HIGHER
FASTER
STRONGER
Commercial premium rates have rallied, although further increases may be more muted, the annual industry Barometer shows By Wendy Pugh
A
recovery in commercial premiums has gathered pace after rates rose more than anticipated last year, the annual JP Morgan Taylor Fry General Insurance Barometer shows. Rates increased 9% as the market continued to recover ground following a long period in depressed territory, building on a 3% gain in the previous 12 months. The improvement follows action taken to remediate underperforming classes, while insurers also benefitted from a fairly benign period for catastrophes and a tailwind from economic momentum. Combined operating ratios improved last year and further profitability gains are expected as the business environment remains reasonably supportive. Commercial rates are forecast to rise 8% this year, with the increases remaining much higher than claims inflation, even as economic growth moderates. “For Australian insurers a tempering, but still growing, economy still allows for the prospect of an upward tick in the insurance cycle,” the Barometer says. Cautious assessments a year ago that the pricing cycle had entered positive territory have proven correct, although the rebound remains more muted than past recoveries.
26
insuranceNEWS
February/March 2019
The pace of rate gains is likely to slow after this year, but a still-healthy gain of 6% is anticipated in 2020. The expectation is that an overall profitability improvement that emerged over the last two years will likely hold into this year and next, the report says. The Barometer is based on a survey of major underwriters, reinsurers and brokers in the local market, and taps data from the Australian Prudential Regulation Authority. The report also has its own substantial body of trend data. This year’s Barometer is the seventh between the current partners, continuing on from 19 editions of the JP Morgan Deloitte General Insurance Survey. Three years ago the report highlighted sliding commercial premiums and a tough environment for insurers. Commercial rates then stemmed the decline with a 1% drop in 2016 before recovering ground in 2017. The 9% rise last year exceeded earlier expectations for gains of around 5-6%.
in the domestic motor and householder ratios indicating improved profitability in these classes, while the premium rates in domestic classes overall are forecast to remain broadly stable,” JP Morgan Insurance Analyst Siddharth Parameswaran says. Survey participants expect claims inflation over the forecast period to grow at moderate levels of around 3% across domestic and commercial classes. In claims frequency, commercial classes have shown more variation compared with domestic lines, but are expected to increase at relatively stable rates going forward. Despite the generally positive picture some classes remain problematic, with more remediation still required. • Fire and industrial special risk rates rose 9% last year after sliding 3% in 2016, but the combined operating ratio was still at 106%, despite dropping by nine percentage points over the same period. The ratio is forecast to be 101% this year.
Commercial combined operating ratios have also improved from 101% in 2016 to 96% last year. In domestic lines the ratio improved to 78% from 90% over the same period, with the greatest shift seen in compulsory third party.
• Commercial motor rates jumped 14% last year, helping the combined operating ratio to slip to 99% from 103% the previous year and 105% in 2016. The report notes that on a normalised basis it is still on the wrong side of the ledger.
“There has been a slight downward trend
• Professional indemnity profitability has