NU Online News Service, Jan. 20, 11:42 a.m.EST

Rate increases for 2012 could head as high as 10 percent if ahandful of negative pressures continue to affect insurers'earnings, a financial analyst suggests.

Meyer Shields, an analyst with Stifel Nicolaus, saysthe combination of global natural and man-made catastrophelosses along with loss-cost inflation from 2011catastrophes, insurers' merger and acquisition activity, RMSVersion 11 catastrophe model revision, and worsening coreunderwriting results is “setting the stage for significant mid-2012rate increases” of around 10 percent on commercial linesbusiness.

After a record first half of the year in catastrophe losses, thefourth quarter of 2011 provided some loss relief, sayd Shields in a previewof insurance industry fourth-quarter earnings.

In the commercial lines area, rates began to increase or were atleast flat, the report says, with workers' compensation increasingby 3 percent, according to figures cited from MarketScout, anonline insurance market exchange.

But the recent comercial rate improvement “shouldn'tbenefit carriers' underwriting margins yet, as loss cost inflationis still outpacing rate increases,” Shields says.

P&C pricing on catastrophe property could also get a boostfrom increased reinsurance rates as a result of more than $100billion in insured global losses in 2011. Also contributing toreinsurance demand is the RMS Version 11 hurricane modelrevisions, which raises loss expectations.

However, brokers will see some organic growth benefit as ratesimprove and the economy improves.

Auto and homeowners will continue to see rate increases, Shieldsadds. He blames loss-cost inflations worsening as drivingincreases, higher auto repair from accidents, medical care costsincrease and pressure from recent years' storm losses.

Adding to the pressure on rates, Shields says, is unprofitableunderwriting results reflected in an industry combined ratio above100 since 2008 and poor returns on investments.

Reserve releases are expected to slow further in 2012 “allowingpoor accident year results to determine reported [earnings pershare] and ultimately boost rates,” Shields writes.