Reason for Report: 1Q13 Earnings Results

June 5, 2013

W. R. Berkley Corporation (WRB-NYSE) $43.79*

Note: This report contains substantially new material. Subsequent reports will have changes highlighted.

Previous Edition: 4Q12 and FY12 Earnings Update, Mar 1, 2013 (brokers’ material considered till Feb 6, 2013).

Brokers’ Recommendations: Neutral: 66.7% (6 firms); Positive: 22.2% (2); Negative: 11.1% (1) Prev. Ed.: 8; 1; 1

Brokers’ Target Price: $44.29 (↑ $2.58 from the last edition; 7 firms) Brokers’ Avg. Expected Return: 1.1%

*NOTE: Though dated Jun 5, 2013; the share price and broker material are as of Apr 29, 2013.

NOTE: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the Valuation table and PMES section. The extra figures in the Valuation table and PMES section come from reports that did not have accompanying spreadsheet models

A Flash update on 1Q13 Earnings was done on April 23

Portfolio Manager Executive

W. R. Berkley Corporation is a specialty property casualty commercial lines insurer/reinsurer. The company has a decentralized structure, with each of its operating units focused on a niche market requiring specialized knowledge about a territory or product. The company’s primary sources of revenue and earnings are insurance and investments.

Almost 67% of the firms in the Digest group covering the stock had a cautious outlook while 22% has a bullish stance. Only 11% had a negative outlook. Of the 9 firms covering the stock, 7 provided target prices ranging from $40.00 (8.6% downside from current price) to $48.00 (9.6% upside the current price).

Neutral or equivalent outlook – 6/9 firms or 66.7% – The firms note that the soft pricing in the property and casualty marketplace has made it difficult for Berkley to generate solid underwriting results. The other component of revenues, that is investment income, is also facing headwinds given the prolonged low interest rate environment. Moreover, declining reserves along with rising loss costs are some of the headwinds faced by the company, which will act as an impediment to achieve return on equity targeted rate of 15%.

Firms, however, note that Berkley's underwriting performance had again and again outperformed the industry and the company has been one of the top property and casualty insurers in terms of building shareholder value, which longer-term investors may find attractive.

Buy or equivalent outlook –2/9 firms or 22.2% – These firms note that rates have increased for the past many quarters. This trend is expected to drive underwriting margin improvement as increases flow into earned premiums, offsetting the effect of fading reserve releases.

These firms noted that most of the newly established units generated premium growth in the quarter, indicative of broad-based expansion throughout the company. As pricing trends stay in the positive

© Copyright 2013, Zacks Investment Research. All Rights Reserved. territory and its relatively newer units gain momentum, they expect Berkley’s top-line growth trends outshine the industry’s level in 2013.

Firms also view favorably the company’s efforts in continuing with new business addition at a time when its peers are finding it difficult to grow top line earnings.

According to the firms, Berkley’s decentralized business model has shielded the company in the current soft insurance environment. The company qualifies as a disciplined underwriter, has niche focus in its business areas, enjoys high retention rates and has successfully managed most of the newly start up ventures.

Firms view Berkley’s expanding international business as a positive differentiator compared with its peers. The international market particularly Australia, and emerging markets of Latin America and the Far East, will be the biggest contributor to the segment’s earnings.

Berkley’s strong capital position makes it possible to make steady share repurchases as well as occasional acquisition. The firms believe that the company’s follows a good reserving practice. Berkley has been posting positive reserve release for the past several quarters in a row.

Negative or equivalent outlook – 1/9 firms or 11% – The firm remain concerned with the low interest rate environment, which is expected to continue through 2014, and will pressurize the investment income as funds get reinvested at lower yields.

It also remains concerned with the lower amount of reserve development in long tailed lines. The firm believes that the reserve shortfall may prove to be a drag preventing the company from producing earnings results in excess of the peer group’s performance.

June 5, 201313

Overview

Key investment considerations, as identified by the analysts, are as follows:

Key Positive Arguments Key Negative Arguments  A big proportion of the company’s growth is  Difficult investment environment due to low coming from Berkley’s international unit. The interest rate, which is offering low yields. expansion of its international platform into  Soft P&C market is keeping premium growth emerging market will fuel long tern growth. under pressure.  Berkley’s new business units, which have been in  Balance sheet has less cushion than peers the works since 2006, are continuing to generate (higher debt/cap, less reserve redundancy, higher business. underwriting leverage), which limits the ability to  A strong capital position makes it possible for the prevent ROE deterioration. company to make steady share repurchases as well as occasional acquisitions, and should make way for capital deployment at the start of the upcoming hard market.  W.R. Berkley scores strongly with credit rating agencies.  The company assumes little catastrophe risk and has virtually no subprime exposure.

Zacks Investment Research Page 2 www.zackspro.com W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates in three business segments: Insurance-Domestic, Insurance- International and Reinsurance-Global.

The company has a decentralized structure, with each of its operating units focused on a niche market requiring specialized knowledge about a territory or product. The company’s primary sources of revenue and earnings are insurance and investments.

For more information on the company, please visit www.wrberkley.com.

Note: The company’s fiscal year ends on December 31.

June 5, 201313

Long-Term Growth

W.R. Berkley is one of the few property and casualty companies that have been able to grow despite the soft insurance market. The company has seen most of the growth coming from new units. Berkley has started a number of new units since 2005. Apart from the start-up units, a big proportion of the growth is also coming from W.R. Berkley’s international unit, which constitutes a small portion of the company’s total premium. The company’s exposure to the international markets is much less as compared to that of its competitors. The firms view that the company’s ongoing international expansion, especially in emerging economies, will fuel long term earnings growth.

However, the present market conditions remain difficult for W.R. Berkley as management is yet to see the turn in pricing cycle it has long expected for. While pricing trends are gradually reversing, the firms think the substantial excess capital position, present across the industry despite the huge cat loss incurred during 2011, could result into a firming rate environment. But, the firms also think that when the prices improve materially, the company will be able to achieve fast paced growth because of the new talent bought in since 2006.

The firms continue to think that Berkley’s reserving practices have been quite conservative, which has made it possible for the company to continue delivering solid reserve releases throughout the year. They think the company is taking a more conservative approach towards setting loss picks compared with some of its peers. This practice will help the company to withstand the situation better than its peers, if in case, casualty frequency or severity trends worsen materially in the years ahead.

June 5, 201313

Target Price/Valuation

Rating Distribution Positive Ratings 22.2%↑ Neutral Ratings 66.7%↓ Negative Ratings 11.1%↑ Maximum Target Price $48.00↑ Minimum Target Price $40.00↑ Average Target Price $44.29↑ Number of Analysts with Target 7/9 Price/Total

Zacks Investment Research Page 3 www.zackspro.com Risks to the target price include faster-than-expected increase in competition, reserve adequacy, a rapid rise in liability claims costs, an acquisition that investors respond poorly to, a spike in interest rates, pressure on the company’s arbitrage account and changes in workers’ compensation claims patterns or regulatory environment.

Recent Events

On Apr 23, 2013, W.R. Berkley Corp. reported first-quarter core operating earnings of $0.74 per share, in line with the Zacks Consensus Estimate. The company reported earnings beat came on the back of higher premium written, pricing gains and a lower share count. Earnings inched up by 1.4% year over year.

On a GAAP basis, net income declined surged 12% year over year to $0.83 per share.

Revenue, in the quarter, came in at $1.50 billion, up 9.3% year over year. The year-over-year increase was attributable to higher premiums earned, insurance fee service and higher income from wholly owned investees.

Book value per share, a measure of net worth, increased to $32.19 per share from $31.66, at the end of 2012. Return on equity decreased to 10.8% from 13.7% in the year- ago quarter.

Revenue

Revenue, in 1Q13 came in at $1.50 billion, up 9.3% year over year. The year-over-year increase was attributable to higher premiums earned, insurance fee service and higher income from wholly owned investees.

Provided below is a summary of total revenue as compiled by the Zacks Digest:

Total Revenue 1Q12A 4Q12A 1Q13A 2Q13E 2012A 2013E 2014E ($ in M) Digest Average $1,303.4 $1,464.8 $1,475.8 $1,497.6 $5,535.9 $6,077.1↑ $6,627.0↓ Digest High $1,303.7 $1,465.3 $1,475.9 $1,497.6 $5,536.8 $6,077.1↓ $6,627.0↓ Digest Low $1,303.2 $1,462.1 $1,475.8 $1,497.6 $5,535.1 $6,077.1↑ $6,627.0↑ Y/Y Growth 9.5% 10.0% 13.2% 10.5% 10.3% 9.8%↑ 9.0%↓ Sequential Growth -2.1% 3.8% 0.8% 1.5%

W.R. Berkley’s net written premium for 1Q13 was approximately $1.38 billion, an increase of 14.4% year over year. The company saw broad-based growth with each of its operating segments reporting higher premium.

Net investment income was $135.9 million in 1Q13, down 13.8% year over year

Zacks Investment Research Page 4 www.zackspro.com Provided below is a summary of revenue components as compiled by the Zacks Digest:

Revenue Components 1Q12A 4Q12A 1Q13A 2Q13E 2012A 2013E 2014E ($ in M) Net Premium Earned $1,099.7 $1,240.0 $1,232.1 $1,285.9 $4,673.5 $5,202.1↑ $5,660.9↓ Net Investment Income $129.8 $124.8 $125.0 $125.2 $508.7 $509.2↑ $525.9↑ Service Fees $23.9 $26.0 $26.7 $26.0 $103.1 $103.7↓ $101.6↓ Revenues from wholly-owned investees $49.7 $73.9 $91.7 $60.0 $247.1 $271.7↑ $240.0↓ Other Income/Expenses $0.4 $0.4 $0.3 $0.5 $2.6 $1.8↓ $2.0↓ Total Revenue $1,303.4 $1,464.8 $1,475.8 $1,497.6 $5,535.9 $6,077.1↑ $6,627.0↓

The graphical representation of gross revenue components is given below:

Revenue Components - 2012A Revenue Components - 2013E Net Premium Earned Net Premium Earned 2% 2% 5%0% 5%0% 8% 9% Net Investment Net Investment Income Income

Service Fees Service Fees

Revenues from Revenues from wholly-owned wholly-owned investees investees 84% Other 85% Other Income/Expenses Income/Expenses

Revenue Components - 2014E Net Premium Earned 1% 4%0% 8% Net Investment Income

Service Fees

Revenues from wholly-owned investees 87% Other Income/Expenses

Segment Results

Insurance-Domestic

Net premiums written increased11.7% year over year to $986.2 million.

International

Net premiums written climbed 22.0% year over year to $205.1 million.

Zacks Investment Research Page 5 www.zackspro.com Reinsurance-Global

The segment reported a 22% increase in net premiums written to $185.7 million in the quarter.

Please refer to the Zacks Research Digest spreadsheet on the company for more details.

Margins/Combined Ratio

As per Zacks Digest model, pretax operating margin came in at 9.5%, down from 10.7% in 1Q12. Net operating margin of 7.0% in 1Q13 remained, down 8.0% in 1Q12.

Provided below is the summary of margins as compiled by Zacks Research Digest:

Margins 1Q12A 4Q12A 1Q13A 2Q13E 2012A 2013E 2014E

Pretax Operating Margin 10.7% 7.9% 9.5% NA 8.9% 8.6%↓ 8.7%↑ Net Operating Margin 8.0% 6.2% 7.0% NA 6.8% 7.1%↑ 7.0%↑

W.R. Berkley recorded a combined ratio of 94.7%, better than 96.5% reported in the prior-year quarter.

Segment Details

Domestic Insurance: Combined ratio improved 60 basis points to 95.5% in the quarter.

International: Combined ratio improved 380 basis points year-over-year to 93.8%.

Global Reinsurance: Combined ratio improved 650 basis points year-over-year to 91.3%.

Outlook

As per the Zacks Digest model, total operating expense is expected to increase at a slightly lower rate than growth in total revenue in 2013 and 2014. Operating margin is expected to contact in both the years.

Earnings per Share

1Q13 core operating earnings came in at $0.74 per share, in line with the Zacks Consensus Estimate. The company reported earnings beat came on the back of higher premium written, pricing gains and a lower share count. Earnings inched up by 1.4% year over year.

On a GAAP basis, net income declined surged 12% year over year to $0.83 per share.

Zacks Investment Research Page 6 www.zackspro.com Provided below is the summary of EPS as compiled by Zacks Research Digest:

EPS ( $) 1Q12A 4Q12A 1Q13A 2Q13E 2012A 2013E 2014E

Digest High $0.73 $0.64 $0.74 $0.69 $2.63 $3.05↑ $3.30 Digest Low $0.73 $0.64 $0.74 $0.69 $2.61 $2.95↑ $3.30↑ Digest Avg. $0.73 $0.64 $0.74 $0.69 $2.61 $3.00↑ $3.30↑ YoY Growth 10.5% 10.3% 1.5% 6.3% 22.1% 14.7%↑ 10.0%↑ Sequential Growth 25.9% 4.9% 15.8% -6.7%

Highlights from the EPS chart are as follows:

 2013 forecasts (total 2) range from $2.95 to $3.05; the average is $3.00.  2014 forecasts is $3.30

Outlook

As per the Zacks Digest model, analysts expect the share count to decrease 1.4% y/y to 141.0 million by the end of FY13, followed by a decrease of 1.4% y/y to 139.0 million by the end of FY14. This represents a three-year negative CAGR of 1.6% on FY11 shares outstanding.

As per the Zacks Digest model, 2014 EPS estimate is expected to grow at a three-year CAGR of 15.5% driven by a 14.2% CAGR projected for net income and negative CAGR of 1.6% on FY11 shares outstanding.

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Zacks Investment Research Page 7 www.zackspro.com