Commercial Insur Rates Likely To Rise Into 2004 - Survey

   Of DOW JONES NEWSWIRES

NEW YORK -- Commercial insurance rates will likely continue to climb into 2004, particularly rates for casualty insurance, according to a Prudential Securities Inc. survey.

The survey, released late Friday, found that more than half of risk managers who renewed policies in January did so at higher-than-expected levels, a sign the market remains firm, said Alice Cornish, a Prudential Securities insurance analyst.

"We believe that while the level of rate increases has peaked for both property and casualty, neither line has peaked as far as the level of premiums, although property is much closer to that point," Cornish said.

The survey included interviews of more than 100 risk managers, with about 48% of the firms in the Fortune 1000.

Price increases remained strong in the fourth quarter, Cornish said. Casualty rates rose 51% on average, up from a 42% hike a year ago. Property rates increased 23% in the fourth quarter, down from a 62% hike a year earlier, she said.

"A risk manager with a financial services firm noted that the casualty renewal was particularly difficult (in 2002), up 200%, driven by (directors and officers insurance)," Cornish said.

In that risk manager's experience, finding umbrella insurance - coverage above the limit of an underlying policy - was difficult, and workers' compensation insurance was a "nightmare" due to underwriter concerns about concentration of exposures, Cornish said.

In 2003, property rates are expected to rise 26% in the first quarter, 23% in the second quarter and 19% in the third quarter, Cornish said.

Casualty rates are expected to increase 45% in the first quarter, 31% in the second quarter and 39% in the third quarter, Cornish said.

About 54% of risk managers surveyed said they expect tighter terms and conditions when they renew this year, on top of tighter terms last year, Cornish said.

As a result, she recommends purchase of Ace Ltd. (ACE), American International Group Inc. (AIG), Arthur Gallagher & Co. (AJG), Chubb Corp. (CB), Marsh & McLennan Cos. (MMC) and XL Capital Ltd. (XL) stocks.

Cornish, a member of her research team or a member of her household has a material position in Ace, AIG, Gallagher, Chubb, Marsh & McLennan and XL Capital. Prudential or an affiliate owns more than 1% of the XL Capital's stock.

-By Chad Bray, Dow Jones Newswires; 201-938-5293; chad.bray@dowjones.com

Updated February 24, 2003 10:36 a.m. EST