This article is part of our Rising Star Portfolios series.

I purchased W.R. Berkley (NYSE: WRB) shares for my Rising Star portfolio two months ago on a simple premise: Underwriting rates have been soft for seven years, and across a long-enough time horizon, that condition is categorically unsustainable. Rates will turn, and whenever they do, Berkley's unorthodox and opportunistic approach position it to reap a windfall. The best insurance companies are prowling tigers stalking kittens: They eat their own kind. Berkley's earnings last quarter, along with a few data points, tentatively affirm my thesis is alive and well. Berkley may soon eat well.

Written premiums increased 10% to $1.1 billion on strength in its international and reinsurance segments, investment income produced a solid result despite a 5% decline, and the company posted a 96.3% combined ratio (meaning that for every dollar of premium written, 3.7 cents fell to the bottom line). In a still-challenging underwriting environment, that's a very respectable result.

Most significantly, Berkley reported a 1% increase in pricing across its lines, a tentative but encouraging sign markets are turning. Equally encouraging, Bill Berkley -- the company's eponymous CEO -- reported that workers compensation posted 5% increases as of the quarter's close. It pays to note these are only data points, but it's an early validation of a plain truth: Rates can't stay this low, not without significant pain. Travelers (NYSE: TRV), also of good underwriting stock, posted a quarterly report that told the same story, as the P&C behemoth also passed selective price increases.

This, coupled with two externalities, tell a compelling story. First is AIG (NYSE: AIG). The megainsurer cum bailout rockstar recently revealed a not-so-shocking truth: It had priced its policies too aggressively, and planned to spend a little quality time shoring up its balance sheet. Historically an aggressive competitor, and still a large presence in U.S. property and casualty markets, AIG's hobbled state should reduce the degree of industrywide pricing pressure. 

Secondly, add a dollop of unfortunate disasters in Japan, Chile, Australia, and New Zealand, where catastrophic losses are estimated at greater than $50 billion (and nearly $35 billion in Japan alone), and mix in a dash of old-fashioned fear for a concoction that yields better pricing for insurance.

Amid it all, Berkley shares trade at about 1.2 times book value. For an insurer of Berkley's caliber, that's a decent price and there's still substantial upside potential. But it's not exactly stupid cheap. I'll continue to hold the shares in my Rising Star portfolio, content to let the Berkley stalk its opportunity.

This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. Click here to see all of our Rising Star analysts (and their portfolios).