Pronouncements by analysts about soft casualty insurance pricesare based on inaccurate broker surveys and are overblown, a topinsurer told the Annual Executive Conference for theProperty-Casualty Industry. “The pricing pressure is not as severeas what's being reported,” according to William Berkley, chairmanof W.R. Berkley Corp. “I think we've got a lot of people cryingwolf right now.”

Mr. Berkley directed his “wolf” comments toward V.J. Dowling,managing partner of Hartford-based Dowling & PartnersSecurities, who participated with Mr. Berkley on the opening panelof the 18th Annual Executive Conference for the Property-CasualtyIndustry (owned by National Underwriter's parent company).

In addition to debating the state of the U.S. casualty insurancemarket, industry leaders voiced concern over the existence of taxadvantages for offshore competitors and debated catastrophemanagement solutions, including the benefits and drawbacks ofnon-traditional vehicles such as sidecars.

Mr. Dowling, who didn't specifically claim that prices weresliding, did say he is concerned about “casualty [lines] in generalright now.” He was responding to a question posed by ModeratorPeter Porrino, global director of the insurance industry servicespractice of Ernst & Young in New York, who asked each panelistto identify one significant risk they worry about.

Dan Carmichael, chief executive officer of Ohio Casualty Corp.,responded first, saying he was worried about how soft the marketwill become. “I don't worry much about cat [catastrophe risk]. WhatI do worry about is [whether] the models that we put in place [are]really going to carry us forward,” he said, referring specificallyto multivariate rating programs used in personal lines.

Mr. Dowling followed with a string of comments outlining hisconcerns about the casualty market.

“When London underwriters start telling me they're coming overto get a piece of that nice, stable U.S. casualty business, I getworried,” he said. He went on to identify other factorscontributing to his concerns about casualty lines, including:

o Sarbanes-Oxley pressures to report earnings that are closer toultimate results (with little fat in reserves to buoy futureprofits).

o Short-term thinking on Wall Street.

o Offshore competitors that can write on a tax-advantagedbasis.

o Stable claims trends that may soon turn.

Mr. Berkley responded that Mr. Dowling's reports, published in aweekly analysis known as IBNR Weekly, “refer to broker surveys withan awesome level of confidence.”

“Ninety-five percent of all statistics are made up,” contendsthe CEO of Greenwich, Conn.-based W.R. Berkley, speculating on howthe figures in broker surveys are obtained. If you call a broker ona day when he just lost a piece of business to a company charging20 percent lower rates, and ask that broker how rates are holdingup, he'll say the market is “terrible,” Mr. Berkley related.

“If they bothered to ask companies, they'd find, in general,they're not so terrible,” he said–adding, however, that there issome pricing pressure on large casualty risks.

He likened the situation in the market today to conditions thatexisted in 1988. “I thought I saw this terrible pricing pressureand stopped…growing,” he said, listing this as “the stupidestthing” he'd ever done.

Mr. Dowling said that while he also had concerns with brokersurveys, “they are directionally correct” and in line with insurersurveys showing the same downward trend in prices.

Even if rates are only down a couple of points, “what happens ifwe get loss costs going [up]?” he asked. A high-80s combined ratiocan get to breakeven “pretty quickly with a few points of ratereduction and some underlying loss cost inflation,” he said.

Later, Edmund Kelly, chairman, president and CEO of Boston-basedLiberty Mutual, delivering the keynote address, listed his own setof concerns about the industry, among them the current level ofcapital and its potential impact.

While there is some downward pressure on prices, surprisingly itis “benign right now,” competitive behavior is “not too bad,” andmarket prices remain “acceptable,” Mr. Kelly said.

“I am concerned, however, that… history will repeat itself. Ihave no reason to believe that the industry will be any better inthis cycle than it was in the last cycle,” he said, adding that theindustry behaves “like an alcoholic that is cured until he passesthe next bar.”

Excess capital “will undoubtedly trigger undisciplined pricingand unreasonable competition,” he said.

Mr. Berkley, when asked to identify the most worrisome risk,spoke not about the level of capital, but the potentially temporarynature of funds coming from sidecars and other arrangements thatare not classic insurance vehicles.

Noting that some companies are “betting their survival” on newentities backed by lengthy contracts, Mr. Berkley asked: “How willthose 65-to-70 page documents play out if something goeswrong?”

“I'm uncomfortable when I have to rely on a long document,” hesaid. While there will be places to use them, “I don't think we'vefigured out yet…what happens for a second or third event, theunexpected event or unanticipated type of loss,” he said.

Joseph Brown, non-executive chairman of Seattle-based Safeco andexecutive chair of Armonk, N.Y.-based MBIA, countered that the newvehicles have some positive consequences. “They are bringingcapital market efficiencies to other players in the market,” hesaid. “You don't have to use them directly for them to have aneffect,” he added–suggesting, for example, that their existenceeats into the profits of some reinsurance behemoths such asBerkshire's National Indemnity, and is “keeping the market honestin terms of capital returns.”

While Mr. Brown noted the ability of capital to move in at anaccelerated pace–potentially shortening the length of the insurancecycle–Mr. Berkley posed questions about how quickly such capitalwill move out. “What happens when the first event happens andyou've used up your financial transaction, and those players don'twant to come back in? A second event happens and you're naked,” hesaid.

In spite of the speed of capital coming in, Mr. Carmichael notedthere's still a significant shortfall in Florida, which opens thedoor for the government to come into the insurance business. At thesame time, some large companies that “overwrote” in cat-prone areasare asking for government help, he added, referring to calls byAllstate for a national catastrophe fund.

Mr. Brown and Mr. Dowling both pointed out that some companiesare turning to financial vehicles for event-specific coverage tosatisfy more stringent rating agency models.

“By their models, the rating agencies are engaging in somepretty heavy-duty social engineering,” Mr. Brown added. He saidrating agency model changes have “essentially put target zones incertain states in situations where they no longer can support theirown cat exposures.”

“That's what's being dramatized by these vehicles,” he said,adding that it has also fueled calls for assistance–such as onefrom outgoing California insurance commissioner John Garamendi atthe same conference last year, asking for help from other states tohandle earthquake exposure.

Another area of concern discussed by the panel was the fact thatcompetitors in the foreign markets–particularly those inBermuda–have a competitive advantage over U.S. companies becausethey don't pay the same level of taxes.

“My goal is to get those guys to pay their fair share of taxes.It's my number one compensation goal for 2007,” Mr. Berkley said,directing his comments to “everyone who owns stock in a Bermudacompany.”

Mr. Berkley reported that a foreign competitor that wrote asimilar amount of U.S. commercial business last year paid only $19million in taxes, while W.R. Berkley paid $260 million.

He said making his case that foreign counterparts should paycomparable tax amounts won't be a hard sell in Washington.Seemingly outlining his pitch to federal lawmakers, he saidcompanies in Bermuda and other offshore locations can outsourcetheir processing jobs to places like India, leaving no businesshere beyond shell companies collecting U.S. dollars.

At a later session, Edward Noonan, chairman of Bermuda-basedValidus Reinsurance, responded, saying that “Bermuda plays a vitalrole in financing American risk competitors,” and that Bermuda hasits own local tax regime.

Changing tax rules to create a more level playing field, hesaid, would “only increase the cost of risk to the United States,”adding that U.S. companies “would be hard-pressed to deliverBermuda capacity.”

Another Bermuda player, John Charman, CEO of Axis Capital, said:“We are where the capital wants us to be.”

However, at a separate meeting in New York last week, a BermudaCEO warned that if Mr. Berkley succeeds in convincing federallawmakers to levy U.S. taxes on Bermuda insurers, “a lot of peoplewill suffer.”

Accusing Mr. Berkley of “Bermuda-trashing” and building onmisperceptions about the Bermuda market, Donald Kramer, chairmanand CEO of Bermuda-based Ariel Reinsurance, said: “I don't know howhe forgot or ignored the fact that $22 billion in claims was paidand sent back to the United States following the storms of 2005″ byBermuda companies.

Mr. Kramer said he was directly responding to a remark Mr.Berkley made during the Credit Suisse First Boston conference onNov. 17. The remark, which Mr. Kramer quoted verbatim, was: “'Mygoal is to level the playing field so those free riders in Bermudadon't get to suck our money out and give us nothing back.'”

“Boy, that was really hostile,” Mr. Kramer said during hiskeynote speech at a joint luncheon of the Association ofProfessional Insurance Women and the Insurance Brokers Associationof the State of New York.

At the Credit Suisse conference, Mr. Berkley said he had alreadyset up meetings with Congressman Charles Rangel, D-New York,Senator Max Baucus, D-Montana, and five other Senate and Houseleaders. Noting that his company has been working on a draft billto present to the lawmakers, he said, “We're going to hand it tothem. My first meeting is Monday.”

Characterizing Mr. Berkley's view as “myopic,” Mr. Kramer tooknote of other remarks Mr. Berkley made during the Credit Suisseconference, explaining why his company is not in the catastrophebusiness.

“We haven't found ways to get appropriate risk-adjustedreturns,” Mr. Berkley said. “If we're going to accept volatility,we want to be paid.”

Mr. Kramer responded: “Bermuda accepts 50 percent of the world'scat business at those unattractive risk-adjusted returns. It standsto reason that if you accept [Mr. Berkley's] premise for notwriting the business, then premiums sent to Bermuda aretransferring risk on very favorable terms. That doesn't square with[the] comment that we're free riders.”

If the Democratic Congress isn't smart enough to ignore Mr.Berkley's proposal, then lawmakers will be “choking off the supplyof property reinsurance, which Mr. Berkley himself won't write[and] a lot of people will suffer,” he said, noting later that boththe Florida insurance commissioner and Gov. Jeb Bush made trips toBermuda because of property insurance issues in their state.