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Travelers' Rate Increase Could Signal Turn in P/C Market

Source: Dow Jones - Erik Holm

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Posted on 20 Oct 2011

After years of price declines, signs suggest that property-casualty insurers that sell coverage to U.S. businesses may have finally hit bottom and are starting to climb out of their hole.

Executives at Travelers Cos. on Wednesday gave perhaps the most optimistic assessment of the long-beleaguered commercial-insurance marketin years, saying the rates it charged existing policyholders in September were up about 4%, and estimating that prices were finally increasing faster than the expected rise in its claims costs.

October showed even more promise, company executives said.

The price increases were the most aggressive the company had been able to push through since it reached its current form through a merger of Travelers and St. Paul in 2004, Chief Operating Officer Brian MacLean said during a conference call with analysts and investors.

This may be good news for insurance companies and their shareholders. But it will translate into increased costs for the businesses that buy the coverage--a group that includes virtually every company in the U.S.

To be sure, Travelers has often painted a rosier picture on prices than others in the insurance industry in recent years, and executives cautioned that they could only comment on their own efforts at raising rates instead of speaking about the entire sector.

But there have been other recent indications of a market turn. Among them: A much-watched industry survey released by the Council of Insurance Agents and Brokers on Wednesday showed that commercial insurance rates across the industry rose in the third quarter for the first time in more than seven years.

Another report from MarketScout earlier this month said rates were flat overall in September, and were rising in several lines of coverage.

The survey from the CIAB said the average increase was only about 1%. It found larger increases in small and mid-sized accounts, which make up the bulk of Travelers' business. The largest accounts were still down slightly, the survey said.

Jay Gelb, an analyst with Barclays Capital, said in a note to clients Wednesday that insurer profit margins would continue to deteriorate because price increases were still failing to keep up with the rising cost of claims.

"A broad sustained improvement in P&C pricing appears several years away," in part because the industry is overcapitalized, he said.

Yet Travelers' Chief Executive Jay Fishman said the company's underwriting profit margins could improve as soon as the second quarter of 2012 if current trends continue.

Travelers' stock jumped after executives shared their insights during their quarterly conference call. The shares rose 6.3% to $54.69 in afternoon trading, the biggest increase in more than two months.

And while Travelers executives cautioned against assuming other commercial insurers were equally successful at raising rates, shares of rivals including Chubb Corp., Ace Ltd. and W.R. Berkley Corp. were all up more than 2%.


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