WR Berkley may re-enter property reinsurance as prices clear last hurdle

Property/casualty insurer WR Berkley may yet dabble its way back into the property cat reinsurance as current pricing may finally be covering the risk-adjusted cost including the inherent heightened volatility, CEO Robert Berkley has indicated.

“It looks like the planets and stars are lining up, so maybe we'll play it for the next couple of years,” CEO Berkley told participants in an equity market conference hosted by the KBW brokerage.

“We are in the early stages of a property cat market where there is a better than average chance that you will see us expand our presence, because we think we will get paid for it,” he said.

That’s still short of a firm commitment ahead of the January renewals. “We are sort of sitting back and watching,” Berkley said. “We've got plenty of dry powder; we’re going to see what thing look like going up to 1.1 ... and we will participate if we think it’s a good use of our shareholder capital.”

But it is perhaps the strongest stance taken by WR Berkley in ages for a company known to be flexible in deploying capital and to be comfortable on the side-lines if risk-adjusted terms don’t look right. “By and large, we are able to participate in a meaningful way 3 out of every 10 or 12 years.”

The broader market, where any number of major reinsurance players has determined to trim property in favour of more casualty and specialty, may be learning a lesson Berkley believes is already rooted in its own DNA.

“All returns are not created equally,” Berkley told analysts. “We think the industry has a long history of not appropriately considering the risk it is taking on; in particular we don't think it appropriately grapples with the component of volatility.”

“We will write the business, we will accept the exposure at a rate we believe is appropriate,” Berkley said. “That rate, and what we think about that rate, is in part determined by volatility.”

The CEO is less worked up about his own firm’s needs for reinsurance or retrocession at the coming renewal period.

Limits embedded in WR Berkley’s primary coverage are often low: some 90% of policies have policies to $2 million, he claimed. “We are not nearly as dependent on the reinsurance market as many of our peers,” Berkley concluded. Berkley claims a core group of reinsurance partners are with the firm to “ride out the cycle together” in addition to looser trading partners.

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