reply #13 on: February 02, 2011, 03:26:20 PM »
Q4 net income increased $0.85/share
BV = $26.36 (was $26.26 at end of Q2)

Looks to me like BV dropped to $26.26 from $26.36 despite earning .85.  Hasn't been addressed on the CC, but unrealized gains dropped $116mm from last quarter ($451mm to $335mm) so that is probably MTM losses on the muni portfolio and what caused the lower BV.

Viking

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Re: WRB - WR Berkley
« Reply #14 on: February 02, 2011, 03:48:43 PM »
Just finished listening to the conference call. Comments:
1.) will likely use quarterly earnings to buy back stock; not interested in increasing buyback beyond this amount as they want to keep enough excess capital to fund growth (when it eventually happens).
2.) What will cause the market to turn? Losses. A shift from greed to fear. Driven by declining surplus or operating losses etc, as fear enters psyche of management.
3.) Pricing: no question market is turning.
4.) Accident year CR = 100. Feel their underwriting is more conservative than majority of competitors = larger future year reserve releases.
5.) Reserve releases: Q4 2010 = $55 million; FY 2010 = $235 and FY 2009 = $191
6.) Investments: currently buying some mispriced municipals

It will be very interesting to hear what other insurers are saying and doing. My guess is if we see a bad year for catastrophes we could get the shift into a hard market (particularly for reinsurers).

beerbaron

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Re: WRB - WR Berkley
« Reply #15 on: February 02, 2011, 07:25:41 PM »
Could the muni market be the catalyst for a hard market?

BeerBaron

Myth465

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Re: WRB - WR Berkley
« Reply #16 on: February 02, 2011, 07:42:10 PM »
Could the muni market be the catalyst for a hard market?

BeerBaron

I think the focus on the hard market is a bit misguided.

I love insurance and this will be my first time playing the cycle. If losses cause a hard market (investments or cat) then I will wait for losses. Losses also cause stock prices to fall.I prefer to spend my time figuring out which ones to bet on so that when the time comes I am ready to push my chips in. Whatever causes a hard market will cause stock prices to fall with BV giving us time to get in.

Liberty

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Re: WRB - WR Berkley
« Reply #17 on: February 10, 2011, 08:13:56 PM »
There's some interesting stuff in this presentation that Bill gave recently:

http://files.shareholder.com/downloads/BER/1102439904x6155673x425342/35d81438-9559-406c-988b-2a1d6ad4ba9c/Merrill%20Lynch%20Lunch%2012-2-2010.pdf

Interesting slide about the market cycle in the P-C business.
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onyx1

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Re: WRB - WR Berkley
« Reply #18 on: February 16, 2011, 09:33:45 AM »
Some highlights from Berkley’s presentation yesterday, where he said:

AIG will need to raise prices as they added 4% to reserves last quarter.  Although this has been report in the media, most gloss over the fact that the reserve deficiencies were from 2006 and prior accident years.  With “very aggressive” pricing over the past several years, Berkley believes more reserve additions at AIG are forthcoming.

Muni portfolio is creditworthy and properly marked, and reserves are conservative.

Catalysts for a hardening market are in place, including: current industry accident year CRs are running 108%-109%; commercial lines pricing is as tight as he has seen in his career; low fixed income rates requires better underwriting to achieve adequate ROEs; reserve redundancies are giving way to deficiencies; companies discontinuing lines of business; and, standard carriers are beginning to move out of E&S market.  He continues to assert that industry surplus is a lagging indicator of a hard market.

He reviewed WRB’s performance in prior hard markets by showing how explosive the share price has reacted to increased net income and expansion of multiples/P-to-BV.  From 1982 to 1985, share price went from $.62 to $2.02 (P-to-BV went from .88 to 2.77), from 1999 to 2005 $4.12 to $31.75 (P-to-BV went from .90 to 2.37).  He strongly suggested that this can happen in the next hard market as they have widened their footprint over the last 3-4 years through geographic expansion and opening of new units with new hires.   Won’t pinpoint when, but believes more than ever that hard market will soon be in place.

He owns 20% of WRB outstanding common stock.

The entire presentation can be accessed here:
http://ir.wrberkley.com/events.cfm

Liberty

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Re: WRB - WR Berkley
« Reply #19 on: February 16, 2011, 03:13:17 PM »
Thanks for posting, Onyx. I hope he's right, but not too soon. I want quality insurers to stay cheap for a while longer so I can load up  ;D
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