Despite more than $100 billion in disaster losses around the world this year, insurers are not yet experiencing a broad and sustained increase in pricing power, defying predictions from a year ago that even half those losses would be enough to turn the industry around.
For investors, that means picking winners in 2012 will be harder than expected. Analysts say the key is companies with healthy capital levels and reserve strength; those that have already shown some pricing leverage; and the brokers, who are usually first to benefit in a cycle turn.
Among the names that have been highlighted by some analysts are insurers like Travelers Companies, reinsurers like Allied World [and Axis Capital and brokers like Marsh and McLennan and Aon Corp.
"Winners will be those with reserve and capital strength, who strategically are well positioned for a quickly evolving market," KBW analyst Cliff Gallant said in his annual sector preview. "We expect rate improvement to be modest, not uniform and not in any way a traditional hard market."
While 2011 will go down as a record-breaking disaster year, the hurricanes and earthquakes were in many ways not what the industry would typically expect when it thinks about large catastrophes.
There was a heavy concentration in the Asia-Pacific region, and the one hurricane that made a U.S. landfall did relatively less damage than forecast.
"Those were some really big numbers through the year catastrophic loss-wise but they were sort of fringe losses; they didn't hit the big pockets of capacity," said Michael Korn of Integro Insurance Brokers in San Francisco. "Maybe the other shoe has lifted and not dropped yet."
That means that while prices have already risen substantially in some markets for some kinds of coverage, there is not the sector-wide hard market many had hoped for, where all insurers have pricing power over their customers.
"Some have said $100 billion is the number, some have said $150 billion is the number that has to be drained from the market to cause the turn," said Chris Schaper, president of the Montpelier Re Holdings unit Montpelier Reinsurance.
"The industry is still in its assessment phase, if you will," said Schaper, a chartered underwriter with more than 25 years' insurance experience.
"There's no doubt that price movement is taking place," he said, adding it could be another year before price rises fully work through the market.
One of the problems, ironically enough, is that insurers are still making money, particularly because most of the disasters that have occurred have been in places where the risk is spread broadly among insurers. When they are profitable, they can afford to be somewhat more flexible on price to retain business.
"Notwithstanding the fact that the property and casualty insurers' aggregate results have certainly declined ... it is still a profitable industry," said Integro's Nick Conca, who runs the firm's risk management practice. "There's still an abundance of capacity in the P&C marketplace, there's still a good amount of competition for what I'll call garden variety risks."
To be sure, in some places rates are up sharply. Where there have been disasters, for instance in Japan and New Zealand, rate hikes in excess of 50 percent are common.
Prices are also on the rise in Thailand, as the insured toll from devastating floods there passes $10 billion. Some experts believe the toll there could eventually hit $20 billion, making the 2011 flooding in Thailand one of the worst natural disasters in human history by insurance standards.
But in markets where catastrophes did not strike, rate rises are more modest or in some cases nonexistent.
Insurance brokerage Marsh, in a report earlier this month, said only half of its U.S. property clients saw increases in the last six months.
"While most of those rate increases were applied to programs with catastrophe exposure, accounts with little or no such exposure or losses were often able to secure rate decreases during the second half of the year," the Marsh and McLennan unit said.
There are regions of strength, though, in reinsurance, the markets for insurers to backstop their risks with insurance coverage of their own.
JMP Securities said prices in the Bermuda market looked to be at least 7 to 10 percent higher at the key Jan. 1 renewals deadline, as capacity tightens and the full impact of the Thai floods makes it way through the system.
Even so, the firm also said Europe was "disappointing," with rates flat to up 5 percent as reinsurers sought to maintain market share.
"As far as the sector goes, improvements are under way, they're specific right now relative to certain lines of business," Montpelier's Schaper said of the reinsurers. "For all the lines to escalate, it'll take well into 2012 and you're kind of looking more at January 2013."