The trends seen in the global reinsurance market over the last few years continue, with softening rates and high levels of competition still seen, but the pace of deterioration seems to be slowing, at least for the moment, explained W.R. Berkley’s COO.
Speaking during the insurance and reinsurance group’s first-quarter analysts call, President and COO W. Robert Berkley Jr explained that conditions are not getting worse at the same rate as in previous quarters. A statement backed up by analysts at KBW who, as we wrote earlier today, said that while reinsurance rates may be down as much as 10% at the upcoming mid-year renewal, there is evidence of stabilisation.
This reflects the decelerating softening of rates and pricing across many reinsurance lines, as rates approach levels where the technical underwriting returns required force companies to push-back on pressure to keep slashing pricing.
The secular trends continue he explained, saying; “Market conditions during the first-quarter were, generally speaking, a continuation of the trends that we’ve seen over the past few quarters. The insurance and reinsurance market continues to march to the beat of a very different drum.”
The reinsurance market continues to be ground-zero for competition, but perhaps not as bad as had been seen through 2014. “The reinsurance marketplace remains notably competitive, though the pace of deterioration, at least for the moment, seems to be slowing,” he continued on the call.
“As we’ve all observed and discussed the challenges started in the property cat reinsurance market and have spread globally to most product lines within the reinsurance marketplace.”
W.R Berkley has been pulling back on reinsurance lines as it attempts, like so many other companies, to shift focus to more profitable areas of the market in search of premium growth. However the re/insurer is now witnessing pressures in insurance lines, as the shift of focus by many companies begins to ramp up competition there instead.
“Competition in the international insurance market continues to accelerate as many market participants are looking beyond their borders for growth. Though not limited to, Brazil, Canada and Australia all stand out as being exceptionally competitive,” he said.
The U.S. domestic insurance market continues to provide some opportunities, however some areas also display the same trends. “Domestic property and cat exposed property, as well as commercial auto, remain quite challenging.”
In the first-quarter W.R. Berkley’s reinsurance segment contracted by 13%, compared to prior periods, as the re/insurer reacted to competition once again and pulled further back from the market.
W.R. Berkley has an advantage as much of its book is focused on domestic U.S. casualty business, an area that Berkley said was “amongst the more attractive parts of the market,” but with new ventures now looking to casualty risks, including Arch’s Watford Re, this may not last forever.
“We think our platform is particularly well positioned to take advantage of these market conditions given that approximately two thirds of our business is focused on the U.S. casualty space,” Berkley explained.
William R. Berkley, Chairman and CEO of the re/insurer, acknowledged that the market areas that the company focuses on had been more competitive than expected in Q1, saying; “We’re in the right place in the market, but it still is more competitive than we had expected.”
“Clearly at the moment things are not getting better. They’re not deteriorating a lot, other than in the reinsurance business, but in most of the rest of the world, things are all right to getting flat. But, we’re not prepared to say things will to continue to get better as the year goes along. We think things will continue to be all right,” he continued.
On the topic of mergers, acquisitions and the perceived need to acquire scale, in terms of capital and capacity to put to work, COO Berkley said that he does not believe capital scale is what’s most important.
“We think a number of people deceive themselves by thinking scale of capital is an important competitive advantage. We think quite to the contrary. We think the world is full of capital and if you have skilled underwriting talent, you’ll be able to get all of the capital you want. Therefore, getting more capital, as some people think is the objective of putting two pieces together, is a bad decision,” he explained.
He said they would not consider entering in any M&A transaction purely to grow their capital base, preferring instead to add expertise and something that provides a competitive advantage. That might suggest that if the right partnership came along, the firm could be tempted though.
“We are always in the market for that. And if people want to talk to us, we’re always willing to talk to them. But, it really has to do something that we think is terrific for our shareholders,” he continued.
And the matching of capital with expertise is one prospect he feels might work, perhaps hinting at the third-party capital trend.
“I think consolidation will continue because there are a lot of people who found getting into the reinsurance business was easy and was an easy way to make money and it’s going to be a lot tougher way of making money as people who have pools of capital that’s not theirs get together with expertise.”