General insurance will remain in a soft pricing cycle over the next couple of years, according to Taylor Fry director Kevin Gomes.

Net loss ratios are falling and modelling shows this is likely to continue, so actuarial consultant Taylor Fry predicts a 3% rate drop for next year, he told the Actuaries Institute General Insurance Seminar in Melbourne last week. In 2018 rates will be flat.

“High cost ratios and low yields on investments have seen the lowest returns on equity in the past 30-40 years,” Mr Gomes said.

“But we are seeing this soft cycle globally, not just at a local level. The soft cycle is not new, but it is still confronting and it is in the top two issues faced by the industry.”

Volatility in loss ratios is consistent across most sectors.

Mr Gomes says cycles seem to be long term, but defining local cycles is harder due to a lack of data.

Taylor Fry Actuary Tim Yip told the conference Australian data goes back to 2005 only, compared with 1999 in the US.

“In the US we have seen commercial rate changes across all account sizes, although the falls are not large any more,” he said.

“It is a soft cycle and they are in the middle of that cycle, but it has turned.”

In the US data, commercial property is the most volatile line, showing a 15% swing either way. Casualty products show only a 5% swing.

“Commercial insurance is more prone to cycles due to lower frequency and greater pricing uncertainty,” Mr Yip said. “Most commercial is placed through intermediaries, making it easy to enter markets.”

With the soft cycle expected to continue, Mr Gomes says actuaries can play a more active role in pricing.

“The role actuaries play in commercial pricing has always been at the small end of the market,” he said. “At the larger end of the market the underwriters have more influence, but there is a push to increase the role of the actuary.”