Hard market cycle in global commercial lines on the downswing

Globally, cyber rates are increasing at a slower pace, and price increases in financial and professional rates fell for a second consecutive quarter, Marsh noted in its 2022 Q4 Global Insurance Market Index Thursday.

Overall, global commercial insurance prices increased 4% in 2022 Q4, down from a 6% increase in Q3 and a 9% increase in Q2.

“This continues a trend of moderating increases that began in 2021 Q1,” Marsh observed in a statement about the Index results. “While this is the 21st consecutive quarter of increases, pricing increases moderated in most regions with the exception of financial and professional lines, which decreased for only the second time since 2017 Q3.”

For the second consecutive quarter, global pricing in financial and professional lines fell, most notably in directors and officers (D&O) insurance. “Driven by further rate reductions in the U.S., UK and Australia average pricing declined by 6% in 2022 Q4, compared to a 1% decrease in 2022 Q3,” Marsh commented.

Marsh’s global index does not include Canadian data. In the United States, composite pricing for certain financial and professional lines increased by 3% last quarter, compared to a 5% increase in 2022 Q3.

In particular, D&O liability insurance pricing for publicly traded companies in the U.S. declined by 14% in the fourth quarter, compared to a decline of 9% in the third quarter.

In the D&O line, “post-transaction renewals, such as those coming one or two years out from an IPO [initial public offering], led the pricing decreases,” Marsh commented. “Competition was strong from both new insurers and legacy markets as they sought a strong finish to 2022.”

Cyber pricing is still seeing major increases.

Globally, cyber pricing went up 28% in 2022 Q4, although this seems moderate compared to a 53% increase in 2022 Q3. In the United States specifically, cyber insurance price increases slowed down to +28% last quarter, compared to +48% in 2022 Q3, in part because new entrants to the cyber market increased capacity, Marsh commented.

“In some cases, increased competition and favorable cybersecurity controls resulted in flat renewals or reductions,” Marsh says in its Index report. “Claim frequency declined, while severity remained high.

“Privacy claims increased, including those related to online tracking and other consumer protection issues. Systemic exposures, including those related to war, continued to be a concern.”

The impact of NatCats on reinsurance pricing helped drive up 2022 Q4 property rates by 7% globally (and by 11% in the U.S.). Higher increases occurred in portfolios that made a claim, or in Cat-exposed areas in the Mexican Gulf and along the Atlantic coast.

“Pricing for property risks continues to be impacted by the high level of losses in 2022, especially resulting from Hurricane Ian,” Marsh commented. “We are working with our clients to examine a wide range of options, including the increased use of captives and alternative risk financing options, to address their needs and to obtain the optimal outcome for them from the market.”

Marsh noted total insured values in U.S. property portfolios increased by 10% on average in 2022 Q4. Ongoing concerns about inflation mean the global commercial insurance market will continue to be challenged in 2023.

Feature image courtesy of iStock.com/mechichi