This article was sent to me by one of our reps at Berkely. It looks like Insurance pricing could increase in the coming months..
The head of W.R. Berkley Corp. said he sees an end in sight to the current soft market that’s affecting most of the industry. “I’ve always said to people my expectation is that prices will start to go up in the fourth quarter,” Chairman and Chief Executive Officer William R. Berkley said in an earnings conference call in which the company announced a slight drop in third-quarter net income to $94 million from $98 million.
“When will people’s state of mind and reality become aligned? Interest rates and investment income are down, the combined ratio in the industry is 110,” he said, noting it’s clear insurers are losing money on low pricing. “There will be modest price increases beginning in the fourth quarter. We’re starting to see positive signs.”
Things would be done no differently at W.R. Berkley, however, if rates increased in this year’s fourth quarter or next year’s, he stressed.
It’s unclear “what condition everyone’s reserves are in,” he said, noting historically, Berkley has an eight to 10 point better loss ratio than its competitors, “and we’re booking six points worse, which is a 14-point spread. Either we’ve gotten stupider, or people are understating their loss spreads. Those are going to be very large reserve deficiencies.”
Berkley posted a 1.7% jump in net premiums written, to $986.7 million from $969.3 million. Total revenue increased 4% to $1.18 billion from $1.14 billion.
Berkley is a leading advocate for the Coalition for a Domestic Insurance Industry, which says foreign companies are taking advantage of a loophole by shipping much of their premium revenue off to their own affiliated reinsurers in places with lighter tax loads (BestWire, May 20, 2010).
He addressed his company’s future if attempts at legislative change fail. “Ultimately we can’t survive in this marketplace if the law doesn’t change. We will have to find a way to redomicile outside of the U.S.,” he said. “The economics are overwhelming. It’s hard for me to believe Congress is not going to understand virtually all U.S. reinsurers have already left. It’s the problems you face that if you generate revenue in this country, you can’t be domiciled here. We’ve been battling (the issue) for four years and have not got much traction.”
One proposal, HR 3424, a bill in the U.S. House of Representatives sponsored by Rep. Richard Neal, D-Mass., seeks to limit the tax deductibility of reinsurance premiums paid by U.S.-based, foreign-owned insurers to non-U.S.-based affiliates (BestWire, Oct. 4, 2010).
The company’s weather-related activity differs from many other companies in that it has substantial Midwestern business, which typically sees hail and tornado losses, he noted. “There isn’t necessarily a named storm; a hailstorm in Witchita could cost us multimillions of dollars.” The company saw third-quarter catastrophe losses fall to $22 million from $23 million.
The workers’ compensation market is seeing a better pricing environment, despite a troubling development, he said. “It’s competitive and it seems to have bottomed out. We’re cautiously optimistic at the moment we’re particularly concerned because a number of players have entered the excess workers’ comp market that is particularly competitive at the moment.” The California workers’ compensation market has been improving, despite political turmoil, he added. “California has more turmoil than any other state, always.”
