Swiss Re: 2003 Comml Insurance Rates Up As Much As 50%

   Of DOW JONES NEWSWIRES

NEW YORK -- Property-casualty insurance rates will continue to rise into 2003, by as much as 50% in some casualty lines, a Swiss Re executive said Tuesday.

Speaking at the reinsurer's year-end review conference, Andreas Beerli, chief executive of Swiss Re's Americas division, said property rates have risen at a faster pace than rates in casualty lines in recent years. Casualty lines are one to two years behind property lines in terms of increases, Beerli said. Primary insurance for personal lines policies, such as home or auto insurance, will rise as much as 10% for policies that renew between now and January. Some property lines may see no increase, while others will see a 10% hike.

Commercial insurance will see increases as high as 50% in some lines. Mark Lescault, chief underwriting officer for Swiss Re's Americas division, said rate increases will vary by line but the largest hike will be in medical malpractice and directors and officers insurance.

Commercial property rates will likely see increases of up to 20% and workers' compensation insurance will cost 20% to 30% more upon January renewal. Much like primary insurance, reinsurance rates also will be higher. Liability rates will have the largest increases, somewhere between 35% and 50%.

Thomas Holzheu, a Swiss Re senior economist, said property-casualty insurers will continue to feel pressure to raise rates, in part due to the capital losses they've experienced since 2000. The industry as a whole lost about $40 billion in capital as a result of the Sept. 11 terrorist attacks and about $10 billion due to the collapse of Enron Corp. (ENRNQ) and other "problem bonds," Holzheu said.

Because of weak equity markets, U.S. insurers have lost nearly $80 billion in their investment portfolios since 2000, while European insurers have lost about $110 billion.

The industry is also facing reserve shortfalls due to adverse trends in some lines and renewed concerns about asbestos and other environmental exposures. The industry's reserves for asbestos and environmental claims could face a shortfall of up to $55 billion, he said.

However, solvency issues aren't likely for the industry, Holzheu said. Insurers should benefit from higher rates and tighter underwriting in the next few years. The industry's investment returns are also expected to remain low in the next few years, which should lead to further strengthening in rates.

Kurt Karl, head of Swiss Re's economic and research consulting practice in North America, said the economy is likely to grow at a modest 3% in 2003. He expects interest rates to remain low, with the federal reserve increasing rates sometime in the second half of the year. The likelihood of a more robust recovery - 3.5% or higher - is only about 20% next year, he said.

Meanwhile, it's unclear how primary insurers will price terrorism coverage now that there is a federal reinsurance backstop in the U.S., said Lescault, the underwriting officer.

With no real certainty among insurers about how frequently or how severe future terrorist attacks will be in the U.S., insurers are likely to be conservative in their pricing, Lescault said.

A lot will be decided within the next 90 days as insurers extend coverage to their clients, he said.

-By Chad Bray, Dow Jones Newswires; 201-938-5293

Updated December 10, 2002 11:58 a.m. EST