W.R. Berkley: ‘Stupid’ Companies May Not Be Able to Make Hard Turn

Declaring that a turn to a hard-market cycle is more visible, the chief executive of W.R. Berkley Corp. said he's willing to bet there are carriers that are in for major trouble because they are being “stupid” and not increasing rates fast enough.

“Hard markets always start this way, and then something happens” that leads to “dire financial difficulties,” William R. Berkley, the CEO of the Greenwich, Conn.-based insurer, said during a conference call to discuss first-quarter earnings.

The “something” happens when companies have to begin to pay for their underpriced past. It occurs every time the market begins an upward cycle, he explained.

“It happened to AIG [American International Group], but AIG got bailed out by the government,” Berkley said. “Look at all the billions of dollars of deficiencies they had to make up for.”

First-quarter net income is up about 17 percent from the same period last year at W.R. Berkley Corp. as average rates on renewed policies increased 6.5 percent. The commercial insurer reports net income of $135 million during the first three months of 2012 compared to about $116 million during the same period in 2011.

For the first time in several years, W.R. Berkley saw rate increases in back-to-back quarters, the company says. Increases at renewal in the fourth quarter of 2011 averaged about 4 percent.

Net-written premiums at W.R. Berkley increased 11 percent to $1.2 billion compared to 2011's first quarter. W. Robert Berkley, president and COO, said more than half of the increase in net-written premiums is attributable to improving rates, mostly in international and specialty segments.

Nevertheless, William R. Berkley said it doesn't take long to realize that what some companies are doing is “stupid.” And, “stupidity is not limited to any one company, or any one underwriter; it pops up in all markets,” he added.