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W.R. Berkley Corp. (WRB)

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We have downgraded our recommendation on W.R. Berkley Corp. (WRB) to Underperform from Neutral, reflecting slightly lower investment yield assumptions and modestly higher loss ratio forecasts which would eat into underwriting margins.

Berkley has been hurt by soft pricing conditions and increasing competition. The trend of loss claims shows a divergence from declining losses over the past several years. An increase in claim costs will offset the premium rate improvement seen lately, thus pressurizing underwriting margins.

Our six-month target price of $27.00 per share equates to about 10.6x our earnings estimate for 2011. Combined with the $0.32 per share annual dividend, this target price implies an expected negative return of 8.2% over that period.

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