There is no one answer to the overall insurance industry’s place within its cyclical path. Each product line needs to be looked at individually, according to Robert Berkley, CEO of W.R. Berkley Corp.
“Once upon a time, most P/C product lines marched throughout the cycle somewhat in lockstep,” he told analysts during a fourth-quarter earning calls. Today, each line is at “very different points in the cycle…in a more and more pronounced way.”
“I don’t think there is one answer anymore,” Berkley continued. “This is an industry that is splintered.”
W.R. Berkley reported Q4 net income of about $382 million, nearly a 30% increase compared to Q4 2021. The combined ratio for the last quarter of 2022 was 88.4, including catastrophe losses of about $31 million.
The CEO chose to highlight some lines of business, starting with property – a line he said is “poised for material hardening.” In comments following the third quarter 2022, Berkley flagged property catastrophe reinsurance as an area the company was leaning into. During the Q4 call, Berkley said the insurer was opportunistic at Jan 1.
“We put more than a toe in the water, but not more than a foot,” he said. “That’s just because of our view of volatility.”
Berkley said discipline in the property market “seems like it is arriving” but he was still disappointed by the lack of discipline in Q4. He said he thought there would have been more firming in Q4. Nevertheless, Berkley said, the market is moving in the direction of being able to produce a favorable risk-adjusted return, and the insurer’s presence in the E&S market is going to “create meaningful opportunity” over the next 12-36 months.
Berkley said he does not expect a dramatic shift in the insurer’s risk profile, but there is space for growth in the property market as rates go up and the risk-return balance makes more sense.
“We are convinced we’re going to see [discipline] more and more as we make our way through 2023,” Berkley said, adding that the insurer was “scratching our head” that discipline hadn’t arrived when “everybody knows reinsurance costs are going up.”
“It’s almost like people need to wait to be hit over the head with the reinsurance costs hitting their [property & liability] as opposed to really taking a step back and thinking about how you match up the exposure with the expense,” Berkley said.
“I thought the world would have figured out by now as far as where things are going and what people need to be doing from a loss-cost perspective,” Berkley said of workers compensation, adding that the line will “bump along the bottom” all year before “hopefully” firming in 2024.
Berkley said some rating bureaus take on frequency trends do not correctly take into account the benefit that occurred during COVID and severity trends are facing headwinds, especially with medical costs. He said the economic models of many hospitals and health providers are “not sustainable.”
“Ultimately, they are going to have to figure out a way to improve their position, and they’re certainly not going to get a better result or a better outcome from the public sector or the government,” Berkley said. “So that leaves the private sector that they’re going to be looking to get their pound of flesh from to improve their position.”
According to Berkley, there is no line more susceptible to social inflation than auto. He said the good news is, there is rate to be had. But the bad news is, insurers better get it right or risk falling behind on loss costs.
“When you look at how emboldened the plaintiffs’ bar is, I think the commercial transportation industry has a bit of a bullseye on its chest,” Berkley said. While driving, he said you can see “more billboards for plaintiffs’ attorneys than you do for fast food. That’s probably not a great sign.”
Other than D&O, which is “becoming notably competitive” even in the large-accounts excess space, there are come opportunities.
“Professional liability, we think, offers a great deal of opportunity and we view that as a place for us to lean into,” Berkley said.
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