NU Online News Service, Aug. 15, 2:24 p.m.EDT

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Rate increases are likely to continue as reserve releasesdecline and carriers realize minor returns on their investmentportfolios, says a financial analyst with Stifel Nicolaus.

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In its review of 49 publicly-reporting insurers, based on thecompanies' second quarter results, reserve releases were down 8.4percent from the previous year, says Stifel Nicolaus. Total netreserve releases stood at $1.43 billion in 2012 compared to theprevious year's $1.56 billion.

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The analysis excludes The Hartford Financial Services, saysStifel Nicolaus, because the company's $290 million strengtheningof asbestos reserves in the second quarter of 2011 is an outlierthat distorts the underlying industry trend.

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The figures suggest “that reserve releases are decreasinglymasking accident year underwriting-result deterioration inevitablystemming from prior periods' declining rates, 'normal' claiminflation, and the ongoing spate of global naturalcatastrophes.”

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Seven insurers accounted for 67 percent of the group's totalreserve releases, the analyst's note says, but only accounted for30 percent of the group's net earned premiums.

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The seven companies are:

  • ACE.
  • Chubb.
  • Cincinnati Financial Corp.
  • Markel Corp.
  • Partner Re.
  • Travelers.

The report goes on to say that 56 percent of the publiccompanies in the analysis reported lower reserve releasesyear-over-year. About 14 percent of the companies reported netunfavorable loss development.

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Stifel Nicolaus went on to say that, during earning calls, mostinsurers reported improved pricing, but there were few, if any,that reported rate increases “that currently match or exceed claimcost inflation.”

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The analysis adds, “Now that the expectation of interest rateincreases seems very remote, we expect insurers to raise insurancerates or walk away from unprofitable business.”

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The analysis went on to say that the increase in prices willbenefit brokers while carriers' return on equity will be challengeduntil “rate increases both accelerate from current levels and flowinto earned premiums.”

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