W.R. Berkley Corp.’s (WRB) third quarter earnings of 67 cents per share were 3 pennies ahead of the Zacks Consensus Estimate of 64 cents. Earnings remained unchanged compared with the prior year period. Earnings were aided by a modest premium growth and lower base effectuated by share repurchase.

Total revenue of $1.2 billion was in line with the Zacks Consensus Estimate and was modestly up by 3.5% compared with the prior year quarter.

Net premiums written increased 1.8% year over year to $986.7 million. Berkley maintained the trend of premium growth from the previous quarter, being the first time it had recorded a growth since the third quarter of 2006. Segments – International and Specialty clocked in a double-digit growth of 33.0% and 10.1%, respectively. However, there was a decline of 1.8%, 10.0% and 20.0% in Regional segment, Alternative and Reinsurance segments.

Net investment income decreased 2.0% year over year to $138.2 million. The decline was brought about by lower yields partially offset by an improvement in earnings from the arbitrage account.

Combined ratio deteriorated 40 basis points from the prior year quarter to 95.4% due to $22 million of catastrophe loss during the quarter. Operating return on equity came down to 11.4% from 14.7% in the prior-year period.

Berkley’s disciplined underwriting culture and conservative investment philosophy have led to a book value growth of $26.36 up 6.0% year over year. The company bought back 3.3 million shares in the quarter (about 2% of shares outstanding).

Berkley’s numerous newly started ventures are bearing fruit and are offsetting losses from the old businesses. Though for a year or two low yields on these newly set up businesses will exert pressure on top-line growth, eventually they are likely to benefit from a turn in the insurance cycle. Also, share repurchases led by sufficient capital are expected to add value to shareholders’ wealth.

However, we rate the shares as Underperform as we believe that the company continues to suffer from soft market conditions. The stock carries a Zacks #3 Rank, which indicates no clear directional pressure on the shares over the near term.

 
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