475 Steamboat Road
Greenwich, Connecticut 06830
Telephone: (203) 629-3000
Fax: (203) 769-4098
Web site: http://www.wrbc.com
Incorporated: 1967 as Fine-Vest Services, Inc.
Total Assets: $11.45 billion (2004)
Stock Exchanges: New York
Ticker Symbol: BER
NAIC: 524126 Direct Property and Casualty Insurance Carriers
W.R. Berkley Corporation is an insurance holding company with five major business segments: regional property casualty; specialty lines; reinsurance; alternative markets; and international. Through its subsidiaries, W.R. Berkley operates as a leading commercial lines property casualty insurance provider. The company's numerous specialty and regional subsidiaries are located in 27 states while its international arm oversees operations in Argentina and Asia.
W.R. Berkley Corporation is the creation of entrepreneur and investor William R. Berkley. Berkley got his start as an investor at the age of 12, when he began using spare money from his lawn-mowing business to buy stocks. Among his top picks at the time was Decca Record Company, which signed many of the most promising British rock artists of the 1960s. Decca's stock jumped in price from $13 to $42, encouraging Berkley to become to pursue further ventures in the stock market. In the late 1960s, the brilliant Berkley attended Harvard's business school, where he and a classmate ran a $2 million mutual fund out of their four-bedroom apartment. The fund, which formed the foundation for W.R. Berkley's predecessor (Berkley Dean & Co.), was a smashing success. Its assets ballooned to $10 million by the time Berkley was out of college, and it turned out to be one of the hottest mutual funds of the period.
Berkley earned a reputation at Harvard as brilliant, arrogant, and boastful. "This guy was very confident, there's no doubt," recalled Dennis Duggan, a reporter that profiled Berkley in the 1960s for New York Newsday. Duggan added, "He said he'd be rich. He wanted to be one of the richest people in America. He was arrogant; he exuded it." Berkley's swaggering style earned him a cream pie in the face from his contemptuous Harvard classmates, but it apparently also helped to make him very wealthy. By the time Berkley was 23 years old, in fact, Berkley Dean & Co. was managing $10 million in mutual fund assets, as well as $15 million in other investments, and generating nearly $1 billion in annual revenues. Berkley would later attribute his cockiness to youth and simplistic views of the world but not before building the multi-million-dollar insurance holding company that became W.R. Berkley Corporation.
Berkley succeeded in the stock market during the 1960s and early 1970s by purchasing the stocks of companies with earnings that were growing faster than the economy. He was widely publicized at the time as an investment genius for his ability to sniff out undervalued stocks. In reality, much of his success at the time was the result of a strong bull market that complemented his investment strategy. When the market stalled in the early 1970s, Berkley's investment performance waned. Berkley bailed out of the stock-picking business and decided to jump into the insurance business with the purchase of Houston General Insurance Co. He bought the company because the sale price was low. However, it represented the first of a large portfolio of companies, rather than stocks, that Berkley would accrue during the next 20 years.
Berkley took his company public in 1973 as W.R. Berkley Corporation. He invested proceeds from the offering in Houston General. Like many of his stock picks, the Houston General investment soared. Berkley sold the company 14 months later for nearly twice the purchase price. He used profits from the sale to buy other insurers. Berkley's strategy in the insurance business during the 1970s was multi-faceted. Importantly, Berkley recognized an pivotal emerging industry trend: changing financial controls for property-casualty insurers were rapidly increasing the number of investment dollars available per each dollar of capital held by the companies. The additional investment pool meant that insurers could invest more conservatively in government bonds and other low-risk instruments and still rack up healthy profits. Markets were slow to realize the significance of the changing financial controls, so Berkley was able to buy insurance companies at very low prices in relation to their future worth.
Aside from the investment dynamics of the insurance industry during the 1970s and 1980s, Berkley planned to profit from a unique operating strategy. He believed that many insurance companies, in an effort to impress competitors and customers, had grown too large. They had succeeded in setting up giant, nationwide networks that allowed them to benefit from economies of scale related to marketing, investing, and data processing. In doing so, however, they had forfeited benefits associated with operating intimately with local and regional markets. Thus, Berkley's plan was to purchase a network of independent, regional insurance companies. He then reduced expenses; one example of this strategy was the centralization of data processing tasks. At the same time, he would allow each of his companies to operate autonomously in their respective regions. In this way, managers of the subsidiaries could respond to the intricacies of their local markets and provide more personalized service to customers.
Throughout the 1970s and early 1980s, Berkley purchased a string of insurance companies, most of which he whipped into high-profit performers. In addition to regional insurers, Berkley utilized his strategy to break into the specialty insurance business. Berkley subsidiaries were eventually offering several types of unique coverage. For example, W.R. Berkley was one of only a handful of American insurance organizations that offered collision insurance on Rolls-Royces. Another of its exotic policies protected sports tournament directors from having to pay big prizes to lucky winners who, for example, shot a hole-in-one to win a contest at a golf tournament or made a record-size catch at a fishing contest. "The laws of probability are in our favor," Berkley explained in the March 1987 Money, adding, "Because we insure 100 sports tournaments, for example, it is unlikely we will have to pay off on very many."
Berkley achieved above average returns from his insurance companies during the 1970s and early 1980s. Furthermore, he managed to do so without incurring excessive debt or jeopardizing the financial stability of his companies. The fiscal strength of W.R. Berkley became apparent during the property-casualty industry blowout of the early 1980s. Indeed, many property-casualty insurers suffered huge losses during the downturn because returns from investments soured and claim payments outstripped investment income. Berkley, by contrast, had sacked away large cash reserves in preparation for the downturn. Furthermore, he had wisely invested most of the assets from his companies in conservative, low-risk instruments that were less impacted by stagnant stock markets.
Besides surviving the industry shakeout relatively unscathed, Berkley took advantage of market conditions during the early and mid-1980s. For example, in his typical nonconformist style, Berkley jumped into the commercial truck insurance business during the mid-1980s while most of his competitors were trying to get out. Most commercial truck insurers at the time were suffering heavy losses for a variety of economic and regulatory reasons. Berkley, sensing an upturn in that niche, purchased Carolina Casualty Insurance Co. The market rebounded and the company was able to increase its premium volume by more than 50 percent over a five-year period.
It eventually became clear to investors that, despite Berkley's investment background and skills, the key ingredient to his company's success during the 1970s and 1980s was sound management and operating strategies. While other companies enjoyed temporary bursts of success by making risky boom-and-bust investments, Berkley's prudent business tactics allowed his company to enjoy moderate returns when investment markets were down and big gains when markets were strong. Providing evidence of the company's value-added strategy were a number of innovations that W.R. Berkley had pioneered. For example, the company was one of the first insurers to market a captive risk-retention group to businesses; the "self-insurance" groups effectively enabled companies to handle insurance needs without traditional policies. Berkley was also a pioneer in the field of environmental insurance, which protects companies against liability from accidents such as oil and chemical spills.
By 1986, the sprawling W.R. Berkley Corporation was generating about $400 million in annual revenue, an increase of nearly 100 percent over 1985. Throughout the late 1980s and early 1990s, the company's annual revenue fluctuated between $415 million and $450 million. Profits, however, grew from $7 million in 1985 to $30 million in 1986 before leveling out around a healthy $50 million annually throughout the late 1980s and into the mid-1990s. Those sales and profit figures reflected Berkley's emphasis on steady profitability rather than growth. "Profit is sanity. Volume is vanity," Berkley was quoted as saying in the July 26, 1993 issue of Business Insurance .
W.R. Berkley Corporation has always believed that fulfilling our responsibility to our policyholders is our first and foremost obligation. Financial stability and integrity are among the key reasons why customers choose to do business with us and why investors can be confident in investing in the company. Our long term success is based on how we manage the insurance business as well as our strength of capital and increasing returns to our shareholders. It has always been our vision that in order to accomplish these goals we must adhere to the highest moral and ethical standards in all aspects of our business.
Besides capturing fat profits from his portfolio of more than 20 insurance companies, Berkley became engaged in a number of other businesses that interested him. In 1981, for example, he started National Guardian Corporation, a company that installed and serviced alarm systems. Berkley got the idea to launch the venture after he had an alarm installed in his own home. After trying to start the company from scratch, he decided instead to build it by acquiring his competitors. Between 1983 and 1987, he purchased nearly 100 companies at a cost of about $130 million. By 1987, the company was employing 6,000 workers, generating income of $5.5 million annually, and providing alarm and security guard services throughout the northeastern United States.
In addition to National Guardian, Berkley launched Finevest Services Inc. in 1987. The venture stemmed from Berkley's chance purchase of a dairy company, which got him interested in the food business. Finevest was established as an investment and consulting firm with interests in the food and food distribution industry. Finevest Foods was created in 1987 as a holding company for four food companies that Berkley had purchased since January 1986. By 1988, Finevest Foods was distributing more than 2,200 frozen food products to 18 states. Also during the late 1980s, Berkley fired up Strategic Information Inc. to get in on the booming computer/communications industry. The firm was created to specialize in market research, and Berkley hoped to use the company to support his insurance and food holdings.
Although Berkley tinkered with other business ventures, the W.R. Berkley insurance operations remained the core of his personal empire. In fact, some of his other investments soured during the recession of the late 1980s and early 1990s. Finevest, for example, finally went bankrupt in 1991 and ended up costing Berkley a whopping $20 million. "Financially, it was a great deal of money," Berkley acknowledged in Business Week for September 21, 1992, adding "but that's life." In contrast, W.R. Berkley continued to flourish despite an ugly industry shakeout in the property-casualty insurance business. Indeed, as they had in the late 1970s and early 1980s, many of Berkley's competitors loaded up on risky investments such as real estate and junk bonds in an effort to boost returns. When the bottom fell out of the market, those companies got burned. Berkley, with its conservative investment portfolio and profitable operating strategy, sustained steady revenues and even managed to boost investment income. The result was healthy, relatively constant profitability.
Going into the mid-1990s, W.R. Berkley Corporation was following a strategy of creating new insurance companies and divisions rather than purchasing existing companies. Among other benefits, the strategy was designed to reduce tax liabilities. Berkley was also increasing its emphasis on managed care in the mid-1990s and expanding overseas with planned investments in Central and South America and Asia. Finally, Berkley was stepping up its investments in the reinsurance business. Although net income dipped in 1994, W.R. Berkley continued to outperform the industry average in terms of profitability (excluding investment income). Furthermore, the company boasted a capital surplus far above the government-required minimum and above the industry average, which reflected W.R. Berkley's excellent financial condition. With an estimated net worth approaching $500 million in 1995, Berkley had achieved his youthful goal of becoming one of the wealthiest men in the United States.
Merger activity and turbulent global economies began to change the landscape of the insurance industry in the late 1990s. Sure enough, rumors began to surface that W.R. Berkley was looking for a suitor. After considering its options, the company chose to remain on its own and instead focused on bolstering its holdings. At this time, W.R. Berkley strengthened its reach abroad through a joint venture with Northwestern Mutual Life Insurance Co. The venture launched its first business in Argentina and planned to expand into the Philippines, Brazil, and Uruguay. International expansion was slow and deliberate, however, especially after a major financial crisis hit Asian markets.
An industry downturn led to a fall in earnings in 1998 and a loss in 1999. The company remained steadfast in its strategy to focus on specialty insurance markets that many other insurance companies left alone or were exiting. For example, W.R. Berkley created Preferred Employers Insurance Co. in 1998 to operate in California's workers' compensation market. The new subsidiary targeted small companies that were traditionally ignored by the larger insurance and managed care concerns.
W.R. Berkley's successful business strategy left it on solid ground as it entered the 2000s. It restructured its reinsurance business to focus on excess-of-loss reinsurance and changed the subsidiary's name from Signet Star Reinsurance to Berkley Insurance. It also launched InsurBanc, which offered financial services to existing clients. Not all of W.R. Berkley's ventures during this time period were successful. In 2000, the company announced plans to sell auto insurance through Priceline.com. The deal failed to reach fruition when a slowdown in earnings forced Priceline.com to scrap the deal in early 2001. W.R. Berkley also shuttered its personal lines operations in order to focus on commercial lines.
Despite these minor setbacks, the company remained focus on expansion into specialty markets. Eyeing London as a key growth area, W.R. Berkley purchased a 20.1 percent stake in Kiln plc, a Lloyd's insurer that had experienced significant losses due to the September 11, 2001, terrorist attacks against the United States. In 2003, it launched W.R. Berkley Insurance Europe Ltd. in London to write professional indemnity insurance. It also created Berkley Medical Excess Underwriters LLC to provide medical malpractice excess insurance and reinsurance coverage to hospitals and hospital associations.
During this time, W.R. Berkley stood in an enviable position as market conditions in the property casualty insurance arena remained strong. Net premiums increased from $1.5 billion in 2000 to $3.7 billion in 2003, and in 2004 they climbed to $4.3 billion. Net income also increased by 28 percent that year, reaching an all time high of $4.97 per share. By now, the company was operating as one of the 15 largest commercial lines property casualty insurance writers in the United States.
Regional Property Casualty Insurance; Reinsurance; Specialty Insurance; Alternative Markets; International.
The Allstate Corporation; American International Group Inc.; State Farm Mutual Automobile Insurance Company.
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—update: Christina M. Stansell