WR Berkley 1Q13 Earnings Call Notes

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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.”