WR Berkley 1Q16 Earnings Call Notes

Robert Berkley

Insurance marketplace more competitive but reinsurance slightly less

“The insurance marketplace continues to become incrementally more competitive while the reinsurance marketplace seems to be coming gradually a little less intensely competitive, though that is a very incremental change.”

Large purchasers of reinsurance started to come back to the market as they realized losses

“finally, we’re seeing a bit of a change in the reinsurance marketplace and if there was ever a part of the industry that deserved a break, it was probably the reinsurance market these days. And that is, a few years ago we started to see a change in buying habits of some of the largest purchasers of reinsurance. Ultimately they ended up increasing their intentions and reduced the amount of reinsurance they bought in a pretty dramatic way. Loss activity has come through and as a result of that it would seem as though they are yet again changing their habits and they are reentering the marketplace as customers.”

There are a lot of organizations that have become inwardly focused

“I think the answer is in some ways the period that we’re going through now is somewhat reminiscent of 2008, 2009, 2010 for different reasons and that is there is a lot of dislocation in the market, there are a lot of people or large organizations that for one reason or another are a very inwardly focused and that creates opportunity for organizations like ours to try and continue to find opportunities and to build and enhance the value of our franchise for our shareholders both organically through expanding our existing businesses as well as starting new operations. ”

There’s a battle for distribution going on between distribution and carriers

“our general observation is this, that the companies are trying to maintain or perhaps grow their margins, the distribution is trying to do the same thing. At the same time if you look at the insurance marketplace, rates are plateaued in all likelihood are gradually going to decrease and that creates tension and pressure and ultimately it would seem as though everyone is so focused on how they maintain their margins and how they keep the world happy every 90 days that is getting the way of distribution and carriers, finding ways to work together to bring more value to the customer.”

If price moves away from us we’re prepared to shrink

” we’re in business to make money not necessarily just to issue insurance policies for the sake of issuing insurance policies. We’re in the market every day trying to provide product and provide continuity to the marketplace in our offering. Having said that ultimately if there are parts of the market that move away from our pricing then we’re prepared to shrink. So yes, the answer is there are parts of our business that are shrinking right now, auto would be an example of that, again that’s just the reality of operating in a cyclical business when you’re focused on profitability and return.”

Ultimately the relationship between distribution and carriers is a partnership. Who is the senior partner shifts

“as my father reminds me and reminds others, that ultimately it’s a partnerships. There are moments in time when the carriers are the senior partner and there are moments in time when the distribution is the senior partner, but ultimately in the long run for us all to survive one needs to be conscious of their obligation to their partnership and their need to survive as well.”

We have grown our Florid exposure, but with significant caps

” first of all yes we have grown our Florida homeowners product and this is through our reinsurance, having said that, there are meaningful event caps and significant exclusions as far as coverage when it comes to natural catastrophes. So I think that while there is a modest amount of cat exposure that comes with it, I would encourage you to think of that less as a cat play. I know that – it shows up in the yellow books and in other filings where it could be misinterpreted so hopefully we been able to rectify the understanding.”

Gene Ballard

Technology is moving to disintermediate the current distribution system

“The long and the short of the situation is the big picture is technology is moving to dis-intermediate the current distribution system to some extent. The fact is that that’s a long term problem and at the same time as we’re moving in that direction, the existing distribution system instead of working with companies to try and find ways to deliver value to the customer is more focused on how to improve their margins and at the same time insurance companies are faced with the need for more underwriting margin because their investment margins are declining. So you have a natural crisis. Everyone wants a bigger piece of a shrinking pie.”