Make us your home page

Global disasters are forcing a rise in commercial insurance rates

NEW YORK — Natural disasters costing insurers almost $100 billion are starting to lift some commercial insurance rates after a seven-year decline.

Insurers hurt in the past 16 months by earthquakes in Japan, New Zealand and Chile and tornadoes in the United States are charging more for property coverage.

Risk-modeling firm AIR Worldwide forecast that the recent U.S. twisters and thunderstorms will cost insurers $4 billion to $7 billion. Another firm, EQECAT Catastrophe Risk Modeling, forecast that the tornado destruction in Joplin, Mo., alone, which killed 130 people, could cost insurers $1 billion to $3 billion.

Companies are seeking to strengthen finances after the recession drained value from investment portfolios and limited demand from business clients.

"The market is turning," said Chris Johnson, senior vice president of commercial insurer FM Global. "If you look at reserves, if you look at every indicator for the industry, we have no slack left," he said. "The only way to start turning the corner is for rates to rise."

Insurers have increasingly been able to charge more to existing clients, even if they've had to cut rates to win new customers. Renewal rates for New York-based Travelers' business customers, excluding the largest accounts, rose for the first time since 2007 in the three months ended March 31. CNA Financial Corp., a subsidiary of Loews Corp., increased commercial rates the past six quarters for renewals.

Some U.S. property-catastrophe reinsurance rates rose 5 to 10 percent on June 1, partly spurred by almost $100 billion in global losses since February 2010, according to a report from Marsh & McLennan's reinsurance brokerage on markets including Florida.

Reinsurers like No. 1 Munich Re and Swiss Reinsurance Co. provide coverage to primary carriers, protecting against the largest risks including natural disasters.

Rising rates from reinsurers often lead to higher insurance prices. Reinsurance rates for Japan earthquake protection climbed 20 to 60 percent after the March 11 disaster, said Matthias Weber, Swiss Re's head of property and specialty. The cost of reinsurance for flooding and wind damage climbed as much as 10 percent in Japan, he said.

American International Group, the largest U.S. commercial insurer, is becoming more selective about risks it will take, said Peter Hancock, who was picked in March to run the property-casualty business. AIG said in February it would take a charge of more than $4 billion to build reserves after underestimating the cost of claims. AIG dropped 43 percent this year in New York trading.

U.S. commercial rates have dropped 23 percent since the peak in late 2003, according to Advisen's ADVx index. The last sustained climb in rates was in a period through the end of 2003 as insurers paid more than $22 billion related to the Sept. 11, 2001, terrorist attacks. Prices often climb after extraordinary claims.

Kevin Whitehead, a New York-based senior vice president of excess casualty for Zurich Financial Services, said that a broader rebound in prices for primary coverage is likely, even if it's difficult to predict when rates will rise industrywide.

"We've seen seven years of declining rates, and at some point the pendulum is going to have to start swinging the other way," Whitehead said.

Global disasters are forcing a rise in commercial insurance rates 06/13/11 [Last modified: Monday, June 13, 2011 8:30pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Bloomberg News.

Join the discussion: Click to view comments, add yours

  1. Pinellas grants St. Pete's request to add millions to pier budget

    Local Government

    Times Staff Writer

    The Pinellas County Commission has granted St. Petersburg Mayor Rick Kriseman's request to dedicate millions in county funding toward the city's new pier.

    The St. Petersburg City Council on Thursday  voted 7-1 to appropriate $17.6 million for the over-water portion of the Pier District. This is a rendering of what the new Pier District could look like. [Courtesy of St. Petersburg]
  2. Pinellas licensing board loses support for staying independent

    Local Government

    CLEARWATER –– The Pinellas County Construction Licensing Board on Monday lost its strongest supporter for staying independent.

    State Sen. Jack Latvala, a Clearwater Republican running for governor, said Monday that he will no longer support any legislation to keep the Pinellas County Construction Licensing Board independent. This photo was taken in August. [SCOTT KEELER | Tampa Bay Times]
  3. Triad Retail Media names Sherry Smith as CEO


    ST. PETERSBURG — Triad Retail Media, a St. Petersburg-based digital ads company, said CEO Roger Berdusco is "leaving the company to pursue new opportunities" and a member of the executive team, Sherry Smith, is taking over.

    Sherry Smith is taking over as CEO at Triad Retail Media, the company announced Monday. | [Courtesy of Triad Retail Media]
  4. Two new condo projects for same street in downtown St. Pete

    Real Estate

    ST. PETERSBURG — It lacks the panache and name recognition of Beach Drive, but 4th Avenue N in downtown St. Petersburg is becoming a condo row in its own right.

    Bezu, a condo project planned at 100 4th Ave. N in downtown St. Petersburg, will have 24 units including a three-level penthouse with infinity pool.
[Courtesy of Clear ph Design]
  5. AAA expects gas prices in Tampa Bay will continue to fall


    Ticking slowly and steadily, regular gas prices have receded for the last 10 consecutive days. The average unleaded gas price in Florida is $2.67 this morning, a nickel cheaper than a week ago. In Tampa Bay, the current average unleaded gas has dropped 7 cents from a week ago to $2.62. The national average for regular …

    Gas prices for regular gas continue to decline. In Tampa Bay, the current average unleaded gas is down 7 cents from a week ago at $2.62 a gallon. [Times file photo]