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Analyst Blog

W.R. Berkley Corp. (WRB - Analyst Report) announced that its Board has increased its share repurchase authorization to 10 million shares. This translates into approximately 7% of the company’s outstanding shares as of June 30, 2011.

Share buybacks increase a company’s earnings per share by reducing the number of shares outstanding. This step is also indicative of the fact that the company’s financial position is strong enough to enhance its shareholders’ value. 

Berkley has been aggressively repurchasing shares for quite some time. Since 2007, it has bought back about 30% of its outstanding shares.

The latest share repurchase marks the first share buyback program adopted by the company for this year. The last time it took a similar action was in November 2011.

Berkley has been actively involved in share buybacks to support its bottom line amid weak property and casualty market. The company is facing premium declines since the onset of soft market conditions in 2006. To position itself for growth, the company has made a number of investments and started 21 new units in the last three years.

Though the company has witnessed improvements in insurance rates in certain lines of businesses, a sustainable turnaround in the underwriting cycle is yet to be seen. Low interest rates are adversely affecting its profitability, by limiting return on investment. Until these conditions improve, we expect the company to continue taking defensive actions like share buybacks.

On the other hand, the company announced a regular quarterly dividend of 9 cents per share, which was raised by 36% during last quarter. Dividends at Berkley have increased at a 5-year CAGR of 24%.

We maintain our Neutral recommendation on W.R. Berkley. The stock also retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Berkley competes closely with a host of property and casualty carriers, such as The Chubb Corp. (CB - Analyst Report), The Travelers Companies, Inc. (TRV - Analyst Report), XL Group plc (XL - Analyst Report) and The Allstate Corp. (ALL).

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