Posted on 11 Nov 2011
Bill Berkley, the chief executive of insurer W.R. Berkley Corp., said commercial insurance rates will be up by 5% by the end of this year and by as much as 10% more by the end of 2012 as insurers "face up to reality."
Insurers in the U.S. have faced years of falling prices, though several of the largest companies, including W.R. Berkley, have said they were finally able to raise prices somewhat in the third quarter. Berkley, speaking to reporters in New York Thursday, said he was somewhat surprised that prices hadn't increased by a greater amount already.
But he predicted that rates would continue to rise in the months ahead as more insurers stop pulling money from the reserves they set aside to pay claims and begin adding to them instead.
"When those reserve redundancies become deficiencies, it's over," Berkley said of the so-called soft market for insurance. "That's what's happened in every cycle before this."
Berkley predicted his own company, in contrast, will likely be able to keep pulling from reserves.
"We continue to expect that, certainly for the foreseeable future," he said.
The low yields that property-casualty insurers are earning on their investment portfolios are providing an additional impetus to raise insurance rates, Berkley said. He cautioned that some rivals are selecting slightly riskier investments or pushing out the duration of their investment portfolios in a hunt for yield.
Berkley predicted that the price increases would begin to approach 8% to 10% in about the third quarter of next year