W.R. Berkley 2Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“The second quarter, by and large, was a continuation of the trends that we saw in Q1. Primary comp rates continue to move up at a healthy pace.”

“The property market has always been one that’s made us scratch our head from time to time. When the earth shakes or the wind blows, it seems as though people choose to back that out of the results. And when Mother Nature is kind to us, it seems as though people call it brilliance.”

“Our new business relativity metric came in at 3.6%. This is a metric that we talked about with some of you in the past. It’s our effort to try and compare the rates that we’re getting on new business with our renewal book. We think that this is an important metric because, obviously, you want to make sure the new business that you’re adding to the portfolio, in no way, is undermining or diluting the margin in your book. And, in addition to that, obviously, new business as opposed to renewal business you know less about, so consequently, some type of surcharge would be logical and appropriate.”

“When you put all the pieces together, we ended up with a combined of a 96.6% compared to 98.2% for the second quarter last year”

“f you look at the profitability of insurance companies, insurance companies have always made their money from investment income, and investment returns are down substantially…the fact is you’re facing serious changes in what’s going off your portfolio and what you’re able to invest in. The alternative is to bet on no inflation for an extended period of time, which is not something we’re prepared to do, nor are most of our competitors.”

“if you look at the economic model of an insurance company, much of the rate increases people have been seeking stem from their concerns having to do from loss activity. And the impact, which is even more leveraged of investment income declining, is likely to force people to raise rates even beyond what they had done to date.”

“First of all, the skills and distribution required to write the kind of business we do is really quite different than what they do. Second of all, Berkshire is going to write at a profit. My friend, Mr. James [ph], is absolutely determined to get his share of the market, but not, I emphasize not, at any cost. He’s going to write the business where he thinks he can make money. And nobody should be afraid of that competition. He’s going to give good service, give good capacity. And he’s going to want to share the market, and he’s going to do it through those basis. But he’s not going to be a price cutter. Some people have entered the business to buy their share. I think Berkshire, by and large, is going to try and do it in other ways using their capacity, their credit and their ability to put large lines down. But I don’t think most of the people we compete with have the market position or the underwriters to move down to write smaller risks…But I don’t think Berkshire is going to be a market leader in pricing. I think they’re going to be — try to be a market leader in capacity and quick answers because that’s something they have.”

ACE 2Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“ACE produced record quarterly earnings that were driven by excellent underwriting and investment results.”

“Book value in the quarter declined 2.3% due to rise in interest rates…Given we are fundamentally buy-and-hold fixed-income investors, this is, in essence, an accelerated recognition of a loss that would have amortized in overtime anyway, as our bonds mature.”

“The flip side, of course, is that our reinvestment rate has improved by about 60 basis points for a portfolio of similar distribution, and this will benefit our income over years to come.”

“Overall, North American pricing was up about 4%, while the rate of increase for property-related pricing is moderating. Casualty-related pricing, in fact, accelerated modestly the quarter, with many lines experiencing their strongest level of rate increase yet.”

“Internationally, the retail commercial P&C rate environment remains competitive but stable, with rate growth flat in the quarter overall.”

“in the quarter, we completed our acquisition of ABA Seguros, Mexico’s fourth largest personal lines company. And as we announced on last quarter’s call, we also completed Mexican surety company, Fianzas Monterrey.”

“our book yield still is above our market yield. So as the portfolio turns over into the whole yielding market rates, if market rates were to stay where they are, we think investment income would stay flat on that basis. Because new money would offset the decline in investment income that would result as the portfolio moves into the lower rate. I was just going to say, we are predicting or at least internally, that interest rates will rise.”

“there’s more capital chasing, to some degree, less business on the reinsurance side, and it always comes back in any market economy and with any industry. It’s that old supply-demand thing, and that’s what you got going on. And so you see particularly with a lot of visibility to investors is the CAT Re side. Though remember, over the overall reinsurance market, it’s a small thing that casts a big shadow. And there, you see alternate capital coming in capital markets, in addition to traditional players. And so — and you don’t see exposures growing that much, and so you got that pond with more drinking out of it on the CAT.”

“the large players. And they’re much better data over the years in the last cycle. And because of math and computer power, and technology has changed it that way, and given their insight, they’re making different kinds of decisions about how to hold retentions, how to think about exposure. And they retain much more, many do than they did in the past.”

“I remind you that CPI is not the indicator of insurance-related inflation. Medical inflation, while it’s down, still runs around 4%. You have legal inflation that continues. And by the way, on the short-tail side, you have more inflation around construction materials, and you get some hourly rate and all of that, particularly as housing starts, et cetera, pick up. ”

“anyone who’s has been in the casualty business for any reasonable length of time, it’s not a business for optimists, and you understand that the good news comes early and the bad news comes late, and so we continue to play it conservatively that way because you don’t know 2 or 3 years out.”

WR Berkley 1Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“the low interest rate environment is also beginning to have a real impact on investment income and consequently, overall profitability for the industry, and people are beginning to recognize the issue and react. There has been a lot of talk about this over the past couple years, but we’re now beginning to see it translate into action in the form of greater discipline on the underwriting side.”

“in the short run, we’re less concerned with inflation because we think the dollar is still the place to go and we think that foreign flows into the U.S. will really keep inflation under control, certainly, in the next 12 to 18 months. So we’re feeling a little less pressure for inflation being around the corner, which is causing us not to be in such a rush to shorten the duration of our portfolio”

“we are noticing a great difference as to the tone and the attitude when it comes to pricing of primary versus excess in a couple of parts of the overall marketplace. Our hypothesis or theory is that the excess tends to take a little more time for the results to come through and for people to recognize the issues that they may be facing, as opposed to a primary where the consequent has come through in a more timely manner, which is why you’re seeing people respond to the primary more quickly.”

“We’re looking for market opportunities which we think is a sustainable opportunity. We want to differentiate based on intellectual capital and expertise as opposed to purely just capacity because that makes you write for becoming even more of a commodity.”

“the excess comp market is the epitome of risk in this environment. And that is because it’s such a long tail line, inflation is inevitable to impact their cost of claims because you have — the average duration of about 17 or 18 years and you know you’ll have inflation long before we get to that point in time of a substantial degree. And you have the discount based on current interest rates, if you’re cautious. And if you’re not cautious, you choose an optimistic interest rate. And that optimistic interest rate could cause you to have a huge difference in your pricing. So the combination of optimism as to low inflation forever and higher interest rates than we currently have can create differentials in price of 50%, and you can justify it. And just you have to worry about retiring before you have to pay the piper.”

“the reality is with investment returns down a lot, you’ve got to get underwriting profit. So there’s nothing I see that’s going to change that trend for certainly through next year. I think there will be continued price increase pressure through this year and through at least next year, with increasing pressure, honestly, as we get towards the end of this year and into next year.”

Travelers 1Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

” I can’t speak to the industry or any other company. I can tell you what we’re doing. We’re going to continue, and it’s driven by 2 factors: First, the weather remains unpredictable and just more uncertain than it has in many years, and that’s been the case for the last several years and that’s been driving much of our action. But the other part is that as our investment portfolio continues to mature, the effect of reduced interest rates will continue to push the fixed portion of net investment income down over the next several years. We’ve provided those projections to you previously with — or actually they’re more than projections, they’re almost the actual numbers, such as that bonds as they mature will be reinvested. So we will — I would refer you back to that schedule to get some sense of that impact. So that net investment income will continue to decline for the next several years at least, unless interest rates change. The weather remains very unpredictable and uncertain, so we’re going to keep going.”

“The slide is clear, it says mid-teens ROE over time. And I said several quarters ago that, that was not achievable in this environment. And on an accident year basis, I still don’t believe that it really is. And as a consequence, we were going to leave it in place as an aspirational goal,”

“Some observers in the — of the industry spend a lot of time commenting about reserve development from hard years, hard cycles or soft years or soft cycles, and people who embrace that thinking can come to view that particular years will be more productive than others. We just — we don’t agree with — at least for us, I’ll speak about Travelers. We just don’t believe that, we don’t do it. We make our best estimates all the time. They are estimates for loss — for loss estimates are not driven by the revenue straight [ph] of that business. They’re just not. And so we don’t look at any years necessarily as being more potentially productive than others. And as an old year rolls off, new year comes on, and it just keeps going. So it’s — we just don’t spend a lot of time obsessing about individual accident years and what they’re producing.”