William Berkley Had A Hard Act To Follow: HimselfTim Smart
By the time William R. Berkley quit the stock-picking business in the 1970s at the tender age of 29, he already had put in more than a decade of successful investing. He took his first plunge at 12, buying stocks with spare money from a lawn-mowing business. He rode Decca Record Co. from $13 to $42, as the company, whose artists included the best of the late-1960s British music, proved as big a hit with investors as it did with young listeners. Later, at Harvard business school, Berkley and a colleague ran a $2 million mutual fund out of a four-bedroom apartment. That grew into their $20 million Berkley Dean & Co., which turned out to be one of the stars of the go-go 1960s. "I don't really have to do anything for the rest of my life," Berkley told BUSINESS WEEK in 1969.
Yet Berkley has since found plenty to do. The precocious teenager and onetime Wall Street wonder boy today is the mellowed 46-year-old chief executive of W.R. Berkley Corp., a group of specialty insurance companies based in Greenwich, Conn., with $1.5 billion in assets. Its operating performance has significantly outpaced industry competitors. And while other insurers are pulling in their horns, Berkley keeps expanding. "He has proven to be among the best capital allocators in the industry," says analyst William L. Yankus at insurance research company Conning & Co.
ZAGACIOUS. In addition to 14% of W. R. Berkley, which he took public in 1973, Berkley owns interests in dozens of other small, noninsurance companies. He is the largest shareholder in BancFlorida Financial Corp., a Naples (Fla.) savings bank, and is chairman of Finevest Foods Inc., a food-distribution company. "Instead of a portfolio of publicly traded stocks, I have a portfolio of businesses," says Berkley.
W.R. Berkley is something of an anomaly. In a bureaucratic, stodgy industry, Berkley's collection of insurers is run by entrepreneurial-minded managers who earn annual returns on equity almost double the 9% industry average of the past decade. Net income in 1991 was $46.6 million, up 29% from the year before. And the company's stock has more than doubled since 1988 (chart).
Berkley's secret is to zag when everyone else is zigging. Take his regional insurance group, which specializes in covering commercial risks in the Great Plains and the Southwest. In the mid-1980s, when other insurers were fleeing commercial trucking because of heavy losses, Berkley jumped in with the purchase of Carolina Casualty Insurance Co. in anticipation of a turn in the market. Sure enough, the company has increased its premium volume 50% in the past five years, to $85.3million.
While many insurers loaded up their investment portfolios with real estate and junk bonds, Berkley stuck with government paper. And although property/casualty insurance prices have been soft for years, his insurers have refused to price risks at a loss, even to the point of losing business. The companies enjoy combined ratios--the amount of a dollar of a premium written in relation to losses and expenses--a few percentage points above the industry average. "We will get an adequate rate ef return in the flat years," says Berkley, "and a terrific return in the accelerating years."
`THAT'S LIFE.' Berkley's touch isn't always golden. He has taken a bath in his 25% investment in BancFlorida. It enjoys the last independent banking franchise in fast-growing Southwest Florida, and Berkley had hoped to sell out to a larger bank. Yet BancFlorida's real estate problems were greater than he anticipated. His interest, which was acquired at $13 a share, now is worth around $9, and the bank owes him some $3 million in deferred dividends. Still, says BancFlorida Chairman Ronnie C. May, Berkley is showing no signs of being a fair-weather investor. Says May: "He made the investment. He has stood by it."
Berkley has had even less luck trying to bail out another loser. He bought Finevest Foods with the hope that it, too, would be a good growth candidate, and he pumped in millions to rescue it. Yet widely fluctuating wholesale milk prices and some bad management decisions forced it into Chapter 11 in 1991. Berkley reckons he personally lost close to $20 million in Finevest, which he is trying to revive as a much smaller company. "Financially, it was a great deal of money," he says. "But that's life."
Berkley can well afford the setback: His holdings in W. R. Berkley alone are worth some $87 million. He also has a pricey collection of American paintings that grace the cover of the company's annual reports and a 40-foot boat for deep-sea fishing off Florida. But Berkley over the past two decades has learned a little more than simply how to make a buck. He left the investment management business because he thought he would be more comfortable controlling his own fate, rather than gambling on the ability of others. Now, he knows it's not that simple: "I found out I was wrong. I don't own the businesses. The businesses own me." That's a lesson that some smart business people never learn.