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Property Cat Reinsurance Cycle Continues To Be Driven by “Fear and Greed”: Berkley

W.R. Berkley’s Chairman argues that all the data trying to anticipate current reinsurance cycle should be shifted to the study of human nature.

Chris Westfall
Chris Westfall

Despite numerous analyst reports and surveys attempting to explain the rapidly hardening catastrophe insurance and reinsurance market, W.R. Berkley Chairman William Berkley says that answer is fairly simple.

“Putting aside all the data and the analytics and all the other wonderful tools we have, there's two human emotions that drive the cycle, and that's fear and greed,” Berkley told attendees at Goldman Sachs US Financial Services Conference in New York yesteday. “And those two are alive and well, and you see it time and time again.”

Berkley added there is palpable fear — following Hurricane Irene — of another large catastrophe draining capital is what’s fueling reinsurance executives fear factor and resulting price spikes and capacity contraints.

“When you want to talk about the reinsurance market, and perhaps the most extreme example within that space is the property cat market, there is no question that there is fear that is about,” he said. “And that people have gotten to the point where they say, we cannot afford to continue to destroy capital the way we have historically. So we are going to bring in a level of discipline that we have not seen in many years. “

He added that while fear of significant losses is not pervasive throughout the reinsurance industry, and that some “discipline” still exists, the current cycle in property catastrophe remains a puzzle.

“The question is how long will that last? If we sail through '23 without any cat activity when we're sitting here a year from now, will property cat rates be coming down already? I don't know” he said. “History would suggest the answer is yes. But the reinsurance marketplace, particularly property cat, is in a moment of firming. That having been said, there is no question it is a commodity product and that it is very much driven by supply and demand.”

As for his namesake firm’s plans, Berkley told attendees that the insurer will monitor property catastrophe reinsurance rates “it's the flavor of the day and we'll see how long that day is.”

“For example, if you go back in history, in 2002 and 2003, we as an organization, flexed up our participation in the property cat space, and then by 2004 and following, we started to bring that back down as the market moved away from us,” he said. “Are we going to become a major property cat writer overnight? Absolutely not. But are we going to in a controlled and thoughtful way participate in a window of opportunity, we think that's part of what we're in business to do.”