Well, the Berkleys have been in the business a long time and have been successful. I hope they are write on this investment income first, underwriting profit second strategy. It was tried before (in the 80’s and the 90’s) and worked great, until it didn’t and then companies went right into the ground.
During the 80’s, net investment profits were due to high inflation that yielded higher interest rates to compensate. Currently, inflation is at 80’s levels, so interest earnings should rise to produce investment returns that will make WRB’s strategy feasible. I’m sure they’ve put great thought into this approach.
Why didn’t this approach work well for a long period of time? Reduced inflation under Reaganomics yielded lower investment yields that turned attention back to underwriting results.
Agreed about the cause for a shift in philosophy. It’s just that the P&C biz tends to trend in a certain way and get stuck there until they have a disaster. I get it that when everyone flexes out to cash flow/investment underwriting and you don’t, you lose market share. However, fundamentally you have to underwrite conservatively all the time, there isn’t any other way.
Well, the Berkleys have been in the business a long time and have been successful. I hope they are write on this investment income first, underwriting profit second strategy. It was tried before (in the 80’s and the 90’s) and worked great, until it didn’t and then companies went right into the ground.
During the 80’s, net investment profits were due to high inflation that yielded higher interest rates to compensate. Currently, inflation is at 80’s levels, so interest earnings should rise to produce investment returns that will make WRB’s strategy feasible. I’m sure they’ve put great thought into this approach.
Why didn’t this approach work well for a long period of time? Reduced inflation under Reaganomics yielded lower investment yields that turned attention back to underwriting results.
Agreed about the cause for a shift in philosophy. It’s just that the P&C biz tends to trend in a certain way and get stuck there until they have a disaster. I get it that when everyone flexes out to cash flow/investment underwriting and you don’t, you lose market share. However, fundamentally you have to underwrite conservatively all the time, there isn’t any other way.