Brett Horn: We think W.R. Berkley (WRB) is one of the highest-water names in the insurance industry. Its focus on specialty commercial lines puts a moat around its business, but the company is also very notable for its strict underwriting discipline. When market conditions are favorable, it's very aggressive; when pricing is not right, it pulls back. As a result, it has more leverage to industry conditions than most of its peers. During the last hard market, it earned [returns on equity] in excess of 20%; in the soft market that followed, the returns were barely adequate.
The industry conditions since the financial crisis have generally been soft, but they improved in the last couple of years and we've seen W.R. Berkley grow more active as a result. The stock trades at about $50 right now, which equates to about 1.4 times book value, which is about average for commercial [property-casualty] insurers currently. But we think this is an above-average company. Our fair value estimate is $58, and we think investors right now have an opportunity to buy a very attractive company at a discount.