Comml Insur Rates Seen Rising In 2003 - Prudential Survey

No further information is available at this time.

   By Chad Bray
   Of DOW JONES NEWSWIRES

NEW YORK -- Risk managers are seeing average rate hikes of 54% in some liability insurance lines in the fourth quarter, Prudential Securities Inc. analyst Alice Cornish said Monday.

In a research note, Cornish detailed the initial findings of the firm's Insurance Buyer Survey, which is conducted twice a year. The full survey is expected to be released in late January.

Liability rate increases are up from an average of 42% in fourth-quarter 2001, she said.

More than 60 risk managers were interviewed for the study.

The study found that 33 corporate insurance buyers said they're seeing commercial property rate increases averaging 25% in the fourth quarter, Cornish said. Property rate hikes averaged 62% in the prior-year period, she said.

Twenty-five risk managers said that for 2003 they expect average commercial property rate increases of 27% and liability rate hikes of 37%, Cornish said. Commercial property rate increases averaged 70% in first-quarter 2002 and liability rate hikes averaged 46% in the prior-year period.

"Insurance buyers are also repeating a common complaint heard during our July 2002 survey: even if renewal submissions are completed months in advance, risk managers are often waiting for a quote until just before their renewal date," Cornish said. "In many cases, underwriters are blaming the delays on their inability to get firm reinsurance support and a lack of underwriting authority at the point of sale. Whatever the reason, the slow responses reduce opportunities for insurance buyers to explore alternatives to quotes that they think are too high."

Policy terms in 2003 are expected to be as tight as they were in 2002, if not tighter in some cases, Cornish said.

Rate increases are expected to continue across all lines of business in 2003, but may be moderating when compared with 2002, Cornish said.

No further information is available at this time.

"We expect that casualty rate hikes will be higher than property, largely because property business began tightening earlier than liability lines," Prudential Securities Inc. analyst Cornish said.

In many cases, commercial property lines have already been through two or three rounds of rate increases and are likely closer to being adequately priced, Cornish said.

However, insurers are still grappling with how to price terrorism coverage in the U.S., which many risk managers believe will only be made available at a very high cost, Cornish said. "As a result, property rate increases could be understated for those companies that will ultimately need to purchase this coverage," she said.

Corporate insurance buyers believe that the hard market - an environment where rates are rising and policy terms are tightening - will last into at least 2004, Cornish said.

"With a relatively high underwriting loss, capital still shrinking, a tight reinsurance market and managements' focus on profitability, the insurance market should remain hard for the foreseeable future," she said.

But property-casualty stocks don't reflect the favorable market conditions, Cornish said.

Stocks in Prudential's commercial insurance index are trading at 1.41 times book value - below the seven-year average of 1.69 times book value and its high of 2.2 times book value in 1998, she noted.

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

Updated December 30, 2002 11:24 a.m. EST