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W. R. Berkley Corp. vs. Alleghany: Which Is a Better Insurer?
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The insurance industry seems well placed at present. Favorable factors like improving rate environment, benign catastrophe environment and economic progression boost insurers for growth.
Recently, the Fed has raised the interest rate by 25 basis points under the new chairman Jerome Powell. The person at the helm announced intentions of three rate hikes this 2018. Federal Reserve Bank has projected a median federal funds rate of 2.9% by 2019-end, implying three rate hikes in the year. With prediction of a couple of hikes more in 2020, interest rate is expected to reach 3.4% at 2020-end.
An increased rate is expected to positively impact the net investment income, a major component of an insurer’s top line. A broader invested asset base and alternative asset classes are other upsides.
Underwriting results, the major indicator of profitability for any insurer, are expected to improve on the back of a benign catastrophe environment. Due to a string of cat events such as the unprecedented hurricane activity and the California wildfires, the year 2017 emerged costliest in terms of catastrophe loss, weighing heavily on the underwriting profitability.
Nonetheless, such losses induced insurers to brave the price hikes that had remained flat for quite a while.
Also, President Donald Trump’s tax reform policy, an overhaul of tax code after 31 years, lowers the corporate tax burden. Notably, the tax rate was slashed to 21% from 35%, calling for a $1.5-trillion tax cut. This will likely act as an impetus to industry players.
Though the Property and Casualty Insurance industry is ranked at #189 (denoting the bottom half of the Zacks Industry Rank for 265 plus industries), it has outperformed the S&P 500 index’s gain of 12.8% year to date, registering a 13.4% rise.
Here we focus on two property and casualty insurers namely W. R. Berkley Corp. (WRB - Free Report) and Alleghany Corp. . While the former with a market capitalization of $8.5 billion operates as a commercial lines writer in the United States and internationally, the latter provides property and casualty reinsurance and insurance products in the United States and internationally and has a market cap of $8.9 billion.
Alleghany carries a Zacks Rank #2 (Buy) while W.R. Berkley Corp. has a Zacks Rank #3 (Hold). Alleghany emerges a clear winner in this round.
Price Performance
Both Alleghany and W.R. Berkley Corp. have underperformed the industry in a year. While shares of W.R. Berkley Corp. have lost 0.7%, the Alleghany stock has declined 6.8%. With a lower loss, W.R. Berkley Corp. performs better with this metric.
Valuation
The price to book value metric is the best multiple used for valuing insurers. Compared with the Property and Casualty Industry’s P/B ratio of 1.34, Alleghany is underpriced with a reading of 1.04. Meanwhile, W.R. Berkley Corp. is costlier with a trailing 12-month P/B multiple of 1.57. This round again goes to Alleghany as its shares are cheaper.
Debt-to-Equity
Alleghany has a lower debt-to-equity ratio of 17.4 compared with the industry average of 29.1% and W.R. Berkley Corp.’s leverage ratio of 45.8. Therefore, Alleghany has a visible edge over W.R. Berkley Corp. here.
Return on Equity
W.R. Berkley Corp. with a return on equity of 5.9% exceeded the industry average of 4.8% as well as Alleghany’s reading of 0.4%. Return on equity is a profitability measure, identifying how the company is effectively utilizing its shareholders’ money. Hence W.R. Berkley Corp. clearly wins this round.
Dividend Yield
W.R. Berkley Corp.’s dividend yields 0.8%, outperforming the industry average of 0.5%. Alleghany refrains from paying any regular dividend.
On a positive note, the 8% raise in dividend approved in May 2017 marks the 12th consecutive hike since 2005.The company has also paid six special dividends since 2012.
Alleghany, however, has paid a special dividend of $10 per share in March 2018.
W.R. Berkley Corp. wins this round hands down.
Combined Ratio
Combined ratio, the percentage of premiums paid out as claims and expenses, determines the underwriting profitability of an insurer.
Alleghany’s combined ratio was 106.9 in 2017 while W.R. Berkley Corp.’s is 96.7. Thus the latter wins this round yet again.
Earnings Surprise History
As far as the companies’ surprise history goes, Alleghany has surpassed the Zacks Consensus Estimate in two of the last four quarters with an average beat of 5.16%.
Though W.R. Berkley Corp. beat the consensus mark in the last two quarters, the average four-quarter surprise was a negative 0.21%.
This round visibly goes to Alleghany.
Earnings Estimate Revisions and Growth Projections
Alleghany’s 2018 earnings estimates have moved 3% north in the last 30 days. While the Zacks Consensus Estimate for W.R. Berkley Corp.’s current-year earnings has been revised downward by a cent.
For Alleghany, the consensus mark for 2018 earnings per share is estimated to grow a massive 1483.3% while the same for W.R. Berkley Corp. translates to 45.5% year-over-year growth.
Here too, Alleghany gains advantage over W.R. Berkley Corp.
To Conclude
Alleghany scored higher than W.R. Berkley Corp. on the basis of Zacks Rank, valuation, leverage ratio, earnings estimate revisions and growth projections as well as a solid earnings surprise history. However, considering parameters like price performance, dividend yield, return on equity, combined ratio, W.R. Berkley Corp. seems better off than Alleghany. Per our comparative analysis, Alleghany is thus a more attractive and viable investment option than W.R. Berkley Corp.
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W. R. Berkley Corp. vs. Alleghany: Which Is a Better Insurer?
The insurance industry seems well placed at present. Favorable factors like improving rate environment, benign catastrophe environment and economic progression boost insurers for growth.
Recently, the Fed has raised the interest rate by 25 basis points under the new chairman Jerome Powell. The person at the helm announced intentions of three rate hikes this 2018. Federal Reserve Bank has projected a median federal funds rate of 2.9% by 2019-end, implying three rate hikes in the year. With prediction of a couple of hikes more in 2020, interest rate is expected to reach 3.4% at 2020-end.
An increased rate is expected to positively impact the net investment income, a major component of an insurer’s top line. A broader invested asset base and alternative asset classes are other upsides.
Underwriting results, the major indicator of profitability for any insurer, are expected to improve on the back of a benign catastrophe environment. Due to a string of cat events such as the unprecedented hurricane activity and the California wildfires, the year 2017 emerged costliest in terms of catastrophe loss, weighing heavily on the underwriting profitability.
Nonetheless, such losses induced insurers to brave the price hikes that had remained flat for quite a while.
Also, President Donald Trump’s tax reform policy, an overhaul of tax code after 31 years, lowers the corporate tax burden. Notably, the tax rate was slashed to 21% from 35%, calling for a $1.5-trillion tax cut. This will likely act as an impetus to industry players.
Though the Property and Casualty Insurance industry is ranked at #189 (denoting the bottom half of the Zacks Industry Rank for 265 plus industries), it has outperformed the S&P 500 index’s gain of 12.8% year to date, registering a 13.4% rise.
Here we focus on two property and casualty insurers namely W. R. Berkley Corp. (WRB - Free Report) and Alleghany Corp. . While the former with a market capitalization of $8.5 billion operates as a commercial lines writer in the United States and internationally, the latter provides property and casualty reinsurance and insurance products in the United States and internationally and has a market cap of $8.9 billion.
Two better-ranked stocks from the same industry are CNA Financial Corp. (CNA - Free Report) and Everest Re Group, Ltd. , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1Rank stocks here.
Zacks Rank
Alleghany carries a Zacks Rank #2 (Buy) while W.R. Berkley Corp. has a Zacks Rank #3 (Hold). Alleghany emerges a clear winner in this round.
Price Performance
Both Alleghany and W.R. Berkley Corp. have underperformed the industry in a year. While shares of W.R. Berkley Corp. have lost 0.7%, the Alleghany stock has declined 6.8%. With a lower loss, W.R. Berkley Corp. performs better with this metric.
Valuation
The price to book value metric is the best multiple used for valuing insurers. Compared with the Property and Casualty Industry’s P/B ratio of 1.34, Alleghany is underpriced with a reading of 1.04. Meanwhile, W.R. Berkley Corp. is costlier with a trailing 12-month P/B multiple of 1.57. This round again goes to Alleghany as its shares are cheaper.
Debt-to-Equity
Alleghany has a lower debt-to-equity ratio of 17.4 compared with the industry average of 29.1% and W.R. Berkley Corp.’s leverage ratio of 45.8. Therefore, Alleghany has a visible edge over W.R. Berkley Corp. here.
Return on Equity
W.R. Berkley Corp. with a return on equity of 5.9% exceeded the industry average of 4.8% as well as Alleghany’s reading of 0.4%. Return on equity is a profitability measure, identifying how the company is effectively utilizing its shareholders’ money. Hence W.R. Berkley Corp. clearly wins this round.
Dividend Yield
W.R. Berkley Corp.’s dividend yields 0.8%, outperforming the industry average of 0.5%. Alleghany refrains from paying any regular dividend.
On a positive note, the 8% raise in dividend approved in May 2017 marks the 12th consecutive hike since 2005.The company has also paid six special dividends since 2012.
Alleghany, however, has paid a special dividend of $10 per share in March 2018.
W.R. Berkley Corp. wins this round hands down.
Combined Ratio
Combined ratio, the percentage of premiums paid out as claims and expenses, determines the underwriting profitability of an insurer.
Alleghany’s combined ratio was 106.9 in 2017 while W.R. Berkley Corp.’s is 96.7. Thus the latter wins this round yet again.
Earnings Surprise History
As far as the companies’ surprise history goes, Alleghany has surpassed the Zacks Consensus Estimate in two of the last four quarters with an average beat of 5.16%.
Though W.R. Berkley Corp. beat the consensus mark in the last two quarters, the average four-quarter surprise was a negative 0.21%.
This round visibly goes to Alleghany.
Earnings Estimate Revisions and Growth Projections
Alleghany’s 2018 earnings estimates have moved 3% north in the last 30 days. While the Zacks Consensus Estimate for W.R. Berkley Corp.’s current-year earnings has been revised downward by a cent.
For Alleghany, the consensus mark for 2018 earnings per share is estimated to grow a massive 1483.3% while the same for W.R. Berkley Corp. translates to 45.5% year-over-year growth.
Here too, Alleghany gains advantage over W.R. Berkley Corp.
To Conclude
Alleghany scored higher than W.R. Berkley Corp. on the basis of Zacks Rank, valuation, leverage ratio, earnings estimate revisions and growth projections as well as a solid earnings surprise history. However, considering parameters like price performance, dividend yield, return on equity, combined ratio, W.R. Berkley Corp. seems better off than Alleghany. Per our comparative analysis, Alleghany is thus a more attractive and viable investment option than W.R. Berkley Corp.
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
Click here to see the 5 stocks >>