Hurricanes Spur Property Premium Hikes

Risk managers see lower rates overall in quarter, but that wasbefore Katrina, Rita

By caroline mcdonald

Corporate insurance buyers paid lower premiums in the thirdquarter overall, but property renewals following the devastation ofHurricanes Katrina and Rita are up as much as 20 percent, accordingto a survey of risk managers.

The Risk and Insurance Management Society's "Benchmark Survey"found the bulk of renewals reported had been secured before thehurricanes impacted the market.

"Our expectation is that we're going to see a spike in propertypremiums quickly--then the question is if that will dampen out, orif it will drag up the rest of the rates with it," said DavidBradford, editor in chief at Advisen, Ltd. in New York, whichcollects and analyzes the data and provides the technologyinfrastructure for the survey's online services.

He added that "with [Hurricane] Wilma [looming], all bets arestill off right now."

What he expects as a result of Hurricanes Katrina and Rita is"to see property rates rise immediately and rates for other linesof business to stabilize." He said that only when the losses fromthe hurricanes mount and "the numbers become a little clearer willthe industry react. If this is more than just an earnings event--ifit does cut into capital--we would expect to see rates rise acrossthe board."

The survey results showed renewal premiums down on average morethan 5 percent against the same quarter last year. Directors andofficers liability experienced the steepest decline, falling 8.45percent. Property premiums fell just under 6 percent and generalliability was down 5.2 percent. Workers' compensation was the onlymajor line that was down less than 5 percent--posting a decline of3.75 percent.

Advisen editors who manage the survey pointed to carrierfinancial performance as a catalyst for dropping prices. Theproperty-casualty industry experienced record profits in the firsthalf of 2005, leading underwriters to drive down renewal rates in acompetitive scramble for increased revenue. They said the continuedsoft market has yet to feel the impact of the devastatinghurricanes that hit the U.S. Gulf region.

"There is increased competition as carriers all vie for renewalsin this profitable market. The natural market reaction is to drivedown prices," Karen Beier, a member of the RIMS board of directors,said in a statement. She added that the devastation of Katrina andRita is only now beginning to translate into higher renewal prices."The whole picture could change dramatically in the comingquarters," she said.

Advisen said it conducted a secondary set of interviews withabout 30 companies that had renewed programs on or after Oct. 1,and asked if the hurricanes had any substantive effect onpricing.

Most risk managers responded that they had already receivedindications of pricing by the time Katrina hit the southern UnitedStates and that those quotations were honored. However, somemanagers--who had either not yet received quotations or whoseverbal quotations were not honored--said they experienced increasesas high as 20 percent over the prices they had anticipated or hadbeen originally quoted for their property insurance programs.

"Risk managers who saw their renewal prices drop said they feltlucky, because those who experienced the hurricane effect are nowexplaining to their management why renewal premiums just wentthrough the roof," Mr. Bradford said in a statement.

He added that the real question is whether Katrina and Rita will"have a lasting effect and strengthen the market for atime--potentially in all lines of business, not just property--orwhether this is a short-term blip in what has proved to be a prettyresolute soft market."

The results of the RIMS Benchmark Survey are available online,published continuously throughout the year, and in a book,published once each year. Visit www.RIMS.org/benchmark fordetails.

"Risk managers who saw their renewal prices drop said they feltlucky, because those who experienced the hurricane effect are nowexplaining to their management why renewal premiums just wentthrough the roof."

David Bradford

Advisen, Ltd.