On Feb. 8, P&C insurer WR Berkley (NYSE:BER) released fourth-quarter earnings for the period ended Dec. 31, 2006.

  • WR Berkley continues to post consistently great numbers, with a combined ratio of 86.5% for the fourth quarter, compared to 87% last year.
  • Net written premiums were down slightly, but the 45% increase in net investment income -- helped by a 16% increase in investments and higher yields -- allowed the company to increase net income 18%.
  • Returns on equity were stellar once again, at 31%, and book value per share increased 29% to $17.30. Looking forward, the company thinks the insurance pricing, although softening, is still strong enough to target a return on equity in excess of 20% in 2007.
  • WR Berkley's key strength is its ability to generate organic float, which translates into strong investment income. At the end of 2006, WR Berkley's $12 billion in investments equaled nearly $60 worth of investments per share -- nearly twice the current trading price and nearly 3.5 times its equity.

(Figures in thousands, except per-share data)

Income Statement Highlights

Q4 2006

Q4 2005

Change

Premiums Earned

$1,165,708

$1,197,915

(2.7%)

Investment Income

$163,827

$113,280

44.6%

Net Income

$198,056

$167,424

18.3%

EPS

$0.98

$0.83

18.1%



Get back to basics with a look at an insurer's income statement.

Ratio Checkup

Q4 2006

Q4 2005

Change

Loss Ratio

59.1%

60.4%

(1.30%)

Expense Ratio

27.4%

26.6%

0.80%

Combined Ratio

86.5%

87.0%

(0.50%)

Return on Equity

30.9%

31.7%

(0.80%)

Net Investment Yield

5.6%

4.4%

1.13%

*Expressed in percentage points.

What do these ratios mean?

Balance Sheet Highlights

Assets

Q4 2006

Q4 2005

Change

Investments

$12,012,298

$10,378,250

15.7%

Total Assets

$15,656,489

$13,896,287

12.7%



Liabilities

Loss Reserve

$7,784,269

$6,711,760

16.0%

Long-Term Debt

$1,111,140

$1,418,452

(21.7%)

Book Value Per Share

$17.30

$13.42

28.9%



Learn your way around an insurer's balance sheet.

Related Companies:

  • Markel (NYSE:MKL)
  • White Mountains (NYSE:WTM)
  • Progressive (NYSE:PGR)
  • AIG (NYSE:AIG)
  • Berkshire Hathaway (NYSE:BRK-B)

Related Foolishness:

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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates comments, concerns, and complaints. Berkshire Hathaway is an Inside Value recommendation. The Motley Fool has a disclosure policy.