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Commercial Insurance Rates May Rise If Losses Exceed $35B

Source: Dow Jones

Posted on 25 Jun 2010

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Global commercial insurance rates may reverse their falling trend and rise this year if insured losses exceed $35 billion, Ruud Bosman, vice chairman of U.S. commercial insurer FM Global, said Thursday.

"The experience of the industry, year to date, has still been relatively strong. There have been a lot of events, but none of them of a catastrophic nature which has impacted industry capital," Bosman told Dow Jones Newswires.

"An event that changes the market would be an event in the $35 billion-$100 billion range. Hurricane Katrina came in at round $30 billion," he said.

"What could happen this summer is a big hurricane. And an earthquake could always happen," he said.

The ongoing oil spill in the Gulf of Mexico has been mentioned in the press as a potentially significant drain on the profitability of insurers, but Bosman said this isn't necessarily so.

Moody's Investors Service said earlier this month that total insured losses from the BP oil spill were estimated to be between $1.4 billion and $3.5 billion.

"The industry capital is worth around $500 billion, so there's a lot of cushion available," Bosman said.

"The Icelandic volcano really isn't an insurance event, and the BP oil spill isn't really impacting the insurance industry because BP is largely self-insured. The piece that is insured is the actual value of the Deepwater Horizon rig," he said.

Amid relatively benign natural events, sufficient industry capital and a competitive insurance landscape, Bosman said it is more likely for insurance rates to drop again this year.

"Last year, the markets in general moved down at the rate level--the charge--and not necessarily the premium level, which is the money collected. The rates probably moved down 5% or so. This year, it's the same type of movement you might see again," Bosman said.