W.R. Berkley Corp. :WRB-US: Earnings Analysis: Q2, 2017 By the Numbers : August 9, 2017

W.R. Berkley Corp. reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of W.R. Berkley Corp. – White Mountains Insurance Group Ltd, Selective Insurance Group, Inc., Alleghany Corporation, XL Group Ltd, Arch Capital Group Ltd., American Financial Group, Inc. and OneBeacon Insurance Group, Ltd. Class A (WTM-US, SIGI-US, Y-US, XL-US, ACGL-US, AFG-US and OB-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1,848.05 million, Net Earnings of USD 109.00 million.
  • Year-on-year change in operating cash flow of 8.50% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as from unusual items

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 1848.05 1870.42 1971.33 2019.73 1855.91
Revenue Growth (%YOY) -0.42 2.47 7.61 7.81 3.7
Earnings (mil) 109 123.45 152.79 220.65 108.97
Earnings Growth (%YOY) 0.03 3.29 39.22 44.59 -11.43
Net Margin (%) 5.9 6.6 7.75 10.92 5.87
EPS 0.85 0.96 1.2 1.72 0.85
Return on Equity (%) 2.07 2.4 3.04 4.46 2.24
Return on Assets (%) 1.83 2.11 2.62 3.81 1.93

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Market Share Versus Profits

Revenues History
Earnings History

WRB-US‘s change in revenue this period compared to the same period last year of -0.42% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that WRB-US is holding onto its market share. Also, for comparison purposes, revenues changed by -1.20% and earnings by -11.70% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

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Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

Insurance companies sometimes tradeoff for improvements in premiums earned by relaxing standards in underwriting policies. A quick way to check against such activity is to compare the changes in loan loss provisions as well any chnages in the level of policy claims. If either of these checks point to a decline in the underwriting standards, it is quite possible that the company’s performance is a result of underwriting policy changes that could have a longer term impact compared to the shorter term pop in premiums earned.

Premiums Earned Percent History
Loss Ratio History

The company’s earnings growth has been influenced by the year-on-year improvement in premiums earned as a percent of total revenues from 84.04% to 84.88%. However the company’s underwriting policies have prevented it from fully capitalizing on these improvements. Matter of fact, the company’s loss ratio showed no improvement and went from 61.81% to 97.36% over the same period. For comparison, premiums earned as a percent of revenues were 83.94% and the loss ratio 95.73% in the immediate last period.

Premiums Earned Percent Versus Loss Ratio

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

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Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

WRB-US‘s change in operating cash flow of 8.50% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating margins after interest from 9.70% to 11.08% and (2) One-time items. The company’s pretax margins are now 8.71% compared to 8.53% for the same period last year.

EBIT Margin Versus PreTax Margin

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Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for W.R. Berkley Corp.

Company Profile

W.R. Berkley Corp. operates as an insurance holding company, which focuses on the property and casualty insurance business. It operates through the following segments: Insurance-Domestic, Insurance-International and Reinsurance-Global. The Insurance-Domestic segment engages in commercial insurance business, including excess and surplus lines and admitted lines, primarily throughout the United States. The Insurance-International segment engages in insurance business primarily in the United Kingdom, Continental Europe, South America, Canada, Scandinavia, Asia, and Australia. The Reinsurance-Global segment engages in reinsurance business on a facultative and treaty basis, primarily in the United States, United Kingdom, Continental Europe, Australia, the Asia-Pacific Region, and South Africa. The company was founded by William R. Berkley in 1967 and is headquartered in Greenwich, CT.

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