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Insurers: No shield from rate hike
Industry CFOs say higher reinsurance rates will mean bigger premiums for policyholders.
December 1, 2005: 12:24 PM EST
By Shaheen Pasha, CNN/Money staff writer

NEW YORK ( - American International Group expects reinsurance premiums to rise significantly in 2006 and the company will pass the higher costs to consumers, AIG's Chief Financial Officer Steven Bensinger said.

Speaking on a panel at the Lehman Brothers Property/Casualty and Life Insurance CFO conference in New York, Bensinger said the company, which also sells reinsurance, expects "10 percent to 35 percent increases in our own product that we sell" and left the door open for even higher rate increases if necessary. Reinsurance is coverage bought by insurers themselves to offset risk.

He added that the company is also a large buyer of reinsurance, and with rates on the rise its only natural that the company will raise its own primary insurance rates. Bensinger said the company was able to absorb the unprecedented $1.6 billion in losses it incurred from catastrophes in the third quarter, in part due to its diverse portfolio of businesses. Still, the company is implementing other measures to mitigate future losses.

Bensinger said that in addition to raising rates, the company is also modifying its deductibles for flood and wind coverage to account for higher risk. He said policyholders will likely be responsible for five percent of the value of the insured property, up from two-to-three percent deductibles.

Dan Hale, financial chief at Allstate, said reinsurance costs will inevitably increase, with the amount determined by risk. Allstate is the largest publicly traded insurer in the country and also has the greatest exposure in hurricane-prone states. Hale said his company plans to expand its reinsurance purchases, perhaps by taking on countrywide coverage, and will evaluate what kind of rate increases it can pass on to its policyholders.

"In those states where we have purchased reinsurance, we're able to pass along costs," he said. "It may be on a lag but its doable."

Much depends on the revised estimates of catastrophe modelers, according to executives. They said as risk modelers come up with new estimates for potential losses, insurers and reinsurers will have a better idea of how high rates can go.


Allstate's CEO sees big rate hikes ahead. Click here for that story.

After a devastating hurricane season, insurers are playing the blame game for losses. Find out more here.  Top of page

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