During the carrier’s earnings call for Q1 2023, Berkley told analysts he was concerned by the decline in pricing over the past few quarters.
The CEO pointed to new entrants in D&O creating additional supply in the market, but said demand was not rising in tandem.
“We’ve seen a dramatic reduction in activity that would drive D&O purchasing,” Berkley said. “M&A [mergers and acquisitions] activity has reduced dramatically. IPOs and SPAC activity have fallen off a cliff.
“The reality is that demand has been reduced and the supply has increased, and that has led to an unattractive, competitive environment from our perspective.”
He called out hospital professional liability as a product line that is “in desperate need of some discipline returning to the marketplace.”
But Berkley said “erosion” of the D&O market would slow at some point, with demand starting to accelerate from next quarter.
“My best estimate is that you’re going to see the growth pick up in the second half of the year,” he told analysts.
Growth in WR Berkley’s workers’ compensation segment was mostly flat as pricing “continues to bounce along the bottom,” Berkley said. The CEO noted that the state of California appears to lag the rest of the market and is showing signs of rate firming.
Net written premiums for workers’ comp in Q1 2023 marginally improved for WR Berkley, at $309.9 million versus $303.4 million in Q1 2022.
At WR Berkley’s last investor call, the CEO blamed rating bureaus not appropriately accounting for a frequency benefit under COVID for causing “havoc” in the workers’ compensation market.
He forecasted workers’ comp would see “considerable firming in 2024 and beyond.”
Though carriers’ increased use of data and analytics has boosted product lines such as workers’ comp, Berkley said this was not a silver bullet.
“Workers’ compensation has clearly improved, even more recently [proving] to be much more profitable than people had anticipated,” Berkley said.
“Is there more data analytics and so on involved? Yes, I believe there is. Is it proving to be the Holy Grail? I think there's a lot of data as of late that would suggest it's not and [workers’ comp] remains a struggle.”
WR Berkley reported a steep drop in its first quarter net income at $294.1 million compared to $590.6 million in the same period last year, mainly driven by catastrophe losses.
The insurer’s combined ratio for the quarter was 90.6%, worsening from 87.8% during the same period last year. This accounted for current year cat losses of $47.9 million and prior year cat losses of around $24 million.
“Winter storms impacted both the current quarter and carried over from late loss activity in the fourth quarter of last year,” Berkley told analysts.
WR Berkley saw a 6.7% increase in net written premiums in Q1 2023, to $2.57 billion.
During the Q&A, Berkley reflected on the variations in the rate cycles across insurance product lines, and the impact of the mixed dynamics on carriers’ profitability.
“I think one of the big differences these days is how separate and distinct major product lines are from one another in terms of where they are in the cycle, and the implications for to an organization's overall profitability and their behavior.
“Many parts of the business are growing at a very high growth rate, well north of 10%. There are some parts of the business where, to my colleagues’ credit, they are operating with the appropriate level discipline,” he said.
In particular, reinsurance and property were benefitting from “a meaningful level of additional disciple” relative to past years.
The CEO ended on a positive note, saying he expected growth to pick up from the second half of 2023.
“I don't think that [headwinds] are necessarily going to continue to blow, and certainly will not blow as hard in the second half of the year as they did in the first quarter,” said Berkley. “I think the other product lines will continue to lift and the drag will be reduced.”
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