Thursday, June 9, 2011

Disasters costing $100 billion begin to lift insurance rates

Noah Buhayar in Bloomberg: Natural disasters costing insurers almost $100 billion are beginning to lift some commercial insurance rates after a seven-year decline. The reversal may benefit underwriters such as Chubb Corp. (CB) and brokers like Aon Corp. (AON)

Insurers hurt in the past 16 months by earthquakes in Japan, New Zealand and Chile and tornadoes in the U.S. are charging more for property coverage. 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 in an interview. “The only way to start turning the corner is for rates to rise.”

Travelers Cos. and Warren, New Jersey-based Chubb, which repurchased shares in the past three years rather than writing more coverage, are among insurers that may benefit from higher prices, said Cliff Gallant, an analyst at KBW Inc. Brokers like Chicago-based Aon and Marsh & McLennan Cos., which collect commissions on policies sold, may also gain.

Among the signs of sporadic rate increases: Prices for property coverage for businesses rose 0.2 percent in catastrophe-prone areas since mid-April, according to a report from Marsh’s flagship unit last week. The cost for general liability fell at a slower rate so far this quarter than a year earlier.

… Rising rates from reinsurers often lead to higher insurance prices. Reinsurance rates for Japan earthquake protection climbed 20 percent to 60 percent after the March 11 disaster, Matthias Weber, Swiss Re’s head of property and specialty, said at a June 7 Bloomberg Link conference in New York. The cost of reinsurance for flooding and wind damage climbed as much as 10 percent in Japan, he said….

A 1999 tornado near Minco, Oklahoma, from NOAA

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