WR Berkley’s CEO is frustrated by the ‘free fall’ pricing in the D&O market

Pricing in the directors and officers (D&O) liability market, particularly for large accounts, is in “free fall,” according to W. Robert Berkley, Jr., CEO of WR Berkley.

During the carrier’s earnings call for Q1 2023, Berkley told analysts it was concerned about the decline in prices over the past few quarters.

The CEO pointed out that new entrants in D&O have created more supply in the market, but demand is not increasing over time.

“We’ve seen a dramatic reduction in D&O buyout activity,” Berkley said. “M&A [mergers and acquisitions] Activity is greatly reduced. IPOs and SPAC activity has fallen off a cliff.

“The reality is that the demand has decreased and the supply has increased, and that has created an unattractive and competitive environment from our point of view.”

But Berkley says the “erosion” of the D&O market will slow over time, with demand starting to pick up next quarter.

“My best guess is that you will see the growth in the second half of the year,” he told analysts.

What is the status of workers compensation?

Growth in WR Berkeley’s workers’ compensation division was mostly flat as pricing “continues to grow from the bottom,” Berkeley said. The CEO noted that the state of California appears to have lagged the rest of the market and is showing signs of price consolidation.

In Q1 2023, net written premiums for employees com WR Berkeley improved slightly, at $309.9 million compared to $303.4 million in Q1 2022.

The group of workers predicted “credible strength in 2024 and beyond.”

Although service providers’ increased use of data and analytics has boosted product lines like Employee Compost, Berkley says it’s not a silver bullet.

“Workers’ compensation has clearly improved, even recently [proving] To be more profitable than people expected,” Berkley said.

“Will more data analysis and more be involved? Yes, I believe there is. Is it proving to be a sacrament? I think there’s a lot of data to suggest that it’s late and that it’s not.” [workers’ comp] It’s still a struggle.”

WR Berkley sees dividend cut in Q1 2023.

WR Berkeley reported net income of $294.1 million in the first quarter, compared to $590.6 million in the year-ago period, primarily driven by risk losses.

The insurer’s quarterly combined ratio was 90.6 percent, an improvement from 87.8 percent in the same period last year. That’s up from $47.9 million in cat losses for the current year and $24 million in losses for cats a year ago.

“Winter storms impacted the current quarter and carried over from the loss activity in the fourth quarter last year,” Berkley told analysts.

WR Berkley reported a 6.7% increase in Q1 2023 net written premiums to $2.57 billion.

A head wind ‘doesn’t keep blowing like a strong wind’

During the Q&A, Berkley reflected on the differences in pricing cycles across insurance product lines and the impact of mixed dynamics on carrier profitability.

“I think one of the biggest differences these days is how different and distinct the major product lines are in terms of where they are in the cycle and the implications for the overall profitability and behavior of an organization.

“Many parts of the business are growing at very high growth rates, in the north of 10%. There are some parts of the business where, from my colleagues’ point of view, they are operating with proper discipline,” he said.

In particular, reinsurance and property were benefiting from an “additional discipleship level” compared to previous years.

The CEO concluded on a positive note, stating that growth is expected from the second half of 2023.

“i don’t think so. [headwinds] “They’re going to keep blowing it, and they’re definitely not going to blow it as hard in the second half as they did in the first quarter,” Berkley said. “I think other product lines will continue to pick up and the drag will decrease.”

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