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Insurance Hard Market “it is happening”

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Viking:
The CEO of WR Berkley has the (insurance) quote of the year already. WRB posted results today; i find they have been a good source of information as to what is happening in the insurance market. Yes they can be promotional; but they are usually pretty accurate. When beginning his prepared remarks the CEO simply said “it is happening, ex workers comp”. https://ir.berkley.com/home/default.aspx (scroll down for webcast)

An insurance hard market is very good news for Fairfax. While this likely means we will not see meaningful share buybacks we should see solid top line growth in 2020. And as this progresses hopefully an improving CR. If their reserving hangs in there we should see solid results in Q4 (as investments did very well in Q4). We will find out in mid Feb when they report :-)

Here are a few notes from the WRB call.
- hard market being driven by three factors: low interest rates, increased frequency of cat activity and social inflation. Not just being talked about; now being acted upon. Very visible in Q4. Not slowing down.
- seeing acceleration in the top line
- all lines, ex workers comp, are increasing
- average increase on rate is 9% (ex workers comp)
- focus has been rate; shifting to count
- pricing new business 4.2% higher than renewal (not buying new business)
- renewal retention is about 80% (customers are not moving in spite of rate increases)
- reserve releases are shrinking (still positive but just)
- investment income is lumpy
- will see elevated spending on technology (systems, data, analytics) which will hit expenses a little

Question: “margin expansion - are we there yet?”
Answer: “2H ‘20 should see earned premium accelerate. Price increases are a couple hundred basis points in excess of loss trend estimates”

Question: “how long will it last?”
Answer: “lots more pain to come (those who have been underpricing); don’t see it slowing; see it accelerating”

Question: “when will shareholders see the benefit? Will it be higher CR (soon) or positive reserve development (years later)
Answer: “as year comes in should see better CR”

petec:
Thanks - useful. And good!

Viking:
Well enough insurance companies have reported that it is pretty clear that insurance pricing is ‘hardening’, even though most do not want to call it a ‘hard market’ yet. What is encouraging is:
1.) price increases in Q4 are accelerating.
2.) increases are spreading to more lines.
3.) no end in sight.

Here is what Chubb had to say in their earnings release tonight:
“P&C net premiums written in the quarter grew 9.8% in constant dollars, supported by a pricing and underwriting environment that continues to improve, with rates increasing at an accelerated pace quarter on quarter while spreading to more classes of business, risk types and countries. From what we have seen so far in ’20, this trend is continuing.

mcliu:
Interesting thanks. Any thoughts on the excess capital and ILS that's contributed to soft pricing in the past? Has this dissipated? Is the capital still flowing but investors are just getting more cautious?

Viking:

--- Quote from: mcliu on February 04, 2020, 05:44:40 PM ---Interesting thanks. Any thoughts on the excess capital and ILS that's contributed to soft pricing in the past? Has this dissipated? Is the capital still flowing but investors are just getting more cautious?

--- End quote ---

No, i not have any insight there (and am not an insurance expert :-) So i listen to a few of the conference calls to get better insight into what is going on. The WR Berkely CEO said the hard market was being driven by three factors: low interest rates, increased frequency of cat activity and social inflation. I have also read that Lloyds has made some changes that has shrunk capacity. Perhaps these factors in aggregate are larger in size to excess capital coming in. RBC is now calling for pricing to remain hard for all of 2020 and likely into 2021 as well. I am looking forward to seeing what kind of growth Fairfax is getting and to hear from their CEO, who is a pretty straight shooter.

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