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A Champ In Casualty

How do you make money in risky property and casualty insurance? W.R. Berkley (BER) CEO William Berkley has an answer: He has moved away from the more risk-prone property policies to focus on casualty -- which has put muscle in Berkley's growth. Berkley has become a big player in underserved fields such as hospital medical malpractice insurance and "excess" workers' compensation. They are generating huge returns, notes Michael Dion of Sandler O'Neill & Partners, which has done business with Berkley. Dion rates the stock a buy. Berkley shares have leaped 38% from their 52-week low of 26 in October to 35.93 on July 6, vs. an 18.21% rise in the Standard & Poor's Mid-Cap Insurance Index. Dion sees the stock at 39 in a year. Malpractice has driven away the major insurers, who seek to avoid paying huge awards juries can grant. But Berkley has jumped in and has been gaining from the vacuum, says Dion. (Berkley avoids insuring individual practitioners.) In workers' comp, Berkley provides coverage above what state regulators require companies to pay in benefits. This so-called excess workers' comp is in big demand in California. Dion figures Berkley will earn $3.95 a share in 2005 and $4.40 in 2006, up from $3.08 in 2004. The strong earnings improvement in the first quarter should continue over the remainder of this year, says Value Line's (VALU) Alan House, who ranks the stock "above-average" in timeliness and technical performance.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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