Home, Auto Insurance Rates Could Climb 10% or More

Article excerpt

But Bruce Ballantine, a senior analyst with Moody's Investors Service in New York, says a point often missed in such discussions is that the losses from Hurricane Andrew were not distributed equally among insurers. They fell disproportionately on the segment of the industry that specializes in personal lines of insurance and has perhaps a third of the industry's total capital.

Allstate and State Farm, for example, together write about a third of the nation's auto and homeowners policies. Allstate's afterx losses of $1.1 billion equal about 20 percent of the company's capital. State Farm's $1.4 billion in losses equal about 8 percent of capital.

The amount of capital is crucial to an insurance company because it serves as a buffer against unexpected losses. It also limits the amount of insurance the company can write.

Generally, state regulators prefer that insurers write policies whose premiums do not add up to much more than twice the insurers' capital, or net worth.

Still another factor that may affect prices for individuals, analysts say, is the extreme tightening in the market for disaster reinsurance, which is insurance that insurance companies buy so that when a large disaster hits, they share the costs with others.

Even before Andrew, losses from the last three years had already drastically reduced the amount of reinsurance being written by Lloyd's of London and other British reinsurers.

Continental Insurance of the United States, which wrote $250 million in reinsurance premiums annually, said that after heavy losses from Andrew, it was leaving the field.

Michael Frinquelli, an analyst for Salomon Brothers, who expects average rate increases of as much as 10 percent for personal types of insurance, points out that the question of how well propertysualty insurers have done in recent years depends on what numbers you look at.

If one looks at only underwriting results and investment income in the last decade, returns for the industry were poor _ about 11 percent for those who have invested in the insurance industry, compared with 15 percent for the Standard Poor's 500. …