Berkshire Hathaway's new venture into the insurance marketplace is gearing up to start underwriting business in the near future, said Peter Eastwood, president of Berkshire Hathaway Specialty Insurance Group.
"Things are great. The team is very excited about the new venture and the opportunity it represents. Our charter is to focus on commercial property and casualty. Our focus initially is on the U.S., with a leaning to the excess and surplus lines space," Eastwood told Best's News Service.
While Berkshire Hathaway's insurance operations might be best known for its reinsurance operations, lead by National Indemnity Corp., and its automobile insurance business, led by Geico, it has also been underwriting surplus lines business through about eight companies. Berkshire ranked as the 16th-largest group in the E&S market based on 2011 direct premiums written, according to BestLink.
The new venture will report to Ajit Jain, executive vice president at National Indemnity, and will write business on Berkshire Hathaway's existing surplus lines company paper, but do business as Berkshires Specialty Insurance Group, Eastwood said.
"We are building out a broad commercial property/casualty insurance operation with access to the Berkshire Hathaway insurance companies. It's an organization with a very large balance sheet, the strongest financial ratings in the industry, and a positive business reputation. We are now looking to hire a team of talented professionals to grow the business," Eastwood said.
The surplus lines market is poised for growth, he said. The improving economy in the United States has triggered growth in exposures, plus rates are firming. "As demand increases and pricing levels continue to rise, its a good opportunity to enter the market," Eastwood said.
Eastwood, the former president and chief executive officer of AIG Property Casualty for the Americas, was one of several AIG executives to join the new venture.
David J. Bresnahan, formerly the president of AIG's surplus lines writer Lexington Insurance Co., will be responsible for casualty and financial lines. Sanjay Godhwani, formerly president of AIG Property Casualty for Latin America and the Caribbean, will be responsible for property as well as program business for Berkshire Hathaway Specialty Insurance, Eastwood said.
The company will focus initially on U.S. business, but look to expand internationally down the road, Eastwood said.
"Our mandate is to grow a sustainable business," Eastwood said.This is a long-term play for all of us and for Berkshire Hathaway."
Eastwood, who is temporarily sharing office space with Boston-based Berkshire Hathaway's Resolute Management Services Ltd., a claims handling unit, said the company is looking for new office space in Boston. The company will be headquartered in Boston, but expects to open offices in other major U.S. cities.
The market reaction to the new venture has been "extremely positive," Eastwood said. Brokers that we have spoken with have universally committed support to the new venture."
This new venture is not involved in the new sidecar that Berkshire Hathaway launched with Aon plc earlier this year, Eastwood said. Unlike most sidecars, which typically provide reinsurance, the Berkshire sidecar is expected to write primary business.
Berkshire Hathaway's interest in expanding its surplus lines footprint is a sign the market is heating up, brokers and industry experts said.
"It's evidence that really good E&S talent is at a premium," said Adam Kail, an executive recruiter with the Judson Group who specializes in the insurance industry. He said he sees a spike in the E&S hires this time of year. "We've had a couple of active natural disaster years and are heading into hurricane season now," he said.
AIG, which ranks as the second-largest surplus lines writer behind Lloyd's, isn't likely to be hurt by the executives leaving to join Berkshire Hathaway, Kail said. "I work with companies every day who have great leaders and great teams. Kudos to the executives who built a great team, but AIG will make the right decision and promote the right people," he said.
He said AIG will survive the way it did after losing Kevin Kelley and Shaun Kelly to startup Ironshore Inc. in 2008. Kelley had been chairman and CEO of Lexington before becoming CEO of Ironshore, while Kelly had been president and chief operating officer of Lexington before becoming president and CEO of Ironshore's U.S. operations.
While inherently tied to the overall cycle of the insurance marketplace, "there is room for additional capital in the surplus lines market when standard carriers reduce their risk appetites and as new risks emerge that our market innovates," said Brady Kelley, executive director of the National Association of Surplus Lines Offices.
The NAPSLO membership is seeing "healthy competition" in the market today, he said, with some members reporting rate increases of up to 10%, but they vary by line of business and region.
"Most report there is more capital available than ever, but our market and members continue to evolve. As the 2012 A.M. Best Special Report indicates, for the eighth year in a row the surplus lines industry reported no financially impaired companies and surplus lines insurers continue to maintain a higher proportion of secure ratings than the overall property/casualty industry. The report noted surplus lines insurers continue to demonstrate resiliency by remaining very well-capitalized despite significant market challenges and unprecedented natural catastrophe events in 2011," he said in an email.