Premium content: UK commercial rates decline slows

UK commercial rates

UK commercial rates fell by 4.8% year on year in the fourth quarter of 2016, the largest decline in the world and the 15th successive quarterly fall, according to a report from Marsh.

But the figures hinted that the market could be set to turn, as the rate of decline slowed from 5.0% to 4.8% in 2016 - a picture mirrored across the globe with the exception of continental Europe.

The report said the latest declines were driven by decreases in property insurance pricing and overcapacity in the market. It broadly echoes insurer’s own figures, including RSA who reduced commercial rates by 1% in property and 2% in liability in the first quarter of 2016, then held flat year-on-year in Q2.

The UK rate of decline peaked with an 8.5% fall in Q3 2015. Commercial insurance rates last rose four years ago.

Global Recovery
On a global basis, the news was more encouraging with average rate moderating for four consecutive quarters for the first time since 2012. Marsh said the latest figures could be “harbingers of looming rate increases” as insurers’ margins come under increased pressure.

Dean Klisura, Global Industry Specialties and Placement Leader for the broker attributed the sustained falls to a “market with an oversupply of capacity from traditional and alternative sources, and a lack of significant catastrophe losses.”

Despite the enduring soft market gloom, optimism remains high with 81% of chief executives optimistic about achieving revenue growth in 2017, according to a report from PwC earlier this week.

Global insurance rates also fell, year-on-year, for the fifteenth successive quarter. The rate of decline narrowed marginally from 3.2% in Q3 per to 3.1% in Q4. The rate previously peaked with a fall of 5% in Q4 2015. Property rate declines increased in Q4 from an average of 3.9% to 4.2%, but narrowed from a fall of 5.6% over the course of the year.  Casualty rates moderated from 2.4% to 1.9% in both Q4 and for the full year. Financial and professional were unmoved at a fall of 3%.

Other regional markets showed a wide variance from quarter to quarter, with swings averaging almost 1%, but the UK velocity changed a total only once in 2016, and by just 0.2%, underscoring how entrenched the rating environment has become. 

The study, the Global Insurance Market Index, includes property, casualty and liability lines, and covers 90% of Marsh’s business by premium. It breaks out figures for the US, Latin America (Latam), Continental Europe and Asia / Pacific.

Latam and Asia / Pacific saw significant improvements in 2016, with Asia Pacific decreases halving to 2.5% and Latin America’s decline narrowing from 5.5% to just 0.5%. Continental Europe was the anomaly, as its rating decline accelerated by more than a third from 3% to 4.2% per cent between Q3 and Q4.

The report also said that Brexit was yet to make material impact on the commercial insurance pricing environment, while total capacity in the US now exceeds $700bn.

Full year commercial rate changes by region

Commercial rate changes by region, year-on-year. From left: US, UK, Europe, Latam & Asia / Pacific. Click to enlarge


Global commercial insurance rate change 2016

Global commercial insurance rate change, 2012-16. Click to enlarge