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Commercial rates fall 2% in first drop since 2016 

Australian commercial premium rates have declined for the first time since 2016, falling 2% in the first quarter, according to Marsh’s latest Global Insurance Market Index, released today.

Globally, commercial prices rose 1% in the January-March period after a 2% increase in the December quarter.

Marsh says price drops in the Australia-led Pacific market were driven by a 10% contraction in financial and professional lines, double the 5% decrease seen in the previous quarter. Australia makes up about 80% of Pacific business tracked by the index.

Within financial and professional lines, directors’ and officers’ (D&O) liability rates continued to decline during the first quarter.

In property, rates were flat for the second straight quarter following 26 quarters of increases, while casualty price rises eased for the fourth straight quarter. 

“The D&O market is so competitive now that it’s driving the [Pacific] composite rate, so I’m not surprised that we are now in decreases in the composite rate,” Marsh Head of Global Placement Pacific Scott Eccleston told today.

He says D&O insurers have achieved rate adequacy and retentions have gone up significantly.

“We have also seen a lot more new entrants, particularly out of London, wanting to write that class of insurance,” Mr Eccleston said. “Obviously, where there is more competition it creates cheaper pricing, and that’s what driving it.”

Australian commercial rates last declined in the fourth quarter of 2016, by 2%. After that they slowly hardened, peaking at 35% growth in the fourth quarter of 2020, before gradually easing as insurers’ risk appetite improved.

“We see a continuation of improved buying conditions. What we have seen in the past few quarters and what we’re seeing in international markets, I cannot see any change in the trend,” Mr Eccleston said. “We expect the first half of this year to be improving … and that’s on the back of improved underwriting performance from insurers, very few natural catastrophe events, and just general change in attitude from insurers going into growth mode.

“Rating adequacy has probably been achieved and head offices ... are now putting pressure on insurers to grow.”

The quarterly Marsh index is the global broker’s proprietary measure of commercial insurance rate change at renewal.

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