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Property and casualty insurer W.R. Berkley Corp. (WRB - Analyst Report) reported fourth-quarter core operating earnings of 64 cents per share, beating the Zacks Consensus Estimate by a good 14 cents. The earnings beat came on the back of higher premium written, pricing gains, higher investment income and a lower share count. Earnings were also up 10% year over year.

On a GAAP basis, net income surged 43% year over year to $1.17 per share.
 
For FY12, operating income came in at $2.61 per share, significantly ahead of the Zacks Consensus Estimate of $2.48 per share as well as $2.13 per share reported in the year ago quarter.

Revenue, in the quarter, came in at $1.61 billion, up 17% year over year. The year-over-year increase was attributable to higher premiums earned, investment income, insurance fee service and investment gains.

For FY12 revenue was $5.8 billion, up 12.9% year over year.
 
W.R. Berkley’s net written premium for the quarter was approximately $1.22 billion, an increase of 12.6% year over year. The company saw broad-based growth with each of its operating segments reporting higher premium.
 
Net investment income was $152.0 million in the quarter, up 30% year over year.
 
Total expenses also increased 12.6% year over year due to an increase in loss and loss expenses, other operating costs, and interest expenses.
 
W.R. Berkley recorded a combined ratio of 98.1%, worse than 97.0% reported in the prior-year quarter.
 
Segment Details
 
Net premiums written in the Specialty segment increased10.7% year over year to $452.1 million. Combined ratio deteriorated 220 basis points to 98.0% in the quarter.
 
Net premiums written in the Regional segment climbed 7.7% year over year to $266.3 million. Combined ratio improved 110 basis points year-over-year to 92.4%.

The Alternative Markets reported a 20% increase in net premiums written to $146.9 million in the quarter. Combined ratio improved 510 basis points year-over-year to 94.7%.
 
Net premiums written in the Reinsurance segment increased 15.4% year over year to $127.9 million. Combined ratio deteriorated to 106.3% from 103.1% in the year-ago quarter.

The International segment recorded net premiums written growth of 16% year over year to $235.0 million. Combined ratio deteriorated to 103.4% from 98.6% in the year ago quarter.

Book value per share, a measure of net worth, increased to $31.66 from $28.75 per share, at the end of 2011. Return on equity increased to 16.7% from 12.8% in the year- ago quarter.

During the year W.R. Berkley repurchased 3.4 million shares of its common stock at a total cost of $128 million.

At the Peer

The Travelers Companies Inc. (TRV - Analyst Report) reported fourth quarter 2012 earnings of 72 cents per share, surpassing the Zacks Consensus Estimate of 4 cents per share. However, results plunged 51% from $1.48 earned in the year-ago quarter

RLI Corporation (RLI - Analyst Report) reported fourth-quarter 2012 operating earnings of 89 cents per share. The result surpassed the Zacks Consensus Estimate of 44 cents by 107% but missed the year-ago level of $1.13 by 32.1%.

Our Take
 
W.R. Berkley has been reporting ahead of the expectations for the past several quarters. The company has maintained its trend of beating earnings estimates in the reported quarter as well. We expect the trend to continue going forward. The company has positioned itself well to take advantage of hardening in the insurance market by forming several new units over the past few years. Premiums written for its core business have increased and the new units are accruing to earnings. Average renewal rates are on the rise and so is the price trend.
 
W.R. Berkley’s balance sheet, which is adequately capitalized, is another major company strength. The company has maintained its practice of increasing yearly dividends. In our view, the company is well poised to return value to its shareholders over the long term.
 
W.R. Berkley currently retains a Zacks Rank #3 (Hold). Cincinnati Financial Corp. (CINF - Analyst Report) another property and casualty player currently carrying Zacks Rank #1 (Strong Buy) is scheduled to report its fourth quarter earnings on Feb 6, 2013.

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