(Bloomberg News) 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. and brokers like Aon Corp.
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.
Renewal Rates
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's 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 last six quarters for renewals.
Allianz SE, Europe's biggest insurer, may benefit from higher prices for insurance renewals, Oliver Baete, chief financial officer of the Munich-based firm, said in a statement last month.
Investors have anticipated a rise in rates. Travelers climbed 8.9 percent this year through yesterday, beating the 1.7 percent gain of the Standard & Poor's 500 Index. Chubb advanced 7.8 percent and Chicago-based CNA jumped 8.1 percent. Aon surged 9.9 percent and New York-based Marsh & McLennan increased 9.4 percent. Allianz gained about 3.3 percent.