WRB Ramps Buyback, Declares Div - Analyst Blog - WR Berkley (NYSE:WRB)

Property and casualty insurer W.R. Berkley Corp. (WRB) yesterday announced an increase in repurchase authorization to 10 million shares. The increased authorization represents nearly 7% of the company’s 151.2 million outstanding shares as of June 30, 2010.

Berkley has been aggressively repurchasing shares. Since 2006, the company has bought back 47.1 million shares at an average price of $27.33 for a total cost of $1.3 billion. During the second quarter of 2010, 5.1 million shares were repurchased for a total cost of $136 million, up from 3.8 million shares repurchased in the first quarter for $95 million. Berkley has thus used up all earnings for the first half of 2010 to buy back shares worth $229 million.

Berkley has also announced a regular quarterly cash dividend of 7 cents on its common stock. Its dividend track record remains commendable. During May, the company declared a 17% increase in its annual dividend, which represented the sixth straight increase from 12 cents paid in 2005.

Dividends at Berkley have increased at a 5-year CAGR of 24%. It has grown its annual dividend by an average of more than 19% annually over the past five years. The most recent increase of 17% is almost in line with the average, along with an annualized dividend yield of 1.03%, which is quite commendable for an insurance company.

Berkley has been facing premium declines since the onset of soft market conditions in 2006. To poise itself for growth, the company has made a number of investments and has started 19 new units in the past three years.

The most recent quarter saw a 5.8% increase in premium income, entirely contributed by the new start-up units. Its old units are witnessing low rate declines and some of them have even reported flat premium income. However, with a continued competitive market landscape and soft pricing environment, we expect the historic business lines to persist posting negative or no premium growth, which will to some extent nullify growth from new initiatives. Since top-line growth looks restricted, management is aiming to grow bottom-line earnings by indulging in share repurchases.

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WRB Ramps Buyback, Declares Div - Analyst Blog

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