The trouble with getting assigned a rich valuation from the market is that the market in turn often expects near-perfection -- and tends to get cranky when it doesn't get it. And so even though the results from specialty property/casualty insurer W.R. Berkley (NYSE:BER) were just fine, "just fine" is apparently not good enough any more.
Looking at the quarter that was, revenue rose nearly 13%, net premiums written climbed more than 7%, and earned premiums rose 10% -- all of which looked pretty respectable to me. Likewise, the combined ratio improved and the company saw net operating income climb more than 32% this quarter. And in the insurance business, operating income is the main focus of attention -- sure, net income matters, but not as much.
Results looked strongest in the specialty and alternative businesses, which generally write insurance like excess and surplus, professional liability, and worker's compensation. In both cases, the combined ratios improved and pre-tax income grew at hefty rates, though net premium growth in the alternative market was a bit sluggish. And while the regional business (which writes mostly property-casualty) had a sluggish quarter, management commentary suggested this had started to improve a bit late in the period.
One of the driving issues here is the pricing environment. In contrast to what we see from reinsurance companies like XL Capital (NYSE:XL) or Montpelier Re (NYSE:MRH), pricing across most of Berkley's business is basically flat or down very slightly. And while Berkley's sound underwriting practices and the inherent flexibility of the specialty businesses are helpful, weak pricing is still weak pricing.
Not that I really wish any ill against the company or its current shareholders, but I'd be happy to see the stock drop a bit more on whatever fears pushed it down in the wake of earnings. After all, I like this company and its solidly above-average returns on equity. The hitch, of course, is price. I realize that solid performers like Berkley or reinsurer Arch Capital (NASDAQ:ACGL) deserve premiums, but I'm still all about finding bargains in the market. Keep this on the radar, though, as you never know when you might have a brief window of opportunity to grab some shares.
For more financial Foolishness:
Montpelier Re has been singled out by our Stock Advisor and Hidden Gems newsletters.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
