Insurance Rate Hikes Arriving Faster Than Expected, Berkley Reports

The insurer said net loss was largely attributable to investment activities–with $115 million of losses from investment funds (primarily real estate and energy funds) and realized losses (including other than temporary impairment charges) of $97 million hitting the bottom line.

Insurance activities resulted in an overall underwriting profit, with the company posting a 93.7 combined ratio overall in the quarter, on $1 billion of net written premiums.

Commenting on market trends, Mr. Berkley said that pricing is "changing a bit more quickly than we anticipated," noting that while he had previously predicted a fourth-quarter turn, some lines had already moved into positive pricing territory in the first quarter.

W.R. Berkley's pricing was down only about 1.5 percent for the quarter overall, and "by the time we got to the end of the quarter, pricing was better than that," he reported, noting, for example, that March pricing was better than February.

"We are more confident than ever that the cycle is turning" and that pricing is going to move up to adequate levels, he said. The big issue is "how sharply pricing will turn" beyond that.

"The question is will we get fabulously better returns or just very good returns," he said, suggesting later in the call that an 8-10 percent hike in insurance prices across all commercial casualty lines was more likely than something in the 15-20 percent range that he would like to be predicting.

In spite of improving pricing trends, and in spite of Mr. Berkley's perception that customers and "serious agents" are paying more attention to the need to buy insurance from a company that's going to be around to pay claims, the company saw its net premium volume drop 11.6 percent, with the specialty and reinsurance segments posting the bulk of the declines.

Reduced exposures to insure resulting from weak overall economic conditions and from continued competition from "major" insurance companies willing to write some of the business at less than adequate rates were factors Mr. Berkley pointed to in order to explain the premium decline.

"We have lost a fair amount of business" in industries seriously impacted by economic pressures, he said, highlighting construction, where firms have gone out of business, and trucking, where clients are particularly price conscious.

"To survive, truckers–especially marginal truckers–have to push hard on pricing," he said. W.R. Berkley is "going to lose the business, because they have to buy the cheapest," he said, noting that truckers would counter arguments that they have to worry about putting their insurance with stable insurers with simple business logic.

They have to be on the road to have a claim in the first place, he said, explaining the counterargument. "We can't be on the road without insurance. We'll tell our drivers to drive carefully" and buy the cheapest insurance, he said.

Referring to the announcement that W.R. Berkley's Syndicate 1967 has been approved to commence underwriting on June 1, Mr. Berkley said the first two lines the syndicate will write are property and accident business.