Reinsurance Rates

Some U.S. property-catastrophe reinsurance rates rose 5 percent 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 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.

Swiss Re climbed 2.9 percent this year through yesterday. Munich Re fell about 9.3 percent.

American International Group Inc., 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.

AIG

"We're coming out of this phase of insureds going into the market thinking they're going to get a rate decrease," said Lou Iglesias, head of commercial casualty at Chartis, in a conference last week sponsored by Advisen Ltd.

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.

Some of the increases in 2005 after Hurricane Katrina, the costliest U.S. natural disaster, reversed the next year as new private-equity-backed firms competed for business. Berkshire Hathaway Inc. added sales after Katrina then "sharply reduced" its appetite for covering storm damage, Chairman Warren Buffett said in 2007. The firm instead invested in takeovers, striking deals to buy a railroad and lubricants maker.

Berkshire Hathaway

"Premium rates have not been attractive enough to warrant increasing volume," Omaha, Nebraska-based Berkshire said in a quarterly filing with regulators in May.