The hurricanes that hit theUnited States over the last few months have left the insuranceindustry facing piles of claims. Commercial insurance buyers haveenjoyed a soft market in recent years, but this fall's catastrophelosses are likely to result in higher prices going forward, atleast for buyers with catastrophe exposures.

Some estimates of insurers' losses related to the recent naturaldisasters have been sky-high. Fitch Ratings said that catastrophelosses for 2017, including those related to the threehurricanes—Harvey, Irma, and Maria—and the earthquakes in Mexico,will cost global insurers and reinsurers more than $100 billion andcould get up to $190 billion.

Steven Weisbart, senior vice president and economist at theInsurance Information Institute, noted that insurance companies arestill receiving and processing claims from the hurricanes. It couldtake until November or December to get a good handle on the costs,he said.

Gary Marchitello, head of property broking at Willis TowersWatson, pointed out in an email that the widely varying estimatesof the losses related to the three hurricanes have “created greatuncertainty for insurers/reinsurers in estimating theirlosses/posting reserves and formulating their ongoing pricingstrategy.”

While the losses are hefty, insurers and reinsurers are sittingon plenty of cash.

Don Griffin, a vice president at the Property Casualty InsurersAssociation of America, noted that at the end of the secondquarter, U.S. insurance companies' capital and surplus totaled anall-time high of $717 billion, while the global reinsuranceindustry's capital exceeded $605 billion. “So not only do we have alot of cash available in the U.S., it's available worldwide,” hesaid.

Moreover, Griffin said, some of the losses caused by HurricaneHarvey will be covered by the National Flood Insurance Program,rather than private insurers, and about half of the losses thatresulted from Hurricane Irma were covered by reinsurance.

“We may see an uptick in commercial rates,” Griffin said.“Having said that, I don't know that it will be as significant asmany might think.”

Return on Insurers' Capital

Duncan Ellis, U.S. property practiceleader at insurance brokerage Marsh, agreed that the losses werelikely to represent a small portion of insurers' capital. He saidconsensus puts the recent losses at about $100 billion, in additionto about $16 billion from other catastrophes earlier in theyear.

“This $100 billion loss is going to remove about 14% of thecapital and surplus of the insurance market,” Ellis said. “That's$100 billion being taken out of $700 billion.”

He expects the cost of insurance to increase, but said thatwould reflect not the loss of capital but insurers' unhappinesswith the amount they're earning on their capital.

“The prices have become so low that the return on that capitalwas pretty mediocre. With these losses, the return on that capitalis very poor,” Ellis said. “Insurance companies are looking toraise prices, especially in the natural catastrophe space, to get areturn on that capital.”

Prices might not increase across the board. Owners of propertiesexposed to natural catastrophes, like “those along the Gulf Coast,those in wind-prone areas like Central Florida, I think they aregoing to see increases in pricing on those properties that areexposed,” he said.

Those whose properties are not exposed to catastrophes may notsee price increases, Ellis said, but they “may no longer seedeclines.”

“The pricing increases we're going to see are going to bedifferentiated by risk,” he summed up. While some accounts couldrenew at a flat rate, “other accounts that are cat-risk-exposed aregoing see some significant uplift. If some of thosecat-risk-exposed accounts also see losses, I would say they wouldbe looking at some type of adjustment.”

Willis Towers Watson's Marchitello also expects to see priceincreases.

“The commercial insurance marketplace has been very stable sofar,” he said. “We do, however, expect a change in the marketplaceafter insurers have a chance to estimate their ultimate losses. Wefully expect to see some type of market correction.”

Marchitello said, though, that the “upward rate movement” mightnot occur until the first or second quarter of 2018. And he seesthe possibility of developments that offset that price move.

“For example, more capital could come into the marketplace,” hesaid. “There are some providers of alternative capital with drypowder on the sidelines waiting for something like this.”

The Insurance Information Institute's Weisbart said the stringof hurricanes in the United States this fall has upset expectationsabout future weather events.

“There is once again a debate, not just in insurance circles butelsewhere, about whether the three major hurricanes we've had in avery short span represent a model for the future or a freak,” hesaid. “It's obviously a big difference not only in terms of howlives should be led, but how insurance companies arrange theirbusiness model.”

Insurance rates going forward will reflect not just past claims,but insurers' expectations for future claims, Weisbart added.

“Some of it will be dependent on: Do underwriters and actuariesthink we're going to have more years like 2017? Or are they goingto take the position that this was a freak year, and we'll havemore years like 2013, 2014, 2015, where we had very fewcatastrophes?” he said. “Which one they do will go a long waytoward telling us which way rates will change, if they change.”