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W.R. Berkley Estimates to Incur $110M Catastrophe Losses

Zacks

W.R. Berkley Corporation WRB has recently announced estimated catastrophe loss estimates erupting from Hurricanes Harvey, Irma, Maria and earthquakes in Mexico. The company projects catastrophe loss of about $110 million, which translates to $72 million after-tax. Shares of the company have slid 0.2% in the last two trading sessions following the announcement.

The Zacks Consensus Estimate for the third quarter is currently pegged at 37 cents per share, reflecting a year-over-year decline of 58.4%. We expect the estimates to move south as analysts incorporate the catastrophe loss impact.

Catastrophe losses have traditionally had a significant impact on the company’s results. In 2016, the company incurred cat losses of $105.1 million, which were 82.5% wider than 2015. However, in the first half of 2017, the company witnessed a much lower level of weather-related losses, due to a not-so-active catastrophe environment. Catastrophe loss came in at $47.5 million, a substantial decline of 15.5% compared with the first half of 2016. The recent cat loss will further escalate claim losses, thereby draining margins.

While Harvey rocked Houston and Texas Gulf Coast, Irma hit regions spanning across Caribbean to Florida. Both storms are considered the costliest in a decade. No sooner had the country heaved a sigh of relief — with Hurricane Jose not turning as destructive as anticipated — than another hurricane Maria, happened to strike Puerto Rico and the Virgin Islands.


Per the catastrophe modeler AIR Worldwide, the estimate for insured losses from Irma could range between $25 billion and $35 billion and between $40 billion and $85 billion from Maria. The Mexican tremors will cost the insurance industry billions, per the same catastrophe risk modeler.

Being a property and casualty insurer, W.R. Berkley will not escape the disaster caused by these catastrophe events, weighing on the underwriting profitability in the process. Irrespective of catastrophe mitigation techniques deployed by the company, exposure to weather-related calamities makes its earnings volatile.

Other insurers too have come up with their loss estimates. Assurant Inc. AIZ has estimated between $134 million and $140 million pre-tax of reportable catastrophe losses from Harvey and expects gross losses from Irma to exceed its retention of $125 million pre-tax. The Travelers Companies, Inc. TRV estimates pre-tax catastrophe loss from Harvey between $375 million and $750 million or $245 million and $490 million after-tax. RenaissanceRe Holdings Ltd. RNR expects to incur catastrophe loss of $625 million (net of reinsurance and reinstatement premiums) in the third quarter.

Zacks Rank & Share Price Impact

W.R. Berkley carries a Zacks Rank #3 (Hold). Shares of the company have underperformed the industry in a year’s time. While the stock has gained 16.7%, the industry has rallied 24.4%. Higher investment income and disciplined capital management are expected to drive the stock higher in the near future.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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