W.R. Berkley: Cycle Turning Despite Undisciplined Writers in the Market
Posted on: Tue, 09 Feb 2010 12:26:21 EST
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There are always going to be "stupid people who do stupid things" in the marketplace but W.R. Berkley Corp. continues to focus on managing its business and capital account for shareholders. That means sacrificing premiums for the sake of discipline, said William R. Berkley, chairman and chief executive officer.
Berkley spoke during a conference call to discuss the corporation's fourth-quarter $134 million net -- more than triple its $40 million in the prior year. During the fourth quarter, net premiums written were down 7%. They were down 7.5% for the year, as W.R. Berkley is "not chasing irrationally priced business," said W. Robert Berkley Jr., president and chief operating officer.
The chief executive said he continues to see new competitors entering the market, attempting to seize market share and "grow where they don't have experience."
"There are a few idiots...there are always going to be," Berkley said. The good news, he said, is that many of these companies do not have a lot of capacity, so they use it up and then exit the market. In addition, the rate of new entrants into the market has slowed because there is no reinsurance capacity to let them jump in, Berkley said.
Prices are flat, maybe slightly up, said Berkley, but he expects prices to increase 8% to 10% by year-end 2010. The pricing cycle will turn slowly with the lack of a dramatic crisis to tighten the market quicker, he said. Financial problems experienced by other insurers could have provided that crisis but "the government stepped in and sandbagged those dikes," he said.
The company is using different rates of inflation to determine premiums in its different lines of business, because it affects each in a specific manner, said Berkley, who said he's anticipating an overall rate of inflation of 3%. The corporation's exposure to inflation "is down the road at higher than 3.5%," he said.
In the fourth quarter, investment income rose 24%. The combined ratio for the fourth quarter was 92.6, unchanged from the fourth quarter in 2008, said Eugene G. Ballard, chief financial officer.
Berkley Insurance Group currently has a Best's Financial Strength Rating of A+ (Superior).
In morning trading on Feb. 9, shares of W.R. Berkley Corp. (NYSE: WRB) stock were selling at $24.76, up 2.19% from the previous close.
(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)
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