W.R. Berkley “developing strategies” to take advantage of capital evolution

Insurance and reinsurance firm W.R. Berkley Corporation is paying “close attention” to the alternative capital trend, as it sees pools of capital with lower hurdle rates that might sit well alongside its balance-sheet and is “developing strategies” to take advantage of this evolution, according to CEO and President Robert Berkley.

Speaking during the firms first-quarter earnings call yesterday, Berkley explained that from W.R. Berkley’s perspective the reinsurance market remains “a bit of a mess.”

“Unfortunately every time you see a spot of sanity it seems like it gets stomped out or extinguished pretty quickly,” he continued.

But alternative capital and the interest of the capital markets in accessing insurance and reinsurance risk as an asset class could be a trend that eventually helps W.R. Berkley to better navigate an environment where reinsurance margins and returns are much lower than previously seen.

Berkley discussed the waves of alternative capital that have entered the reinsurance market in recent years, saying that; “We think that this is here to stay and it will continue to evolve. There’s no doubt that the relationship between capital and expertise will continue to evolve.”

“We’re paying close attention to this and trying to assess what this means for our business and are developing strategies for how we think we’ll take advantage of this evolution,” he explained.

Berkley went on to explain some of the thinking his re/insurance company puts into the alternative capital conundrum, an issue that the majority of the market is thinking about today.

Identifying the best way to bring this capital into your own domain, without it pressuring your balance-sheet earnings further and ensuring it is adding incremental income, in terms of commissions and fees while enabling you to underwrite more business or maintain underwriting shares, is the end goal. But how re/insurers get there can differ dramatically.

W.R. Berkley is still identifying the best way to achieve this and seeks more permanent pools of capital than many other companies look for from the capital markets.

Berkley said; “We are considering lots of different approaches to using other capital than just what sits on our balance sheet. I don’t believe we envision our organization not having a meaningful balance sheet in the future. At the same time, clearly there are large pools of capital in the world that seem to have a different hurdle rate than what our view of a hurdle rate is and also have a desire to participate in the marketplace, the insurance marketplace to be more specific.”

“To the extent that we can bring value to the capital through utilising our expertise, we are open to that. Now whether that is done through something like reinsurance, or whether we manage someone else’s capital in a more permanent way, we are open to and considering lots of different concepts to the approach that several carriers have taken already,” continued Berkley.

But two things are key, Robert Berkley believes.

“I think our priority, versus some others, may possibly be a bit different,” he said. “We look for things in perhaps a more permanent manner than a temporary manner.”

And what hasn’t changed, no matter what form you are taking capital into your structure with, is; “The need for that capital will have for having an expert manager.”

In the future we expect that alternative capital strategies will take many forms, with some companies looking for a pool of third-party capital that more closely resembles a balance-sheet, in terms of permanence and perhaps even in the future ability to leverage.

W.R. Berkley is clearly still working out its preferred strategy for navigating this evolution.

Join Artemis in Singapore on July 13th 2017 for ILS Asia, tickets on sale here