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Property/casualty insurance rates under pressure

Property/casualty insurance rates under pressure

NEW YORK—Property/casualty rates are under mounting upward pressure due to recent catastrophe losses and continued low interest rates that have limited investment returns, according to speakers at last week's Property/Casualty Insurance Joint Industry Forum in New York.

In addition, a survey of industry executives who attended the event found that nearly three-quarters of respondents said the industry is in the early stages of a hard market.

After 2012 saw a concentration of international earthquake, flooding and other major catastrophe losses, insurance companies are “seriously rethinking” their exposures, and commercial rates—particularly those involving catastrophe risks—clearly are rising, said Jay Gelb, managing director of Barclays Capital. Mr. Gelb spoke during the event's “Experts Panel: View From the Outside Looking In.”

In a separate panel made up of industry CEOs, J. Eric Smith, president and CEO of Swiss Re Americas, said the belief in the industry was that “you're not going to get large catastrophes all around the globe, right? It just doesn't work that way. Well, that went against us” last year.

In addition, the low-interest-rate environment continues to be a concern for insurers and reinsurers and will have an impact on earnings for at least the next few years, Mr. Gelb said.

“On the flip side, that gives (industry companies) more reason to raise prices, and that's one of the things we're seeing,” he said, noting that a “full-on hard market” should emerge within the next three years.

Another member of the experts panel, Matthew C. Mosher, senior vp-global ratings for A.M. Best Co. Inc., offered a similar time frame, noting that while there has been some improvement in property rates, the industry is still a year or two away from “something we would call a "firm' market.”


Low interest rates and the resultant impact on investments are causing “extreme difficulty” for reinsurers in terms of delivering consistent earnings, Mr. Smith said. That problem will have to be solved with good underwriting and a willingness to increase prices, he said.

“We think there is rate deficiency in a lot of areas,” the Swiss Re executive said. “Rates have to move up. There's just not enough income coming in to replenish capital.”

Economic pressures have also had an impact on insurance buyers, said Shivan S. Subramaniam, chairman and CEO of Factory Mutual Insurance Co., which does business as FM Global. He noted that recent years have seen a “distinct terms of commitment to risk improvement” as companies facing pressure on margins have reduced their risk management departments.

Meanwhile, the survey of attendees found that 72% believe the industry is in the early stages of a hard market, while 75% of the respondents said they expect an improvement in profitability.

In addition, 67% of the respondents said they believe premium growth will be higher, 31% believe it will remain flat, and only 2% believe it will decline.

Seventy-eight percent of the respondents said they believe the industry's combined ratio will be lower in 2012 than it was in 2011.

The survey was based on the responses of approximately 40% of the nearly 250 industry representatives who attended the forum.

Mark A. Hofmann contributed to this report.