W.R. Berkley: Still Smart, Successful and Smiling After 40 Years of Decisions

The founder of one of today’s most successful insurance companies went into the insurance business because he thought it would be easier than competing in the investment business.

In 1967, when William R. Berkley was still at Harvard Business School, he opened an investment firm with $2,500 and began managing other people’s money.

“I started managing money for some insurance companies and it seemed to me by being in the investment business, I chose to compete with the very smartest people there were. And as I looked at the insurance business, there were some really smart people but there were a lot of old people that ran backwards businesses in the ’60s and early ’70s,” he said.

That got him thinking.

“So it seemed to me, why choose to compete with the very smart people who went to Harvard Business School with me? Not one – actually one person who graduated in my class from Harvard Business School went into the insurance business. So I was the second one. So it seemed that was the opportunity,” Berkley said.

Competing against those “old people” may not have always been as easy as a cocky Harvard Business School graduate thought it would be, but it’s fair to say Berkley has made the most of the opportunity he seized 40 years ago.

Today, his W.R. Berkley Corp. is a Fortune 500 company, a diversified insurance holding company with more than 30 commercial lines specialty and regional insurers and revenues topping $5 billion.

Berkley, who is chairman and chief executive officer, has built his company partly through acquisitions— including Admiral, Carolina Casualty, Nautilus and Fireman’s Insurance Co.

But W.R. Berkley Corp. is known even more for its niche start-ups, including Acadia, Berkley Risk Administrators, Monitor Liability Managers, Vela Insurance Services, Preferred Employers (California), Berkley Underwriting Partners, Berkley Medical Excess, Berkley Technology Services, W.R. Berkley Insurance (U.K.) and others.

In 2005, the insurer expanded overseas with companies in Hong Kong and Spain.

(Founder and chairman Berkley recently related the earliest days of his insurance career beginning with his purchase of Houston General in 1972 and offered his views on the current market and other business in a video interview with Insurance Journal’s Andrew Simpson. The entire interview may be viewed online.

In the coming days, Insurance Journal will feature excerpts from the interview that include Berkley’s views on the current insurance cycle, his company’s diversity and decentralization, how the industry approaches risk, identifying the right customers and how his company copes with Florida-like political climates. The first excerpt deals with the current market.}

Today W.R. Berkley Corp. is considered a well-managed modern company. In 2007, Forbes Magazine named it the best-managed insurance company.

“I like to tell people we’re a very unique combination of a family business that’s a public company that’s run like a large company with some of the strengths of a small, autonomous unit. It’s just a very unique combination that looks so simple. But it’s the day-to-day implementation of that combination, that humanist approach that fits common sense goals, that makes it a very special place,” Berkley maintains.

For more than 40 years, Berkley has successfully led his “family business” through its share of insurance cycles. But the Harvard Business School alumnus acknowledges hitting a bump about 20 years ago:

“I think one of the biggest mistakes we made is we thought the market was going to be much more underpriced in 1988 than it was. In fact, prices in 1988 were more than adequate. We misassessed how profitable business was in 1986 and ’87. So when prices went down 10 percent or 12 percent in ’88, we thought that was going to be terrible. But in fact, ’88, ’89 and ’90 were all extremely profitable years. So we cut back way too soon.”

He has learned from that experience and now has monitoring systems in place so that he is “much more confident” that his companies’ prices are where they should be.

While the lesson of 1988 is still fresh, Berkley thinks each cycle is different to some degree and that today’s cycle has its own unique flavor due to the subprime mortgage situation.

He believes this cycle will be shorter than originally thought thanks to two developments. “First of all, interest rates are declining. Second of all, Sarbanes-Oxley has caused people to release their redundant reserves somewhat more quickly. So if you look at how quickly people are releasing their reserves, I think that the cushions people have aren’t going to last a long time.”

He sees the current cycle lasting through 2009.

“So my guess is 2008 probably, as an industry, taking catastrophic losses aside, will not have an underwriting loss, but it may have a small underwriting loss. But 2009 will be a bad underwriting year. And I think the cycle will turn by 2010.”

For more on Berkley’s view on the current cycle, view this excerpt from the full interview.

For the entire video interview, click here.