W.R. Berkley (WRB) has earned a good reputation, with long-term core earnings and book value growth trends well above the average, as well as a strong underwriting history. Even so, while I can understand a “flight to safety” preference for this more specialty-oriented insurer, it’s tough to reconcile the current and likely near-term trends with the valuation.
While lower rates do support a higher valuation, all other things being equal, lower rates also undermine W.R. Berkley’s investment yields. I’m likewise concerned about the risk of ongoing “social inflation” in claims costs and the impact that will have on the company’s reserves. Although I expect W.R. Berkley to generate a still-attractive core earnings growth rate of around 6%, the annualized total return seems too low (mid-to-high single digits) to get very excited about the shares now.
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It's Tough To Reconcile W.R. Berkley's Valuation With The Business
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