NU Online News Service, July 28, 2:57 p.m. EDT
William R. Berkley, chairman and chief executive of W.R. Berkley Corp., said he believes earning conditions within the insurance industry point to inevitable price increases occurring by the end of this year or the beginning of 2010.
For the second quarter, the company reported its net income rose 21 percent, or $17 million, to $97 million. That translated into earnings per share of 59 cents compared to 46 cents a share for the prior quarter.
Speaking to financial analysts during a conference call to discuss the Greenwich, Conn.-based company's second-quarter earnings, Mr. Berkley predicted that conditions are set for a hard market and his company is already seeing signs of increases.
"This is the first time we are seeing more increases in areas than not," said Mr. Berkley, saying June rates increased 0.2 percent, the first time the company as a whole has seen increases since as far back as 2005.
He said there is little doubt prices will be up further before the end of the year.
The most disciplined companies are beginning to turn down high risks and are raising prices as they begin to seek underwriting profit, Mr. Berkley related.
"You can't live on release of prior year reserves," he said. "There are many companies that are still disciplined and doing the right thing that are looking at reality and behaving appropriately. Unfortunately, there are many that are still not."
He said volume is down the most in business where the company is aggressively raising prices. "That's just the way life is," he remarked. "We are prepared for that."
He said there will be some event to turn the market hard, which could be a rating agency downgrade, adding that because of their failure to foresee the problems with the surety businesses the rating agencies will have to get tougher with marginal insurers.
Mr. Berkley and other executives also noted that standard line insurers are beginning to back away from business that traditionally belongs to excess and surplus lines. They are realizing these risks are underpriced and not properly underwritten, meaning that many of the standard lines that were "absurdly aggressive," as one executive put it, are now exiting the business.
"The standard market is no longer eating into the [excess and surplus lines] market," said an executive.
Berkley's net premiums written for the quarter declined 8 percent, or $83 million, to $909 million. Total revenues rose 4 percent, or $44 million, to $1.16 billion. Combined ratio rose 2 points for the quarter to 95.3.
Net income for the first half of the year was down 71 percent compared to the same period last year, or $192 million, to $77 million. Earnings per share stood at 46 cents compared to $1.50. Net premium written was down 10 percent, or $217 million, to $1.9 billion. Total revenues dropped 18 percent, or $456 million to $2.12 billion. The combined ratio was up 2.7 points to 94.6.
"We are pretty pleased with the way things are going," said Mr. Berkley, adding that the company is more optimistic than it was six months ago.
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