While the market is hardening and rates are increasing for nearly every commercial insurance line, workers compensation remains stubbornly soft. That reality is something that W.R. Berkley’s CEO flagged recently as a cause for concern.
“The reality is that workers comp has had its moment in the sun, and the clouds are beginning to build a little bit as a result of the actions that are being taken by state ratings bureaus,” W. Robert Berkley Jr. noted during the company’s Jan. 28 earnings call for the 2019 fourth quarter.
With that in mind, Berkley said investors and others should stay calm about where workers compensation is trending.
“I would caution people not to overreact and assume that it is doom and gloom overnight,” he said during the call. “There is this thing called negative trend, which is partially mitigating the actions that are being taken by state rating bureaus.”
Those actions are coming as premium rates are coming down and many players still take an interest in workers comp, he said.
“If you look at our business as far as premium, as far as [workers compensation] goes, looking at the rates coming down, and we see rate adequacy becoming less available,” he explained. “We’re seeing both monoline and multiline players chasing the business very hard.”
That is forcing W.R. Berkley to examine its own workers comp trends very carefully, Berkley explained. He noted the company is not actively chasing the business but “will go up to the line of adequacy and work very hard “to not go over.”
Maintaining that balance may require the company to shrink its portfolio in workers comp and other lines in order to keep that balance, Berkley said.
W.R. Berkley achieved rate increases excluding workers compensation of about 9 percent on average during its 2019 fourth quarter. Its workers compensation net premiums written for Q4 were more than $282.8 million, but that’s a drop from nearly $293 million the previous year. For all of 2019, that number surpassed $1.28 billion, though that compares to $1.3 billion in 2018.
Berkley reassured analysts during the call that the company is paying close attention to workers compensation severity and cautioned that other carriers in the space must do the same.
“Those that are not keeping an eye on that, that may prove to be a challenge in the future,” he said.
Hardening Market and Tech, Too
Berkley also reflected on the broader market, noting that signs of hardening and rate hikes crystalized over the previous year.
“What we have been discussing and others have been discussing for an extended period of time as far as the challenges the market faces, the realities that stem from a low-interest-rate environment, frequencies of cat activity and, of course, social inflation—[it] has finally gotten to the point where it is no longer solely being talked about but is actually being acted upon,” Berkley said. “This is a meaningful sea change that became very visible, in our opinion, in the fourth quarter, and there is no sign of that slowing down.”
Berkley reminded analysts during the call that the company is continuing with a number of information technology and data-related initiatives designed, in part, to help improve its expense ratio. That said, Berkley asserted that rate hikes now underway and accelerating in most of its other lines are of strong benefit right now as they can help pay for the undertaking.
“We’re going to continue to benefit from higher earned premium as business is growing and much of that growth is coming from higher rates, and much of that will mitigate the additional [tech investment] spend,” Berkley said.