Let’s start with insurance, because I love nothing more than putting everyone to sleep at the end of a long week…
Kidding! These are the companies that actually often get me excited, running through numbers in my head as I try to fall asleep at night — not many business models offer better long-term returns than property & casualty insurance, especially when you’re feeling nervous about high-flying and sexy stocks.
But yes, if you want to take a detour into A.I. for a moment, I also posted a bonus teaser solution about some artificial intelligence stocks here this morning, you can go ahead and check that out.
It’s OK, we’ll wait.
Ready? OK, into the insurance company earnings…
W.R. Berkley (WRB) posted yet another earnings “beat” on Monday, with adjusted earnings of $1.35 per share (17 cents better than the average estimate), which meant they had earnings growth of 46% in the quarter, and revenue about 7% above expectations. Much of that was driven by the higher investment income from the bond portfolio, but the core insurance business is also doing very well (underwriting income grew 35%, overall income, thanks to the investments, grew by 46%). They’ve grown their premiums written by about 10% so far this year, and the combined ratio is now at 90.2%, which is very good (if not quite as good as it was in recent quarters), and both the loss ratio and the expense ration seem to be awfully stable (WRB is exposed to a little bit of catastrophe losses, but not every much compared to most property & casualty underwriters). Within their investment portfolio, they still have a pretty short duration and own high quality bonds, so they haven’t really taken a hit to book value as rates have spiked higher… but they have been able to invest at higher and higher rates. Book value per share is now up to $26.80.
No real change in my judgement here, the company is still really thriving in this environment, and they’re still near the upper end of what a reasonable investor might pay for the company. The return on equity continues to be fantastic for an insurance company, roughly 20%, but we’re now paying more than 2X equity to buy the shares, which reduces that earnings yield to less than 10% — which is still good, and that’s why ...