NU Online News Service, Dec. 7, 1:00 p.m.EST

The insurance industry is now “definitively in a hardeningmarket,” according to W.R. Berkley CEO William R. Berkley.

Speaking at the Goldman Sachs US Financial Services Conference2011, Berkley says, “We're just at the beginning of priceincreases.”

He adds, “Two and a half years ago, I thought the cycle wasgoing to change because I expected [American International Group]not to get the degree of help from the government that it did. Iwas incorrect. The government, as we all know, effectively bailedout AIG, which delayed the inevitable.”

Berkley says the assistance allowed AIG to cut prices, and it“held the market in check,” preventing widespread rateincreases.

But the tide is turning, he notes. Berkley recallsthat at the beginning of the year he said he expected pricesto increase by 5 to 8 percent by the end of the year. He stillexpects that to be the case, “but we're really just at thebeginning of that happening.”

Aside from prices hardening, Berkley says terms and conditionsare changing, allowing business written to become moreprofitable.

Noting the current industry struggles, Berkley says theindustry's combined ratio is currently at about 110. “When you lookat those lines, if you have a 2 percent return, it's really hard–infact almost impossible–to have any consequential return oncapital.

“Even at a 4 percent new-money yield, it's really hard to havean adequate return. At a 6 percent return, today at a 110 [combinedratio], you're not getting very much return. And at 8 percent,which obviously is far from where we are, today, even then, you'rebarely getting where you need to be.

“So the industry is in tough shape,” Berkley says. He notesthat, for the most part, companies are not making profits otherthan what they carry forward from prior years.

However, as bad as conditions appear, opportunities exist forcompanies that positioned themselves well during the soft-marketcycle.

Berkley says the key is to time a company's growth with a marketturn, when business is available at increased prices. At thosetimes, he says, business is available and no one else wants towrite it because fear replaces greed as the market hardens. Crucialto this, he says, is building a strong foundation to allow thecompany to move ahead at the right times. This involves building astrong balance sheet, Berkley says, adding that companies get intotrouble through inadequate loss reserves.

Understanding how to take advantage of cycles and payingattention to signs in the marketplace are cornerstones ofsucceeding and surviving, Berkley says. “You have to optimize yourgrowth when prices are best,” and deliver great service so thecompany does not have to compete entirely on price when the marketchanges, he says.

Speaking for his company, Berkley says: “When everyone else isafraid, we're greedy. When everyone else is greedy, we'reafraid.”

Audio from Berkley's presentation is available at the company'sWeb site. Awritten transcript is also available from Seeking Alpha.