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 9:30pm]

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