Commercial Insurance Rates Seen as Stabilizing
U.S. commercial insurance rates may be hitting bottom after a 10-year price war as some big insurers turn away unprofitable business and begin pushing for rate hikes.
The trend in the prices that insurers charge their corporate clients has been the hot topic in the insurance industry in recent weeks. Interest has picked up in response to comments from some of the country’s largest commercial insurers, who have been telling Wall Street that price declines are slowing in certain classes of business.
“I think what’s happening is that we’re in the early stages of finding a bottom,” J.P. Morgan analyst Weston Hicks said.
Insurance company Chubb Corp. told analysts it saw average price hikes of 2.5% in March and 3.5% in April and projects average rate increases of about 5% by year end.
American International Group Inc. Chairman M.R. “Hank” Greenberg said he believes that the worst of the price war is over. American International is the country’s largest commercial insurer.
Growing sentiment that prices may be stabilizing has stirred speculation about whether rates will swing sharply higher in the near future. The outlook for commercial insurance rates is important because early signs of improvement could trigger a rally in insurance stocks.
The sector’s stock prices are trading near a 10-year low relative to the valuations on the Standard & Poor’s 500 index, according to Merrill Lynch & Co. analyst Jay Cohen.
The S&P; 500 is trading about 26 times earnings, he said, while insurance stocks are trading at about half that.
Large companies buy commercial insurance to protect themselves from lawsuits and to protect their property and workers. Well-known coverages include workers’ compensation, product liability and commercial auto insurance.
Net premiums written in commercial insurance totaled $135.6 billion in 1997, representing about 50% of the overall U.S. property and casualty insurance market.
