Yesterday, property and casualty insurer W.R. Berkley Corp. (WRB) announced an increase in repurchase authorization to 10 million shares. The increased authorization represents nearly 7% of the company’s 155.1 million outstanding shares as of December 31, 2010.

Buybacks let companies boost per-share profits by reducing their equity base and  indicates that the executives find their stock undervalued. 

Berkley has been aggressively repurchasing shares. From 2008 to 2010, the company has bought back 44.8 million shares for a total cost of $1.2 billion. The number of shares outstanding over the same time frame has declined at a CAGR of 5.61%.  For FY10, 17 million shares or 11% of outstanding shares at the beginning of the year were repurchased for a total cost of $449 million.

In FY10, Berkley had twice increased its share repurchase authorization to 10 million shares, once in August and the other in November 2010.

Last week Berkley announced a regular quarterly cash dividend of 7 cents on its common stock. Its dividend track record remains commendable. During May, the company declared a 17% jump in its annual dividend, which represented the sixth straight increase from 12 cents paid in 2005.

Dividends at Berkley have increased at a 5-year CAGR of 24%. It has grown its annual dividend by an average of more than 19% annually over the past five years.

Berkley has been facing premium declines since the onset of soft market conditions in 2006. To poise itself for growth, the company has made a number of investments and has started 19 new units in the past three years.

The most recent quarter saw an 11% increase in premium income, entirely contributed by the new start-up units. Its old units are witnessing low rate declines and some of them have even reported flat premium income.

However, with a continued competitive market landscape and soft pricing environment, we expect the historic business lines to persist posting low or no premium growth, which will to some extent nullify growth from new initiatives. Since the top-line growth looks restricted, management is aiming to grow bottom-line earnings by indulging in share buybacks.

 
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