Marine insurance could be heading for dangerous double whammy

That marine insurance premiums continue to decline was the all too familiar story at the opening day of the International Union of Marine Insurance Conference in Tokyo today.

Global marine underwriting premiums for 2016 fell to USD 27.5 billion, a 9% reduction on the figure reported for 2015, IUMI reported to more than 400 delegates at the conference in Tokyo.

Vice-Chairman of IUMI’s Facts & Figures Committee, Astrid Seltmann explained:

“The 2016 number follows a continuing downward trend in marine underwriting premiums. In 2015 the adjusted figures of US$30.5bn was in itself a 9.9% reduction from 2014. We attribute part of the reduction to the strong US dollar when compared with other currencies, but also to general weak market conditions in terms of the global economy, general commodity prices and the poor state of the shipping and offshore sectors. This worrying downward trend leads to an increasing mismatch between income levels and the marine insurer’s obligation to cover major losses, particularly in light of the trend for larger vessels and greater accumulation of risks in port”.

The 2016 total comprised income from the following regions:

– Europe                         50.2%

– Asia Pacific                  27.9%

– Latin America               9.5%

– North America              5.6%

– Middle East                   4.1%

– Africa                              2.7%

and the following business lines:

– Global hull                     25%

– Transport/cargo           54%

– Marine liability               7%

– Offshore/energy          13%

Cargo sector

Premium income in the cargo sector was reported as US$15bn for 2016 – a 6% reduction on the 2015 figure.

The 2015 Tianjin disaster significantly eroded the performance of the 2014 and 2015 underwriting years. The final position of 2016 is still unclear due to the impact of the loss of the Amos 6 satellite and the current issues surrounding Hurricanes Harvey and Irma.

The trend towards higher value cargoes and increasing accumulation of values in ports is likely to continue and this will impact further on loss ratios. It is also impacting on premiums which are increasingly reflecting stock exposure rather than transit exposure. Added to this, increases and changes in trade patterns as well as the general economic and political environment is causing additional uncertainty in this sector.

Hull sector
The hull sector achieved a premium income of US$7bn, a 10% reduction on the previous year. Although exchange rates may have been partly attributable for the decline, this has much less impact than in the cargo sector due to the global nature of the hull portfolio. Whilst the world fleet continues to grow, it also continues to age. The two-digit drop in values from 2015, and particularly for bulk and supply/offshore vessels, must be seen in the context of the challenging market environment. Hull premiums have deteriorated in line with falling average vessel values, and there is now a mismatch between fleet growth and income levels.

Claims frequency continues its stable/downward trend and total losses are also continuing a positive trajectory albeit with a recent fluctuation of around 0.1%. However, falling vessel values increase the probability of constructive total losses, as these incur when the cost of repair exceeds a certain percentage of the vessel’s value. In addition, the inflow of high-value vessels into the global fleet increases single-risk exposure and thus the possibility of even more costly single casualties. The occurrence (or not) of major losses in single years increasingly drives the volatility of hull results, but current income levels do not cater for the occurrence of such events.

 

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