WR Berkley 2Q15 Earnings Call Notes

There’s been a lot of industry change but conditions have remained pretty consistent

“The second quarter, as suggested a moment ago, has been a period of significant change for the industry, but much of that change stem from the level of M&A activity that persisted through the quarter. Having said that, while it has given people something to talk about, the reality is that the underlying market conditions have been reasonably consistent, though in some cases perhaps incrementally more competitive.”

Global reinsurance remains painfully competitive

“the global reinsurance market that remains painfully competitive as well. Having said that, the pace of erosion seems to be slowing, which is giving reason for perhaps guarded optimism that we are approaching the bottom.”

Capital markets are so flexible that there is not as much need for permanent capital

“We also think capital management reflects a different view that we have than many of our competitors, where they think getting bigger and having more permanent capital is a good solution. We think, if anything, capital markets are more opportunistic, more flexible, and there are things to do to have capital that’s available to you. And therefore maintaining ever-increasing permanent capital can be more like an anchor than a sail of the winds that helps you move ahead.”

There’s so much uncertainty out there, particularly with regards to inflation

“The global economy has never been as uncertain in my recollection. Not that there’s a huge crisis here, but there’s lots of uncertainty. The spread between the duration of our bond portfolio and the duration of our liabilities is as great as it’s ever been, being a year, because we’re worried about inflation. We don’t know what’s around the corner but we know it’s out there given economic activities and economic policies.”

Ultimately the system of taxation has to be universal

“I think that ultimately the system of taxation in our country only can work when business done in the United States pays tax on a universal basis. Otherwise, everyone will find ways to do business here and move their incomes offshore. That is not how it works in the insurance business at the present time. So that being said, I think there will be someone, something done to address the tax issues.”

We don’t see that we’re going to grow the business that much, if we did, we would tap sources of external capital

“for a couple of years we’ve tried to maintain our capital levels at roughly the same level because external capital is available at very low costs, much lower costs than our average cost of capital. So we’re not going to reduce our capital, but we also don’t see that we’re going to be able to grow our business a huge amount. So if we can grow our business 5% or 7%, there’s external capital that we can find ways of obtaining for that amount of growth. ”

William stepping down as CEO October 31

“on October 31st I will step down as Chief Executive and Rob is going to take over. So it will be not five decades but I’ll be out of this box at that point and he’ll take care of it, then I’ll be Chairman.”

Regulatory pressure makes it important not to stay small. We have to do what’s right for our shareholders

“I think consolidation serves a purpose. In the case of our business, regulators and regulatory pressures makes it important not to stay small. We’re big enough that we can deal with it. We’ve always had the same view. We’re here to do what’s right for our shareholders. We’ll always do what’s right for our shareholders. But that being said, we can continue to generate great returns over the long run for our shareholders, and if somebody comes up and says, “Hey, we’d like to talk to you about something,” we’re always willing to talk. If it’s good for our shareholders, it’s good for us.”

I think the consolidation that’s happening is more about ego

“I think that the consolidation that’s happening now is frequently about management ego or management rewards and less amount — less than it is about what you need to run your business.”

We think there will be an opportunity to do something with capital in the next two or three years

“We think we can always find capital which we will do on an opportunistic basis when we see reason or need. And we’re not — if I was talking about three, five, seven years, I wouldn’t be talking about it. This is something we see in the next year or two or three, where we think there’ll be an opportunity to do something.”

The tax system is a long run competitive disadvantage

“we’re always willing to do what we think is in the best interest of our shareholders. We think we have some level of obligation to this country. We just think at the moment, the way the taxes are, we won’t be able to compete in the long run when we’re paying taxes at 30-plus percent and we have many competitors who are paying very low tax rates. And they do it, forget about what they show on their statements, they do it in many ways, through loss portfolio, transfers, because then they don’t pay tax on the discounted value of their reserves, through all kinds of vehicles, some of which they feel are justified and some of which they don’t. But the bottom line is, how much cash taxes do you pay? And it’s a competitive disadvantage that in the long run you can’t continue with.”