Berkshire Hathaway's new surplus lines unit should not be viewed as competition, said William R. Berkley, chairman and chief executive officer of W.R. Berkley Corp.
"First of all, the skills and distribution required to write the kind of business we do is really quite different from what [Berkshire Hathaway Specialty Insurance Group does.] Second of all, Berkshire is going to write at a profit," Berkley said during the company's second-quarter earnings call.
He pointed to Berkshire Hathaway's reinsurance leader, Ajit Jain, and his track record of profitable underwriting.
"My friend, Mr. Jain, is absolutely determined to get his share of the market but not, I emphasize not, at any cost," Berkley said. "He's going to write business where he thinks he can make money. And nobody should be afraid of that competition. He's going to give good service, give good capacity. And he's going to want to share the market, and he's going to do it through those basis. But he's not going to be a price cutter...I think they're going to try to be a market leader in capacity and quick answers because that's something they have."
It's more likely that other companies that write large surplus lines risks "may decide to cut price to hold onto the market. But I don't think Berkshire is going to be a leader in pricing," he said.
For W.R. Berkley itself, "our biggest risk is probably not big enough to be their smallest risk," William R. Berkley said. "Will they eventually move into areas that we do business? Could well be. But for now, they're just not in our space."
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, A.M. Best Co.'s online financial system.
W. R. Berkley Corp.'s second-quarter net income rose 6.5% as gains from higher underwriting margins and a declining expense ratio were more than able to offset flagging investment income. The company posted net income of $116 million up from $109 million for the same quarter a year ago. Net premiums written rose 12.7% to $1.34 billion (Best's News Service, July 22, 2013).
Average rates on renewed policies rose 6.5%, and cumulative rate increases since 2010 are more than 18%, the company said.
In the call, William Robert Berkley, president and chief operating officer, noted rate increases in the property market were losing momentum. "It's a bit surprising, quite frankly, that this would be the case on the heels of Sandy, as well as an active tornado season in the Midwest, and of course the floods in Europe and Canada," William Robert Berkley said.
"The property market has always been one that's made us scratch our head from time to time. When the earth shakes or the wind blows, it seems as though people choose to back that out of the results. And when Mother Nature is kind to us, it seems as though people call it brilliance. The but for story or excuse presumably at some point is going to begin to get a little bit old," he said.
In March, W. R. Berkley Corp. said it launched a new underwriting unit to write inland marine business. Chicago-based Berkley Fire & Marine will focus on inland marine and related property risks regionally and nationwide. Products will be distributed through independent agents and brokers, and written on W. R. Berkley paper.
An important part of Berkley's strategy is to form new operating units to capitalize on various business opportunities, and about half of the company's 48 units have been formed since 2006, according to BestLin.
In January, W. R. Berkley Corp. has launched Berkley Southeast Insurance Group, which will underwrite products in six Southeastern states for W.R. Berkley member companies. Last July, W. R. Berkley Corp. launched a managing general underwriter, Berkley Custom Insurance Managers LLC, to focus on the excess casualty insurance market and underwrite on behalf of W. R. Berkley member insurance companies.
W.R. Berkley's underwriting units currently have Best's Financial Strength Ratings of A+ (Superior). Near noon July 23, shares of W. R. Berkley were trading at $42.57, down 4.59% from the previous close.