WRB - WR Berkley

[Viking]

I just listened to the WRB quarterly call and all was pretty boring (not much change or new happening since Q2).

Bill gave a pretty good summary of why he feels a turn in the market (for the better) is coming: WRB loss ratios have historically been 8 to 10 points better than the industry; today WRB loss ratios are 6 points worse. This is a 14 point swing. Bill said either WRB has become incredibly stupid or competitors will experience large reserve deficiencies in the future (and lower capital will force them to write less business). At the same time these companies will not be able to raise traditional capital as easily (given current state of capital markets).

He is sticking with his 'prices will start turning in Q4' but he is also says that he could be wrong on timing (and that WRB does not run its business by predicting thses sorts of things).

The company had net earnings of $94 million in Q3 and bought back $88 million in common stock. The company in past conference calls has said that it is flush with capital and will be happy to buy back stock given current prices. Many good insurers are trading at around book value. To purchase another company the takeout price would likely need to be 1.3 or 1.4x BV (i.e. FFH purchase of Zenith). I really like the fact that WRB is buying its own stock back for about 1x BV. Year to date they have repurchased 12 million shares (8% outstanding). Today they just announced they have increased the buyback amount to 10 million and they increased the dividend from $0.05 to $0.07/share.

Book value is $26.36 and the stock closed today around $27.50/share. The insurance market looks to have stabilized so I would expect them to earn $0.60/share per quarter in the current environment. Should a hard market come and prices increase (and volume grow) earnings would increase dramatically. Looks to me to be a pretty good reasonable risk high return potential looking out a few years.   

[Myth465]

I like these guys. Just wish they were cheaper. I am starting to see the reserve releases fall and assets are rolling over to lower yields. Something has to give. My issue with insurers is you can just wait till something gives and buy then. When something gives things get cheap. Its why i havent bought back FFH but I will at some point.

I really liked his explanation on why they arent buying companies. I think its good for FFH though. They want and need float, underwriting doesnt help them too much. WRB already has a great underwriting culture. So it doesnt make sense to add another culture.

[Carvel46]

What do think of compensation at the company?

[Viking]

Carvel, if you are referencing their underwriters, I think they are compensated over the cycle and not to hit quarterly volume numbers; I like this. If you are referencing senior management, I do not have a handle (but would expect it is high).

Regarding senior management, I do like Bill (he sounds quite arrogant, but he also has earned his stripes). His son, to be perfectly honest, has not impressed me (how he answers questions on conference calls); however, he is young and as long as pop is around I am not concerned.

[Viking]

Myth, you mentioned that you wish they were cheaper... my read is most insurers are trading at historic lows. We are now through hurricane season and profitability for the next two quarters will likely chug along (and BV should continue to grow). My concern is being out of the sector as it begins its next multi-year run so I am now re-establishing a base position in my favourite names.

[Viking]

Here is a nice summary of Berkley's call for prices to harden at some point in the near term: www.insurancejournal.com/news/national/2010/11/04/114589.htm

[biaggio]

Viking, agree with you

Looks like a good candidate as a owner/jockey stock

Management owns 20%

CEO + co have excellent 10 year record of 16% growth in BV and 25 year record of 15% growth, with good performance despite soft market.

They sound conservative. Have not written as much business as price was not right. They have ~$17 billion in invested assets, market cap of $4 Billion and have only written ~ $4 B in business this year

I think it would be ok to buy at BV. I would not mind holding for 25 years and earn 15% per year. I am thinking of adding a position.

[Liberty]

Q4 conference call is tonight at 5:30 pm ET:

http://ir.wrberkley.com/events.cfm

WRB calls are usually pretty instructive (at least, the couple that I've heard were).

[Myth465]

These guys are a one track record. One day they will be right.

[Liberty]

These guys are a one track record. One day they will be right.

IMO the important thing is that they don't change how their business is run based on their predictions, so that if they don't come true, there's no real negative impact, they just have to be more patient. I like corps with a good defense like that.