MARS &MCLENNAN CHIEF SEES INSURANCE PRICE INCREASES

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Marsh & McLennan Chief Sees Insurance Price Increases (Update1)
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By Andrew Frye

Feb. 11 (Bloomberg) -- Marsh & McLennan Cos., the second- biggest insurance broker, said carriers around the world are demanding higher rates on some lines of business coverage after losing money on investments backing policies.

"Insurance is showing price increases," Chief Executive Officer Brian Duperreault said today in a telephone interview from New York. "More in reinsurance, but there are some signs in primary as well."

U.S. business insurers are seeking to reverse four years of rate decreases after losses on corporate bonds and mortgage- backed securities weighed on financial results. Natural disasters in the U.S., including Midwest tornados and the worst hurricane season since 2005, also contributed to profit declines and losses across the industry last year.

Marsh & McLennan jumped the most in 27 years in New York trading today after 2,200 job cuts at the flagship brokerage boosted fourth-quarter operating profit. It rose $2.70, or 14 percent, to $21.41 at 4:15 p.m. in New York Stock Exchange composite trading, the second-biggest gainer in the Standard & Poor's 500 Index.

NOTE: Mars& Mclennan was jumped the most in 27 years in the new york.in new york stock exchange composite traiding.

"There's been a recalibration of what is the cost of risk to start with and the ability of companies to take it," Duperreault said. "Capacity has been diminished dramatically given the effects of the capital markets."

Travelers Cos., the second-biggest U.S. commercial carrier, and Chubb Corp. reported profit declines last year while No. 1 American International Group Inc. submitted to a government takeover after a liquidity crunch.

Declines Slowing

In the fourth quarter, U.S. commercial-insurance rates fell 6.4 percent, the slowest pace of decline since 2006, according to a survey by the Council of Insurance Agents and Brokers. Insurers posted their worst underwriting result since 2001.

Still, that may not translate to higher prices for insurance buyers, according to Meyer Shields, an analyst at Stifel Nicolaus & Co. Insurers will continue to slash prices to win business from competitors as the slumping economy reduces demand, Shields said.

NOTE: In hte fourth quarter,U.S. in the comercial insurance the rate was felt 6.4 persent.
the insurance wasstill continue to slash thwe price.

"When we look at this industry, it's still overpopulated," said Shields, based in Baltimore. "Underwriting talent is spread too thin so there are some people that are going to set prices too low. I can't argue with the logic that prices should increase, I just don't know if that's going to happen yet."

Policy Sales

Policy sales by U.S. property and casualty insurers probably fell for a second straight year in 2008, the first back-to-back decline since the 1930s, according to a study by A.M. Best Co. Duperreault said the recession will make it harder for insurers to raise prices even as their capacity to take risk shrinks.

"Which one wins is the question we're all watching this year," Duperreault said.

Duperreault braced New York-based Marsh & McLennan for the recession last year, his first on the job, by reducing staff across the brokerage and consulting units. Marsh & McLennan, Aon Corp., the biggest broker, and No. 3 Willis Group Holdings Ltd. make commissions by helping companies shop for insurance.

Marsh & McLennan said fourth-quarter operating profit per share advanced 54 percent to 37 cents, beating by 5 cents the average estimate of 11 analysts surveyed by Bloomberg. Net income slipped 5.9 percent to $80 million on the severance costs and a drop in brokerage revenue.

'Not Completely Hostage'

Results were "very strong," Stifel Nicolaus's Shields said in an interview. "They're not completely hostage to the economy and primary insurance rate decreases."

The brokerage division more than doubled its profit margin to 14.8 percent, excluding the impact of items including severance pay, even as insurance rates slipped.

Profitability declined at the consulting divisions, which offer advice on human resources and corporate security, and Duperreault said he expects the businesses to contribute less to profit and revenue as the recession deepens.

Marsh & McLennan will focus on reducing expenses on technology, travel and entertainment and may make further workforce cuts, Duperreault said.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.
Last Updated: February 11, 2009 17:04 EST
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