NEW YORK—Warren Buffet’s Berkshire Hathaway is in the commercialmarket for the long haul, despite new capital potentially dampeningthe momentum of rate increases.

Peter Eastwood, president of Berkshire Hathaway SpecialtyInsurance, says the influx of alternative capital in the form ofcatastrophe bonds and sidecars, as examples, has a “marketcycle-dampening effect,” and he doesn’t expect the types of dipsand spikes in rates associated with prior market cycles.

"That's sort of the way the industry is going to work on agoing-forward basis," says Eastwood, sitting in as part of an panelof executive at the Advisen Property Insights Conference June11.

Eastwood is part of the new capacity into the marketplace,having left AIG with executives David Bresnahan, Sanjay Godhwaniand David Fields to join Berkshire. He says it was Godhwani who“convinced” Buffett’s insurance lieutenant, Ajit Jain, that despitethe above dynamic, the executives could lead an operation to takeadvantage of Berkshire’s “tremendous balance sheet” in a more“permanent, long-term-focused way”—providing underwriting returns,and investment returns on what Buffett terms “float”—the pool ofpremiums held before paying claims.

Eastwood says the new unit will focus to start on E&S lines,catastrophe-exposed property especially, and has alreadywritten a “good amount of business.” BHSI has also receivedpositive responses from brokers, he adds. The unit has severaldozen new employees, and will continue to hire, he says.

Some on the panel wondered if the alternative capital wouldlast. Would investors bolt if there was a big market loss?

Paul McNamee, president of property and specialty linesinsurance for Ace North America, says a large industry loss-eventmight not scare off new capital sources, but a rise in interestrates and inflation could. Think about a 1-2 percent hit toreserves due to inflation, he says. “That could dwarf a $100billion market loss.”

Listed with Berkshire as a new market, McNamee mentions Chinacarriers, who are writing much more in the U.S.

“Chinese markets are moving in,” concurs Vic Krauze, CEO ofWillis North America. He says the Chinese are also lessopportunistic, long-term players in the marketplace.