W.R. Berkley Corp.
Address:
P.O. Box 2518
Greenwich, Connecticut 06836-2518
U.S.A.
Telephone: (203) 629-2880
Fax: (203) 629-3492
Statistics:
Public Company
Incorporated: 1967 as Fine-Vest Services, Inc.
Employees: 2,607
Total Assets: $3.58 billion
Stock Exchanges: NASDAQ
SICs: 6331 Fire, Marine, and Casualty Insurance; 6411 Insurance Agents, Brokers, & Services; 8742 Management Consulting Services
Company History:
W.R. Berkley Corp. is an insurance holding company active in four segments of the industry: regional property casualty; specialty lines; insurance services; and reinsurance. The company operates through numerous specialty and regional subsidiaries located primarily in the midwestern, southwestern, and northeastern United States.
W.R. Berkley Corp. 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 Co., which signed many of the most promising British rock artists of the 1960s. Decca's stock jumped in price from $13 to $42, helping Berkley to become hooked on investing. 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 Corp.
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. But it represented the first of a large portfolio of companies, rather than stocks, that Berkley would accrue during the next twenty years.
Berkley took his company public in 1973 as W.R. Berkley Corp. 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 would reduce expenses by, for example, centralizing data processing tasks. But he would allow each of his companies to operate autonomously in their respective regions. That 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--In a hole-in-one contest at a golf tournament, for instance, or for a record-size catch at a fishing contest. "The laws of probability are in our favor," Berkley explained in the March 1987 Money, adding that "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. And he managed to do so without incurring excessive debt or jeopardizing the financial stability of his companies. The fiscal strength of W.R. Grace 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 W.R. Berkley'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, sound management allowed Berkley 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, W.R. Berkley 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 like oil and chemical spills.
By 1986 the sprawling W.R. Berkley Corp. 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 through 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 quipped in the July 26, 1993 Business Insurance.
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, in fact, 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 the September 21, 1992, Business Week, 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 like 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 steadily boost investment income. The result was healthy, relatively constant profitability.
Going into the mid-1990s, W.R. Berkley Corp. was following a strategy of creating new insurance companies and divisions, rather than purchasing existing companies. The strategy was designed to, among other benefits, 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.
Principal Subsidiaries: Acadia Insurance Company; American West Insurance Company; Continental Western Insurance Company; Firemen's Insurance Company of Washington, D.C.; Habitational Insurance Division; Chesapeake Insurance Division; Great River Insurance Company; Tri-State Insurance Company of Minnesota; Union Insurance Company; Union Standard Insurance Company; Admiral Insurance Company; Monitor Liability Managers, Inc.; Nautilus Insurance Company; Great Divide Insurance Company; Carolina Casualty Insurance Company; Berkley Administrators; Berkley Risk Services, Inc.; Key Risk Management Services, Inc.; Rasmussen Administrators; Berkley Risk Managers, Inc.; All American Agency Facilities, Inc.; Berkley Dean & Company, Inc.; Berkley Information Services; Signet Star Holdings, Inc.; Signet Star Reinsurance Company; Fidelity and Surety Division; Facultative ReSources, Inc.
Further Reading:
Berkley, William R., "W.R. Berkley Corp. Names John J. Kinsella President and CEO of Admiral Insurance Co.," PR Newswire, May 26, 1994.
Bryant, Adam, "Greenwich-Based Firm Hopes Market's Not Cold to Public Stock Offering," Southern Connecticut Business Journal, March 7, 1988, p. 1.
Cone, Edward F., "Boy Wonder Grows Up," Forbes, February 20, 1989, p. 49.
Goodman, Jordan E., and Walter L. Updegrave, "Earnings from Insuring Against a Big Fish," Money, March 1987, p. 8.
Montgomery, Shep, "Great River Forms New Insurance Company," Mississippi Business Journal, March 7, 1994, p. 1.
Porter, John W., "National Guardian Grows at Alarming Rate," Intercorp, November 13, 1987, p. 11.
Schachner, Michael, "Berkley's Strategy Proves a Winner for His Collection of P/C Insurers," Business Insurance, July 26, 1993, p. 1.
Smart, Tim, "William Berkley Had a Hard Act to Follow: Himself," Business Week, September 21, 1992, p. 80.
Source: International Directory of Company Histories, Vol. 15. St. James Press, 1996.
