W. R. Berkley Corp. sees future opportunities in the specialty market area, but Chairman and Chief Executive Officer William R. Berkley said other companies that were too aggressive in specialty lines may find it increasingly difficult to compete in that space.
Some competitor companies are facing problems, and while others may not be in a difficult position, they are moving away from specialty lines, he said during the company's third-quarter earnings conference call. "There are large global companies who always saw the grass being greener in other places, found out it was AstroTurf and it didn't work out that well," he said. "We have yet to see the dramatic changes these people are having to take."
A written statement from the company said some standard markets "lacked the appropriate knowledge to understand the risks they were assuming in the specialty arena during the softer part of the market. Now a number of these overly aggressive competitors are starting to pay the price for their lack of underwriting discipline. Price alone will not solve their problems."
Pricing in that market peaked in 2004-2005 and dropped after 2007, with the worst coming in 2009-2010. "And if you aggressively wrote business then, you still were writing at terribly low prices in 2011, certainly the beginning of 2011," Berkley said. "Those people are just now having to face up to that low-pricing environment. I think there's quite bit more of pain to go and a lot of people who are going to say, 'What are we going to do?'"
Overall, company rates increased for the 11th-consecutive quarter and the company expects the increases to continue. Berkley said price increases on the whole have not been quite as good as the hoped-for 6%-8% because of "erratic behavior" in some lines of business but he still expects increases to continue at the 6.5%-7.5% rate.
Of W. R. Berkley's 47 underwriting operations, 40 contributed to the company's growth in the third quarter. "When we look at the market, we're surprised there are a number of people talking down the hardening of the market," said Chief Operating Officer W. Robert Berkley. "Simple math and common sense would seem to indicate that rates need to go up further."
Rates in casualty and workers' compensation increased, although professional liability saw rates for lawyers increase and rates in the medical arena fall. "In our opinion, the professional space is 12-24 months behind the casualty market," Robert Berkley said. The lack of catastrophic activity has the property market "fraying around the edges," he said. Overall company rates increased for 6.4% during the quarter, including a 7% increase in domestic operations. The U.S. market is generally ahead of other markets in terms of hardening, he said.
W. R. Berkley reported a third-quarter net income increase of 36% over the prior year to $137 million, as the company reported higher investment gains and net premiums earned. Its combined ration was 93.9, about 1.9 points better than the third quarter of 2012. The company's net investment gains jumped from $17.2 million to $43.9 million.